June 29, 2012
On June 28, 2012, in a 5-4 decision, the United States Supreme Court upheld the Patient Protection and Affordable Care Act (“ACA”).
Congress passed the ACA in 2010, in order to expand health insurance coverage to more people and lower the cost of health care. One of the key provisions of the ACA is the “individual mandate,” which will require most Americans to maintain “minimum essential” health insurance coverage starting in 2014. Those individuals not receiving health care insurance from their employer, or who are otherwise not exempt from the individual mandate, will be required to purchase health care insurance from a private insurer or pay a “shared responsibility payment” to the federal government. One of the chief challenges to the ACA was whether Congress exceeded its powers in enacting the individual mandate.
As a threshold matter, the Court held that it was not prevented from deciding the case due to the Anti-Injunction Act, which prohibits lawsuits over taxes from being pursued until after the taxes have been paid.
The Court then ruled that the individual mandate is not a valid exercise of Congress’s power to regulate commerce. Congress may regulate commercial activity, but here, the individual mandate compells individuals to become active in commerce by purchasing a product. Therefore, the individual mandate regulated inactivity rather than activity. The Court ruled that Congress’s power to regulate commerce did not extend to regulate what people “do not do.”
Next, the Court analyzed whether the individual mandate may be upheld within Congress’s power to tax. The Government, in defending the ACA, argued that the Court must view the individual mandate as imposing a tax on those who do not buy insurance. The Court noted that, because every reasonable construction must be resorted to in order to save a statute from unconstitutionality, the question is whether it is “fairly possible” to interpret the individual mandate as imposing such a tax. The Court concluded that such an interpretation was reasonable, and upheld the individual mandate as within Congress’s power to “lay and collect taxes.”
The four dissenting Justices wrote that they would have struck down the ACA in its entirety.
Another issue before the Court was whether Congress had the power to expand Medicaid through the ACA. Currently, Medicaid offers federal funding to States to assist pregnant women, children, needy families, the blind, the elderly, and the disabled in obtaining medical care. Starting in 2014, the ACA expands the scope of Medicaid, increasing coverage to adults with incomes up to 133 percent of the federal poverty level, among others. While the ACA would also increase federal funding to cover the States’ costs in expanding Medicaid, the ACA provides that if a state does not comply with the new coverage requirements, it will lose all federal Medicaid funding. 26 states challenged that Congress overstepped its bounds to so expand Medicaid.
The Court ruled, 7 to 2, that the expansion of Medicaid was unconstitutional as it coercively put “a gun to the head” of the States as to whether to agree to provide expanded Medicaid coverage or lose all federal assistance. To remedy the violation, the Court held that the Secretary of Health and Human Services will be barred from withdrawing existing Medicaid funding if a state refuses to provide expanded coverage, meaning that states could opt out of the new expanded Medicaid requirement. The Court held that the rest of the ACA would not be affected by this ruling, in that Congress would have wanted the remainder of the ACA to stand had it known that the States would have a genuine choice as to whether to participate in the Medicaid expansion.
What does this mean for employers?
While the landmark ruling will have impact for years to come on its effect on Congressional power to regulate commerce, for employers, the impact of the case will be more immediate. Although there are promises by some politicians to repeal the law, such course will depend on the outcomes of the elections for the White House and Congress in November. In the meantime, the ruling comes a little over 18 months from when many of the major provisions of the ACA take effect. Going forward, employers should be mindful of the following dates of implementation:
With the certainty of the Supreme Court’s ruling that the ACA is constitutional, and with major provisions just over 18 months away from taking effect, employers should also expect to see increased regulatory activity to implement the law. These may clarify and establish rules as to how some of the above requirements will be implemented. Employers may also expect legislation to be enacted, making minor changes to the ACA, as “improvements” to the ACA have been promised.
We will continue to monitor the ACA and provide updates from time-to-time and with any major developments. To that end, Atkinson, Andelson, Loya, Ruud & Romo will be offering more detailed analysis of this ruling and a refresher and update on the ACA’s major provisions in a complimentary webinar on Thursday, July 12, 2012. In the meantime, if you have any questions about the impact of the Supreme Court’s ruling or other questions about the ACA, please contact one of the authors.