Enormous changes are set to take place in the areas of healthcare and Medicaid law.  In the Supreme Court’s historic ruling last week in National Federation of Independent Business v. Sebelius, the Court held by a 5-4 majority that the Patient Protection and Affordable Care Act (“Affordable Care Act”), sometimes referred to as Obamacare, was constitutional.  This decision is considered one of the most important and consequential of the last 20 years because of the enormous ramifications it will have on the economy and the healthcare industry.

The constitutionality of the law was challenged through lawsuits brought by a collection of states and the National Federation of Independent Business.  The parties argued that the individual mandate and the requirement to have states expand their Medicaid coverage were unconstitutional.

Constitutionality

The Court rejected the government’s rationale that the law was supported by the Commerce and Necessary and Proper Clauses.  Congress has certain enumerated constitutional powers, among which is the ability to regulate commerce among the states and to make laws that are necessary and proper for carrying out its powers.  The Affordable Care Act, according to the Court, sought to regulate “inactivity,” or failure to partake in a certain activity.  Writing for the majority, Chief Justice Roberts stated, “The individual mandate forces individuals into commerce precisely because they elected to refrain from commercial activity” and “such a law cannot be sustained under” the Commerce Clause.  The Court also concluded that “even if the individual mandate is ‘necessary’ to the Affordable Care Act’s other reforms, such an expansion of federal power is not a ‘proper’ means for making those forms effective.”

The Court held, however, that the law may stand as a tax.  The Constitution gives Congress great latitude in the ability to tax.  In holding that the law’s enforcement mechanism functions as a tax rather than a penalty, the Court noted that payment is not limited to willful violations and is collected solely by the IRS through the normal means of taxation.  Because the tax is the government’s only means of enforcement of the law, the Court concluded that Congress had enacted a tax, even though Congress did not label it as a tax.

Medicaid Expansion

For those individuals and families who might be burdened by a requirement to purchase health insurance by the mandate, the Affordable Care Act had provisions to provide assistance under state Medicaid coverage.  Currently, the Medicaid program only requires states to cover certain categories of individuals, including needy families, the blind, the elderly, and the disabled.  Under the Affordable Care Act, states would be required by 2014 to expand their programs to cover all individuals under the age of 65 with incomes below 133 percent of the federal poverty line.  The Federal Government would pay 100% of these costs through 2016, gradually reducing in subsequent years to a minimum of 90%.  If states failed to comply with these requirements, their entire Medicaid federal funding would cease, constituting 10% of their overall budget.

Chief Justice Roberts was joined by Justice Breyer and Justice Kagan in finding that the Medicaid expansion violated the spending clause of the Constitution.  The Spending Clause allows Congress “to pay the Debts and provide for the…general Welfare of the United States.”  According to Supreme Court precedent, the legitimacy of this power depends on whether a State voluntarily and knowingly accepts the terms of such programs, and whether the legislation commandeers a State’s legislative or administrative apparatus for federal purposes.  The Justices held that the expansion requirement was unconstitutional because it left “States with no real option but to acquiesce.”

The Justices corrected this constitutional violation by precluding the government from withdrawing existing Medicaid funds for failure to comply with the expansion.  The government, therefore, may not withhold all Medicaid funding for any state choosing not to comply with the expanded Medicaid provisions of the Affordable Care Act.

Dissent

The Court’s dissent,  signed by Justices Scalia, Kennedy, Thomas and Alito, argued that the law exceeded its constitutional powers in both compelling the purchase of health insurance and in denying non-consenting states Medicaid funding, and therefore, must be deemed unconstitutional.

The Current Law

The Affordable Care Act may still face political challenges in the next few years, however, the more significant features of the law as it stands include:

• Insurers are required to offer the same premiums to applicants of same age and geographic location without regard to most pre-existing conditions;
• All individuals not covered by employer sponsored health insurance, Medicaid, or Medicare, or some other form of public insurance will be required to purchase private insurance or else pay a monetary penalty to the IRS;
• States are required to establish health insurance exchanges for the purpose of offering a marketplace where individuals and businesses may compare policies and premiums;
• Minimum standards for health insurance policies are to be established and annual and lifetime caps will be banned;
• Those who meet certain financial thresholds will be covered through an expansion of state’s Medicaid coverage (states that choose not to comply with the expansion will still receive federal Medicaid funding for existing programming).