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The US Supreme Court has left the heart of Barack Obama’s healthcare law intact even as it overturned the legislation’s legal basis, handing the president a political victory.
In the 5-4 decision led by Chief Justice John Roberts, in which he sided with the court’s liberal justices, the majority ruled that the individual mandate which compelled every American to buy insurance was valid when interpreted as a tax, but not under the commerce clause of the Constitution.
In effect, the high court agreed with critics who said the mandate as written was unconstitutional but that the implementation of the law will proceed much as it would have if the law had been completely upheld.
In his judgment, Mr Roberts quoted Benjamin Franklin in saying that nothing in life is certain, except for “death and taxes”. The Obama administration had argued that the penalties imposed by the law against Americans who did not buy insurance were legal, but the high court disagreed with the administration’s reasoning.
Nancy Pelosi, the top Democrat in the House of Representatives and one of the law’s chief architect’s, celebrated the ruling.
“This decision is a victory for the American people. With this ruling, Americans will benefit from critical patient protections, lower costs for the middle class, more coverage for families and greater accountability for the insurance industry,” she said.
The S&P healthcare sector, which has outperformed the broader index by more than 2 percentage points since the beginning of this year, see-sawed to trade 0.7 per cent lower as investors considered the implication of the ruling on company profits.
Among major health insurance companies, United Healthcare shares fell 1 per cent to $58.68, Aetna stock fell 0.8 per cent to $40.62, while WellPoint fell 3.35 per cent to $67.16. All of these stocks dropped far lower initially with WellPoint falling more than 7 per cent immediately after the ruling was announced.
Hospitals enjoyed strong gains in the moments following the court’s decision. Shares in Health Management Associates, which runs general care facilities across the US, spiked more than 11.9 per cent. Universal Health Services, another health centre operator, jumped more than 10 per cent. But both stocks, which had led the risers among the health sector, had pared most of their gains soon after and were each up around 3 per cent each by mid-morning.
The verdict is a blow to “ObamaCare’s” most ardent opposition, who have looked to the Supreme Court’s four conservative justices and the so-called “swing” vote on the court, Justice Anthony Kennedy, to strike the whole law or all aspects of the individual mandate.
Mr Roberts, who worked in the Reagan and George HW Bush administration and was nominated to the high court by George W. Bush, was an unlikely saviour of the law.
In 2005, when he was a junior senator from Illinois, Mr Obama voted against his nomination to the high court, saying he believed that Mr Roberts too often “used his formidable skills on behalf of the strong in opposition to the weak”.
Mitt Romney, Mr Obama’s Republican rival for the White House, and Republicans in Congress will be devastated by the outcome of the high court review.
Mr Romney has vowed to repeal “ObamaCare” if elected – a campaign promise that would be nearly impossible to achieve unless Republicans win a sweeping majority in the Senate. Republicans led by Speaker John Boehner in the House have vowed to continue their efforts to repeal the law, another vow that will be impossible to achieve as long as Mr Obama is in the White House.
Karl Rove, the Republican strategist, saw a silver lining for his party. He said, on the Fox tv network, that the decision “probably enhances the controversy, because like so many other things connected with this act, the premises on which it was sold – this is not a tax, you can keep your plan if you want it, it’ll reduce the deficit – all these things turned out to be not true.”
Many political pundits had zeroed in on the tough questioning by the conservative justices of the Obama administration’s attorney during the oral arguments, as a sign of the inevitability that the law would be struck down.
But a handful of attorneys and legal scholars had predicted Thursday’s outcome because they said the Supreme Court would be loathe to overturn a piece of legislation that is as sweeping as the Affordable Care Act.
Joey Fishkin, an assistant professor of law at the University of Texas, predicted the high court decision before the ruling was announced, saying that such a “compromise” would give all sides of the healthcare debate what they wanted.
“Challengers get an end to the oppressive, individual-liberty-crushing mandate they abhor … in its place will be nothing but a little tax,” he wrote on a blog in April. “Meanwhile, defenders of the ACA will get all the functional provisions of the law upheld, so that most of the uninsured will have a path to obtaining health insurance and we can begin to … achieve the rest of the law’s substantive aims.”
Mr Fishkin said the “great virtue” of such a decision was that it would not create unforeseen consequences and would not require additional action from Congress.
Walter Dellinger, an attorney at O’Melveny & Myers, said before the decision was announced that the court would be reluctant to strike down the whole law, which was 40 years in the making, because it would then “own the resulting healthcare system for the next decade and beyond”.
“It’s a slightly highbrow version of the universal rule: ‘You break it, you own it.’” He wrote in a post on Salon.com.