Supreme Court Upholds Mandate, Penalty

By Steven A. Morelli

Full coverage at

In a surprise move, the Supreme Court upheld the individual mandate by a 5-4 vote released this morning, relieving insurance companies of what would have been a heavy burden under the 2010 health care reform law, the Affordable Care Act.

Chief Justice John Roberts in writing the opinion chose the argument that the penalty is a tax that is within the power of the Congress to enact.

"Neither the Affordable Care Act nor any other law attaches negative legal consequences to not buying health insurance, beyond requiring a payment to the IRS. Congress’s choice of language — stating that individuals 'shall' obtain insurance or pay a 'penalty' — does not require reading §5000A as punishing unlawful conduct," Roberts wrote.

Insurers have insisted on the mandate in exchange for universal coverage regardless of pre-existing conditions. Without requiring everyone to buy coverage or pay a penalty, the young and healthy would be more likely to drop out of the risk pool, leaving the oldest and sickest that carriers had to cover. The health insurance association, America's Health Insurance Plans, helped negotiate that deal but is not completely satiisfied with ACA, saying its restrictions will raise rates.

The mandate starts in 2014, requiring everyone to have “minimum essential coverage” or face a penalty that phases in between 2014 and ’16. Several groups are exempted, mostly for religious, cultural or economic reasons.

Roberts wrote that that penalty, or tax, is not so high that it compells individuals to buy health insurance, which was a central argument against the mandate and penalty, that it forced people to buy something. "The payment is not so high that there is really no choice but to buy health insurance; the payment is not limited to willful violations, as penalties for unlawful acts often are; and the payment is collected solely by the IRS through the normal means of taxation," Roberts wrote.

In fact, this is an argument made by some that the penalty is not tough enough, allowing people to slip out of the risk pool. But if the penalty were higher, apparently that would have run afoul of Roberts' reasoning.

The individual mandate has become a political lightning rod, especially in the run-up to the presidential election, even though the mandate was initially a conservative concept. Since the law was passed the requirement has become extremely unpopular, with polls showing a significant majority of Americans opposing the mandate even though they tended to like the rest of ACA.

The tax argument was not a central point made by the Obama administration and ACA crafters because they had strayed away from calling the penalty a tax. The structure was patterned largely on the Massachusetts law, which is the only state with a mandate and penalty.

Without the mandate and penalty the insurance risk pool would have become less unpredictable and premiums would have risen steeply, according to advocates of the mandate. Premiums would have grown so high that few could afford them, leading carriers into a death spiral, according to some predictions.

But others argued that a minimum of people would stayed out of the pool, about 10 percent of the population, according to the more cool-headed estimates. They argued that the mandate is not the ACA’s linchpin and that its loss would have been a difficulty rather than a dealbreaker.

Key players have been proceeding with the ACA even as the Supreme Court was deciding a group of cases. State regulators, for example, have been trying to figure out how health insurance exchanges will work, with National Association of Insurance Commissioners (NAIC) subgroups meeting even this week to work out details.

Roberts surprised observers by becoming the swing vote and siding with the more liberal justices, while the usual swing vote, Justice Anthony Kennedy sided with the more conservative justices. The minority opinion saw the entire law as "invalid in its entirety," according to reports.

The decision did restrict federal power to coerce states to accept Medicaid expansion.

Read the Supreme Court opinion here.

The health insurers' association, America's Health Insurance Plans (AHIP), says the law's other provisions will raise the cost of coverage..

The health insurance agents' association, the National Association of Health Underwriters (NAHU), says members are now turning to helping clients transition to the new regulations.

Steven A. Morelli is editor-in-chief for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers, magazines and insurance periodicals. He was also vice president of communications for an insurance agents’ association. Steve can be reached at [email protected].

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