High Court Upholds Health Reform Act, Strikes Down Medicaid Expansion Requirement

June 28, 2012

In a surprise to many, the United States Supreme Court today upheld the Affordable Care Act while striking down the individual mandate that requires essentially all Americans to obtain health insurance coverage.

But in a twist, Chief Justice John Roberts wrote that Congress has the authority to levy a tax on those choosing to go without insurance, in essence preserving the mandate in practice if not in law.

Joining Roberts in the more vital portions of the majority opinion were Justices Kagen, Ginsburg, Sotomayor and Breyer, considered the liberal block of the Court. Justice Ginsberg, joined by Sotomayor, wrote a separate opinion that departed with portions of the majority ruling.    

That Roberts, considered a reliable member of the Court's conservative block, authored the majority opinion upholding the reform law was perhaps the biggest surprise from the Court this session. Most observers considered Justice Anthony Kennedy as most likely to provide the fifth vote in support of the ACA.

Not surprisingly, President Obama praised the ruling as a victory for all Americans, while presumptive Republican nominee Mitt Romney said he would work to repeal it. Republican leaders in the House of Representatives scheduled a July vote to repeal the act, even though they have taken several such votes previously. 

In holding that the mandate to buy insurance was not constitutional under the Commerce Clause, Roberts wrote:

"Construing the Commerce Clause to permit Congress to regulate individuals         precisely because they are doing nothing would open a new and potentially    vast domain to congressional authority."

            "Upholding the Affordable Care Act under the Commerce Clause would give        Congress the same license to regulate what people do not do. The Framers knew           the difference between doing something and doing nothing. They gave            Congress the power to regulate commerce, not to compel it."

The majority opinion said that Congress, if not able to order persons to take a certain action, could tax them in the absence of that action, somewhat analogous to withholding a tax credit from families that don't have dependent children, thereby increasing the amount of tax they are required to pay:

"According to the Government, even if Congress lacks the power to direct             individuals to buy insurance, the only effect of the individual mandate is to raise         taxes on those who do not do so, and thus the law may be upheld as a tax."

"Neither the Affordable Care Act nor any other law attaches negative legal            consequences to not buying health insurance, beyond requiring a payment to the       IRS."

As for the argument that the entire reform law should be vacated due to the unconstitutionality of the individual mandate the Court found otherwise, ruling that "(w)hen a court confronts an unconstitutional statute, its endeavor must be to conserve, not destroy, the legislation."

The other big surprise was that the majority agreed with those states arguing that the ACA's requirement that they participate in Medicaid expansion or lose federal funding for their current Medicaid program was "more than 'relatively mild encouragement' - it is a gun held to the head."   

In striking the portion of the law that required states to extend Medicaid coverage to adults earning up to 133% (or 138% after 5% of income is disregarded) of the federal poverty level (FPL), Roberts wrote: 

"Nothing in our opinion precludes Congress from offering funds under the             Affordable Care Act 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."  

What remains to be seen is whether those states that challenged the Medicaid expansion, most of which extend Medicaid coverage only to adults earning 50% FPL or less, will decide to participate in the expansion. The federal government has sweetened the deal for participation, picking up the entire tab during the first years of the expansion and 90% of the cost in 2020 and beyond. 

Paradoxically, refusal to participate in the expansion could create a "gap" in health coverage amongst low income Americans, especially in states with high percentages of uninsured adults. On one side of the gap are children and very low income adults that currently qualify for CHIP or Medicaid - on the other side are those already insured or able to secure coverage via the new insurance exchanges, designed to serve persons with incomes between 100% and 400% FPL.   

While those persons below 133% FPL could plausibly obtain health coverage through an exchange, the state would end up spending more money subsidizing exchange-provided coverage as compared to the modest funding required to leverage federal funds for the Medicaid expansion.   Additionally, tax credits available to assist these persons in the purchase of coverage may not be of a level sufficient to make coverage affordable.

In short, the Court's rejection of the mandate could leave out in the cold millions of Americans that the ACA was intended to help.