Expanation of the Patient Protection and Affordable Care Act (PPACA)

Supreme Court upholds health care legislation, including individual mandate

National Federation of Independent Business v. Sebelius, (Sup Ct 6/28/2012) 109 AFTR 2d ¶2012-890

In its landmark decision, the Supreme Court, by a margin of 5-4, has largely upheld the Patient Protection and Affordable Care Act (PPACA), including the controversial individual mandate. The majority opinion, written by Chief Justice Roberts, concluded that the mandate is a valid exercise of Congress's taxing power.

Although the individual mandate was the “main event” of the trial, PPACA also enacted a host of tax and other changes, including significant changes to the Medicaid system. The Court held that PPACA's expansion of Medicaid is constitutional, but that Congress cannot penalize non-participating states by taking away their existing Medicaid funding. The other PPACA provisions are left intact.

Background on the individual mandate. For tax years ending after Dec. 31, 2013, non-exempt U.S. citizens and legal residents will have to maintain minimum essential health insurance coverage or pay a penalty. “Minimum essential coverage” includes government sponsored programs (e.g., Medicare, Medicaid, Children's Health Insurance Program), eligible employer-sponsored plans, plans in the individual market, certain grandfathered group health plans and other coverage as recognized by Health and Human Services (HHS) in coordination with IRS. (Code Sec. 5000A)

Background on PPACA's Medicaid changes. Medicaid and the Children's Health Insurance Program (CHIP) currently provide health coverage to almost 60 million Americans. Those covered include children, pregnant women, parents, seniors and individuals with disabilities. Federal law requires states to cover certain population groups in order to participate in Medicaid, with flexibility to cover other optional population groups. Many states determine a group's eligibility for Medicaid in reference to a percentage of the Federal Poverty Level (FPL). The Federal government generally pays about half of each state's Medicaid costs, and States' receipt of this funding is conditioned on following certain Federal guidelines.

Among other things, PPACA's changes to Medicaid include:

... effective Jan. 1, 2014, creating a nationwide minimum eligibility level of 133% of the FPL for nearly all Americans under age 65, with 100% of newly eligible recipients' costs funded by the Federal government through 2016 and eventually declining to 90%;

... requiring states to provide Medicaid to all children whose families earn up to 133% of the FPL, including children covered through separate CHIP programs;

... establishing a level of “minimum essential coverage” that States must provide; and

... effectively prohibiting states from establishing stricter eligibility standards or procedures than those in place as of Mar. 23, 2010.

The Federal government generally pays about half of each State's Medicaid costs, and States' receipt of this funding is conditioned on complying with certain requirements.

Background on other PPACA changes. In addition to the individual mandate and the Medicaid expansion, PPACA also carries the following tax provisions:

... The premium assistance credit under Code Sec. 36B.

... The small employer health insurance credit under Code Sec. 45R, for tax years beginning after Dec. 31, 2009.

... Qualification of a child under age 27 as a dependent for employer-provided and other health coverage exclusions under Code Sec. 106 and Code Sec. 105(b).

... For tax years beginning after Dec. 31, 2013, a reimbursement (or direct payment) for the premiums for coverage under any “qualified health plan” through a health insurance Exchange is a qualified benefit under a cafeteria plan if the employer is a qualified employer. (Code Sec. 125(f)(3)(B)) Otherwise, reimbursement (or direct payment) for the premiums for coverage under any qualified health plan offered through an Exchange is not a qualified benefit under a cafeteria plan. (Code Sec. 125(f)(3)(A))

... For months beginning after Dec. 31, 2013, large employers that don't offer health care coverage for its full-time employees, offers minimum essential coverage that is unaffordable, or offers minimum essential coverage that consists of a plan under which the plan's share of the total allowed cost of benefits is less than 60%, must pay a penalty if any full-time employee is certified to the employer as having purchased health insurance through a state exchange with respect to which a tax credit or cost-sharing reduction is allowed or paid to the employee. (Code Sec. 4980H)

Issues before the Court. The issues facing the Court were whether the Anti-Injunction Act (AIA) barred the Court from considering the constitutionality of the mandate and associated penalty (see Weekly Alert ¶  39  03/29/2012 for more details); whether Congress acted within its powers, under either the Commerce Clause or its taxing power, in enacting the mandate (see Weekly Alert ¶  36  03/29/2012); whether the remainder of PPACA would be viable if the mandate were struck down (see Weekly Alert ¶  13  04/05/2012); and whether PPACA's Medicaid expansion is coercive (see Weekly Alert ¶  14  04/05/2012).

Supreme Court's decision. In a 5-4 decision, with Chief Justice Roberts writing for the majority (including Justices Ginsberg, Sotomayor, Breyer, and Kagan), the Supreme Court upheld PPACA and the individual mandate.

As an initial matter, the majority readily disposed of the argument that the AIA barred consideration of the mandate since it, and the accompanying non-compliance penalty, were not yet enforceable. For purposes of the AIA, which applies to suits “for the purpose of restraining the assessment or collection of any tax,” the Court found it significant that Congress chose to describe the so-called “shared responsibility payment” as a penalty, and not as a tax. (Code Sec. 5000A(b), Code Sec. 5000A(g)(2))

The Court then found that the individual mandate fell within Congress's taxing power. Noting that PPACA can be read in multiple ways, the majority found that one possible reading is that the mandate doesn't so much order individuals to buy insurance, but rather imposes a tax on those who do not. The lack of insurance is merely a pre-condition to the tax. Although this may not be the “most natural interpretation,” it is nonetheless a reasonable one that should be considered in deciding whether a statute is constitutional. Significantly, the shared responsibility payment also shares many attributes of a tax, such as producing revenue for the government and being paid when taxpayers file their returns.

The Court also acknowledged that although the payment is described in PPACA as a penalty, and although that is controlling for AIA purposes, this label isn't dispositive for evaluating whether it fell within Congress's taxing power.

Turning to the Medicaid provisions, the Court (Chief Justice Roberts, joined by Justices Breyer and Kagan) was troubled by the fact that states that fail to accept these new conditions could potentially lose not only the new funding associated therewith, but all Medicaid funds. This potential loss didn't merely reflect a grant of funds accompanied by conditions, but was more akin to “a gun to the head,” crossing the line from persuasion to coercion. Thus, the Court found that the Secretary of Health and Human Services can't “withdraw existing Medicaid funds for failure to comply with the requirements set out in the expansion.” However, the overall Medicaid expansion, and conditioning of new funds of the States' acceptance of the new terms, was otherwise upheld.

The majority's opinion was overall based on the enumerated powers of the legislature and principles of judicial restraint. No doubt sensitive to the political tension associated with this case, Chief Justice Roberts reiterated on several occasions that the role of the Court wasn't to evaluate whether PPACA reflected sound policy, but rather to determine whether Congress exceeded its powers in enacting it.

Concurrences. Justice Ginsberg filed an opinion (joined by Justice Sotomayor, and joined in part by Justices Breyer and Kagan) concluding that the individual mandate was a valid exercise under the Commerce Clause, and that the Medicaid expansion was valid under the Spending Clause. Citing findings that the large number of uninsured individuals imposes a heavy burden on the national health care market, as well as on individuals who do buy insurance and effectively subsidize care provided to the uninsured, Justice Ginsberg found that the minimum coverage provision fell squarely within Congress's authority under the Commerce Clause. Notably, the uninsured as a class substantially affect interstate commerce; the problem involves billions of dollars of health care products and services; and the underlying goods (and the uninsured individuals) routinely cross state lines. Justice Ginsberg also found that the minimum coverage provision bore a “reasonable connection” to Congress's goal of preventing distortions to the health care market based on those who fail to obtain insurance.

With regard to the Medicaid expansion, Justice Ginsberg would favor upholding the law as written under Congress's spending power. She also disagreed with Chief Justice Roberts' characterization of the Medicaid expansion as a virtual repeal of its current version. However, given the majority's holding that the potential loss of funding to the States is coercive, Justice Ginsberg agrees with the remedy.

Dissents. A strongly worded dissent jointly filed by Justices Scalia, Kennedy, Thomas, and Alito (collectively, the “dissenters,” with no single Justice claiming authorship) concludes that, although Congress has the constitutional authority to address the nation's health care problems, the “complex structures and provisions” of PPACA nonetheless exceed its powers.

The dissenters first conclude that failure to engage in economic activity, despite having an effect on commerce, is an insufficient basis to support federal regulation. (Chief Justice Roberts, structurally in the majority's opinion but writing only for himself, similarly concluded that regulation under the Commerce Clause was predicated upon something to regulate, and thus couldn't be based on inactivity.) The dissenters also disagree with the majority's assertion that nearly all individuals are a part of the health care marketplace.

With regard to the taxing power, the dissenters question how the shared responsibility payment can be both a penalty and a tax. They also framed the issue differently—not as whether Congress had the power to enact the minimum coverage provision as a tax, but rather it in fact did so—and concluded that construing the payment as such was more akin to “judicially rewriting” the statute. Notably, the payment is repeatedly referred to as a penalty, and it's imposed essentially as a punishment for failing to obtain insurance, not as an enforced contribution to support the government.

The dissenters also found that PPACA didn't merely “compel the states to participate in the expanded Medicaid program,” but rather “authorizes a severe sanction for any State that refuses to go along: termination of all of the State's Medicaid funding.” This, concludes the dissenters, exceeds Congress's authority to attach conditions to money granted to the States in that the States have no meaningful choice in whether the accept the conditions.

Finding that PPACA “exceeds federal power both in mandating the purchase of health insurance and in denying nonconsenting States all Medicaid funding,” and that these provisions are central to the design and operation of PPACA, the dissenters would strike down PPACA in its entirety.

White House response. In remarks following the Supreme Court's decision, President Obama characterized the individual mandate as ensuring that “people who can afford to buy health insurance... take the responsibility to do so.” He emphasized that “what the country can't afford to do is re-fight the political battles of two years ago, or go back to the way things were.”

What next? The Supreme Court's decision legitimized what has been, and what will no doubt remain, a controversial and hotly debated law. Despite the Court's upholding of the law as constitutional, it still remains subject to attack. In a press release, House Majority Leader Eric Cantor (R-VA) announced following the decision that he has scheduled a vote on Wednesday, July 11, to repeal PPACA in its entirety. Health care and PPACA 

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