On June 28, 2012, the U.S. Supreme Court issued its landmark decision substantially upholding the Patient Protection and Affordable Care Act (H.R. 3590) later referred to simply as the Affordable Care Act or ACA. A copy of the decision can be found here. 

Here are our Top Ten Take-Aways from the decision:

1. The primary issue was the constitutionality of the so-called Individual Mandate, i.e,  whether Congress could impose a “shared responsibility payment” on individuals who do not comply with the requirement that all individuals must maintain coverage for “essential health benefits." The U.S. Supreme Court has determined that the penalty was not within Congress’s authority to impose under the Commerce Clause.  Nevertheless, when characterized as a tax, this piece of the legislation was within Congress’s authority. 

2. Chief Justice Roberts joined the group of justices who are viewed to be more liberal and was the "cross-over" vote that sustained the law.  Justice Ginsberg issued a concurring opinion. Justices Scalia, Kennedy, Thomas and Alito, the more conservative members of the Court, dissented.

3. Before reaching the constitutionality of the Individual Mandate, the Court was first required to determine whether or not the case was ripe for consideration. Under the Anti-Injunction Act, a challenge to a tax is not ripe until the tax is first paid and then suit brought for a refund. But the “tax penalty” associated with the Individual Mandate is not effective until 2014. The Court determined that the legislation describes the shared responsibility payment as a penalty, not a tax, and that this description controlled in determining that the Anti-Injunction Act did not apply and the case was ripe. Here, the label controlled, not the true nature of the tax “penalty.”

4. The U.S. Constitution does limit the federal government in its ability to regulate the lives of individuals. The Court clearly held that the Commerce Clause is not so expansive as to mandate behavior. Congress has the power to regulate commerce, but does not have the power to compel it. Thus, citizens of the nation cannot be forced to purchase broccoli, at least under the Commerce Clause.

5. The Court upheld the Individual Mandate on other grounds, however, as Congress has considerably more authority to tax than to regulate. The Affordable Care Act and its sponsors describe the consequence of not maintaining required insurance as a "penalty," and the Court itself determined that the shared responsibility payment was not a tax for purposes of the label applied by Congress (see #3, above). In spite of this, the Court determined that for purposes of analyzing the provision's constitutionality, the “shared responsibility payment” is, in fact, a tax for the following reasons:

• The payment is established through an amendment to the Internal Revenue Code;
• The payment is not so high that there is really no choice but to buy health insurance;
• The payment is not limited to willful violations, as penalties for unlawful acts often are;
• The payment is collected solely by the IRS through the normal means of taxation;
• Neither the Affordable Care Act nor any other law attaches negative legal consequences to not buying health insurance other than requiring a payment to the IRS (the law expressly states that no criminal action or liens can be imposed on people who do not pay the fine).

6. Going forward, the law should be read as imposing a tax on those who go without insurance such that a person has a choice: have coverage or pay more in taxes.  Thus, the tax penalty associated with the Individual Mandate is another example of Congress motivating desired behavior through the Tax Code, perhaps akin to the concept that people who do not give to charity pay more in taxes.  

7. The Court also addressed whether Congress could impose a mandate on states to expand Medicaid coverage or face withdrawal of existing Medicaid funds. The Court described this as a gun to the head of the states. The Court's decision prohibits the Secretary of Health and Human Services from withdrawing funds from States for failure to comply with Medicaid's expansion.

8. Notwithstanding the Court's decision, the Individual Mandate is not likely to be effective. The penalty does not apply to members of certain religions, Native Americans, the incarcerated, those that can not afford individual coverage, those that have incomes below specified thresholds, and those for whom requiring the purchase of coverage would impose a hardship. Clearly very few if any non-taxpayers will voluntarily pay the penalty. These exceptions eliminate a large portion of the uninsured. The Individual Mandate also provides a very low penalty for those to whom it does apply. In 2014, the penalty is only $95 per person for the entire year, gradually increasing to $695 or 2.5% of income, whichever is higher. Furthermore, the law expressly states that no criminal action or liens can be imposed on people who do not pay the fine. Finally, Congress now requires insurance carriers to accept all applicants regardless of health status. The result begs the question, does this motivate individuals to forgo coverage, pay, or choose not to pay, a small fine, and then apply for coverage when they get sick? We anticipate massive non-compliance.

9. The Supreme Court case was a significant distraction due to the possibility that the entire law could have been overturned. Now that this is resolved, it may prove that there is not much real world difference in outcomes between today’s decision in which the Individual Mandate and most of the rest of the law are upheld and the scenario in which the Individual Mandate would have been struck down but the rest of the law permitted to remain. Because the Individual Mandate is unlikely to work anyway, it would appear to be a mistake for an insurance carrier or hospital to now change its business model to assume those in need of medical care will have coverage.

10. Although many employers will want to wait until after the November election to see if repeal or amendment of the law could thereafter occur, this will mean non-compliance with upcoming deadlines. These include the requirement that a Summary of Benefits and Coverage (SBC) must be developed and distributed during the open enrollment period most employers provide in the late fall and limiting of flexible spending account annual amounts to $2,500, among others. Furthermore, large employers are now required to report the value of coverage received on the 2012 Form W-2 for employees. We anticipate that these requirements will be enforced.

In his opinion, Justice Roberts stated, “the Court does not express any opinion on the wisdom of the Affordable Care Act. Under the Constitution, that judgment is reserved to the people.” We anticipate further election-year discussion as to this point.