When President Obama passed the Patient Protection and Affordability Care Act (PPACA), a cry arose from some groups that were against the mandate it contained requiring all individuals to have secured group or individual health insurance coverage by 2014 or face a penalty. As a result, the Supreme Court is now evaluating the constitutionality of this law.

TUTORIAL: Health Insurance

But what will happen to Americans who are currently uninsured if the Supreme Court finds this mandate unconstitutional?

Who Needs Health Insurance?
In late 2010, it was reported that over 50 million individuals in the U.S. were uninsured, a number that was partially influenced by a rough economy and slew of newly unemployed individuals. While some would argue that this number is at least partially made up of individuals who are able, but unwilling, to pay the average annual expense of $14,000 to insure a family of four, a larger portion of the uninsured population is comprised of those who don't have access to a health insurance plan that they can afford. In fact, it was found that low-income households (those that are at or 200% above the poverty level) were three times as likely to join the ranks of the uninsured as compared to households with an income of $75,000 or more. (For related reading, see Buying Private Health Insurance.)

The Financial Impact of the Act
Many counter that forcing low-income families to buy insurance, and fine them if they don't comply, will create an entirely new financial problem for America's poor. But the Act contains several measures meant to help control insurance costs, including:

  • The limitation of the amount of premium dollars that can be used toward commissions, salaries and profits for insurers. This measure ensures that 80% or more of collected premium dollars must flow towards the actual cost of care, thereby creating a more cost-efficient system that lowers overall insurance premiums.
  • The introduction of federal subsidies. These subsidies will be awarded on a sliding scale basis for families at or up to 400% above the federal poverty level. While subsidies may sound like a great burden to the federal government, they will be offset by the requirement for certain employers to supplement the federal subsidies their employees receive as a result of the employer's decision not to offer health insurance benefits to its 50 or more employees.

It's important to consider that some of these money-saving measures may be countered by the requirement that prohibits insurers from excluding pre-existing conditions. This may increase the healthcare expenses that insurers must cover. However, since insurance works because premiums and expenses are shared by a large group of people (the law of large numbers), the fact that many individuals who will be required to buy insurance will not cost the insurance companies much, and will help defray some of those expenses. (To learn more, see Health Insurance: Paying For Pre-Existing Conditions.)

The Bottom Line
In 2010, 15.1% of Americans were living in poverty, and even more were above the poverty level but were still considered low-income. If the Supreme Court rules the Act unconstitutional and no other program is put in place to help low-income families get health insurance, these individuals will likely continue to accrue medical debt, something that two out of five adults were struggling with in 2007. And, while it certainly makes sense to consider how the health insurance mandate will affect America's poor if it is passed, it might be more relevant to ask what happens to them and those who choose to be insured if it is not passed? Healthcare expenses continue to rise and with roughly one-third of the 50 million uninsured Americans unable to afford insurance, it's more than possible that the uninsured expenses that they incur and can't pay, will be disbursed to insured Americans through higher healthcare costs, and as a result, increased insurance premiums. (To find out more, read Fighting The High Costs Of Healthcare.)

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Insurance

    Learn about the SPDR S&P Insurance exchange-traded fund, which follows the S&P Insurance Select Industry Index by investing in equities of U.S. insurers.
  2. Markets

    The 5 Biggest Canadian Insurance Companies

    Learn more about the insurance industry as a whole, how it functions in Canada, and the five largest Canada-based insurance companies.
  3. Entrepreneurship

    How Does ClassPass Work and Make Money?

    Find out how ClassPass makes money, how the company aims to help both businesses and consumers, and why it has been so successful.
  4. Retirement

    What Are the Risks to Your Retirement Security?

    One of the biggest risks to your retirement security is something you may take for granted: your health, and more specifically, health-care costs.
  5. Retirement

    Secrets to Finding the Right Nursing Home

    The wrong choice could mean inadequate – or even deadly – care.
  6. Investing

    Things Nursing Homes Are Not Allowed to Do

    What rights do a home's residents have? The same ones they they had before they entered the facility.
  7. Retirement

    How Much Medicaid and Medicare Cost Americans

    Medicaid & Medicare cost Americans plenty out of their paychecks. But how much, really? And what does that money buy?
  8. Insurance

    Healthcare Premiums Keep Rising, But Salaries Aren’t

    Learn how college and health insurance costs have skyrocketed while wages have stagnated, and how, given the necessity of these services, consumers are stuck.
  9. Taxes

    20 Medical Expenses You Didn't Know You Could Deduct

    To lower your tax bill, be sure not to miss out on these commonly overlooked medical tax deductions.
  10. Budgeting

    The 5 Most Expensive States for Child Care

    To get a better sense of how child care costs can fluctuate, here's a look at the costs of child care across the country.
  1. Net Collections

    A term used in medical accounting to describe the amount of money ...
  2. Corridor Deductible

    Expenses that are paid by the insured in excess of an insurance ...
  3. Insurance Consortium

    A group of businesses or organizations that join together to ...
  4. Mobile Health

    Mobile health is the practice of medicine using new mobile technologies.
  5. Blanket Medical Expense

    An insurance policy which provides coverage for all medical expenses ...
  6. Classified Insurance

    Insurance coverage provided to a policyholder that is considered ...
  1. How does the Affordable Care Act affect moral hazard in the health insurance industry?

    To see how the Patient Protection and Affordable Care Act, or "Obamacare," affects moral hazard in the health insurance industry, ... Read Full Answer >>
  2. What happens if my insurance claim falls below the deductible level?

    Though the ins and outs of health insurance are often confusing, the concept of the insurance deductible is relatively straightforward. ... Read Full Answer >>
  3. How is the deductible I paid for my insurance claim treated for tax purposes?

    The deductible you pay on your health insurance policy may be tax-deductible if you meet certain conditions. However, whether ... Read Full Answer >>
  4. What are the main factors that impact share prices in the insurance sector?

    The main factors that impact share prices in the insurance sector are interest rates, earnings and actuarial risk. In the ... Read Full Answer >>
  5. Why do insurance policies have deductibles?

    Insurance policies have deductibles for behavioral and financial reasons. Moral Hazards Deductibles mitigate the behavioral ... Read Full Answer >>
  6. Which emerging markets are seeing the strongest growth in the insurance sector?

    The emerging market economies seeing the strongest growth for the insurance sector are primarily the main emerging market ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!