For most Germans, the discussions pertaining to the hearings on the Affordable Care Act (ACA) in the Supreme Court of the United States from March 26 to March 28 seem incomprehensible. Universal coverage in health care, or at least near universal coverage, is so woven into the fabric of the German welfare state that legal discussions on the permissibility of such issues seem outlandish. But in actuality, the cases dealt with at the Supreme Court have less to do with the coverage decision as they do with the relationship of the federal level and the states. Since Germany, too, is a federal state, the issues at stake in this case should actually be quite understandable to Germans.
It is important to recognize that none of the challenges to the ACA are based on the claim that the law is unconstitutional as infringing on personal freedom. No one is challenging the right of states to introduce an individual mandate—and, as a matter of fact, Massachusetts has had one since 2007. All states have mandates for car insurance (but then again, you can choose not to have a car). All Americans are mandated to pay Social Security taxes for, among other things, Medicare coverage from age 65 onward. Rather, the challenges are based on the question of whether it is within the constitutional powers of Congress to legislate for a minimum coverage requirement and how far Congress can compel the states to carry out its coverage expansion. But before delving into the legal minutiae of the case, we should have look at the ACA itself.
The Affordable Care Act
The ACA is an extremely voluminous law. That refers not only to the length of the document (2,700 pages), but also to the scope of provisions it contains. The main thrust is the expansion of coverage, with the aim of providing affordable health care for every American. However, it also provides for measures to control future cost increases (“bending the cost curve”), for new incentives and programmes for prevention and the improvement of public health systems, for increases in the number and improvement in the quality of health professionals, for the production and sale of generic-like biologic pharmaceuticals, for improvements in nursing home quality, etc.
Despite this wide array of provisions, it is, without a doubt, coverage expansion that lies at the heart of ACA. With this provision, Congress reacted to the grave problem of uninsured Americans. At the outset of the law’s creation, about 47 million Americans lacked health coverage. According to official estimates, without reform, the number is set to rise to between 54 and 61 million in 2019. This widespread uninsured problem affects the whole market. Hospital emergency rooms and community centres are legally obliged to treat all patients, without regard to ability-to-pay. On official estimates, 37 percent of the health care costs for the uninsured were not compensated. Therefore, insurance providers end up passing these costs on to paying patients. Congress found that this cost-shifting increases the average premium for insured families by more than $1,000 per year. But, it may also impede the general economy. For fear of losing their coverage, people may avoid switching jobs or pursuing entrepreneurial opportunities.
The ACA tries to address these problems with a massive expansion of coverage. About half of this expansion will happen through increasing private health insurance. The other half will come through the expansion of public programmes—mainly Medicaid, the cooperative federal-state programme that funds medical care for individuals in need. For those with income below 138 percent of the federal poverty level, coverage will result from Medicaid expansion. The federal government will initially cover all costs of this expansion, gradually decreasing to 90 percent in 2020.
Those not covered by expanded Medicaid, Medicare, or employer-sponsored health insurance must turn to the individual health insurance market. Today, many face difficulties finding affordable insurance on this market. Preclusion of pre-existing conditions, caps on benefits, and pricing according to health status mean that many are not able to receive coverage, or can only do so at prohibitive prices. The ACA puts an end to these discriminatory practices and creates health exchanges to facilitate choice.
However, these regulations create a new problem: If an individual knows he can get health insurance at any time at an affordable price, why buy it now? Why not wait until you are sick, and save the premiums in the mean time? In this way, health insurance will not work, since insurance by definition has to establish a risk pool between healthy and sick. This problem is not only theoretical. States that regulated their health insurance with guaranteed issue and community rating saw this “adverse selection” happening: the healthy leaving the risk pool, thus driving up the premiums, thereby inducing more healthy individuals to leave, etc. Massachusetts solved this problem by introducing an individual mandate, i.e., requiring all individuals to buy health insurance coverage. The ACA drew from this experience and includes an individual mandate in the form of a minimum coverage requirement.