Supreme Court Upholds Health Care Reform

June 28, 2012Articles

Today, by a 5-4 vote, on the strength of an opinion authored by Chief Justice John Roberts, the United States Supreme Court upheld the individual mandate in the Patient Protection and Affordable Care Act (“ACA”) signed into law by President Obama on March 23, 2010. View the decision. The Court rejected the argument that Congress had the authority under the Commerce Clause to require individuals to purchase health insurance. However, the Chief Justice deemed the individual mandate a “tax” for constitutional purposes, and then ruled that Congress had the constitutional authority to tax people who did not buy insurance. Seven members of the Court held that Congress lacked the constitutional authority to punish states that refused to expand Medicaid as provided by the ACA.

The Decision

The Chief Justice ruled that the Commerce Clause did not authorize Congress to impose the individual mandate. However, he determined that the individual mandate was properly conceived of as a “tax” for constitutional purposes, notwithstanding Congress’s refusal to characterize it as such, and then ruled that Congress has the constitutional authority to tax people who do not buy insurance. The Chief Justice noted that the Congressional authority to tax is not unlimited, stating that “there comes a time when…a so-called tax…becomes a mere penalty with the characteristics of regulation of punishment.” However, because the individual mandate (termed by Congress a “shared responsibility payment”) does “pass muster as a tax…we need not here decide the precise point at which an exaction becomes so punitive that the taxing power does not authorize it.” He further ruled that Congress lacked constitutional authority under the Spending Clause to punish states that refuse to expand Medicaid as required by the ACA.

Justices Ginsburg, Sotomayor, Breyer and Kagan concurred with the Chief Justice’s opinion, but on the grounds that Congress had authority under the Commerce Clause to impose the mandate. Justices Ginsburg and Sotomayor dissented from the Chief Justice’s ruling that Congress over-reached by punishing states that refused to expand Medicaid. However, Justices Breyer and Kagan agreed with the Chief Justice and the dissenters on this point.

Justices Kennedy, Alito, Scalia and Thomas dissented from the individual mandate ruling, arguing that the ACA was unconstitutional in its entirety. However, they joined the Chief Justice and Justices Breyer and Kagan in striking down the Medicaid penalty provision.

What It Means

The Court’s decision will provide lawyers and scholars with years of material. On the one hand, the decision limits the Congressional Commerce Clause and Spending power, but on the other hand, it substantially expands the Congressional power to tax without articulating any limiting principle. Essentially, the law as it now stands is that Congress has the power both to tax a person who buys a product, and to tax a person who refrains from buying that very product. In other words, Congress may tax everything and nothing at all.

In more practical terms, absent ACA modification or repeal, providers and business of all sizes must prepare to meet substantial, complex and expensive compliance obligations. For now, the ACA’s regulatory machinery will operate without effective checks, balances or limits. Here is what the decision means to you.

  • ACA implementation, including all of the taxes, regulatory boards and insurance pools and requirements, will continue. This means a heavy regulatory burden for providers and businesses and, in the near term, substantial disruption in the insurance markets. 
  • Individual patients will not see changes in the availability, nature, and quality of healthcare overnight, but will certainly do so within three to five years. The ACA front-loaded benefits (e.g. removal of pre-existing condition limits) but back-loaded burdens (e.g. limits on care, taxes, insurance pools). The burdens now will be felt in full force. Many taxpayers, including medical device manufacturers, will see their bills rise substantially. 
  • Providers and the myriad of other businesses subject to some sort of regulation under the ACA (including tanning salons and chain restaurants) will face major compliance challenges.

Please feel free to contact us for more information regarding the decision, the ACA and what your business must do to comply with its requirements.