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eLABORate: Supreme Court Renders Decision Upholding Health Care Reform as Constitutional

July 02, 2012

On June 28, 2012, the United States Supreme Court rendered its decision in National Federation of Independent Business v. Sebelius, a consolidation of three cases challenging the constitutionality of the Patient Protection and Affordable Care Act, commonly called “heath care reform” or the “ACA.” The three cases, one of which was filed by 26 state Attorneys General, challenged, among other provisions of the ACA, the individual mandate. In a 5-4 decision, the Court held the mandate constitutional.

The linchpin of health care reform is the individual mandate, which requires most individuals to obtain minimum health coverage by 2014 or pay a penalty collected by the Internal Revenue Service.   The purpose of the mandate is to expand the “risk pool,” by requiring healthy individuals to purchase insurance before they need or receive care. Thus, the mandate is intended to fund the cost of extending coverage for pre-existing conditions, expanding preventive care, insuring adult children, and other popular insurance market reforms enacted under the ACA.

In its findings, Congress determined that the mandate was supported by the Commerce Clause, which affords Congress broad power to regulate interstate commerce. Before the Court, government lawyers argued that the nation’s health care system, consisting of insurance companies, hospitals, drug companies and other providers, clearly operates in interstate commerce. Everyone necessarily participates in interstate commerce through this system because they will eventually receive medical treatment for an illness or injury. Hence, government lawyers reasoned, the individual mandate must be a valid exercise of the Commerce Clause. The ACA's challengers contended that economic inactivity, in this case failing to purchase insurance, could not constitute “commerce” and therefore could not be regulated in this manner.

Although the taxing power of Congress was not vigorously argued before the Court, a majority of the Justices, Chief Justice Roberts and Justices Ginsburg, Breyer, Sotomayor, and Kagan, agreed that the individual mandate's financial penalty was analogous to a tax. When considered a tax, the mandate then was squarely within Congress' taxing power and therefore constitutional. The remainder of the Justices, Scalia, Thomas, Alito, and Kennedy, dissented by declining to consider the mandate a tax.

Justice Roberts with Justices Scalia, Thomas, Alito and Kennedy formed a separate majority holding the individual mandate unconstitutional under Congress' commerce power.   While this ruling may limit the prospective exercise of the Commerce Clause by Congress, it does not defeat the individual mandate, which was upheld under a different provision of the Constitution. 

The Court did not reach the constitutionality of other parts of the ACA because those provisions would fall only if the individual mandate were held unconstitutional. Once the individual mandate passed muster, there was no need to determine whether any of the act's other provisions were severable.

The Court's ruling means that the ACA’s provisions affecting individual coverage and employer-sponsored group health plans remain intact. Many are currently effective, and more provisions will become operative in the coming years. Employers should continue to review their benefit plans, recognizing that both the employer and individual mandates will become effective in 2014.  In the same year, health care exchanges are scheduled to open for the individual and small group markets. New regulations are issued frequently, and there is little time to waste for 2014 planning.

Webcast on Health Care Act Coming Soon!

Check the Events tab on phelpsdunbar.com to sign up for a webcast in which our benefits attorneys will be discussing the impact of the recent Supreme Court decision on the Affordable Care Act and how it will affect your health plan. 

Inquiries concerning topics addressed in this issue of the eLABORate may be directed to the contributing editor listed below or any of the members of the Phelps Dunbar Labor and Employment and Employee Benefits practice groups. 

Seale Pylate
(601) 360-9342
Alex H. Glaser
(504) 584-9292