Administration Admits to Court: Under Obamacare, Select Group Can Get Health Care, Not Pay for It, Not Buy Insurance, Not Pay Penalty

By Terence P. Jeffrey | March 26, 2012 | 6:58pm EDT

Solicitor General Donald Verrilli (AP Photo/Evan Vucci)

( - President Barack Obama has justified the mandate in his health-care law that requires individuals to buy health insurance by arguing that it will eliminate free riders—that is, people who get health care (often from emergency rooms) but, lacking insurance, never pay anything back into the health-care system.

"So that's why the individual mandate's important," Obama explained in a speech on Aug. 15, 2011.

"Because the basic theory is, look, everybody here at some point or another is going to need medical care, and you can't be a free-rider on everybody else," said Obama. "You can't not have health insurance, then go to the emergency room, and each of us, who've don the responsible thing and have health insurance, suddenly we now have to pay the premiums for you. That's not fair. So, if you can afford it, you should get health insurance just like you get car insurance."

However, in the Supreme Court on Monday, Justice Samuel Alito forced President Barack Obama’s solicitor general, Donald Verrilli, to admit that under Obamacare these free riders will not be eliminated despite the individual mandate.

For an elite group—including people eligible for Medicaid who don’t sign up for it and people whose health care expenses exceed 8 percent of their income—the Obamacare mandate is no mandate and the penalty is neither a penalty nor a tax because they are not required to pay it, period.

Under Obamacare, Verrilli conceded, these people can continue to receive free health care care, not sign up for health insurance, not sign up for Medicaid, and not pay a penalty.

Here is an exchange that took place during today’s oral arguments in the Supreme Court in which Verrilli explained this part of the Obamacare law:

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Justice Sam Alito: Sub-section A says directly, "an applicable individual shall ensure that the individual has the minimum essential coverage." And you are saying it doesn't really mean that, that if you're not subject to the penalty, you're not under the obligation to maintain the minimum essential coverage?

Solicitor General Donald Verrilli: That's correct. And we think that is what Congress is saying, both in the provision I just pointed to, Your Honor, and by virtue of the way -- by virtue of the way the exemptions work. I just think that's the -- reading this in context, that is the stronger reading of the statute.

Chief Justice John Roberts: Suppose it makes it easy for the government to drop the other shoe in the future, right? You have been under the law subject to this mandate all along. You have been exempt from the penalty, so all they have to do is take away the penalty.

Verrilli: I don't -- I don't think so, Mr. Chief Justice. I don't think it makes it easy for the government in the future. We think this is the fairest reading of the statute, that the -- that the -you cannot infer from the fact that someone is exempt from the penalty, that they are still under an obligation to have insurance. That's just not the fairest reading of the statute.

Justice Elena Kagan: Could I--

Alito: I'm sorry, go ahead.

Kagan: The nature of the representation you made, that the only consequence is the penalty, suppose a person does not purchase insurance, a person who is obligated to do so under the statute doesn't do it, pays the penalty instead, and that person finds herself in a position where she is asked the question, have you ever violated any federal law, would that person have violated a federal law?

Verrilli: No. Our position is that person should give the answer "no."

Kagan: And that's because—

Verrilli: That if they don't pay the tax, they violated a federal law.

Kagan: But as long as they pay the penalty—

Verrilli: If they pay the tax, then they are in compliance with the law.

Justice Stephen Breyer: Why do you keep saying tax?

Verrilli: If they pay the tax penalty, they're in compliance with the law.

Breyer: Thank you.

Verrilli: Thank you, Justice Breyer.

Breyer: The penalty.

Verrilli: Right. That's right.

Alito: Suppose a person who has been receiving medical care in an emergency room -- has no health insurance but, over the years, goes to the emergency room when the person wants medical care -goes to the emergency room, and the hospital says, well, fine, you are eligible for Medicaid, enroll in Medicaid. And the person says, no, I don't want that. I want to continue to get -- just get care here from the emergency room. Will the hospital be able to point to the mandate and say, well, you're obligated to enroll?

Verrilli: No, I don't think so, Justice Alito, for the same reason I just gave. I think that the -- that the answer in that situation is that that person, assuming that person -- well, if that person is eligible for Medicaid, they may well not be in a situation where they are going to face any tax penalty and therefore—

Alito: No, they are not facing the tax penalty.

Verrilli: Right, right.

Alito: So the hospital will have to continue to give them care and pay for it themselves, and not require them to be enrolled in Medicaid.

Verrilli: Right.

Alito: Will they be able to take this out and say, well, you really should--you have a moral obligation to do it; the Congress of the United States has said, you have to enroll? No, they can't say?

Verrilli: I do think it's--I think it's certainly fair to say that Congress wants people in that position to sign up for Medicaid. I think that's absolutely right. And I think the statute is structured to accomplish that objective; but, the reality still is that the only consequence of noncompliance is the penalty.

Justice Sonya Sotomayor: General, but I thought the people who were eligible for Medicaid weren't subject to the penalty. Am I wrong? I could be just factually wrong.

Verrilli: Well, it all--the penalty is keyed to income.

Sotomayor: Yes.

Verrilli: And it's keyed to a number of things. One is, are--are you making so little money that you aren't obligated to file a tax return. And if you're in that situation, you are not subject to the penalty. It's also if the cost of insurance would be more than 8 percent of your income, you aren't subject  to the penalty. So there—there--there isn't necessarily a precise mapping between somebody's income level and their Medicaid eligibility at the present moment. That will depend on where things are and what the eligibility requirements are in the State.

Sotomayor: But those people below—

Verrilli: But as a general matter, for people below the poverty line it's almost inconceivable that they are ever going to be subject to the penalty, and they would, after the Act's Medicaid reforms go into place, be eligible for Medicaid.

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