Supreme Court Upholds the ACA’s Individual Mandate and Strikes Down the Medicaid Expansion Mandate
By Christine Locay, JD, RHIA, CPC, Vice President, Compliance Counsel and
Rick Snow, JD, MHA, Senior Vice President of Legal Affairs and General Counsel
On June 29, 2012, the Supreme Court upheld President Obama’s health care reform law of 2010, the Patient Protection and Affordable Care Act (ACA). The ACA is a voluminous law that addresses many facets of the health care industry such as Medicaid expansion, health care exchanges, employer benefit plans, and fraud and abuse. This alert discusses the Court’s decision and implications of the ACA for various sectors of the health care industry.
The Supreme Court Decision
Since passage, more than twenty four cases were filed by states and other entities challenging the constitutionality of various provisions of the ACA, but the cases focused on two major provisions: the individual mandate and the mandate requiring state expansion of Medicaid programs.
1. Individual Mandate
First, the plaintiffs challenged the ACA’s individual mandate which requires that:
(a) An individual must maintain minimum essential coverage for each month beginning after 2013; and
(b) If there is a failure to maintain minimum essential coverage, a “penalty” is imposed “on the taxpayer” of $695 per year or 2.5% of family income, whichever is greater.
26 U.S.C. § 5000A.
The ACA requires that the penalty “be assessed and collected in the same manner as taxes.” Thus, the IRS will be the agency enforcing the mandate.
For every statute, Congress must have a specific power under the Constitution in order to support passage. Opponents of the law argued Congress exceeded its authority by enacting a mandate which required individuals to engage in an activity (i.e., purchase health insurance). States contended the Commerce Clause (which allows Congress to regulate interstate commerce) did not support the ACA because Congress was compelling participation, not regulating an ongoing activity. It was also asserted Congress could not pass the law as a tax because the ACA was passed as a “penalty,” not a tax.
A majority of the Court agreed regarding the first argument that Congress did not have authority under the Commerce Clause to compel individuals to purchase health insurance; however, a different majority of the Court surprisingly held that Congress did have authority to mandate the purchase of health insurance under its taxing authority.
On one hand, the Court reasoned the Anti-Injunction Act (which bars suits seeking to restrain tax collection) did not bar the suit because Congress called the mandate a “penalty,” not a tax. On the other hand, in analyzing Congress’s taxing power, the Court looked beyond the “penalty” label and held Congress could have reasonably intended the mandate to be a tax. Thus, the Court was able to uphold the ACA’s individual mandate by arguing it was not a tax in one instance and was a tax in another. Despite the rationale, one thing is clear–the mandate is constitutional, and as of 2014, all individuals will be required to obtain health insurance coverage or pay a “penalty/tax.”
2. Medicaid Expansion Mandate
The second issue opponents challenged is the ACA’s provision which mandates Medicaid coverage for all individuals and families with incomes up to 133% of the federal poverty level (about $30,000 annually for a family of four). While many think Medicaid covers all individuals at a certain poverty level, in fact, most Medicaid programs limit coverage to pregnant women, children, seniors, and the disabled.
Under the ACA, the federal government would pay 100% of the costs of the expansion for newly eligible Medicaid beneficiaries from 2014 to 2016 with the federal funding tapering off until 2020; however, the federal government will not cover the costs of previously eligible Medicaid beneficiaries that decide to enroll in Medicaid.
Because Medicaid is partially federally funded (from 50-83%, depending on the state), the 1965 Medicaid statute enables the federal government to withhold funding from states that are out of compliance with federal law. The ACA is the first attempt by the federal government to make good on this threat. States argued the threat to withhold all Medicaid federal funding if states did not expand Medicaid eliminated a state’s choice to implement Medicaid programs and was therefore coercive.
The Supreme Court held that the condition requiring Medicaid expansion was coercive and ruled the provision permitting the government to withhold federal Medicaid funds was unconstitutional. The Court also held this provision was severable from the ACA; therefore, the Court did not strike down the entire ACA. Instead, the Court ruled the federal government is precluded from withholding Medicaid funds from states for refusing to expand Medicaid coverage.
Now that states do not have to expand Medicaid coverage, the question becomes whether they will. Twenty six states opposed the Medicaid coverage mandate, but it is unlikely most of these states will refuse to expand coverage. First, states may decide to expand coverage because the federal government will cover the entire cost of expansion from 2014 to 2016. Second, if a state does not expand coverage, the cost of care for the uninsured will continue to burden hospitals that must provide emergency care. On the other hand, some conservative governors may decide on political or philosophical grounds to refuse Medicaid expansion.
If Mitt Romney is elected President in November, he has vowed to repeal the ACA day one of his presidency; however, total repeal is almost impossible as it is unlikely Republicans will secure the 60 seats necessary to prevent Democrats from filibustering a repeal of the legislation. In addition, even if Republicans secure sufficient seats, it is unlikely Congress will totally repeal the ACA given that it has been in effect since 2010, the popularity of certain provisions and many sectors have already begun compliance efforts.
In absence of repeal, Romney has stated he will stop (or at least impede) implementation of the ACA by granting waivers to all 50 states. Romney could also stall implementation of the Act by slowing the agency rulemaking process or refusing to appoint bureaucrats necessary to implement the ACA.
The overall takeaway is that the ACA is here to stay. While a Romney administration could affect the implementation timeline of some of the provisions of the ACA, it is unlikely that a total repeal will occur.
Implications for Individuals, Providers, Employer Benefit Plans, and Payors
The ACA contains many provisions affecting individuals, providers, employer benefit plans, and payors. The Kaiser Foundation has published a timeline with the implementation dates of the ACA’s provisions. The major provisions as well as the implementation years are included below.
- Review of health plan increases – Requires the federal government to create a process, in conjunction with states, where insurers have to justify unreasonable premium increases. Provides grants to states for reviewing premium increases.
- Pre-existing condition coverage plan – Creates a temporary program to provide health coverage to individuals with pre-existing medical conditions who have been uninsured for at least six months. The plan will be operated by the states or the federal government.
- Adult dependent coverage up to age 26 – Extends dependent coverage for adult children up to age 26 for all individual and group policies.
- Minimum medical loss ratio for insurers – Requires health plans to report the proportion of premium dollars spent on clinical services, quality, and other costs and provide rebates to consumers if the share of the premium spent on clinical services and quality is less than 85% for plans in the large group market and 80% for plans in the individual and small group markets.
- Medicare prevention benefits – Eliminates cost-sharing for Medicare-covered preventive services that are recommended (rated A or B) by the U.S. Preventive Services Task Force and waives the Medicare deductible for colorectal cancer screening tests; authorizes Medicare coverage for a personalized prevention plan, including a comprehensive health risk assessment.
- Changes to tax-free savings accounts – Excludes the costs for over-the-counter drugs not prescribed by a doctor from being reimbursed through a Health Reimbursement Account or health Flexible Spending Account and from being reimbursed on a tax-free basis through a Health Savings Account or Archer Medical Savings Account. Increases the tax on distributions from a health savings account or an Archer MSA that are not used for qualified medical expenses to 20% of the amount used.
- Funding for health insurance exchanges – Provides grants to states to begin planning for the establishment of American Health Benefit Exchanges and Small Business Health Options Program Exchanges, which facilitate the purchase of insurance by individuals and small employers.
- Medicare Independent Payment Advisory Board (IPAB) – Establishes an Independent Advisory Board, comprised of 15 members, to submit legislative proposals containing recommendations to reduce the per capita rate of growth in Medicare spending if spending exceeds targeted growth rates.
- Accountable Care Organizations in Medicare – Allows providers organized as accountable care organizations (ACOs) that voluntarily meet quality thresholds to share in the cost savings they achieve for the Medicare program. See the ASA’s analysis of the rule on ACO’s.
- Uniform coverage summaries for consumers – This provision of the Affordable Care Act (ACA) that requires private individual and group health plans to provide a uniform summary of benefits and coverage (SBC) to all applicants and enrollees. The intent is to help consumers compare health insurance coverage options before they enroll and understand their coverage once they enroll.
- Medicare provider payment changes – Adds a productivity adjustment to the market basket update for certain providers, resulting in lower rates than otherwise would have been paid.
- Fraud and abuse prevention – Establishes procedures for screening, oversight, and reporting for providers and suppliers that participate in Medicare, Medicaid, and CHIP; requires additional entities to register under Medicare.
- State notification regarding exchanges – States indicate to the Secretary of HHS whether they will operate an American Health Benefit Exchange.
- Medicare bundled payment pilot program – Establishes a national Medicare pilot program to develop and evaluate making bundled payments for acute, inpatient hospital services, physician services, outpatient hospital services, and post-acute care services for an episode of care.
- Expanded Medicaid coverage – Creates a state option to provide Medicaid coverage to childless adults with incomes up to 133% of the federal poverty level. The Supreme Court struck down the requirement that states must provide this coverage.
- Individual requirement to have insurance – Requires U.S. citizens and legal residents to have qualifying health coverage (there is a phased-in tax penalty for those without coverage, with certain exemptions).
- Health insurance exchanges – Creates state-based American Health Benefit Exchanges and Small Business Health Options Program (SHOP) Exchanges, administered by a governmental agency or non-profit organization, through which individuals and small businesses with up to 100 employees can purchase qualified coverage. Exchanges will have a single form for applying for health programs, including coverage through the Exchanges and Medicaid and CHIP programs.
- Guaranteed availability of insurance – Requires guarantee issue and renewability of health insurance regardless of health status and allows rating variation based only on age (limited to a 3 to 1 ratio), geographic area, family composition, and tobacco use (limited to 1.5. to 1 ratio) in the individual and the small group market and the Exchanges.
- No annual limits on coverage – Prohibits annual limits on the dollar value of coverage.
- Employer requirements – Assesses a fee of $2,000 per full-time employee, excluding the first 30 employees, on employers with more than 50 employees that do not offer coverage and have at least one full-time employee who receives a premium tax credit. Employers with more than 50 employees that offer coverage but have at least one full-time employee receiving a premium tax credit, will pay the lesser of $3,000 for each employee receiving a premium credit or $2,000 for each full-time employee, excluding the first 30 employees.
The Affordable Care Act: The U.S. Supreme Court Decides, webcast, Covington & Burling (June 29, 2012).
Health Care in the High Court: The Supreme Court Decision,” webcast, McDermott Will & Emery (June 29, 2012).
Kaiser Health Reform Source, Timeline for Implementation.
Patient Protection and Affordable Care Act, Healthcare.gov, (full merged text of the Affordable Care Act).
The information presented herein reflects general information that is current as of the date it was first published. In light of changes that may occur in the health care regulatory and compliance environments, the author’s presentation of this information might become outdated. Please check with your individual legal and/or compliance advisor(s) prior to taking any significant actions based upon the information and advice presented. This alert does not constitute legal advice.