Wharton's Mark Pauly and Robert Field discuss what lies ahead for the Affordable Care Act following a ruling against it by a Texas judge.

A recent ruling by a federal judge in Texas that struck down the Affordable Care Act (ACA) in its entirety paves the way for a more comprehensive look at the issue and perhaps also provide another opportunity to fix its flaws, according to Wharton experts.

Last week, Judge Reed O’Connor from the federal district court in Fort Worth ruled that the ACA’s ‘individual mandate’ — requiring most American citizens and legal residents to have health insurance or pay a penalty — was “unconstitutional” and the rest of the Act cannot stand without it, according to The New York Times. Back in 2012, in a landmark case on the ACA, the Supreme Court ruled that the mandate is constitutional because Congress has the power to levy new taxes. Since then, the Trump tax overhaul reduced the penalty to zero. Twenty states sued, arguing that without a monetary penalty, the individual mandate was now unconstitutional.

“On the legal side, most analysts are just mystified by [the ruling]” and it seems “extremely contorted,” said Robert Field, Wharton lecturer in health care management who is also professor of health management and policy at Drexel University. If the same logic that was used in the 2012 Supreme Court ruling was applied to the Texas case, he said, the ACA as a law should stand and could be disconnected from the individual mandate provision.

Mark Pauly, Wharton professor of health care management, described the Texas ruling as “regrettable.” At the same time, it could be another opportunity to revisit the ACA. “This is a chance to open a conversation which we’ve been trying to have … about how to actually fix some of the flaws in the Affordable Care Act. But whether that will happen or not depends on how credible this threat gets to be over time.”

But Field said he was “pessimistic about this being an occasion to fix the law.” He noted that the Republicans attempted to revise the ACA in 2017 but failed because the various proposals floated would have caused at least 10 million people to lose health care coverage. Pauly and Field discussed the takeaways from the Texas ruling on the ACA on the Knowledge at Wharton radio show on SiriusXM. (Listen to the podcast at the top of this page.)

“This is a chance to open a conversation which we’ve been trying to have … about how to actually fix some of the flaws in the Affordable Care Act.” –Mark Pauly

Fixing the ACA

One flaw of the ACA is in its community rating feature, because it offers the same premium to everybody in a community regardless of their risk level. “It discourages low-risk [people] from buying insurance,” Pauly said. “That’s not a good thing … because they’re not as immortal as they think.”

People working in the “gig economy” – those with short-term work contracts or freelancers — who tend to be young and healthy ended up paying higher premiums to cross-subsidize high-risk people, according to the Republican argument against the individual mandate. “Somebody’s got to pay the difference, because [high-risk folks are] money losers for insurers,” Pauly said.

But these younger and healthier people who resisted the individual mandate don’t see the full picture. “What many of them may not realize is that if the ACA went away, that individual coverage might not be any cheaper,” Field said. “Before the ACA, individual coverage was expensive, hard to get, and insurers didn’t like providing it. So [the elimination of the ACA] wouldn’t necessarily benefit them.”

To provide all Americans with affordable, quality health insurance, Pauly said he would support proposals like work requirements for those who get insurance and empowering states to change community rating rules so that people with lower health risks pay smaller premiums than high-risk populations.

 Impact on Insurers

These changes could roil the insurance market. “Insurers are willing to do anything if you’ll pay them for it and guarantee that payment,” Pauly said. “They like stability and things seemed to have settled down, although I think the removal of the [individual mandate] penalty potentially is destabilizing.”

New rules that encourage people to abandon community-rated coverage and buy the so-called short-term coverages that can last for three years are also potentially disruptive, Pauly noted. Now, the insurance industry might have to pivot again. “Just as everybody was breathing a sigh of relief, you get this judge and this decision, and now we’re all breathing heavily again.”

It will be interesting to see how the health insurance market reacts in 2019, the first year without the individual mandate penalty, said Field. The experience of the past year has belied fears that insurers would be hurt if people with low health risks do not buy health insurance. “There was a fear [insurers] would get spooked and say, ‘The low-risks don’t have to buy in. We can’t spread the risks, and this is going to be a disaster,’” he said.

However, those fears have not played out. Insurers are “not only still in the market, but new insurers are entering. In fact, prices have stabilized and even gone down in many markets,” Field said. “If it continues to work out, then it may be that we don’t need the mandate – the most unpopular part” of the ACA.

With the individual mandate essentially neutralized, “the pressure points for building public opposition are dissipating. It is possible that the vehemence of the opposition will begin to fade and then maybe we can get to the job of just making it work,” Field said.

ACA’s Scorecard

Field noted that the ACA in its breadth has brought many gains: provisions for generic versions of biotechnology drugs; “accountable care organizations” that encourage hospitals and doctors to band together to form networks and make care more efficient; no-cost preventive treatments; breast-feeding stations at work; calorie counts on restaurant menus; allowing young people to stay on their parents policies until age 26; and closing the Medicare ‘doughnut hole,’ or the gap in prescription drug coverage. About 10 million to 15 million Americans have benefited from these provisions by buying insurance in the exchange marketplace, and the ACA buffeted another 15 million to 20 million people on Medicaid, he added.

“What many of them may not realize is that if the ACA went away, that individual coverage might not be any cheaper.” –Robert Field

Pauly agreed with Field that the ACA provisions brought relief to vulnerable Americans, even as he pointed out troublesome aspects such as caps on Medicare payments. He noted that the 10 million to 15 million people Field referred to make up only about 3% of the total U.S. population, and suggested another approach. “That is quite trivial relative to the total size of the population. Why don’t we just pay for them? What’s the big deal? It’s a rounding error in the estimates of total national health expenditures.”

Next Course of Action

A challenge to the latest ruling will head to the U.S. Court of Appeals for the Fifth Circuit, which covers Texas. Field sees two possible scenarios. “On the one hand, it’s a conservative court, so they might tend to support the ruling. On the other hand, the ruling is so convoluted and so extensive – well beyond where it had to go – that there’s a good chance they would strike it down or at least limit it.”

Field predicted that if the Texas ruling is struck down and the ACA stays in place, the Republican attorneys-general will appeal, and “in all likelihood the Supreme Court won’t take the case.” But if it is upheld in whole or in part, then the Democratic attorneys-general will appeal “and the Supreme Court will have another show on its hands.”

In Field’s estimation, “there’s better than a 50% chance that [Chief] Justice Roberts will be back in his corner trying to figure out what to do” about the Texas ruling. Added Pauly: “No good deed goes unpunished, even for a Supreme Court justice.”