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Obamacare: What the Supreme Court Ruling Means for You

This article is from our friends at LearnVest, a leading site for women and their money.

Last week, the Supreme Court ruled 5-4 that Obama’s Affordable Care Act is constitutional.

This Supreme Court decision is historic in that it will affect almost every single American in some way, from premium prices, to what procedures are covered, to the 30 million uninsured Americans who will now be eligible for healthcare.

Seven presidents have tried to pass legislation to mend our broken healthcare system (and it definitely could be better, as this personal story demonstrates). In fact, rumblings about overhauling the system started back in 1912, but the only huge change initiated by the U.S. government has been the creation of Medicare and Medicaid by Lyndon B. Johnson in 1965.

Now, the Affordable Care Act (ACA) and the Supreme Court’s decision promises to change everything.

Why the Affordable Care Act is Constitutional

Opponents of the healthcare law don’t like it for many reasons, but the main objection that came before the court was to the individual mandate, the part of the law stating that everyone has to have some sort of health insurance. If you don’t, you’ll get hit with a tax.

According to the argument against the ACA, the government’s attempt to force people to buy a product is a violation of the Commerce Clause of the constitution. What’s next? Forcing Americans to buy broccoli? But the Supreme Court decided that the government wasn’t forcing Americans to buy insurance. It’s just levying a tax on people who choose not to.

Chief Justice Roberts, a conservative judge, joined the four liberal judges in ruling the law constitutional and wrote in the majority opinion, “The Affordable Care Act’s requirement that certain individuals pay a financial penalty for not obtaining health insurance may reasonably be characterized as a tax. Because the Constitution permits such a tax, it is not our role to forbid it, or to pass upon its wisdom or fairness.”

To translate: “Is this law a good idea? We don’t know. But it sure is constitutional. Carry on.”

… Except for Medicaid

The Supreme Court did limit one portion of the ACA: The federal government cannot yank existing Medicaid funds from states who refuse to comply with an expansion of Medicaid.

In the original law, if a state refused to comply with the federal government’s order to expand Medicaid to cover all households living around the poverty level, it would have lost all its Medicaid funding.

The Court ruled that the government can offer more funds to states so that they can expand their coverage of Medicaid, and can make those funds contingent on whether or not the states actually use them for their intended purpose. However, the federal government cannot take away the funds that are already being sent to cover Medicaid in its current form.

Because states rely so heavily on Medicaid funds, the law as it was written would have effectively left states with no choice but to expand their Medicaid programs. This was seen as coercion by the federal government, and the Supreme Court struck it down as unconstitutional.

How You’ll Be Affected

We break down the changes that affect just women in this post, but here’s what else will likely happen in the next couple years as a result of this decision:

If You Already Have Health Insurance

Requiring every person to purchase insurance is meant to spread the cost of insurance over the entire population, which should keep premiums low. If predictions are correct, overall premiums could drop anywhere from 10-27%. That’s good news for you and/or the employer that insures you.

If You Are Older or in Poor Health

Starting in 2014, the ACA will prevent insurance companies from turning down applicants who have pre-existing conditions. Insurance companies also will not be able to charge higher premiums because of your age or health. That means if you lose your current health insurance and already suffer from a chronic illness like diabetes, you won’t have much trouble picking up new health insurance, and won’t face inflated premiums.

If You’re Young-ish and Healthy

The above provision is great for older people and those with health issues, but not so great for the young and healthy—at least right now. Young people will pay more than they otherwise would, and old people will pay less. As you get older you might come to appreciate this, but right now it would probably be an unwelcome shock to your budget (especially since younger people tend to make less).

If You’re Under 26

Then again, if you’re younger than 26, the law would help you. One part of the law that is already in effect allows children to stay on their parents’ health care plans up until they turn 26. Right now you can only stay on your parents’ plan if you do not have an option through your employer, but starting in 2014 you can choose between your parents’ and your employer’s plan.

If You Don’t Want to Participate

Many Americans won’t be hugely affected by the individual mandate. That’s because most Americans already receive public health insurance or private employer-based insurance. The remaining Americans who lack health insurance would either receive subsidies to buy private insurance or be eligible for government programs such as Medicaid. (Some lower-income Americans whose incomes don’t qualify them for Medicaid or for subsidies will be exempt from having to buy health insurance.)

Unless you are exempt, if you choose not to buy a private plan, you will pay a tax penalty. In 2014, that penalty will be $95, or 1% of income; in 2015, $325, or 2% of income; and in 2016, $695, or 2.5% of income. Further increases after 2016 will be tied to inflation. For comparison, these sums are much less than healthcare premiums typically cost.

If You Make Below a Certain Income

If your income is too high to qualify for Medicaid but less than four times the federally defined poverty level (four times the poverty level for a family of four works out to $92,200), you will qualify for federal subsidies to buy your own healthcare, so that the premiums don’t take up more than 9.5% of your income.

If You Don’t Qualify for Medicaid but Wish You Did

Some states that will probably refuse the option Medicaid funds, based on which states challenged the Medicaid provision in a lawsuit, include Alabama, Alaska, Arizona, Colorado, Florida, Georgia, Idaho, Indiana, Iowa, Louisiana, Michigan, Mississippi, Nebraska, Nevada, North Dakota, Pennsylvania, South Carolina, South Dakota, Texas, Utah, Washington, Ohio, Kansas, Wisconsin, and Wyoming.

If you live in one of these states, probably nothing will change for you—whether you currently qualify for Medicaid or not. But if you live in a state that decides to take federal funds to expand Medicaid and you don’t currently qualify for Medicaid and live around the poverty level, you might qualify starting in 2014. If all states expand coverage, an estimated 16 million Americans would be newly covered.

What it Means for the Country

In trying to predict whether the healthcare law will have a positive or negative overall effect on the well-being of Americans and the healthcare spending of states, it’s helpful to look at two states that have instituted portions of the law:

The Individual Mandate

Massachusetts pioneered the idea of an individual mandate in 2006, requiring that residents buy health insurance or be taxed. The results?

98% of state residents are insured now, a 10% rise from the previous three-year average.

The cost to Massachusetts of state-subsidized coverage has grown less than 3%.

More businesses are offering health coverage, instead of dropping it to let workers sign up with the state.

It looks like the individual mandate in Massachusetts turned out to be a success.

Expanded Medicaid Coverage

While states can decide to refuse federal funds to expand coverage, those who do accept might see a situation similar to Oregon’s, which expanded coverage to tens of thousands of residents living in poverty via a lottery. The results, as reported by The New York Times:

Contrary to the hopes of people who said preventive care would lower healthcare costs overall, newly insured Oregonians spent 25% more on healthcare a year than those who didn’t have insurance, and those costs were paid for by the government.

The newly insured reaped enormous benefit financially. They were 25% less likely to have a medical bill go into collections and 40% less likely to borrow money or skip paying other bills to pay for medical costs. They were also more likely than the uninsured to say they were in good health and getting healthier—and even, that that they were happier.

Overall it looks like states will end up paying more in healthcare costs, but the financial benefits to Americans could be enormous. States will have to decide if it’s worth it.