Affordable Care Act Declared Constitutional … For the Most Part

On June 28, 2012—the last day of the 2011 term—the U.S. Supreme Court ruled in a 5-4 decision, with Chief Justice Roberts writing for the majority, that the individual mandate provision of the Patient Protection and Affordable Care Act (the “Act”) is constitutional based on Congress’s taxing power. A key passage read from the bench by Chief Justice Roberts is as follows:

“Put simply, Congress may tax and spend. This grant gives the Federal Government considerable influence even in areas where it cannot directly regulate. . . . The Federal Government may enact a tax on an activity that it cannot authorize, forbid, or otherwise control.”

For the most part, the Court declared the Act constitutional, except for the Medicaid expansion provisions.

Medicaid: Expansion Struck Down in Part

The Court found that the mandated expansion of the Medicaid program was not a valid exercise of the federal power because any state that failed to comply with the expanded program could lose all of its federal funding for its Medicaid program. The Court proposed a simple correction to this constitutional violation by invalidating the Secretary of the Treasury’s authority to withdraw existing Medicaid funding from a state that chose not to participate. This finding raises some complex issues for hospitals and physicians providing care to those patients in states that chose not to expand their Medicaid programs. Those states that objected to the cost of the expanded coverage and those states that cannot afford the Medicaid expansion now may opt out of the program without suffering any financial repercussions.

Under the Medicaid expansion, states are required to provide coverage by 2014 for adults with incomes of up to 133 percent of the poverty level. Many states cover only adults with children. Childless adults in many states are not covered. If this group of people are not covered by Medicaid, they fall into the individual mandate “ trap.” Under the individual mandate, every citizen must have “qualifying health coverage.” If these newly uninsured, low-income adults cannot obtain health insurance coverage, they will have to apply for a financial hardship exception or pay the appropriate penalty. In either event, these people will not obtain health insurance coverage.

What Does This Mean for Hospitals and Physicians?

Even though the costs of the Medicaid expansion are fully paid by the federal government for the first three years, it is unlikely that many of the 26 states that opposed the expansion would participate. Hospitals should consider that there might be another “donut hole” of uninsured consumers who do not qualify for Medicaid, who do not have replacement health insurance coverage and do not qualify for the insurance subsidy because they are below the poverty level. The law assumed that the Medicaid expansion would cover these people. Therefore, the goal of universal healthcare still eludes the policy makers, and hospitals and physicians will once again have to bear the financial consequences of this part of the Court’s decision.

This Alert is one in a series of Alerts Duane Morris lawyers are writing on the Act. For more information on how the Supreme Court decision impacts employment, see our Alert titled “What Are the Implications for Employers of the Supreme Court Decision Upholding the Patient Protection and Affordable Care Act?” For more information on how this decision impacts health insurance issuers, see our Alert titled “U.S. Supreme Court Decision on Patient Protection and Affordable Care Act: Implications for Health Insurance Issuers.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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