A federal district court in Virginia has ruled that a key provision of the national health care reform legislation is unconstitutional. The court’s ruling strikes down the Minimum Essential Coverage Provision, also known as the “individual coverage mandate,” scheduled to take effect in 2014. This provision requires individuals to purchase a minimum level of health coverage or pay an amount prescribed under the Internal Revenue Code.

The court found specifically that (i) in enacting the Minimum Essential Coverage Provision, Congress exceeded its authority to regulate interstate commerce, and (ii) the amount that individuals may be required to pay serves as a penalty for failing to obtain the required level of coverage, rather than as a tax that Congress is authorized to enact to generate revenue. Given that the individual coverage mandate is not scheduled to take effect for another three years, the court did not issue an injunction against its application.

The decision conflicts with two other federal district court decisions, which upheld the Minimum Essential Coverage Provision. Other challenges to the provision are pending, and it is widely expected that the U.S. Supreme Court will ultimately decide whether the provision is constitutional.

The decision applies only to the Minimum Essential Coverage Provision. It does not affect other parts of the legislation, including requirements—such as the extension of coverage to children up to age 26 and the prohibition of lifetime limits on essential benefits—that generally take effect in 2011 and that employer-sponsored health plans have started to implement.

If you have questions regarding the contents of this alert, please contact Edward I. Leeds at 215.864.8419 or leeds@ballardspahr.com or Jonathan M. Calpas at 215.864.8385 or calpasj@ballardspahr.com.

As the federal health care reform effort gained steam, Ballard Spahr attorneys formed an initiative to monitor and analyze legislative developments. With federal health care reform now a reality, our attorneys are assisting employers in understanding the relevant changes and planning for the future. For more information on the firm’s Health Care Reform Initiative, please click here.