Employee Benefits-U.S. Supreme Court Upholds 2010 Health Reform Act, Including Requirement That Individuals Buy Health Insurance

As indicated in my blog of June 28, in National Federation of Independent Business v. Sebelius (U.S. Supreme Court June 28, 2012), the U.S. Supreme Court has, with one narrow exception, upheld the constitutionality of the 2010 Patient Protection and Affordable Care Act (the “Act”), including the requirement that individuals acquire health insurance.

What specific provisions of the Act were the subject of this decision? There were two. The first is the “individual mandate”, which requires most Americans to maintain “minimum essential” health insurance coverage (see 26 U. S. C. §5000A). For individuals who are not exempt from this mandate, and who do not receive health insurance through an employer or government program, this requirement must be satisfied by purchasing insurance from a private company. Beginning in 2014, those who do not comply with the mandate must make a “shared responsibility payment” to the Federal Government (§5000A(b)(1)). The Act provides that this “penalty” will be paid to the Internal Revenue Service with an individual’s taxes, and will be assessed and collected in the same manner as tax penalties (§§5000A(c), (g)(1)). The Court upheld the constitutionality of the individual mandate, saying that Congress’ taxing powers under the Constitution allows it to enact the mandate (even though the Constitution’s commerce clause would not).

The second specific provision of the Act which was subject to this decision is the Medicaid expansion. The current Medicaid program offers federal funding to States to assist pregnant women, children, needy families, the blind, the elderly, and the disabled in obtaining medical care (see 42 U. S. C. §1396d(a)). The Act expands the scope of the Medicaid program and increases the number of individuals the States must cover. For example, the Act requires state programs to provide Medicaid coverage by 2014 to adults with incomes up to 133 percent of the federal poverty level, whereas many States now cover adults with children only if their income is considerably lower, and do not cover childless adults at all (see §1396a(a)(10)(A)(i)(VIII)). The Act increases federal funding to cover the States’ costs in expanding Medicaid coverage (§1396d(y)(1)).But if a State does not comply with the Act’s new coverage requirements, it may lose not only the federal funding for those requirements, but all of its federal Medicaid funds (§1396c). The Court upheld the constitutionality of the Medicade expansion, except it struck down, as unconstitutional, the provision (again in§1396c) under which a State could lose funding if it does not comply with the Act’s new coverage requirements. The remedy is to preclude the government from applying §1396c to withdraw existing Medicaid funds from a State. The other provisions of the Act are not affected.

With the constitutionality of the Act upheld, employers should proceed to implement the Act’s requirements (more on that later).