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United States Supreme Court Largely Upholds the Constitutionality of the Affordable Care Act

Only Medicaid expansion penalty is limited under today’s ruling

THE DECISION

This morning, the United States Supreme Court issued a ruling upholding the individual health insurance coverage mandate and other key elements of the Patient Protection and Affordable Care Act (the “Affordable Care Act” or “ACA”). Chief Justice John Roberts provided the crucial fifth vote in the 5-4 decision, and delivered the opinion, in which the Court determined that the federal government’s taxing powers, and not its authority pursuant to the Commerce Clause or the Necessary and Proper Clause, allowed it to proceed with the individual health insurance coverage mandate. The Court also limited the penalty the federal government could impose on states that fail to expand Medicaid coverage pursuant to the ACA. States that do not comply with the ACA’s Medicaid expansion requirements now risk losing only those additional funds intended to support services to the expanded population, and not all federal Medicaid funding.

The decision is being heralded as a major victory for the Obama administration as well as a catalyst for the reevaluation of Chief Justice Roberts, who has been characterized as a conservative ideologue in the past. Chief Justice Roberts adopted the secondary argument advanced by the Obama administration that the mandate was permissible under Congress’ authority to “lay and collect Taxes,” despite the ACA’s characterization of the payment, which will be imposed on individuals who are required, but fail, to obtain health insurance, as a “penalty.” The Court held that the penalty, which is assessed and collected by the Internal Revenue Service, is substantively a tax.

In evaluating the ACA with respect to the Commerce Clause, the Court concluded that allowing the government to “regulate individuals precisely because they are doing nothing would open a new and potentially vast domain to congressional authority,” noting that individuals “do not do an infinite number of things” every day. The Court, accordingly, declined to sustain the mandate on that ground.

Although the Court’s ruling does not expand the government’s power to regulate an individual’s inaction pursuant to the Commerce Clause, as the federal government strenuously argued, the ruling keeps intact the individual mandate, which is considered to be the lynchpin of the entire ACA. The Court’s ruling on Medicaid funding, while a setback to the implementation of the law as originally envisioned, will still allow the federal government to require expanded Medicaid coverage by the states, albeit with a less severe financial penalty at stake.

WHAT IT MEANS

In practical terms, the Court’s ruling means that the country needs to continue to prepare for those ACA provisions that are scheduled to come into effect in the coming years, as well as comply with those already in place. All of the various provisions of health care reform that commentators have been writing and talking about for the past two years remain in full force and effect. Absent future action by Congress and the President, those provisions will take effect between now and the end of the decade, as originally scheduled.

For individuals, this means obtaining health insurance or facing a penalty. For states, it means making the determination of whether to accept federal funds and expand Medicaid coverage, or forgo those funds, among other things. For businesses, it means that employers’ group plans will still need to cover dependent children of plan members up to age 26 – regardless of marital status, limits on annual and lifetime benefits are still prohibited, the current and future rules barring limitations on coverage due to pre-existing conditions remain in force, and next year employers must begin limiting benefits under health Flexible Savings Account plans. Larger employers, at least, will eventually be required to offer health coverage of a certain level to their employees, or face penalties for their failure to do so.

THE FUTURE

Already, G.O.P. policymakers have announced their intentions to move forward with an effort to repeal health care reform, including what is being characterized in the media as a “symbolic” repeal vote in the House, set for July 11. The real challenges to the law are expected to come after the November elections, when there will likely be a continuation of the Republicans’ prior strategy to attack portions of the Act, including the individual mandate and socially controversial issues, such as federal funding provided for medical services related to abortion, and to defund portions of the law to hinder implementation.

However, until and unless such repeal or amendment is enacted, individuals and businesses must comply with the ACA as it exists, and businesses in particular should have a plan in place for compliance with future provisions as they come into effect.

If you have any questions concerning the impact the Court’s ruling may have on you, your health plan or any aspect of health care reform, please contact our Health Care Practice Group.