UT Experts: Health Care Ruling Will Spur Preparations by Companies



  • Affirmation of the individual mandate was a surprise, given the makeup of the Court's majority
  • States will dive into setting up insurance exchanges
  • Decision "opens the door for real progress" in health care reform

More than two years after the Affordable Care Act was signed into law by President Barack Obama, the Supreme Court — on its final day before adjourning for the summer — upheld the controversial health care reform law.

In a 5-4 vote on Thursday, June 28, the Court ruled that the so-called “individual mandate” requiring U.S. citizens to either carry insurance or pay a penalty is valid under the constitutional authority of Congress to collect taxes. With its decision, the Court “reaffirmed a fundamental principle that here in America — in the wealthiest nation on Earth — no illness or accident should lead to any family’s financial ruin,” according to President Obama in his remarks following the decision.

Although they disagreed about whether to cheer the law as a whole, several experts at the McCombs School of Business at the University of Texas at Austin largely supported the individual mandate, including Dennis Passovoy, lecturer in the Department of Management and president of benefits consulting firm RFG.

“It would have been a disaster, I believe, if the Court had struck down the individual mandate, as many thought would happen,” Passovoy said via email. “While that might have satisfied many that Washington would not be telling people what they had to buy (e.g., broccoli, as one of the Justices suggested), it also would have driven costs up even further.”

Read on for more expert opinions from McCombs on the business, political, and practical implications of the Court’s ruling.

  • Kristie Loescher, senior lecturer in the Department of Management at McCombs and an expert in health care policy and management, shared her thoughts on how the ruling will affect businesses.

We’ll start seeing a flurry of activity as states begin to set up insurance exchanges that need to be in place to have insurance options to offer the uninsured.

“If you’re talking a really small business — less than 50 employees — then they can buy insurance through the exchanges.…They can be a more competitive recruiter by offering insurance at a much more affordable rate than they ever could now. There won’t be a tax penalty for companies that small, but it will allow them to compete for [employee] talent.

“Slightly larger small businesses will be required to offer insurance to avoid the tax penalty. The insurance will be minimal however, with about a 60/40 split.

“Most employers are meeting a much higher bar than this, so the bar to meet the tax penalty won’t be very high.…[But] there is an incentive to keep your insurance competitive with the exchanges [to attract employees].…The government doesn’t want [companies] saying ‘we’re offering something, even though it’s not any good.’

“It’s very exciting because they upheld the entire law. The implementation plan will now progress so that the whole law is set to be implemented by 2014.”

  • Reuben R. McDaniel, Charles and Elizabeth Prothro Regents Chair in Health Care Management at McCombs, praised the decision and noted its likely effects on upcoming election cycles.

“I think this was a good decision. It opens the door for real progress in developing a health care system in this country that meets the needs of the citizens at a reasonable cost. Like many others, I was surprised at the specifics of the outcome, how it was arrived at, but not at the substance of the outcome.

“The big question now is how the politics of health care work out in the next five years. If Americans are truly satisfied with the system they had before, they will express that in whom they elect to hold political office over the next period. If, on the other hand, Americans want to continue to move ahead in the development of a new health care system, they will also express that in whom they elect. Both sides will, I think, make every effort to tell the story, as they see it, in a convincing way to the body politic.” 

  • Robert Prentice, the Ed and Molly Smith Centennial Professor in Business Law at McCombs, also looked toward the upcoming presidential election, speculating about how the decision will figure into messaging by each candidate.

“The decision’s political implications are unclear. Romney no doubt would have loved to have crowed that the centerpiece of Obama’s entire first term had been strangled in its crib. However, had the Court overturned the ACA, Obama could have complained loudly of the partisan conservatives on the Court who first announced Citizen United and then brazenly overturned the people’s will by gutting the ACA. He could have energized his base. As it is, Romney will likely be the candidate who can get the most political mileage out of the decision with his base.”

Prentice also noted some of the political challenges in designing and passing the law, which he deems a “deeply flawed compromise.”

“The many existing problems coupled with the typical political disagreements led to enactment of a deeply flawed compromise law that may or may not ever be able to produce health care improvements. But the question before the Supreme Court was not the law’s efficacy but its constitutionality — most particularly (but not solely) that of the individual mandate. 

“The irony has been all along that Congress could have actually socialized medicine by patterning our entire healthcare system after Medicaid. Even the dissenters seem to admit that such a law would be obviously constitutional under the Commerce Clause. Only because the ACA does not go that far and tries to preserve elements of the current free enterprise system did it run into trouble.”

  • Frank Cross, a professor in the University of Texas at Austin School of Law and Department of Business, Government and Society at McCombs, and an expert on business law and constitutional theory, pointed out the unexpected majority behind the opinion, including Chief Justice John Roberts.

“It’s a result nobody expected, but it’s interesting — it says something interesting about Chief Justice Roberts. He produced a decision that’s politically liberal, but with language that’s legally conservative.… He basically said that the government couldn’t [implement the individual mandate] under the commerce clause; that’s the conservative position.

“Everybody knew if this was a tax, it’s constitutional. Nobody said it’s a tax, the government didn’t say it’s a tax. At the desperate end they did, but going along [they didn’t say that].

“The main thing that stands out is the division of the justices. Everybody assumed that the liberals had to get Kennedy, and they didn’t. They won by getting Roberts. I thought they might get Roberts, but I didn’t think they get Roberts without Kennedy, and nobody else did either.”

  • Passovoy acknowledged that the Court’s ruling is a step in the right direction, but expressed frustration with the gridlock and rising costs that seem to accompany health care reform and reality.

“[The ruling] means that more people will receive the health care they deserve, and at a price that is at least as inexpensive as today’s system allows,” he said. “But, am I happy about the rising cost we have to pay? ABSOLUTELY NOT! I have long said that our system is so messed up that the only way to fix it is to completely start over,” a scenario he acknowledged is unlikely.

“Every part of the system is flawed,” he said, calling out an overabundance of regulations, the litigious nature of American society, overcautious providers who may not be administering the best treatment given the current climate, and the cost to bring new drugs to market, among other challenges. “The system doesn’t work — especially for a population of 350 million people, and rising.

“I just hope that someday soon our elected officials can stop playing politics and bickering with each other and actually figure out what’s best for our people and maybe begin to fix this horribly broken system.”

  • Helen Schneider is a Lecturer in the College of Liberal Arts, Department of Economics. Based on her expertise in health economics, she says ACA reform won't lead to lower costs, though it will likely be more good than bad for small businesses.  

The cost of health care is not likely to go down. ACA reform is similar to 1994 LAMal reform in Switzerland, which brought universal coverage. LAMal is also based on private insurance, hence high health insurance premiums. ACA may lead to a one-time decrease in premiums, but it will not slow down the rate of health care spending in the U.S.  It is also unclear whether the decrease in Medicare reimbursements will survive. 

Small businesses will have to offer health coverage or face penalties. However, oveall the individual mandate will make health insurance more affordable for small businesses by solving the adverse selection problem that existed when healthier individuals had the option to opt out of the health insurance market. The mandate, coupled with community rating and state health insurance exchanges, will bring healthy people into the insurance pool and decrease health care premiums; this is what we saw in Massachusetts.


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Faculty in this Article

Dennis Passovoy

Lecturer, Department of Management McCombs School of Business, The University of Texas at Austin

Dennis Passovoy received his B.A. from the University of California, Los Angeles and his M.A. from the University of California, Los Angeles. His...

Frank Cross

Professor, Department of Business, Government and Society McCombs School of Business, The University of Texas at Austin

Frank Cross received his B.A. from the University of Kansas and his J.D. from Harvard Law School. His research and teaching interests include the...

Kristie J. Loescher

Senior Lecturer McCombs School of Business

Kristie Loescher teaches management, leadership, and business communications. She has a Ph.D. in business administration from Nova Southeastern...

Reuben McDaniel, Jr.

Charles and Elizabeth Prothro Regents Chair in Health Care Management McCombs School of Business

Reuben McDaniel, professor in the Department of Information, Risk, and...

Robert Prentice

Professor, Business Law

Robert A. Prentice is chair of the Department of Business, Government and...

Sandy Leeds

Distinguished Senior Lecturer, Department of Finance McCombs School of Business, The University of Texas at Austin

Sandy Leeds, CFA is a Distinguished Senior Lecturer at The University of Texas at Austin. He teaches graduate level classes in the MBA program and...

About The Author

Jeremy Simon

Writer, McCombs School of Business

As a writer for Texas Enterprise, Jeremy covers business-related research and news from the University of Texas at Austin. In addition, he manages...


#1 Why is it difficult to insure

Why is it difficult to insure 100% of the population? Because "insurance" is a bad operating model for health care; insurance is using a shared risk pool, based on a statistical analysis of the likelihood of an occurrence. When that likelihood is 100% for all participants, the system doesn't work. Maybe if you separate out routine and non-emergency care, and only insure catastrophic and long term (ie cancer) issues, shared risk works. Think about it another way, if you didn't have to buy auto insurance until you had an accident (ie pre-existing condition), who would ever pay for it up front? We have a bad system, and this law does nothing to make it better.

#2 I have been living for over

I have been living for over 12 years in the US. I still don't get the healthcare debate and the limited choices presented to Americans by either political party. Nobody in Europe, whether conservative, liberal, or libertarian would ever dream of the US system, i.e., propose that less than 100% of people should be insured while (non-profit and for profit) health insurance companies and executives are allowed to make millions of profits through limited risk pools / cherry picking. Why is it that difficult to insure close to 100% of the population (something the new law will apparently not achieve), de-link health insurance once and for all from employment (a anachronism that prevents job mobility), and have something what the Swiss or some other European countries have - a mandatory, private (or at least semi-private) system where nobody can be denied insurance based on existing conditions, but health plans vary in terms of coverage (from major medical to Cadillac plans)? The US put the man on the moon, it can't be that difficult to get healthcare right.

#3 Interesting. I appreciate

Interesting. I appreciate the optimism of the several contributors. I am not so optimisitic. To my mind, a plan that does not address the rising cost of care is just another payment system. Costs will continue to rise ( up to 3x's the overall rate of inflation) and the taxpayers will be on the hook. Only when the voters are more powerful than the AMA, PhRMA, BIO, AIA, and all the the other industry groups entrenched in the current system will honest change occur. However, the lobbyists for these groups represent a huge chunk of the American workforce/taxpayers/voters and their dependents. Seems like a "catch-22" doesn't it? Additional comment - it is logical that preventive care = better health = lower health costs. Also, it is logical that early diagnosis = better outcomes & lower health care costs. Estimates are fun, but hard dollar savings guarantees are "hard" to come by! Further, the availability of preventive care coverage and access to care does not directly correlate to people actually going to the doctor to receive care. Most people don't like to pay taxes, go swimsuit shopping or go to the doctor or dentist.

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