The media were shocked and bedazzled by a victory at the Supreme Court earlier this week when its unexpected 5-4 decision breathed new life into the Affordable Care Act, aka Obamacare. You know what I have to say about that: another story. To recap, the court found that President Obama’s health care reform act does not include a mandate that employers with 50 or more full-time employees provide health insurance for them. The court concluded that a so-called “mandate” is a government overreach, thus invalidating the law’s “essential” economic requirements for employers.
Contrary to all the hyperbole that peppered the comment section of most articles about the decision, here’s a realistic take on how the decision could actually play out. (As always, if you think that’s a doomsday scenario, then your views have gotten even worse.) First, the Supreme Court did not strike down all of the law. The ruling just decided that the mandate to offer health insurance wasn’t necessary to operate in the ACA’s “real world.” Here’s a pragmatic description of what is probably going to happen:
The decision affirms Obamacare, but does nothing to alter its implementation, as it won’t affect implementation of the provision requiring health insurance for more than one million individuals. If anything, the ruling will further flog the notion that the ACA is not a viable long-term solution. Implementing the law will be a time consuming mess as corporations that are already confused about the law will remain as clueless as ever, and the media will continue to incorrectly characterize the situation.
The section that the Supreme Court struck down dealt with coverage for large businesses, many of which consist of small businesses. This section was intended to allow businesses of any size to provide health insurance. But for reasons I won’t go into here, this provision has become problematic, especially for smaller businesses. Because smaller businesses are often better able to tailor their coverage for their employees, they generally choose to provide health insurance that best fits their business rather than providing it to their workers, something known as “covidmandate.” In other words, larger businesses are exempt from the provision because their low-wage employees work under the age of 26, but small businesses aren’t able to comply because the law doesn’t recognize the health care needs of lower-wage workers, and that means they are likely not to provide health insurance, which simply isn’t profitable for them.
There is precedent to the idea that smaller businesses will lose ground under the ACA’s coverage requirements, but here’s another issue: The ACA also includes other rules such as a requirement that employers provide a range of items, such as maternity, to their workers. So if a small business finds it to be financially impractical to offer health insurance and choose only to provide maternity benefits, they may still be penalized by the ACA by being required to offer other benefits that are not covered by insurance. This is known as an “adverse selection penalty,” and it has to do with the Obamacare requirement that employers offer a range of goods and services to their workers (and not just one or two items, like health insurance). If you offer healthy people maternity benefits, you might not have enough money to subsidize sick people who get sick.
Small business owners have expressed concern about the adverse selection provision. In their 2014 comments to the government, the Small Business Majority said that “taxing small firms when they cover the sick is nothing short of a form of economic malpractice and we are glad that this provision was reinstated. However, this much is clear: Deregulating sick incentives for employers and ignoring malpractice laws will not cure the systemic problems of the ACA. To fix that, it is necessary to address the problems of employer coverage, the heavy hand of the federal government and the hidden costs of the ACA.” The group emphasized that provisions designed to support small businesses weren’t being included in the legislation.