The Supreme Court ruling on King v. Burwell will soon decide whether the Affordable Care Act permits the federal government to subsidize health insurance premiums. Those should be struck down for both legal and economic reasons—and in simple fairness to most Americans who have found it makes no economic sense to buy health insurance through federal and state exchanges.
The ACA clearly states subsidies may only be paid to individuals who qualify on the basis of income “through an Exchange established by the State.” Only 13 states have operating exchanges, and in others, individuals are compelled to enroll through the federal exchange or face fines ranging up to $695 by 2016.
Statements by ACA architect economist Jonathan Gruber indicate the Obama White House and members of congress who wrote the law intended to use access to those subsidies to leverage states to participate in the program. Hence both the black letters of the statute and legislative history argue against the legality of those payments.
When most states balked at establishing exchanges, the administration did an end run around the law by writing an IRS regulation.
The states had good economic reasons to distance themselves from the ACA, quite apart from the subsidy issue. Some 23 states have chosen not to participate in expansion of Medicare in fear of ballooning costs, and in the 27 states participating, physicians are turning away deserving mothers and children who were already eligible under the program while many able bodied men who refuse to work are getting free care.
More importantly, of the 50 million uninsured prior to ACA, only about 17 million have chosen to enroll through state and federal exchanges; the rest remain uninsured.
Simply, the four ACA mandated, standardized insurance plans are either excessively expensive—with or without subsidies—or provide coverage that is too limited.
Individuals have opted out across a wide spectrum—ranging from the self employed with solidly middle class incomes to the working poor who are eligible for premium subsidies. They have determined it pays to pay the federal fine for non-participation in the exchanges and negotiate fees directly with health care providers and hospitals, access coupon deals from drug companies, and pursue other strategies.
Many Americans can pay at least $500 a monthly for a bronze plan, which imposes deductibles as high as $13,200 for a family of four and very limited provider networks. Many families can negotiate or otherwise finagle direct payments that keep their annual expenses well under that threshold.
Moreover, the ACA’s onerous regulatory structure is driving small insurers to drop out of many markets and consolidating the industry into about five large health insurance companies. In many counties, only one or two companies offer policies. Similar pressures are driving consolidation of hospital and physician practices.
Thanks to monopolization, many purchasing health insurance on the exchanges face premium increases of more than 20 percent next year.
While 6 million Americans would lose ACA subsidies if the Supreme Court found those illegal under the law, it would end the madness and monopolization imposed by four standardized and heavily regulated insurance policies that only serve to limit competition and drive up prices for everyone.
If the congress legislated subsidies for insurance offered by providers on exchanges or operating independently, and let markets determine what coverage they offered, spirited competition, wider choice, and lower prices would emerge.
For the more than 30 million Americans without insurance, a free market would offer better choices and more would buy health insurance—the original intention of the ACA.
We don’t need state stores to sell us health insurance any more than we need state groceries.
The ACA is the poster child for government misadventures into decisions that should be left in private hands.
Peter Morici is an economist and business professor at the University of Maryland, and a national columnist. He tweets @pmorici1.