Employee Benefits Compliance, Laws, Regulations & FAQs

Health Care Reform Law Turns Two — and Goes to Court Next Week

The Affordable Care Act is back in the spotlight.  Today (March 23rd) the Affordable Care Act turns two, and on Monday (March 26th) the US Supreme Court begins three days of oral argument on whether or not the Affordable Care Act is constitutional. (The case is  Dept. of Health and Human Services v Florida.)
The Supreme Court Case
Most legal experts think the court will NOT overturn the entire health care reform law, even if it does invalidate the “individual mandate” – the provision that requires most US residents to have or buy health insurance as of 2014 or pay a penalty for not having health coverage.  The Court is expected to render a decision on this key issue (and several others) by the end of June or possibly early July (the Court’s spring session ends June 28th), just as the campaigning heats up for the November Presidential election.
This article summarizes the key issues before the Supreme Court and the possible outcomes.
The Issues Before the Court
  • Tax Anti-Injunction Act (AIA) –The AIA (IRC section 7421) prohibits taxpayers from filing federal court cases challenging federal tax laws until after they have paid the tax. The court will first have to decide if the assessment that will apply in 2015 against those individuals who did not have health coverage in 2014 is a “tax” or a “penalty,” because the AIA only applies to “taxes.”  If the court finds that the AIA applies, it will not have to decide at this time whether or not the individual mandate is constitutional. It can “punt” the issue to 2015.
  • Individual Mandate — The main issue before the Court is whether the individual mandate violates the Commerce Clause, which authorizes Congress to regulate economic activity that affects commerce among the states. Or the “necessary and proper” clause, which says Congress has the power “to make all Laws which shall be necessary and proper” to carry out its other powers.  Opponents say the individual mandate is Congress’s attempt to regulate the economic “inactivity” of not buying health insurance, while proponents say the economic “activity” being regulated is participation in the national market for health care delivery, whether that activity is buying insurance or “self-funding.”  Even if the Court decides it is “inactivity,” the next question is whether the Commerce Clause allows Congress to regulate economic “inactivity” that affects interstate commerce.  The Court also will consider whether Congress had a rational basis to believe the individual mandate is an essential part of its larger economic plan to regulate and reform the interstate health insurance market. 
  •  Severability — If the Court invalidates the individual mandate, the next issue is whether the mandate is severable from the rest of the ACA, or whether the Court should invalidate the entire Act.  The legal standard is that a court should sever only what it needs to, not invalidate the entire law, but the law left standing should be able to function as Congress intended.  If the Court decides the individual mandate is severable from the rest of the Act, which other provisions should remain and which are so “inextricably intertwined” with the individual mandate that they cannot be left standing if the individual mandate is invalidated? 
  • Expansion of Medicaid — The ACA expands Medicaid eligibility to individuals with household incomes up to 133% of the federal poverty level (FPL) and requires Medicaid to provide “essential health benefits.”  This provision is projected to increase access to health care by 16 million people by 2020. Many states are financially strapped and cannot afford to increase their Medicaid budgets.  Medicaid is funded by both federal and state governments, but states must comply with federal requirementes to receive the federal funding.  States that do not comply will lose federal funds not only for the expansions to Medicaid, but also for their existing Medicaid programs.  During  2014 – 2017 the federal government will pay 100% of the Medicaid expansion; after 2017 states must pay 5%, and after 2020 states  must pay 10%. Many states receive over $1 billion annually from the federal government for their Medicaid programs, so even 5% and 10% is a lot of money.
Possible Outcomes
  • Uphold the individual mandate and the entire Act. 
    • In this case, the health care reform law continues to be implemented, with the main parts of the law becoming operational in 2015:  the individual mandate, the employer “shared responsibility” provisions and the health insurance Exchanges. Keep in mind, however, that Congress could still change or repeal the Act, even if the Supreme Court says it’s constitutional. If the Republicans win in the November elections, they have vowed to repeal the health care reform law. 
  • Decide that the Anti-Injunction Act applies and punt until 2015
    • I think this is unlikely, for several reasons.  First, this means the Affordable Care Act will continue to be implemented and the individual mandate will go into effect in 2014. If a majority of the Court believes the individual mandate is unconstitutional, it makes more sense to issue that decision now than to wait until 2015 when the government would have to un-do a law that has already been in effect for five years. Also, the Supreme Court could have declined to hear a health care reform case as soon as it has, so why take the case and then hold that the Court can’t hear it yet?
  • Invalidate the individual mandate but uphold the rest of the Act
    • This could result in Congress amending the Act, if they believe the Act overall cannot work without the individual mandate (especially the guaranteed issue and community rating provisions), or that additional provisions are necessary to enable the rest of of Act to function effectively without the individual mandate.
  • Invalidate the individual mandate and some other provisions of the Act
    • The big question is which other provisions also would be invalidated and which would be allowed to stand? The two provisions that many (including the Obama administration) argue are inextricably tied to the individual mandate are the guaranteed issue and community rating provisions.  The first is the requirement that insurance companies must sell policies to all who want to buy them, regardless of health status.  The second is the requirement that insurers cannot charge higher premiums to sick people than to those without negative health status factors.  The American Benefits Council (which represents large employers) argued in its brief to the Supreme Court that the employer shared responsibility provision also should be invalidated if the individual mandate is invalidated.
  • Invalidate the entire Act
    • Opponents of the Act argue that the entire Act should be invalidated. Then even those provisions that have already been implemented would be undone, such as: coverage for dependents to age 26, ban on pre-existing conditions limitations for participants to age 19, first-dollar coverage of preventive services, restrictions on annual and lifetime limits, ban on insurance companies rescinding coverage once it’s effective, and Medicare expansions for seniors.  I think it’s unlikely the Court will invalidate the entire Act.
  • Hold the Medicaid expansion unconstitutional
    • I think the Court will uphold the Medicaid expansion.

Whatever the outcome, it has huge ramifications for future court decisions on Congress’s power to regulate interstate commerce and on the balance of power between the federal and state governments.

Stay tuned for more updates each day as the Supreme Court hears arguments on March 26th, 27th and 28th.
  • March 26th — Anti-Injunction Act
  • March 27th — Individual Mandate
  • March 28th — Severability, and Medicaid Expansion

The justices of the Supreme Court who are generally expected to vote to uphold the individual mandate are: Ruth Bader Ginsburg, Elana Kagan, Sonia Sotomayor, and Stephen Breyer.  The justices expected to vote against it are Clarence Thomas and Samuel Alito.  Chief Justice John Roberts and Justices Anthony Kennedy and Antonin Scalia are seen as the “swing votes.”

An excellent website for up-to-the-minute coverage as well as background articles and summaries of other media coverage of the Health Care Reform case at the US Supreme Court is: http://www.kaiserhealthnews.org/

(Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization unaffiliated with Kaiser Permanente.)