Mondaq Business Briefing, by Cynthia Moore –
September 17, 2012:
In a stunning 5-4 decision authored by Chief Justice John Roberts, the United States Supreme Court upheld the controversial individual mandate and most other provisions of the Patient Protection and Affordable Care Act (the “ACA”) inNational Association of Independent Business, et al. v Sibelius (Docket 11-393).
Individual Mandate Upheld
It was widely anticipated that the Supreme Court would uphold or strike down the individual mandate under the Commerce Clause of the U.S. Constitution. Chief Justice Roberts held that the individual mandate exceeded Congress’s power under the Commerce Clause because it regulated “inactivity” the decision not to purchase health insurance and Congress does not have the power to compel activity in commerce. However, noting that it was the Court’s obligation to uphold a law if there is any basis on which to do so, he held that the individual mandate passed Constitutional muster under Congress’s taxing power.
Justice Ginsburg’s opinion, joined by Justices Kagan, Sotomayor and Breyer, would have found the individual mandate constitutional under both the Commerce Clause and the taxing power. Justice Ginsburg argued that the fact that an individual does not purchase insurance will inevitably result in activity in the health care market, as every citizen uses the health care system sooner or later. Applying traditional Commerce Clause analysis, this inevitable use results in a substantial effect on interstate commerce and Congress had a rational basis for including the individual mandate as a solution to the “free rider” problem.
The dissent, in which Justices Scalia, Kennedy, Thomas and Alito joined, would have found the individual mandate unconstitutional under both the Commerce Clause and the taxing power. The dissent agreed that the individual mandate exceeded Congress’s power to regulate under the Commerce Clause. The dissent disagreed that the penalty associated with the failure to maintain minimum essential coverage is a constitutional “tax.” In the dissent’s view, the penalty is just that a penalty for failing to comply with a mandate and cannot be fairly characterized as a tax.
Medicaid Expansion Survives but Is Optional
A major objective of the ACA was to provide universal, or near universal, access to health insurance coverage. One of the major pillars in achieving this objective was to expand the categories of persons eligible for Medicaid by allowing any person with income below 133% of the federal poverty level to enroll in Medicaid.
Although the federal government will provide a significant level of funding for the Medicaid expansion, its funding will decrease over time, leaving states to fund the difference. If a state refused to change its Medicaid eligibility rules, the “stick” employed by Congress was to cause that state to lose all of its federal Medicaid funds.
Chief Justice Roberts, joined by Justices Breyer and Kagan, found that this “stick” violated the Constitution. Congress is allowed to create incentives under the Spending Power to encourage states to act in accordance with federal policies. But when “pressure turns into compulsion,” the law fails. In other words, states must have a legitimate choice as to whether to accept the federal conditions in exchange for federal funds. Here, the threat to withhold all federal Medicaid funds is a “gun to the head” of states and is impermissibly coercive.
Even though the law as written violated the Constitution, Chief Justice Roberts determined that under the severability clause of the Medicaid Act, the Secretary of Health and Human Services has the authority to administer it in a constitutional manner. That is, if a state chooses to expand Medicaid, it will receive the federal funds to pay for the expanded coverage. If a state chooses not to expand Medicaid, it will only lose the federal funds that would have been granted for the expansion not all of the state’s federal funding for the Medicaid program.
Justices Ginsburg and Sotomayor would have found the Medicaid expansion constitutional. In her opinion, Justice Ginsburg noted that the Court had never before found a federal grant to cross the line between temptation and coercion.
The joint dissent agreed that the Medicaid expansion is a coercive exercise of federal power and violated the Constitution. However, the dissent did not agree that using the severability clause of the Medicaid Act as a way to uphold the Medicaid expansion as a voluntary program was a permissible way in which to interpret the law. The dissent’s view was that the invalidity of the Medicaid expansion, coupled with the invalidity of the individual mandate, resulted in the unconstitutionality of the entire ACA.
Implications for Insurers
First and foremost, health insurers should continue down the path of compliance. Although Governor Romney and the Republicans have repeatedly vowed to repeal the ACA, if President Obama is re-elected or if the Democrats maintain control of the Senate or gain control of the House, repeal of the entire law is unlikely. Therefore, it would not be prudent to count on wholesale repeal after the November elections, although some changes are possible depending on the make-up of Congress and the Presidency.
In the near term, insurers should be preparing for:
The distribution of the summary of benefits and coverage (SBC) on September 23, 2012; and
Payment of the comparative effectiveness fee for the policy year ending after September 30, 2012.
Longer term, the Supreme Court’s decision and continuing resistance by some state governors/legislatures makes implementation of the ACA uncertain and potentially challenging. For example, only 14 states are moving forward with implementing a state-level exchange at this time (10 have enacted legislation and 4 by executive order), and only 6 other states have legislation pending as of August 2, 2012. This resistance makes it likely that insurers will be dealing with a federal-level exchange in many states the outline of which has not yet emerged, although regulators have assured the public that the federal exchange will be up and running by October 2013.
Further, it is uncertain how many states will adopt the Medicaid expansion. Several large states, including Texas and Florida, have announced that they will not be adopting the expanded Medicaid rules. If a significant number of states do not adopt the Medicaid expansion, there may continue to be a problem with the cost of uncompensated care, which may mean that the health care market will not achieve the savings originally anticipated by Congress and the President, and health insurance premiums may continue to rise. CMS officials have attempted to address state concerns by signaling that the Medicaid expansion could be added or dropped at any time making it a truly voluntary expansion.
Finally, there is still a significant amount of guidance under the ACA yet to be issued by the Departments of Health and Human Services, Labor, and Treasury, including the definition of “essential health benefits” which will drive plan design in the individual and small group markets. Lack of guidance contributes to uncertainty in many key areas, which will make timely implementation challenging.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.