On Thursday, June 28, the United States Supreme Court issued its highly anticipated decision on the constitutionality of portions of the Affordable Care Act (ACA) (Nat. Fed'n of Indep. Bus. v. Sebelius, together with Florida v. Dept. of HHS and Dept. of HHS v. Florida) [enhanced version available to lexis.com subscribers].
In a divided decision, the Court ruled to (1) uphold the individual mandate as a valid exercise of Congress' power under the Taxing Clause; and (2) uphold the expansion of the Medicaid population, but prohibit the federal government from withholding existing (non-expansion) Medicaid funds for non-compliance with the expansion requirements.
The Court's opinions expressed a multitude of viewpoints on both the mandate and Medicaid questions - and a number of sub-questions. The opinion of the Court was written by Chief Justice Roberts, who opined separately on several issues. He was joined by Justices Ginsburg, Breyer, Sotomayor and Kagan in a 5-4 vote to uphold the mandate and was joined by Justices Breyer, Kagan, Scalia, Kennedy, Thomas and Alito in a 7-2 vote to limit the federal government's authority under the Medicaid provision (although the latter four Justices would have invalidated the entire Medicaid expansion). Justice Ginsburg wrote a separate opinion on behalf of the Court's more liberal members - Justices Breyer, Sotomayor and Kagan - concurring in the decision to uphold the mandate on the basis of the Taxing Clause but dissenting on most other issues. Justices Scalia, Kennedy, Thomas and Alito filed a dissenting opinion (the "joint dissenting opinion"), and Justice Thomas also offered a supplementary dissent.
The unsigned joint dissenting opinion argues that both the individual mandate and the Medicaid expansion were unconstitutional and not severable from the rest of the law, thus requiring the invalidation of the ACA in its entirety. By contrast, the majority opinion authored by Chief Justice Roberts leaves the law largely intact, although it is clear throughout his discussion that he did not want the decision to be perceived as an endorsement of expanding the powers of the federal government. Rather, he emphasized that the ruling was the result of the Court's traditional deference to Congress, noting, "We do not consider whether the Act embodies sound policies. That judgment is entrusted to the Nation's elected leaders." He concluded: "It is not our job to protect the people from the consequences of their political choices."
The summary below provides a brief overview of the complex opinions issued in the case as well as the implications of the decision moving forward. If you would like additional information on specific questions or issues, please do not hesitate to contact us.
ISSUE ONE: The individual mandate penalty
Holding: The majority of the Court determined that the individual mandate penalty was constitutional as a valid exercise of Congress' authority under the Taxing Clause, but rejected the government's argument that the mandate was also valid as an exercise of Congress' authority under the Commerce Clause and/or the Necessary and Proper Clause.
The mandate penalty is not a tax for purposes of the Anti-Injunction Act...
The first threshold question that the Court considered with regard to the mandate was whether the federal Anti-Injunction Act (AIA) - which effectively bars lawsuits against taxes until after the taxes are actually assessed and paid - barred consideration of the case until the individual mandate takes effect in 2014. If the Court determined that the mandate penalty fell within the definition of a tax under the AIA, it would have been required to defer judgment on the issue until the penalty was actually levied on an individual taxpayer. However, the majority concluded that Congress expressly described the shared responsibility fee related to the mandate as a penalty rather than a tax. As such, the majority found that the AIA does not apply and the Court could move forward with consideration of the constitutionality of the mandate.
...But is a constitutional exercise of Congress' taxing power...
Writing for the majority, Chief Justice Roberts examined the mandate and concluded that it "looks like a tax in many respects." For example, the payment is collected by the IRS as part of annual filings, is determined based on standard tax factors such as number of dependents and taxable income and raises revenue for the government. Moreover, the majority noted that the payment will often be less than the price of compliance (purchasing insurance), it will be assessed regardless of an individual's intent and individuals who comply with the mandate will be deemed to have "fully complied with the law." Taken as a whole, the majority ruled that these factors demonstrate that the mandate can be viewed as a tax rather than a penalty, and as such, that the mandate was a valid exercise of Congress' authority "[t]o lay and collect Taxes."
Writing separately, and citing the Court's long history, Chief Justice Roberts stressed that the Court must resort to "every reasonable construction" to save a statute from unconstitutionality and that where multiple interpretations of a statute are possible, the Court must defer to the one that will render a law constitutionally permissible.
Responding to several arguments made by the dissent, the majority rejected the idea that the mandate must be struck simply because "Congress used the wrong labels" and called the mandate a penalty rather than a tax. Similarly, although acknowledging that the mandate is intended to influence individual conduct (which may be seen as a characteristic of a penalty), the majority found that "taxes that seek to influence conduct are nothing new." Quoting Benjamin Franklin ("...[I]n this world nothing can be said to be certain, except death and taxes"), the Court likewise rejected the argument that a person cannot be taxed for "inactivity."
Finally, seeking to reconcile this holding with the Court's ruling on the application of the AIA, the majority distinguished the two issues, noting: "It is true that Congress cannot change whether an exaction is a tax or a penalty for constitutional purposes simply by describing it as one or another.... The Anti-Injunction Act and the Affordable Care Act, however, are creatures of Congress's own creation. How they relate to each other is up to Congress, and the best evidence of Congress's intent is the statutory text."
In contrast, the joint dissenting opinion argued that the issue is not whether Congress had the authority to frame the mandate as a tax, but whether Congress indeed did so. The Justices noted that the Court's cases have clearly delineated between taxes and penalties - the former being an enforced contribution to the government and the latter an exaction based on liability for an unlawful act under a statute. They observed that the Court has never before held that an exaction imposed for violating a statute is a tax, even if labeled as a tax in the statute. In addition, while not compelling for the majority, the dissenting Justices noted that this is particularly true here, where Congress repeatedly refers to the exaction as a "penalty."
...And is not a valid exercise of the Commerce Clause or the Necessary and Proper Clause
Chief Justice Roberts, in an opinion that was not joined by the other Justices, also considered whether the mandate was valid under Commerce Clause, which grants Congress the authority "[t]o regulate Commerce with foreign Nations, and among the several States, and with the Indian tribes." Embracing the argument advanced by opponents of the mandate, Roberts drew a sharp distinction between "activity" and "inactivity," and concluded that the mandate actually "compels individuals to become active in commerce by purchasing a product, on the ground that their failure to do so affects interstate commerce" - a "[l]egislative novelty" that has never before been attempted by Congress. If the mandate were allowed to stand, Roberts reasoned, and Congress were permitted "to regulate individuals precisely because they are doing nothing," this "would open a new and potentially vast domain to congressional authority." Roberts concluded that the Framers of the Constitution would not have supported such an interpretation of the Commerce Clause, arguing: "The Framers gave Congress the power to regulate commerce, not compel it, and for over 200 years both our decisions and Congress's actions have reflected this understanding. There is no reason to depart from that understanding now."
Likewise, the joint dissenting opinion concluded that "the decision to forgo participation in an interstate market is not itself commercial activity (or indeed any activity at all) within Congress' power to regulate." The Justices expressed great concern about the limits of a contrary decision, stressing that "if every person comes within the Commerce Clause power of Congress to regulate by the simple reason that he will one day engage in commerce, the idea of a limited Government power is at an end."
In contrast, Justice Ginsburg, writing for Justices Breyer, Sotomayor and Kagan, called Roberts' reading of the Commerce Clause "rigid," "stunningly retrogressive," and without "[any] home in the text of the Constitution or our decisions." Even assuming that a distinction between "activity" and "inactivity" exists, Ginsburg argued, "[e]veryone will, at some point, consume health-care products and services"; as such, the mandate could properly be said to apply "only to those who 'actively' consume health care." Ginsburg further criticized the majority's concerns about a "slippery slope," noting that "[w]hen contemplated in its extreme, almost any power looks dangerous."
Rather, Ginsburg argued that the Court's approach to the Commerce Clause has historically been based on two principles: "Congress has the power to regulate economic activities 'that substantially affect interstate commerce,'" and the Court "owe[s] a large measure of respect to Congress when it frames and enacts economic and social legislation." Describing in detail the cost-shifting that results from uninsured care and Congress' recognition of the need for a "national solution," Ginsburg held that a "[s]traightforward application of these principles" demonstrates that the mandate was within Congress' power under the Commerce Clause. "Whatever one thinks of the policy decision Congress made," Ginsburg concluded, "it was Congress' prerogative to make it."
ISSUE TWO: The expansion of Medicaid eligibility
Holding: The majority of the Court upheld the expansion of the Medicaid population, but concluded that the federal government may not condition existing funding on the expansion because to do so would be unconstitutionally coercive.
The government cannot take away states' existing Medicaid program funding if a state declines to comply with the eligibility expansion provision...
The second issue in the case was whether the ACA's Medicaid expansion - which would require states to expand Medicaid eligibility in 2014 to all individuals under the age of 65 with incomes that are 133 percent of the federal poverty level (FPL) - violates limits of the Spending Clause and principles of federalism. In past cases, the Court has held that although the federal government may place conditions on grants of federal funds to states in order to "encourage" states to regulate in a particular way, the conditions must not be so restrictive as to compel states to enact or administer a federal regulatory program.
In an opinion joined by Justices Breyer and Kagan, Chief Justice Roberts emphasized that "Congress may attach appropriate conditions to federal taxing and spending programs to preserve its control over the use of federal funds." However, Roberts held that while Congress can place conditions on the use of certain federal funds, these conditions may not "take the form of threats to terminate other significant independent grants" (emphasis added). Here, Roberts determined that the Medicaid expansion should properly be considered a separate program from the existing Medicaid program, rather than a simple "modification," as it "is no longer a program to care for the neediest among us, but rather an element of a comprehensive national plan to provide universal health insurance coverage." Roberts expressly distinguished the expansion from previous amendments to the Medicaid program - such as an amendment requiring States to cover pregnant women and increase the number of eligible children - holding that these amendments "simply do not fall into the same category as the one at stake here." This threat, Roberts concluded, was "a gun to the head." As a result, he held that the government may not condition the continuance of existing federal Medicaid funding on compliance with the new expansion.
Similarly, in the joint dissenting opinion, Justices Scalia, Kennedy, Thomas and Alito stressed the balance that must be struck between Congress' authority to attach conditions to federal grants to states without coercing states to accept these conditions. Analyzing the federal government's significant contribution to state Medicaid programs and the resulting burden on a state if it were to withdraw from the Medicaid program, the dissenting Justices concluded that a state's "choice" not to comply with the expansion was a choice in theory alone. The Justices further stressed that the drafters of the ACA intended to provide near-universal coverage and had not included a "backup plan" if states elected not to comply with the Medicaid expansion, signaling Congress' "informed view that no State could possibly refuse the offer that the ACA extends." As such, the Justices agreed that the expansion of the Medicaid program exceeded Congress' constitutional authority.
...But can require states to comply with Medicaid expansion thresholds as a condition of funding for the expansion
Having determined that the conditions attached to the expansion were unconstitutional, Justices Scalia, Kennedy, Thomas and Alito would have struck down the full expansion. However, Chief Justice Roberts, in an opinion joined by Justices Breyer and Kagan, argued that "[t]he question here is whether Congress would have wanted the rest of the Act to stand, had it known that States would have a genuine choice whether to participate in the new Medicaid expansion." The Justices concluded that they were "confident" that Congress would have preserved the remainder of the law, noting, "The Court today limits the financial pressure the Secretary may apply to induce States to accept the terms of the Medicaid expansion.... [B]ut we do not believe Congress would have wanted the whole Act to fall, simply because some [states] may choose not to participate [in the expansion]." As a result, while Congress can require states to comply with Medicaid expansion thresholds and other requirements as a condition of accepting federal funding for the expansion, it cannot condition existing Medicaid funds on compliance with the expansion.
Justice Ginsburg, joined by Justice Sotomayor, strongly opposed the majority's position, noting that it marks "the first time ever" that the Supreme Court has held "an exercise of Congress' spending power unconstitutionally coercive." Ginsburg disputed the premise that the Medicaid expansion constituted a "new" program, and noted the long history of courts recognizing Congress' authority to place conditions on the receipt of new federal funds. However, given that a majority of Justices agreed that the Medicaid expansion was unconstitutional, Justices Ginsburg and Sotomayor concurred with Roberts, Breyer and Kagan that the correct remedy was to bar the federal government from withdrawing existing Medicaid funds from any states that did not comply with the expansion (rather than striking the expansion or even the entire law).
But what about severability?
While not raised in the majority opinion, Justices Scalia, Kennedy, Thomas and Alito addressed the issue of severability in their joint dissenting opinion based on their finding that the mandate and Medicaid expansion provisions were unconstitutional. The Justices articulated a "well established" two-part analysis for determining the severability of the remaining provisions of a statute: (1) Whether the statute, as so modified, would still "operate in the manner Congress intended"; and (2) whether Congress would have enacted the remaining provisions without the unconstitutional portions. Considering the ACA's "major" and "minor" provisions in turn, the Justices concluded that both the mandate and the Medicaid expansion provisions were integral to the ACA, and that there was no reason to believe that Congress would have enacted the remaining provisions of the law independently. As such, the dissenting Justices held that the entire law should therefore be invalidated. The Justices concluded with a stern warning about the proper role of the Court, arguing that the majority had "save[d] a statute Congress did not write" and "create[d] a debilitated, inoperable version of health-care regulation that Congress did not enact and the public does not expect."
CONSIDERATIONS FOR THE PATH FORWARD
Both supporters and opponents of the ACA had hoped that the Supreme Court decision would bring certainty. Despite the Court's divided opinion, the outcome was clear, and the law is now settled. For many states that took a "wait and see" approach to implementation, the decision will likely result in a rapid acceleration of activity (although some states may continue to delay in the hopes of repeal after the November elections). In particular, states will need to quickly assess where they are in the Exchange implementation process, including how to move forward with the design of their Exchange and what role the federal government will play. The Administration - which has continued its implementation efforts despite the court challenges - will continue to press forward and will need to work quickly with states to get everyone on track for 2014.
In some respects, the Court's decision creates a number of new uncertainties, particularly in relation to the Medicaid expansion. With states now effectively able to "opt out" of the expansion, how many will choose to do so and what political dynamics will states face as they move forward with their decision? While the generous federal support will appeal to many Governors, early news reports indicate that a handful of states may have strong skepticism about the expansion. In those states that opt out, there will be significant questions to answer. Can and how will the expansion population interact with the Exchanges and what other opportunities for coverage can be identified? Will Congress be able to act to craft a new solution? These are questions that will have implications for all stakeholders - from patients, to providers, to employers and beyond.
Finally, the uncertain political environment will continue to play a role as implementation of the ACA rolls full steam ahead. Stakeholders will continue to seek modifications to the law, technical issues will need to be resolved and fiscal pressures will weigh on the minds of policymakers for the foreseeable future. What we do know is that health care will remain highly politicized through the November elections and likely beyond. Although the Court may have resolved the immediate questions surrounding the ACA, it is clear that the controversy surrounding the law is far from over.
For more information about the impact of this decision, please contact:
Senator Thomas A. Daschle
Mary B. Langowski Chair, Health Care Policy and Regulatory Practice
Piper Nieters Su
Nicole D. Carelli
Tiffani W. Williams
John SlotmanThis information is intended as a general overview and discussion of the subjects dealt with. The information provided here was accurate as of the day it was posted; however, the law may have changed since that date. This information is not intended to be, and should not be used as, a substitute for taking legal advice in any specific situation. DLA Piper is not responsible for any actions taken or not taken on the basis of this information. Please refer to the full terms and conditions on our website. Copyright © 2012 DLA Piper. All rights reserved.
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