Chadbourne & Parke's Marjorie Glover
Chadbourne & Parke's Rachel M. Santangelo
In a landmark decision, the Supreme Court of the United States has upheld the individual mandate provisions of the Patient Protection and Affordable Care Act ("Affordable Care Act"). As a result, the individual mandate and other sweeping health care reform provisions that were passed in March 2010 will remain in effect, at least for the time being. The Supreme Court decision does, however, limit the federal government's power to terminate state Medicaid funds.
SUPREME COURT RULING
The Supreme Court ruled 5-4 that the individual mandate is constitutional under Congress' taxation power. Chief Justice John Roberts Jr. cast the deciding vote. He wrote for the court that:
"Put simply, Congress may tax and spend. This grant gives the Federal Government considerable influence even in areas where it cannot directly regulate. The Federal Government may enact a tax on an activity that it cannot authorize, forbid, or otherwise control ... The Affordable Care Act's requirement that certain individuals pay a financial penalty for not obtaining health insurance may reasonably be characterized as a tax. Because the Constitution permits such a tax, it is not our role to forbid it, or to pass upon its wisdom or fairness."
Before reaching this conclusion, the Supreme Court considered and rejected the argument that the individual mandate was constitutional under the Commerce Clause or the Necessary and Proper Clause.
In a strongly worded dissent, Justice Antonin Scalia wrote, "to say that the Individual Mandate merely imposes a tax is not to interpret the statute but to rewrite it ... We have no doubt that Congress knew precisely what it was doing when it rejected an earlier version of this legislation that imposed a tax instead of a requirement-with-penalty ... Imposing a tax through judicial legislation inverts the constitutional scheme, and places the power to tax in the branch of government least accountable to the citizenry." Scalia, joined by Justices Samuel Alito, Anthony Kennedy and Clarence Thomas in a blistering dissent, wrote that they "would find the [Affordable Care] Act invalid in its entirety."
The Supreme Court also held that it is unconstitutional for the government to penalize states with the loss of their existing Medicaid funding if they decline to comply with the Affordable Care Act's Medicaid expansion provisions.
IMPACT OF DECISION
The Supreme Court's ruling is expected to have far-reaching political, economic, social and legal implications for years to come. It is expected to have a significant impact on many individuals, employers, insurers, health care providers and states. As a result of the Supreme Court decision, the sweeping health care reform provisions of the Affordable Care Act remain in effect. Here are some highlights of the decision's impact:
Individuals
Beginning in 2014, most individuals will be required to obtain health insurance coverage or pay a penalty. As currently structured, the penalty will equal the greater of: 1 percent of modified adjusted gross income (AGI) or $95 per person in 2014; 2 percent of AGI or $325 per person in 2015; and 2.5 percent of AGI or $695 per person in 2016, indexed for inflation in later years (subject to certain caps).
Individuals may satisfy the mandate by obtaining employer-sponsored coverage or purchasing an individual policy, including through an exchange. The law exempts from the individual mandate those who have income below the tax-filing threshold ($9,750 for single filers and $19,500 for married filing jointly, without children, for 2012), incur hardships, have religious objections, are not lawfully present in the United States, are incarcerated or are overseas.
Employers
Beginning in 2014, many employers will be required to offer minimum essential health coverage to employees or pay a penalty. Larger employers (those with at least 50 full-time employees) must offer qualifying health coverage or pay a penalty of $2,000 per full-time employee (except the first 30 employees). Employers, particularly those who have taken a "wait and see" approach towards planning for compliance with the Affordable Care Act, will now need to carefully review their options. Employers will need to assess whether to provide the requisite coverage, or whether to be subject to a penalty. Employers who have "grandfathered" plans will need to determine whether it is possible to remain grandfathered and exempt from some of the new health care reform provisions.
Employers subject to health care reform requirements must comply with reporting and disclosure and other provisions that have taken effect or will take effect in the near future. For example: Beginning with open enrollment periods starting on or after Sept. 23, 2012, employers must provide summaries of benefits and coverage for benefit packages offered for 2013 and later years; and beginning in March 2013, employers must provide employees with an explanation of health insurance exchange coverage and possible federal subsidy rights for low-income individuals.
The law also imposes incentives and requirements for wellness programs, prohibits discrimination in favor of highly paid employees and, starting in 2018, imposes a 40 percent excise tax on employers who sponsor "Cadillac plans" (plans with premiums exceeding an annual cost of $10,200 for an individual plan or $27,500 for a family plan).
Insurers
Insurers will be prohibited from discriminating or charging different premiums on the basis of health status or imposing lifetime or annual coverage limits or pre-existing condition limitations. Insurers will be required to provide preventive care without co-payment and dependent coverage until age 26. Beginning in 2014, insurers must offer minimum essential health benefits including ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services, including behavioral health treatment, prescription drugs, rehabilitative and habilitative services and devices, laboratory services, preventive and wellness services and chronic disease management, and pediatric services, including oral and vision care.
Health Care Providers
Health care providers will continue to prepare for the increased number of patients that may become insured as a result of the new law.
States
Beginning in 2014, states will be required to establish health care exchanges to provide coverage to the uninsured. To date, fewer than 15 states have established exchanges, and fewer than 20 other states have begun the process of studying options for exchanges. States must also decide whether to expand Medicaid coverage for certain adults without children.
FATE OF HEALTH CARE REFORM STILL UNCERTAIN
Although the Supreme Court has upheld the individual mandate provisions of the Affordable Care Act, other provisions of the law remain subject to potential challenge or repeal on other grounds. Litigation over the health care reform law may continue, such as challenges to the Independent Payment Advisory Board provisions and the requirement that "essential health benefits" include coverage of contraceptives. The Affordable Care Act is expected to play a large role in the November election. Depending upon the outcome of the election, efforts may be made to repeal, replace or modify the law. As a result, although the Supreme Court's decision has upheld the Affordable Care Act, the fate of such health reform remains somewhat uncertain.
Marjorie M. Glover is chair of the Employee Benefits and Executive Compensation Department of Chadbourne & Parke and co-chair of the firm's Employment Law Department. Rachel M. Santangelo is an associate in the firm's Employment Law Department. The authors can be reached at mglover@chadbourne.com and rsantangelo@chadbourne.com.
