SCOTUS Affordable Care Act SCOTUS Affordable Care Act

SCOTUS Affordable Care Act

The Individual Mandate
On June 28, 2012, almost exactly three months after hearing an astounding six plus hours of oral arguments on the subject, the Supreme Court of the United States of America (the Court) announced its ruling regarding the constitutionality of the Patient Protection and Affordable Care Act of 2010 (the Act). As many in the health law community had anticipated, the vast majority of the Act, including the highly controversial individual mandate, was found constitutional by a slim 5-4 majority of the justices. Somewhat surprisingly, however, was the manner in which the Court determined the individual mandate to be constitutional.
 
As the reader will recall, the individual mandate requires virtually every U.S. individual to maintain minimum essential coverage starting in 2014 or, having failed to maintain such coverage, pay a penalty. At oral argument, the federal government defended the constitutionality of the individual mandate and the related penalty as valid exercises of three of the powers granted to Congress under Article I, Section 8 of the U.S. Constitution:
(1)   the power to regulate interstate commerce,
(2)   the power to lay and collect taxes; and
(3)   the power to do all things necessary and proper to carry out its powers under one and two.
 
Though both the Act's various challengers and the federal government spent the vast majority of their allotted time discussing the question of whether the individual mandate was a valid exercise of Congress' commerce power, only four of the nine justices were persuaded that it was. As Chief Justice Roberts wrote in rejecting the federal government's argument "[t]he power to regulate presupposes the existence of commercial activity to be regulated." The chief justice and four other justices (Scalia, Thomas, Kennedy and Alito) were not persuaded that, in the case of the individual mandate as applied to persons who elected not to purchase minimum essential coverage, commercial activity existed, and, accordingly, a majority of the justices found that the individual mandate was not a constitutional exercise of Congress' commerce power.
 
The federal government also defended the individual mandate as being a necessary and proper adjunct to a broader statutory scheme (i.e. the Act as a whole). In rejecting this argument, the chief justice pointed out that the necessary and proper power gives Congress "authority derivative of, and in service to, a granted power..." and not the authority to bring within Congress' reach those individuals who, by their inactivity, would otherwise remain beyond such reach. Because the individual mandate was an unconstitutional exercise of the commerce power, as applied to persons who elected not to purchase minimum essential coverage, the individual mandate could not be sustained as being a necessary and proper derivative of, or in service to, the granted commerce power.
 
Though a majority of the justices (Roberts, Scalia, Thomas, Kennedy and Alito) ultimately found the individual mandate unconstitutional under the commerce and necessary and proper powers, the individual mandate was nevertheless not doomed. A separate majority consisting of the chief justice and Justices Ginsburg, Breyer, Kagan and Sotomayor determined that enactment of the individual mandate and the corresponding penalty, when analyzed as a whole, was a valid exercise of Congress' taxing power. Ultimately, the Court's entire opinion on this point can be summed up in the chief justice's opening line: "[t]he exaction the [Act] imposes on those without health insurance looks like a tax…" This pronouncement was reflective of the fact that the penalty a person pays (which is the only recourse for failure to maintain minimum essential coverage) is contingent upon his or her income, is paid to the IRS in the same manner as one's taxes and is subject to a statutory maximum. Accordingly, the Court concluded, the individual mandate when viewed together with the penalty could reasonably be viewed as a tax imposed by Congress. As Chief Justice Roberts noted, though the taxing power does have its limits – a valid tax may not be punishment for an unlawful act, for example – a tax on inactivity (as opposed to regulation of inactivity under Congress' commerce power) is neither a novel concept in the law nor constitutionally invalid. Thus, the individual mandate was upheld as a valid exercise of Congress' taxing power.
 
The Medicaid Expansion
The Court also announced a surprising decision to strike down a portion of Medicaid expansion called for under the Act. While the Court upheld the substance of the expansion, the Court struck down provisions of the Act which conditioned continued receipt of Medicaid funding on state enactment of the Medicaid expansion. Ultimately, the Court agreed with the 26 states (collectively, the states) challenging the constitutionality of the Medicaid expansion on the grounds of economic coercion.
 
Although the basic principle of placing conditions on the receipt of federal funds has been regularly employed by the federal government to persuade state action (even in the context of prior enacted Medicaid expansions), the Court determined that due to the program's sheer size and state dependency on Medicaid funding, the all or nothing approach was overly coercive and in violation of basic principles of federalism. Chief Justice Roberts wrote in his opinion for the Court, "the financial inducement Congress has chosen is much more than 'relatively mild encouragement'—it is a gun to the head." National Federation of Independent Business, et. al. v. Sebelius, 567 U. S. ____, 51 (2012).The Court struck down only the provisions of the Act that call for the secretary of health and human services to withhold Medicaid payments from any state opting out of the expansion.
 
Notwithstanding the above, the Medicaid expansion generally was upheld by the Court, provided that states are given meaningful choice. However, without the strong leverage of existing Medicaid dollars, it may be expected that some, but not all, states will implement the Medicaid expansion. This will have a dramatic effect on the Act's ability to obtain near universal health care coverage. The Medicaid expansion is the only means provided under the Act for low-income adults, as the Act does not provide an alternative to Medicaid for otherwise Medicaid eligible individuals (such as access to the subsidies offered under the Act to lower and middle class families to purchase private health insurance). Congress and state legislatures must now decide if and how to address this gap in coverage in states not adopting the Medicaid expansion.
 
The Ice Miller Health Law Group will be analyzing in further detail the Court's decision and what it entails for our clients – please be on the look-out for future articles. Should you have any questions or concerns about how this might impact you, please contact Mary Beth Braitman, Kris Dawley, Greg Pemberton, Tara Schulstad Sciscoe, Chris Sears or Kevin Woodhouse.
 
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.
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