Split Supreme Court Upholds Constitutionality Of Health Care Reform Law, Limits Medicaid

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By Mary Anne Pazanowski and Michelle Amber  

In a 5-4 decision, the U.S. Supreme Court June 28 declared constitutional a key provision of the federal health reform law, known as the individual mandate or minimum coverage provision, which requires virtually all U.S. citizens to obtain health care insurance or pay a penalty (NFIB v. Sebelius , U.S., No. 11-393, 6/28/12).

Chief Justice John G. Roberts cast the deciding vote to uphold the validity of the Patient Protection and Affordable Care Act's controversial provision, set to go into effect in 2014. The ruling, though, rested on somewhat unexpected grounds: Congress's power under the U.S. Constitution's taxing and spending clause.

While the “most straightforward reading” of the mandate is that it commands individuals to buy insurance, it also can be read merely as establishing a condition--lack of health insurance--that triggers a tax, Roberts said.

“Under that theory,” he wrote, “the mandate is not a legal command to buy insurance. Rather it makes going without insurance just another thing the Government taxes, like buying gasoline or earning income. And if the mandate is in effect just a tax hike on certain taxpayers who do not have health insurance, it may be within Congress's constitutional power to tax.”

Justice Ruth Bader Ginsburg, joined by Justices Stephen G. Breyer, Sonia M. Sotomayor, and Elena Kagan, wrote an opinion agreeing with Roberts in upholding the mandate on tax grounds, but they would have gone further and also found the provision valid under the commerce clause. Opponents had argued that Congress could not use the commerce clause to force individuals to engage in commercial activity by requiring them to purchase a commodity or service.

Justices Anthony M. Kennedy, Antonin Scalia, Clarence Thomas, and Samuel A. Alito dissented. Writing for the four, Kennedy said Congress exceeded federal power in enacting PPACA when it mandated the purchase of health insurance and threatened states with the loss of Medicaid funds if they refused to expand Medicaid in compliance with the health reform law. The “entire statute is inoperative,” Kennedy wrote for the dissenters.

Medicaid, Anti-Injunction Act.

In the other major holding, the majority left open a few questions about PPACA's Medicaid expansion provision. Roberts, Breyer, and Kagan would have held that the provision violates the Constitution by threatening states with the loss of existing funding if they decline to comply with the expansion. Ginsburg and Sotomayor would have upheld the provision in its entirety.

Taken together, the two opinions appear to hold that the Medicaid provision is constitutional, but only if the threat to the states for noncompliance is limited to loss of new funds provided under PPACA. The administration cannot take away from the states all existing Medicaid funds, the majority of justices said.

The court also held that the tax anti-injunction act (AIA), 26 U.S.C. § 7421(a), did not bar its consideration of the case on the merits. This statute strips courts of jurisdiction to hear pre-enforcement challenges to monetary extractions. Roberts wrote there was no reason to believe Congress, which characterized the payment due for noncompliance with the mandate as a “penalty,” intended it to be treated as a tax for purposes of the AIA.

Since the majority upheld the individual mandate, it did not reach the question of whether portions of PPACA could be severed and ruled on independently from the rest. The dissenters would have invalidated the entire law.

Case History.

The case stemmed from three separate petitions for review of a decision by the U.S. Court of Appeals for the Eleventh Circuit. In a split opinion, the appeals court held the mandate unconstitutional. The commerce clause did not give Congress authority to require individuals to purchase products they did not want, the appeals court said.

The Eleventh Circuit also determined that the individual mandate could not survive as an exercise of Congress's taxing power. Congress repeatedly referred to the mandate as imposing a “penalty,” not a “tax,” for noncompliance. Courts uniformly held that the penalty could not be considered a tax for constitutional purposes, the Eleventh Circuit observed.

The court also found PPACA's Medicaid expansion provision constitutional. It said Congress has authority under the spending clause to place conditions on outlays of federal funds and that the condition in question was not unduly coercive.

Finally, the court held that the individual mandate, though unconstitutional, could be separated from the remainder of PPACA, thus saving the rest of the law.

The parties challenging the law--26 states, led by Florida--and the National Federation of Independent Business--an advocacy group for small businesses--filed separate petitions arguing against the Eleventh Circuit's severability ruling. The states also asked the court to review the Medicaid expansion question.

The Obama administration filed its own petition requesting the court to review the constitutional issue and determine whether Congress had authority to enact the individual mandate.

The high court granted all three petitions (29 HRR 1237, 11/21/11) and heard oral arguments over three days in late March (30 HRR 344, 4/2/12).

Employer Groups Disappointed.

Groups representing employers expressed disappointment with the Supreme Court's June 28 decision.

The National Association of Manufacturers said the ruling does not end the association's efforts to lower health care costs.

“Since the beginning of the health care debate, manufacturers have consistently made it clear that lowering costs should be the central focus of any health care reform effort,” said NAM President and Chief Executive Officer Jay Timmons.

Noting that 97 percent of manufacturers offer “generous health benefits to their employees,” he said “skyrocketing health care costs represent the single biggest obstacle for them continuing to do so. It is clear that the Affordable Care Act did not address this issue and, in fact, will make matters worse.”

Timmons said there is still a lot of work to be done to reduce health care costs. “Escalating health care costs are job killers, forcing manufacturers to pay more in premiums rather than investing in their business and creating jobs,” he said.

The NAM president called on Congress to repeal PPACA and replace it with reforms that benefit manufacturers and their employees. Implementation of legal liability reform and enhancement of competition by allowing insurance to be purchased across state lines, as well as increasing the focus on preventive medicine are all “actions that would address the high health care costs that harm manufacturers across the United States.”

U.S. Chamber of Commerce President and Chief Executive Officer Thomas J. Donohue said the decision does not change “the reality that the health care law is fundamentally flawed. Left unchanged, it will cost many Americans their employer-based health insurance, undermine job creation, and raise health care costs for all,” he contended.

Donohue said it is “imperative that policymakers and the business community now work together to develop and support genuine reforms that control costs, improve access, ensure quality, and promote wellness.” He added that the chamber and the business community “are ready to go to work to enact true health care reform.”

Unions Support Decision.

Union leaders, on the other hand, cheered the decision upholding the comprehensive national health care law.

AFL-CIO President Richard Trumka said the country now can move forward with implementing and building upon PPACA.

“With this decision, more than 105 million Americans will continue to benefit from the elimination of lifetime limits and the coverage of preventive services without cost-sharing, and more than 6 million young adults will remain covered by their parents' health care plans,” Trumka said.

The AFL-CIO president contended that PPACA is only the first step in expanding health care coverage, improving care, and controlling costs, and the country needs to build on PPACA, Medicare, and Medicaid to “fix our broken health system and advance along the path to a more equitable and cost-effective system.”

National Nurses United, which represents 175,000 registered nurses across the country, agreed the decision “should not be seen as the end of the efforts by health care activists for a permanent fix of our broken healthcare system.”

The union plans to step up its campaign for a “universal program based on patient need, not on profits, or ability to pay. That's Medicare for all,” NNU Co-President Jean Ross, said in a June 28 statement.

According to the union, the Affordable Care Act still leaves some 27 million people without health coverage, does little to constrain costs, or to stop denials of needed care by insurance companies “because they don't want to pay for it.”

The union's members who see patients every day say the health care crisis is greater than ever as the economic crisis in this nation persists, according to NNU Co-President Karen Higgins. Because of the economy, “we will continue to see a steady stream of employers dropping health coverage or shift more and more costs to their employees,” she contended.

By Mary Anne Pazanowski and Michelle Amber  

Text of the opinion is available at http://op.bna.com/hl.nsf/r?Open=mapi-8vpkj5.

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