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Supreme Court Upholds Key Affordable Care Act Provisions

Publisher: Day Pitney Alert
June 29, 2012
Day Pitney Author(s) J. Bruce Boisture

The Supreme Court yesterday upheld two central provisions of the Patient Protection and Affordable Care Act ("ACA"). The ACA's individual insurance mandate, beginning in 2014, will require most individuals who file federal income tax returns to obtain health insurance coverage for themselves and their dependents or pay an annual "shared responsibility payment" with their income taxes. The ACA's significant expansion of Medicaid eligibility will take effect in 2014, although as a result of the Court's decision, each state will now be free to opt out of participation in the expansion without putting the rest of its federal Medicaid funding at risk.
Chief Justice Roberts authored a comprehensive opinion, in selected sections of which Justices Breyer, Ginsburg, Sotomayor and Kagan joined, so that those sections become the opinion of the Court. Justice Ginsburg, joined by Justices Sotomayor, Kagan and Breyer, filed an opinion dissenting from other sections of the Chief Justice's opinion. Justices Alito, Kennedy, Scalia and Thomas dissented in a joint opinion, and Justice Thomas filed a separate dissenting opinion. The Court's opinion and the dissenting opinions can be found at

Individual Insurance Mandate

The Court affirmed that the individual insurance mandate is a legitimate exercise of congressional authority under the taxing-and-spending clause of the U.S. Constitution. Likening the ACA's "shared responsibility payment" to other "taxes that seek to influence conduct," and noting Congress' broad constitutional authority to tax and spend for the general welfare, the majority of the Court affirmed the permissibility of the individual mandate.

The individual insurance mandate has been viewed by proponents of the ACA as one of several essential reforms in the health insurance market that could encourage "near-universal" health insurance coverage. Without it, they have argued, guaranteed issuance and community rating in the market for individual health insurance would be unworkable and the desired expansion in coverage therefore would be unattainable. The Court's opinion puts to rest those concerns.

With the constitutionality of the individual insurance mandate in doubt, many states had refrained from establishing the health insurance exchanges authorized by the ACA. Now that it is clear that the mandate will continue to be part of the ACA's overall program, it seems likely that more states will move to exert local control over what will be an important marketplace for many of their citizens.

The individual insurance mandate also seems likely to spur the growth of Consumer Operated and Oriented Plans, so-called CO-OPs, an alternative form of healthcare insurance plan offered by nonprofit health insurers. If, as predicted, the individual mandate brings an influx of new health insurance customers into the market, CO-OPs will likely find growth more easily accomplished than if they had to convince currently insured individuals to drop their present arrangements. 

Medicaid Eligibility Expansion

Beginning in 2014, the ACA will extend Medicaid coverage to most adults under the age of 65 with incomes below 133 percent of the poverty level. Although the federal government will bear most of the cost of this program expansion, the states will still be left to shoulder between $10 billion and $20 billion in related costs over the next 10 years. Under the Medicaid statute as amended by the ACA, states that refused to implement the eligibility expansion would have put in jeopardy all their federal Medicaid funding.

The states challenging the constitutionality of the Medicaid expansion argued that because federal Medicaid payments make up such a large portion of their state budgets, they have no practical alternative but to agree to implement the eligibility expansion. Such coercive use of the federal spending power to reduce the states to mere administrative units, they urged, is beyond the legitimate power of the federal government under the Constitution.

Seven of the nine Justices agreed with this conclusion, with only Justices Ginsburg and Sotomayor reaching the opposite view. If that were the end of the analysis, the Medicaid expansion would have been ruled unconstitutional. The Medicaid statute, however, contains a broad severability clause instructing the courts generally to preserve as much of the statutory program as possible even if some portion of the statute is invalid. Relying on this severability clause, Justice Roberts and four other Justices held that states that opt out of the eligibility expansion will not risk their other Medicaid funding. Judicially limited in this fashion, they concluded, the Medicaid expansion is constitutionally permissible.

Although not as dramatic as the Court's decision regarding the individual insurance mandate, this decision upholding the ACA's Medicaid eligibility expansion may be more far-reaching in its consequences. If healthcare cost escalation continues to drive individuals and employers out of the private health insurance system, ongoing Medicaid eligibility expansion may be one avenue for socializing the cost of healthcare. The Court's decision, however, will limit the ability of Congress to coerce the states into participating in such expansions on pain of losing all their Medicaid funding. By making Medicaid eligibility expansions optional for the states, the Court may have created a constitutionally protected and important "seat at the table" for the states in discussions about the evolution of Medicaid into a pervasive national health insurance system.