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. Investing

    Soul Cycle vs. Planet Fitness

    How has the fitness industry's shift from multipurpose health clubs to specialized studios and budget gyms played out for SoulCycle and Planet Fitness?
  2. Retirement

    How to Decide Where to Live in Retirement

    Here's a guide to help you decide where you want to live after retirement.
  3. Professionals

    How to Create a Retirement Co-Op in Your Community

    As the retirement boom continues, retirement co-ops are growing in popularity. Here's how to set one up in your community.
  4. Insurance

    The 4 Best Alternatives to Long-Term Care Insurance

    Understand what long-term care insurance is and the types of people who need this coverage. Learn about four alternatives to long-term care insurance.
  5. Stock Analysis

    How Does Oscar Work and Make Money?

    Learn how startup Oscar is taking on the health insurance giants by offering customers free doctor's visits, generic drugs and 24-hour phone access to doctors.
  6. Insurance

    Life vs. Health Insurance: Choosing What to Buy

    When you only buy the coverage you truly need, the debate over medical insurance vs. life insurance might just be one you can avoid.
  7. Professionals

    How to Help Clients Navigate Open Enrollment

    With companies trying to pass on more costs to employees, making the right choices during open enrollment is more important than ever.
  8. Investing

    How Will E-Cigarettes Affect Big Tobacco?

    E-cigarettes have emerged as a threat to cigarette makers. Will they be able to ward off this threat?
  9. Stock Analysis

    4 Trends Driving M&A in the Healthcare Industry in 2015

    Learn why there has been a lot of mergers and acquisition activity among health insurers and drug companies in the health care industry in 2015.
  10. Investing Basics

    A Gluten-Free Makeover For A Supermarket Near You

    The gluten-free diet is changing the food choices of a large number of consumers, and the food industry is taking note and making the needed adjustments.
  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. Are Cafeteria plans exempt from Social Security?

    Typically, qualified benefits offered through cafeteria plans are exempt from Social Security taxes. However, certain types ... Read Full Answer >>
  3. Can your insurance company cancel your policy without notice?

    In most states, an insurance company must give a policyholder written notice of at least 30 days before canceling a policy. ... Read Full Answer >>
  4. How do I calculate insurance premium tax?

    In the United States, consumers do not pay any additional tax on health insurance premiums. However, your insurance premiums ... Read Full Answer >>
  5. Can your insurance company drug test you?

    Insurance companies have the right to require drug tests for health insurance and life insurance policies, but not all of ... Read Full Answer >>
  6. What is the difference between a peril and a hazard?

    The two related terms "peril" and "hazard" are often used in reference to the insurance industry. Essentially, a peril is ... 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!