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Welcome to Stat! Health Reform News. On this page, Segal provides highlights of recent health care reform developments.

June 29, 2012

The U.S. Supreme Court has announced its opinion concerning the constitutionality of the Affordable Care Act.1 Specifically, it held:

  • The Affordable Care Act’s requirement that individuals either purchase health insurance or pay a financial penalty (the law’s “individual mandate” or “minimum coverage provision”) is constitutional.
  • The law’s expansion of Medicaid to a broader group of low-income individuals is constitutional, but the federal government does not have the power to terminate all Medicaid funding for a state government that does not accept the Affordable Care Act expansion.

All provisions of the Affordable Care Act relevant to employers and health plan sponsors were upheld. Consequently, there will be no changes to the Affordable Care Act, and implementation of the law must continue. Existing regulations and programs enacted by the Affordable Care Act are unchanged, as are the obligations of plan sponsors.

The cases that were decided are National Federation of Independent Business v. Sebelius (No. 11-393), U.S. Department of Health and Human Services v. Florida (No. 11-398) and Florida v. Department of Health and Human Services (No. 11-400). Previously, the U.S. Court of Appeals for the 11th Circuit in Atlanta had ruled in these cases that the individual mandate in the Affordable Care Act is unconstitutional.2

Supreme Court Decision

The individual mandate requires that individuals maintain minimum essential health coverage or, if not exempted, pay a penalty. Chief Justice Roberts, joined by Justices Ginsberg, Breyer, Sotomayor and Kagan, held that the individual mandate is constitutional because Congress has the power to tax individuals who do not purchase health insurance. The Court found that the penalty payment is not so high that it coerces individuals to buy health insurance. Furthermore, the penalty is collected solely by the Internal Revenue Service (IRS) through the normal tax collection process. The penalty does not render conduct “unlawful,” but, rather, imposes a tax that a citizen may lawfully choose to pay in lieu of buying health insurance. The Court noted that Congress currently uses other tax incentives to encourage purchase of products, such as tax incentives for purchasing a home and obtaining professional education. Consequently, the law simply imposes a tax on those who choose to go without health insurance, which is within Congress’s power to tax and spend.

The government’s main argument was that Congress has the power under the Commerce Clause to compel everyone to buy health insurance. The Chief Justice found that Congress did not have the power under the Commerce Clause or the Necessary and Proper Clause of the Constitution to require people to buy health insurance. Chief Justice Roberts was joined in this conclusion by the four dissenting justices: Justices Scalia, Kennedy, Thomas and Alito. However, this holding did not affect the outcome of the case, because (as discussed above) a different set of five justices — including Chief Justice Roberts — upheld the mandate as within Congress’s power to tax and spend.

Because the Court found the mandate constitutional, it did not address issues related to severability of the mandate from the remainder of the law. In addition, the Court ruled that the Anti-Injunction Act (AIA)3 did not require that the Court defer a decision on the constitutionality of the mandate until a penalty is actually assessed against an individual taxpayer. The Court found that Congress did not intend to apply the AIA to the penalty under the Affordable Care Act.

The Court also addressed whether the expansion of the Medicaid program in the Affordable Care Act is constitutional. The Affordable Care Act requires states to expand their Medicaid programs by 2014 to cover all individuals under the age of 65 with incomes below 133 percent of the Federal Poverty Level (FPL), without regard to medical needs, family status or assets. The Affordable Care Act increased federal funding to cover state Medicaid costs, but states will bear some portion of the costs of expansion themselves. If a state does not comply with the Medicaid expansion, it may lose both federal funding for those requirements plus its existing Medicaid funds. Chief Justice Roberts, joined by Justices Breyer and Kagan, concluded that one aspect of the Medicaid expansion violates the Constitution: threatening states with the loss of their existing Medicaid funding if they decline to implement the expansion. However, this flaw is completely correctable by simply removing the penalty of loss of existing funding, and does not invalidate the Medicaid expansion generally or the rest of the Affordable Care Act. Consequently, states may refuse to accept the Medicaid expansion, but the Secretary of Health and Human Services is prevented from terminating existing Medicaid funding if they do so.

Justices Ginsburg and Sotomayor would have upheld the Medicaid expansion as written, but accepted the remedy advanced by the Chief Justice. The four dissenters – Justices Scalia, Kennedy, Thomas and Alito – found the Medicaid expansion unconstitutional.

Implementation and Enforcement Continues

Because the Affordable Care Act was upheld in its entirety, the federal government’s implementation and enforcement efforts will continue. Consequently, employers and plan sponsors will need to continue to implement the law. Segal will soon distribute a publication that discusses the implications of the U.S. Supreme Court decision for plan sponsors.

Issues Remain for Multiemployer Plans

Although the Supreme Court decision resolved the constitutionality of the Affordable Care Act, many issues remain for sponsors of multiemployer plans. These include items such as how the 90-day waiting period will apply to multiemployer plans, how the employer shared responsibility penalty applies for contributing employers, and whether participants in multiemployer plans may receive access to the premium assistance tax credit that allows individuals to purchase subsidized coverage in the state health insurance exchanges.

In addition to continuing to implement the provisions of the law that apply to them, sponsors of multiemployer plans should continue to monitor regulatory guidance in these areas. Segal will publish more on these topics in the coming weeks.

• • •

As with all issues involving the interpretation or application of laws, regulations and judicial decisions, plan sponsors should rely on their attorneys for authoritative advice on the Affordable Care Act. The Segal Company can be retained to work with plan sponsors and their attorneys on all compliance issues related to health care reform.

1
The decision is available on the following page of the U.S. Supreme Court’s website: http://www.supremecourt.gov/opinions/11pdf/11-393c3a2.pdf
2
The decision is available on the following page of the Court’s website: http://www.ca11.uscourts.gov/opinions/ops/201111021.pdf
3
The Anti-Injunction Act provides that a lawsuit cannot challenge a tax until the individual subject to the tax first pays it and then sues for a refund.

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