The problem with socialism is that eventually you run out
of other people’s money.

— Former British Prime Minister Margaret Thatcher

(quoted by Whole Foods Market (NYSE: WFM) CEO John Mackey)

With the U.S. Supreme Court’s June 28^th 5-4 decision upholding Obamacare, the dirty deed is done. Freedom is dead, socialism is triumphant, and the quality of health care will get worse, not better. No wonder that 68% of Americans wanted Obamacare struck down, according to a recent CBS News/New York Times poll.

“Conservative” Chief Justice John Roberts changed his mind at the last minute under intense political pressure and sided with the four left-wing justices, essentially rewriting the law in order to squeeze it within the U.S. constitution. In the past, Roberts has complained about President Obama and Democratic congressmen publicly criticizing the Court, but he ended up succumbing to these troubling pressure tactics. After the Obamacare decision, Roberts fled to Malta to escape the barrage of criticism that resulted from his unprincipled switcheroo.

President Obama has repeatedly said that the individual mandate — that compels people to purchase health insurance or pay a penalty – is not a tax. Obama’s Justice Department – in its Supreme Court Brief (p. 21) – argued that the mandate was authorized under the U.S. constitution’s Commerce Clause (Article I, Section 8, clause 3). Nancy Pelosi, Democratic leader in the House of Representatives, has also repeatedly rejected the notion that Obamacare is a tax, calling it a “myth.” In other words, the Democratic legislators who drafted and passed Obamacare and the President who signed it into law intended that the law’s constitutional basis be the commerce clause.  Some law professors take solace in the fact that Roberts rejected the constitutionality of Obamacare under the Commerce Clause, ruling that:

The Framers gave Congress the power to regulate com­merce, not to compel it, and for over 200 years both our decisions and Congress’s actions have reflected this un­derstanding. There is no reason to depart from that un­derstanding now. The Commerce Clause is not a general license to regulate an individual from cradle to grave, simply because he will predictably engage in particular transactions. Any police power to regulate individuals as such, as opposed to their activities, remains vested in the States.  

The end result of this judicial rejection should have been striking down the law. After all, the primary duty of judges when considering legislation is to determine legislative intent. The legislative intent was the commerce clause, the law was unconstitutional under the commerce clause, ipso facto the law was unconstitutional.

Guns and Health Care: Activist Supreme Court Renders Two Bad Decisions

But Chief Justice Roberts decided to rewrite legislative intent and unilaterally upheld the law under the U.S. Constitution’s taxing power (Article I, Section 8, clause 1). This is the second time in two years that a supposed “conservative” Supreme Court justice has legislated from the bench.  As I wrote in Gun Owners and Gun Manufacturers: Happy Independence Day, “conservative” Justice Antonin Scalia fabricated an individual right to bear firearms despite the clear intent of the U.S. Constitution’s Second Amendment to limit the right to bear arms to government-run militias and police forces. The result of striking down Chicago’s gun ban has been predictable – the murder rate in Chicago has skyrocketed.

In the Obamacare case, Chief Justice Roberts has similarly fabricated the individual mandate into a tax when it was clearly intended to be a penalty. The Supreme Court dissenting opinion pointed this out:

The provi­sion challenged under the Constitution is either a penalty or else a tax. We know of no case, and the Government cites none, in which the imposition was, for constitutional purposes, both. The two are mutually exclusive. The issue is not whether Congress had the power to frame the minimum-coverage provision as a tax, but whether it did so. We have never held that any exaction imposed for violation of the law is an exercise of Congress’ taxing power—even when the statute calls it a tax, much less when (as here) the statute repeatedly calls it a penalty.

If compelling the purchase of insurance under the Commerce Clause violates the constitution’s limitation on federal power over individual conduct, how can compelling the purchase of insurance under the taxing power not similarly violate the constitution? Justice Roberts’s ruling on the Commerce Clause has not limited federal power at all; the expansion of federal power to compel individual conduct has just been shifted two clauses down in the Constitution. To be fair, Chief Justice Roberts points out that there is a slight difference between the commerce power and the taxing power:

The taxing power does not give Congress the same degree of control over individual behavior. Congress may simply command individ­uals to do as it directs. An individual who disobeys may be subjected to criminal sanctions. By contrast, Congress’s authority under the taxing power is limited to requiring an individual to pay money into the Federal Treasury, no more. If a tax is properly paid, the Government has no power to compel or punish individuals subject to it. We Congress can punish violations of its commerce power regulations with imprisonment. But under the tax power, the worst that can happen is a fine.

Roberts admits that taxes often impose a “severe burden” and consequently will compel people to engage in conduct they otherwise would not, but upholds the law anyway.

Obamacare Will Cause Higher Taxes and Higher Health Insurance Premiums

And there is no doubt that the tax burden of Obamacare will be severe indeed. According to both the Washington Times and Americans for Tax Reform both provide a detailed list of the 20 or so tax hikes imposed on Americans by Obamacare – tax increases that will equal a colossal $675 billion over ten years. Some of these taxes are imposed on corporations, which will inevitably pass them through to individuals in the form of higher health insurance premiums or reduced health benefits, but others are imposed directly on individuals. Of particular interest to investors is the 3.8% Medicare surtax on investment income.

All of these taxes are necessary because estimates of the costs needed to implement Obamacare are exploding – now amounting to $2.6 trillion. Things get really bad after the first 10 years.   Medicare’s independent actuaries estimate that under Obamacare health-care spending will rise from 17.9 percent of GDP in 2010 to 19.6 percent in 2021. In 1980, by contrast, health care was only 9 percent of GDP. Furthermore, the Supreme Court’s ruling making Medicaid expansion optional for states is expected to increase the cost of Obamacare by up to $50 billion per year because the federal government will be forced to provide 100% of more-expensive private-insurance subsidies for those individuals earning 100 percent to 133 percent of the poverty level that aren’t allowed access to Medicaid.

Other unintended side effects of Obamacare include:

• “Dramatically higher” insurance premiums of 19% to 30% for young workers, thanks to a “community rating” system that subsidizes the premiums of higher-risk old people by charging young people more than justified by their health.
• A 2009 PriceWaterhouseCoopers report predicts an adverse-selection death spiral, where healthy people opt out of buying health insurance because the maximum $695 penalty (er . . tax) will account for only 10 percent of the average health insurance premium. Those opting out will leave only the sick to buy insurance, which causes costs to rise much faster than revenues, which causes health insurance premiums to rise further, which causes more people to opt out:

We anticipate significant adverse selection to occur in the existing market, increasing premiums for those who have coverage today. Higher premiums will result in more individuals being exempted from the coverage requirement. Once the requirement is implemented, the penalties will be phased in, so that they will not reach full effectiveness for several years. This lack of coordination increases the likelihood of a premium spiral that “gets ahead” of the coverage requirement which, with the combination of an income-based opt-out and low penalties, may further reduce the incentive for those who are healthy to buy coverage. This may then cause an increase in premiums for those with coverage today.

• Lower job growth. The employer mandate exempts firms with fewer than 50 workers from paying a tax, so there’s a strong incentive for firms to stop hiring at 49.
• Approximately 4 million fewer employees will get their health insurance through their employer because at least 30% of employers are likely to drop health insurance altogether and pay the penalty (er. . . tax).

The road to Hell is paved with good intentions. Stay tuned later this week for my take on which health-care stocks are the winners and losers under Obamacare.

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