Health care: What the Supreme Court's ruling means for US consumers

The US Supreme Court's decision on health-care reform Thursday opens the door to a major expansion of health insurance, affecting households across America.

Millions of people who currently lack health insurance are now on track to get it, as core provisions of President Obama's reforms go into effect in 2014.

However, while the word "affordable" is prominent in the title of Mr. Obama's reform law, the court's ruling leaves rising medical costs as an unresolved issue of public concern. Though the ruling clears the way for the 2010 Patient Protection and Affordable Care Act to influence costs in a variety of ways, the law won't fully resolve the problem, say policy experts.

That hints at another important fact: The court's ruling also doesn't codify the Affordable Care Act (ACA) in stone. Politicians of both parties are bound to seek changes to the law, with Republicans on the campaign trail pledging a "repeal and replace" approach. Where supporters say reforms of broad scope are needed, critics say it's a case of misguided federal intrusion in the affairs of individuals and states.

Looking at the law as it stands, after Thursday's court ruling, here's an overview of how it is poised to affect families and individuals:

Expansion of insurance coverage

The law's major goal is to expand access to health insurance by making more people eligible for Medicaid (those with incomes up to 1.33 times the poverty level), and by offering generous subsidies to help families pay for insurance.

One estimate, published by the nonpartisan Congressional Budget Office, projects that by 2020 some 32 million Americans who would be uninsured without the law will have coverage.

Those gains would include about 17 million people added to Medicaid, and 22 million who are expected to buy insurance on their own from private firms – on "exchanges" set up at the state level. (The gains would be offset somewhat by a projected decline in the number of people covered by employer-sponsored health plans.)

Although it didn't strike down the law's Medicaid expansion, the Supreme Court held that states cannot be coerced into participating. Thus, depending on state-level choices, the Medicaid expansion may reach many fewer than 17 million people.

"Individual mandate"

A highly controversial element of the law is the mandate that individuals carry insurance or pay a fine. This provision was at the center of the Supreme Court's legal review. Although the court said this provision was not constitutional as a federal regulation of interstate commerce, a 5-to-4 majority of the justices found it to be constitutional under Congress's power of taxation.

Who is affected by the mandate? In practice, most Americans already have health insurance, such as from their employer or from a government program like Medicaid. The mandate does affect the millions of people who don't have insurance, with some important exceptions: Some people, such as Amish households, will be able to claim a religious exemption, while others won't be affected because they are in prison or are undocumented immigrants.

One large group of Americans will be exempt because of their income. The law won't ask people to buy insurance if it will cost more than 8 percent of their earnings. Subsidies will keep many families below this "unaffordable" level, but the federal aid is phased out as household income rises. A family of four with $60,000 in income might be eligible for a federal subsidy under the ACA to buy insurance, and yet be exempt from the individual mandate.

High-earning Americans will be subject to the mandate, because the insurance costs will amount to less than 8 percent of their income.

Fines for the uninsured

If you are subject to the mandate and don't buy insurance, fines will be assessed through the tax code. By 2016, after two years of the mandate, the fines will be either $695 per person (up to $2,085 per family) or 2.5 percent of income, whichever is larger. (The fines are set at lower levels for the first two years. For example, in 2014 it's $95 per person or 1 percent of income.)

Subsidies for those buying insurance

If you need to shop for yourself, the ACA will offer subsidies of two kinds. First, premium credits will help households with incomes of four times the poverty level or less. The second main subsidy would reduce the amount of medical copayments owed by insured individuals or families.

A "health reform subsidy calculator" from the Kaiser Family Foundation can help you chart the likely impact. As noted above, the subsidies phase out as incomes rise. And for low-income households, remember that the court ruling leaves it unclear whether all states will join in the law's expansion of Medicaid. So many people with incomes below 1.33 times the poverty level may be forced to look toward the subsidies, rather than toward Medicaid, to gain coverage.

Health-care costs

The ACA seeks to make health care more affordable in a host of ways.

One core strategy is essentially a grand bargain between the government and the health insurance industry. The industry agrees to insure more people, regardless of their health condition. But in return, the individual mandate guarantees that many of the newly insured will be young and healthy – people who might not buy coverage if such a purchase were not mandated. The premiums they pay into the system will help subsidize the cost of people who use more medical care.

The law also seeks to squeeze new savings out of the Medicare program for seniors. It gives consumers rebates if their insurer spends more than an allowed amount on administrative overhead. And it includes other vehicles including various pilot projects designed to "bend the curve" of cost growth downward.

A "community rating" feature of the ACA means that when families shop for insurance on an exchange, older people can't be charged more than three times what a young person pays. Obama, in remarks praising the court's ruling, added that insurers "won’t be able to charge you more just because you’re a woman."

But even fans of the law, who are optimistic that the law may tame medical costs more than it fuels them, don't see the ACA as a full fix to the problem. And insurance would still cost more for individual shoppers than for large employers covering their workers.

Employer-based coverage

The law coaxes employers to maintain or expand insurance for their workers – with fines of about $2,000 per worker for firms that don't offer coverage and that have more than 50 employees. The law also offers tax credits to help small employers to offer insurance.

But one unanswered question is how many employers would cease to offer coverage, paying the fine instead. Republican presidential candidate Mitt Romney, commenting on the court ruling, warned that up to 20 million people may "lose the insurance they want" under the ACA. He also cited one survey in which businesses said the law "makes it less likely for them to hire people."

Obama, by contrast, responded to the court ruling by saying that "if you’re one of the more than 250 million Americans who already have health insurance, you will keep your health insurance – this law will only make it more secure and more affordable."

The law also imposes a steep tax, starting in 2018, on firms offering expensive "Cadillac" health plans, in a bid to discourage escalation of health costs. The law defines these as plans with premiums of $10,200 or higher for an individual, $27,500 for a family, indexed to inflation.

Insurance for children

The law provides that children can be covered as dependents up to age 26 in all individual and group policies. That provision, already in effect, is helping several million Americans, Obama says.

Security of coverage

One of the ACA provisions that garners the strongest support, in public opinion polls, is the requirement that insurers must be willing to take all comers. This "guaranteed issue" of insurance means that firms can't deny coverage, or drop it, because of someone's medical condition.

The law also prohibits individual and group health plans from putting a lifetime cap on their coverage for an individual.

Personal taxes

One way the ACA pays for its expansion of coverage is by imposing a range of tax hikes. Some are on businesses (everything from pharmaceutical suppliers to tanning salons), but many fall on individuals. Major ones include a 0.9 percent hike in the Medicare payroll tax for households earning over $250,000, and a 3.8 percent tax on investment income for higher-earning households.

The law also sets a new limit for contributions to a flexible spending accounts used for medical purposes ($2,500 per year as of 2013, adjusted annually by the cost of living). And it ratchets down a tax deduction on unreimbursed medical expenses. For someone to claim the deduction, the expenses must exceed 10 percent of that individual's adjusted gross income, as of 2013, up from 7.5 percent currently.

And wait, there's more

The law has a range of other provisions that affect ordinary folks. Notably, it aims to improve America's health by promoting various "wellness" concepts, and by improving the quality of information used by doctors, patients, and insurers.

Some of the actions center squarely on what goes on in hospital settings. But here's one example of the law's wider reach: The law requires that food sold in vending machines and at chain restaurants come with nutritional labeling.