Monday, July 2, 2012

The Affordable Care Act Decision - A Review

Today’s post is written by my associate Jennifer Arlin and is about yesterday’s decision by the United States Supreme Court on the Affordable Care Act (not so affectionately also called “Obamacare”). This is a very important decision for two reasons: first, it substantially affects the health care needs of 330 million Americans, 40 million of whom do not have health care.  Second, it substantially affects Congress’s ability to pass laws under the “commerce clause” power. This first article is about the act itself and what was upheld and what was struck down. A future article will address the significant restrictions imposed on Congress’s authority by this decision.  - SMB

The Supreme Court’s Decision on the Affordable Care Act: 
What You Need to Know
By Jennifer B. Arlin

On June 28, 2012, the United States Supreme Court issued its long-awaited decision in National Federation of Independent Business et al. v. Sebelius, upholding many of the provisions of the Affordable Care Act (the “ACA”), Congress’s much-discussed and much-criticized attempt at overhauling the health care system in the United States.  The Court held that the Congressional mandate that each person had to have health insurance was constitutional. It held that Congress had the authority to overhaul the Medicaid program, but that it overstepped its bounds by coercing the States into acceptance of the planned expansion of the Medicaid program.  What follows is a summary of what everyone should know about the case and its effect, from a practical and legal point of view.

Congress has the power to regulate interstate commerce (that is, the national economy), to create and collect taxes, and to make the necessary and proper laws that direct national policy. Some laws passed by Congress impose requirements on people and corporations; some laws create benefits, such as tax incentives; and some laws prohibit activities entirely. The Supreme Court, through its power of judicial review, has the authority to decide whether a law passed by Congress is consistent with the power granted to Congress under the Constitution. If a law is valid, then it stands, regardless of the Court’s opinion of the law. If the Court concludes that the law is beyond Congress’s legislative power, then it strikes the law down as unconstitutional. Laws that contain a valid “severance clause” or “savings clause” are struck down only to the extent that they are unconstitutional; the acceptable portions of the law are permitted to stand.

The two key provisions of the ACA are the individual mandate and the Medicaid expansion.  In order to understand the Court’s holding, it’s important to understand what these provisions are and what they do (and do not) change about health insurance in the United States.

The individual mandate

Under the ACA, all Americans must be covered by a health insurance plan that meets certain minimum coverage levels (with a few limited exceptions that include people with extremely low income, prisoners, and undocumented aliens).  The requirement can be met by participating in an insurance plan offered by an employer or the government (including Medicaid), or by the purchase of private coverage.  Individuals are still free to decline coverage altogether; if they do so, however, they will be subject, beginning in 2014, to a “shared responsibility payment” which must be submitted to the IRS along with their regular taxes. 

By law, hospitals are required to treat anyone who walks through their doors, regardless of an individual’s ability to pay.  Until the passage of the ACA, the national cost of this care – which is enormous – was spread out over those individuals who can afford to pay for their care, hospitals, and insurance companies.  The “shared responsibility payment” is an attempt to shift these costs to the uninsured who pay taxes.  It has alternately been referred to as a penalty, a tax, or a “simple supplemental payment,” and these different characterizations are important to an understanding of how the Supreme Court decided the case.

To summarize briefly, the individual mandate changes almost nothing for the large number of Americans who are already insured through their jobs, through Medicaid, or through private insurance.  It establishes minimum levels of coverage that these health care plans are required to offer, but most Americans will not notice this change, and in any event the minimum coverage levels were not at issue before the Supreme Court.  What was at issue here was Congress’s authority to assess the “shared responsibility payment” against people who can afford health care but nevertheless decline to purchase it.

The Medicaid expansion

The existing Medicaid program provides health insurance, funded by the federal government but administered by the individual states, to certain needy classes of individuals:  pregnant women, children, low-income families, the blind, the elderly, and the disabled.  Though the exact eligibility requirements are set by the individual states (and vary widely), Medicaid does not typically provide coverage for able-bodied, childless adults, regardless of income levels.

The ACA expands the Medicaid program to provide medical coverage for all individuals, regardless of age, disability, or family status, whose income is below 133% of the federal poverty level.  (This level adjusts each year, is dependent on the number of people in a family unit, and can be found here.) The ACA thus provides universal health insurance to the unemployed and the working poor, whether or not they are disabled or have children.  This drastic increase in Medicaid’s scope will be paid 100% by the federal government through 2016; after that, the federal government’s contribution will decrease to a minimum of 90%.  States have the option to decline to expand their coverage in accordance with the ACA.  Most importantly, however, the ACA provides that any state refusing to participate in the Medicaid expansion will lose all of its current Medicaid funding.

Practically speaking, the Medicaid expansion represents a drastic change.  It provides comprehensive health coverage for a large class of people who were previously uninsured because of their low income, lack of employer-sponsored health insurance, or a previous medical condition.  If a state fails to participate in the expansion and offer the increased coverage, it will lose all its existing Medicaid funding – which, in many cases, comprises a substantial portion of a state’s annual budget.

Is the shared responsibility payment constitutional?

The first question the Court had to answer was whether Congress had the power under the Constitution to require the uninsured to make the shared responsibility payment.  The objection to the payment, as written in the law, was that it amounted to a monetary penalty or tax levied against citizens for not buying something they didn’t want (i.e., health insurance).

Following the basic legal principle that a statute must be upheld if there is any way under the Constitution to do so, the Court examined the possibilities.  It concluded that the Commerce Clause, which allows Congress to enact laws to regulate interstate commerce, does not give Congress the power to require citizens to purchase something they do not want.  “The Framers,” Chief Justice Roberts wrote, “gave Congress the power to regulate commerce, not to compel it, and for over 200 years both our decisions and Congress’s actions have reflected this understanding.  There is no reason to depart from that understanding now.”  (Opinion of Roberts, C.J. (“Opinion”), at 24.)  Moreover, the ACA could not be saved under the “Necessary and Proper Clause; the Court concluded that the shared responsibility payment was neither a necessary nor proper means for Congress to exercise one of its enumerated powers. (The majority opinion that the Commerce Clause did not authorize this legislative scheme is a major blow to Congress’s legislative power and is in line with the conservative jurisprudence of the last two decades. This will be a significant decision in years to come on the limits of the Congress’s power to regulate interstate commerce.)

The basis for upholding the law, according to the Court, was the Taxation Clause. That clause gives Congress the broad power to levy taxes, and it may do so for any reason, including as a means of discouraging behavior that is detrimental to society (such as purchasing cigarettes or alcohol) or as a means to promote the general welfare of the people (such as gasoline taxes to pay for road rebuilding).

According to Chief Justice Roberts’ opinion, refusing to buy health insurance is bad for individuals and for society as a whole.  Taxing people for willfully failing to insure themselves is constitutionally sound.  To the objection that the government should not be in the business of taxing people to punish them for inaction, Chief Justice Roberts responded, “it is abundantly clear the Constitution does not guarantee that individuals may avoid taxation through inactivity…Congress’s use of the Taxing Clause to encourage buying something is…not new.”  (Opinion at 41-42)  The fact that the law calls the payment a “penalty” rather than a “tax” is not controlling; the payment has all the characteristics of a federal tax.  It will be added at the bottom of an individual’s regular income tax form and submitted to the IRS.  “Because the Constitution permits such a tax, it is not our role to forbid it, or to pass upon its wisdom or fairness.”  (Opinion at 44.)

The shared responsibility payment is therefore constitutional and will go into effect in 2014.

Is the Medicaid expansion constitutional?

In examining the Medicaid expansion, the Court focused on Congress’s Spending Power under Article I of the Constitution.  The Court reviewed the well-established principle that “Congress may use its spending power to create incentives for States to act in accordance with federal policies.”  But it concluded that “when ‘pressure turns into compulsion’…the legislation runs contrary to our system of federalism.”  (Opinion at 47.)

Because of the scope of the changes to the Medicaid program, the Court characterized the expansion as an entirely new program, independent of Medicaid as it currently exists.  This was the case notwithstanding Congress’s characterization of the new law as a mere expansion of the old program.  “We cannot agree that existing Medicaid and the expansion dictated by the Affordable Care Act are all one program simply because ‘Congress styled them’ as such…[i]f the expansion is not properly viewed as a modification of the existing Medicaid program, Congress’s decision to so title it is irrelevant.”  (Opinion at 52.)

Chief Justice Roberts characterized the Medicaid expansion as a new program “to meet the health care needs of the entire nonelderly population with income below 133% of the poverty level.  It is no longer a program to care for the neediest among us, but rather an element of a comprehensive national plan to provide universal health insurance coverage.”  (Opinion at 54.)  Though he clearly disagrees with the proposition that those living at or below 133% of the poverty level are among the neediest elements of society, he again asserts that it is not his place to judge the wisdom of the legislation – only its constitutionality.

And that he does.  Essentially, the Court concludes that the compulsion created by the ACA’s funding scheme destroys the States’ ability to decide whether or not to accept the federal conditions in exchange for the Medicaid funding.  “When…conditions take the form of threats to terminate other significant independent grants, the conditions are properly viewed as a means of pressuring the States to accept policy changes.”  (Opinion at 50.)  This compulsion is an impermissible breach of the federal compact and renders the Medicaid expansion unconstitutional under the Spending Clause.

What does it all mean?

The Court concluded that the ACA, because it contains valid severance clauses, can stand to the extent that it survives constitutional scrutiny.  In other words, only the portion that is unconstitutional – the compulsory funding condition for the Medicaid expansion – was struck down. 

This means that the individual mandate will go into effect as planned in 2014.  As mentioned, the direct effect on the lives and livelihoods of most Americans (who already have health insurance) is minimal.  It will be essential for people who are uninsured to consult with their legal and financial advisors to decide how to comply with the law.  In some cases, the purchase of a basic health care plan will make financial sense; in other cases, remittance of the shared responsibility payment will be the wiser course.

Perhaps the most confusing part of Chief Justice Roberts’ decision is the distinction between Congress’s power to compel individual behavior and its power to compel state behavior. According to the decision, Congress has nearly limitless power to encourage individual action or discourage inaction through taxation  (see Scalia, J, and Thomas, J. dissenting).  However, Congress’s heretofore broad use of the Commerce Clause to compel state action is now severely limited (see Ginsberg, J, concurring).

State legislatures will now need to decide whether to adopt the new Medicaid program and expand their existing coverage to encompass the indigent.  If they do so, they will receive the new federal funding to support their programs.  If they decide against adoption of the Medicaid expansion, they may continue the programs that are currently in place, without losing their existing funding.

Jennifer B. Arlin is an associate of the firm who specializes in complex litigation, both civil and criminal.  Her experience includes clerkships in the Supreme Court of the State of New York – Appellate Division, Second Department and in the United States Court of Appeals for the Second Circuit.  She has also worked as a litigation associate in some of New York City’s most prestigious law firms.  A graduate of Dartmouth College with honors and of the William and Mary School of Law (where she was a member of the William & Mary Law Review), she often writes on current legal issues.  She is admitted to practice in the federal and state courts of New York and New Jersey and in the United States Supreme Court.

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