Affordable Care Act Upheld: The U.S. Supreme Court finds PPACA Constitutional

Today, by a 5 to 4 vote, the United States Supreme Court held that the Patient Protection and Affordable Care Act (PPACA) is constitutional as a legitimate use of Congress’ taxing power.  

The decision affirms the constitutionality of the controversial Individual Mandate provision.  The five justices joining the majority opinion, written by Chief Justice John Roberts, include Justice Ruth Bader Ginsburg, Justice Elena Kagan, Justice Sonya Sotomayor and Justice Stephen Breyer. 

The Court found that jurisdiction and timing was proper, and rejected the argument that the Anti-Injunction Act prohibited the case from being heard, finding that the label ‘tax’ is not controlling.  In addition, the arguments over the impact of the missing severability clause became irrelevant, and were not addressed by the Court.  The missing severability clause would have only applied if another provision in the Act were declared unconstitutional.  

The Court also rejected the states’ challenge to the expansion of the state Medicaid programs, although the Court held that this provision must be narrowed.  Specifically, the decision states, "Nothing in our opinion precludes Congress from offering funds under the ACA to expand the availability of health care, and requiring that states accepting such funds comply with the conditions on their use. What Congress is not free to do is to penalize States that choose not to participate in that new program by taking away their existing Medicaid funding."

Although the Court found that the mandate was not constitutional under the Commerce Clause, five members of the Court upheld it under Congress’ taxing power.  “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.”   

On the losing end of the decision, Justices Anthony Kennedy and three other justices asserted that the entire health care reform law should have been struck down, according Politico.com. They write: "The Act before us here exceeds federal power both in mandating the purchase of health insurance and in denying nonconsenting states all Medicaid funding. These parts of the Act are central to its design and operation, and all the Act's other provisions would not have been enacted without them. In our view it must follow that the entire statute is inoperative."

By finding the Act constitutional in its entirety via the narrow majority vote, all the non-Medicaid provisions of PPACA remain in force.  Beginning in 2014, individuals who do not have appropriate health coverage will face a tax penalty.  Families and individuals with income up to 400 percent of the poverty line will receive subsidies to help pay their insurance premiums.   Even the more problematic provisions of PPACA, including the Medical Loss Ratio computations, will remain in place.

Now, some 30 million lives will enter the health insurance marketplace.  The question remains, at what cost, and can the health care system handle the new patient caseloads?  

What Happens Next?

Now that the Court has issued its ruling, healthcare providers must now move forward and implement various outstanding provisions of PPACA. 

Funding New Programs

Various questions remain, including how to fund the implementation of the Act.  The last minute drafting of PPACA resulted in some funding provisions being omitted from the bill.  For example, there is no funding for the federally-facilitated exchanges (FFE) that will be established in those states that have not created a state-run exchange/SHOP.  Last week, the Senate attempted to address some of these funding issues by passing a spending authorization, done out of committee, to address this issue.  It is anticipated that the House will reject this authorization and others like it.

Avoiding Scheduled Budget Cuts

On a related note, Congress must now address the overall budget cuts under the “Sequestration Process” passed last year.  There are 15 PPACA provisions that will experience significant funding cuts if Congress is unable to pass a budget authorization that cuts funding, increases revenues, or both.

Establishing the Exchanges

Many states chose to delay the creation of state health insurance exchanges in anticipation of the Court’s decision.  States that have deferred on building their respective state health benefits exchanges must make immediate progress to receive interim certification from the U.S. Department of Health and Human Services (HHS) by January 1, 2013.  These exchanges must be operational by October 1, 2013 to begin enrolling individuals for the January 1, 2014 effective date.  If an exchange is not making substantive progress toward having an operational exchange/SHOP by January 1, 2013, states will face the prospect of having the federal government implement an FFE exchange/SHOP in each of their jurisdictions.

New Regulations

Many new PPACA-created programs need to be implemented through additional regulations, and existing interim rules needs to be finalized.  HHS and several other key federal agencies will need to accelerate the rule-making process to hit the major PPACA deadlines.  In the alternative, Congress and the White House may choose to delay some of the current implementation dates. 

November Elections

Many are saying that this is the most important Supreme Court decision in the last 50 years.  Undoubtedly, this ruling will add to the volume of dialogue and debate as we proceed to the November elections.  The party that wins this upcoming election will have a mandate to move forward on this issue.  

We will have to wait for the results of the election to see how health insurance reform ultimately plays out.

Stay tuned as BenefitMall provides more detailed analysis over the next week on the U.S. Supreme Court decision.

We have covered many PPACA-related issues since its inception, and will continue to follow these issues and provide updates and analysis for you. Please visit www.HealthcareExchange.com for past blog posts, polls, surveys and numerous resources or www.benefitmall.com to view past Legislative Alerts.

The views expressed in this post do not necessarily reflect the official policy, position, or opinions of BenefitMall. This update is provided for informational purposes. Please consult with a licensed accountant or attorney regarding any legal or tax matters discussed herein.