Supreme Court Largely Upholds Health Reform

The U.S. Supreme Court upheld the health reform law (PPACA),  except for the federal government’s power to terminate states’ existing federal Medicaid funds for states not agreeing to participate in the law’s Medicaid expansion that begins in 2014. Many decisions were 5-4, with different combinations of justices for different issues. Chief Justice Roberts proved to be the critical swing vote.

    Seven justices agreed that the sanction for not participating in the Medicaid expansion is unconstitutional. While the Medicaid expansion was ruled constitutional, the Court held that it is unconstitutional for the federal government to withhold existing Medicaid funds for non-compliance with the expansion provisions.[1]  Under health reform, in 2014 individuals are eligible for Medicaid if their income is less that 133% of the federal poverty level (FPL). The current Medicaid program offers federal funding to states to pay for healthcare for pregnant women, children, needy families, the blind, the elderly, and the disabled. 42 U. S. C. §1396d(a).Many states now cover adults with children but only if their income is considerably lower than 133% of FPL, and do not cover childless adults at all. If some (perhaps many) states do not accept this Medicaid expansion (because the new federal funds for the expansion may well be less than the cost to the state), the Supreme Court  decision may gut part of the safety net for people in states who decide not to participate in Medicaid expansion. However, many likely will be able to get free care as they do now from hospitals and physicians.The Court ruled that the individual mandate[2] (the tax penalty for those with no health insurance) is not authorized by the Commerce Clause[3] or the Necessary and Proper Clause, but is valid because the federal taxing power allows it.[4] The individual mandate is construed as a tax on individuals: “Our precedent demonstrates that Congress had the power to impose the exaction in Section 5000A under the taxing power, and that Section 5000A need not be read to do more than impose a tax. This is sufficient to sustain it.” The only effect of not complying with the mandate is that one must pay the tax. The Supreme Court stated that this decision was not precluded by the Anti-Injunction Act,[5] which requires a tax to be assessed by the IRS before its validity can be ruled upon because PPACA calls it a penalty, not a tax.[6]  Nevertheless, it is a tax for purposes of the taxing power.[7]

    Implications of Supreme Court Decision

    A. Medicaid Expansion Not Fully Implemented. If some states decide not to participate in the Medicaid expansion because the new federal funds are less than the extra costs to the state, the burden for the care of those persons who would have been covered is shifted from federal and state governments to free care provided by hospitals and physicians, as is now the case.

    B. Health Reform May Still Be In Jeopardy. The mandate system was the second choice of many Democrats. It was an alternative to a “public option.” With the individual mandate upheld, what will happen? One possible scenario is:

    (1)   The US will implement health reform.

    (2)   Republicans will campaign on repeal but that that will not happen unless there are more Republicans in the Senate after the Nov. 2012 elections. The Senate traditionally has required 60 votes to avoid a filibuster by the other side, but health reform was passed by a majority with fewer than 60 votes.

    (3)   The mandate system, Medicaid expansion, and state run exchanges may perform poorly and be more expensive than predicted. Many states that agree to participate in health reform’s Medicaid expansion may face severe budget pressures. However, health reform could reduce the amount of cost shifting to small business insurance.

    (4)   The idea for a public option to be added to existing options will again be discussed. If passed, the public option could force private insurance to be priced out of business, perhaps then leading to a federal government single-payor plan.


    [1] Chief Justice Roberts’ opinion, joined by Justices Breyer and Kagan, contains the narrowest rationale and is controlling. When Congress threatens to terminate other grants as a means of pressuring the States to accept a Spending Clause program, the legislation runs counter to this Nation’s system of federalism. Justice Ginsburg, joined by Justice Sotomayor, upheld the expansion on a broader ground. Construing the Commerce Clause to permit Congress to regulate individuals precisely because they are doing nothing would open a new and potentially vast domain to congressional authority.

    [2] The mandate does not apply to some individuals, such as prisoners and undocumented aliens. IRC §5000A(d).

    [3] , Chief Justice Roberts wrote a separate opinion. Justice Scalia also wrote an opinion, joined by Justices Kennedy, Thomas, and Alito.

    [4] The individual mandate requiring most Americans to maintain “minimum essential” health insurance coverage, IRC §5000A, was affirmed as an exercise of Congress’s taxing power. Chief Justice Roberts wrote the opinion, joined by Justices Ginsburg, Breyer, Sotomayor, and Kagan.

    [5] IRC §7421(a).

    [6] The Anti-Injunction Act applies to suits “for the purpose of restraining the assessment or collection of any tax.” IRC §7421(a).

    [7] Neither the Affordable Care Act nor any other law attaches negative legal consequences to not buying health insurance, beyond requiring a payment to the IRS. Congress’s choice of language—stating that individuals “shall” obtain insurance or pay a “penalty”—does not require reading §5000A as punishing unlawful conduct. It may also be read as imposing a tax on those who go without insurance. Justices Scalia, Kennedy, Thomas, and Alito dissented, stating that calling something a tax for one purpose and a penalty for another is sophistry.