In its highly anticipated decision in National Federation of Independent Business et al. v. Sebelius, the U.S. Supreme Court ruled this morning that the “individual mandate” set forth in the Patient Protection and Affordable Care Act is constitutional. As a result, almost every individual in the United States must either obtain health coverage—through an employer, a government-sponsored program such as Medicare or Medicaid, or individual insurance—or pay a penalty.

For employers, the Court’s decision to uphold the law means that significant changes are on the horizon, including the opening of state insurance exchanges in 2014. Employers will need to assess the impact that the introduction of these exchanges will have on their group health plans.

In a 5-4 decision with lengthy concurring and dissenting opinions, the majority of the Court found as follows:

  • Congress has only limited powers under the U.S. Constitution. The Act’s individual mandate is constitutional only if it fits within one of those limited powers. The powers under the U.S. Constitution that are relevant in this case are the power to regulate commerce and the power to “lay and collect” taxes.
  • The Commerce Clause of the U.S. Constitution authorizes Congress to regulate existing activity, not to compel activity that does not exist. By requiring an individual to purchase health coverage, the Act compels individuals to engage in an activity that they would not otherwise have undertaken. Therefore, the Commerce Clause does not authorize Congress to enact the individual mandate.
  • The Court must examine every reasonable construction to uphold the constitutionality of a federal statute. Because the individual mandate may reasonably be viewed as a tax, it is constitutional under Congress’s taxing power. References within the Act to the individual mandate as a “penalty” rather than a “tax” do not preclude the Court from viewing the mandate as a tax for purposes of determining its constitutionality.
  • Congress’s choice to identify the mandate as a penalty is controlling with respect to the Anti-Injunction Act. The Anti-Injunction Act prohibits courts from reviewing any lawsuit that would restrain the assessment or collection of any tax. If applicable, it would have prevented courts from reviewing challenges to the mandate before amounts under the mandate were assessed and collected in 2015. Because both the Affordable Care Act and the Anti-Injunction Act are federal statutes, Congress may determine how their provisions should be construed together. Congress labeled the individual mandate a penalty rather than a tax; therefore, the provisions of the Anti-Injunction Act are not implicated.

The Court held that provisions of the Act relating to the expansion of the state Medicaid program are unconstitutional. The Act significantly expands the eligibility requirements for state Medicaid programs and authorizes additional federal funds to pay for the increased expenses. If a state fails to comply with the expanded Medicaid requirements, the Act authorizes the federal government to cut off all Medicaid funding to the state. The Court held that the authorization to eliminate all federal funding for a state’s failure to satisfy the new requirements—as opposed to only the additional funding for those requirements—exceeds Congress’s authority under the Spending Clause of the U.S. Constitution.

As a result of the ruling, those portions of the Affordable Care Act that have already gone into effect remain undisturbed. Individuals, health plans, and other constituents in the U.S. health care system will need to comply with the Act’s other requirements (with the exception of the Medicaid funding rules) as they take effect.

As the federal health care reform effort gained steam, Ballard Spahr attorneys launched the Health Care Reform Initiative to monitor and analyze legislative developments. With federal health care reform now a reality, our attorneys are assisting health care entities and employers in understanding the relevant changes and planning for the future. If you have questions regarding the contents of this legal alert, contact Brian M. Pinheiro at 215.864.8511 or, Jean C. Hemphill at 215.864.8539 or, Edward I. Leeds at 215.864.8419 or, or the Ballard Spahr attorney with whom you work.