How the Supreme Court Doomed the ACA to Failure

Abstract:     
In 2012, the U.S. Supreme Court ruled that the Affordable Care Act’s health insurance mandate is constitutional because its penalty for non-insurance is a de facto tax. This article argues that the ruling may have preserved the ACA legally, but it likely doomed the law economically. Legal and legislative limits on the tax, coupled with the ACA’s prohibition on health insurers discriminating against preexisting conditions, results in a perverse incentive for non-low-income households to forgo insurance coverage until they face a high-cost medical problem, and then drop the insurance once the problem has been resolved. This perverse incentive extends to many employers, who would be financially better off to pay the tax and increase employee pay, rather than provide health insurance. As a result, insurance costs will likely soar while many people will go uncovered.

Number of Pages in PDF File: 8

Keywords: Obamacare, Affordable Care Act, Supreme Court ruling, U.S. Constitution, Insurance Costs, Tax, Health Insurance

JEL Classification: H10, I11, I13, I18

Accepted Paper Series