HCR Decision Overview
On June 28, the Supreme Court upheld the Health Care Reform law on a 5-4 vote. The following is an overview of the Supreme Court's opinion. Click here for a summary of next steps for employers.
In National Federation of Independent Businesses v. Sibelius (June 28, 2012), the Supreme Court considered four issues:
- Whether this was the right time to hear the case;
The court decided the Anti-Injunction Act did not bar them from issuing a ruling in this case.
- Whether Congress had the authority to enact the individual mandate requiring people to obtain qualifying health coverage beginning in 2014 or pay a penalty;
The Obama Administration had offered three reasons to justify the individual mandate as constitutional. The court rejected the government arguments that Congress had the authority to enact the mandate under the Commerce or Necessary and Proper clauses of the Constitution. However, a majority of the court held that the mandate was constitutionally permissible as a tax. In other words, not having health insurance is a condition that would trigger a tax payment to the IRS. The bottom line is that an individual may choose to not purchase health insurance and pay higher taxes, or purchase health insurance and pay lower taxes.
The amount of the tax is capped at the amount an individual or family would have to pay for the average cost of bronze level health insurance coverage through a state Exchange. The assumption is that if individuals have to spend the same amount of money for either health coverage or a tax, they will chose to spend the money on health coverage. The media has been reporting that there is no penalty associated with the tax, which could cause some confusion. What they mean is that, if an individual who owes the tax fails to pay it, the IRS may take steps to collect it, but they cannot impose additional penalties over and above the amount of tax due.
- If the individual mandate was struck down as unconstitutional, whether that provision was "severable" from the rest of the law or whether more (or all) of the Health Care Reform law should also be struck down; and
Because the majority of the justices upheld the law in full, there was no reason to address the severability issue. The four dissenting justices did not comment on that issue either, because they all thought the entire law should be struck down.
- Whether Congress had the authority to require states to expand eligibility for Medicaid coverage in order to continue to receive federal Medicaid funding.
The Health Care Reform law required states to expand Medicaid eligibility and provided additional funding to do so. A potential consequence of failing to expand the coverage was losing all federal funding for Medicaid benefits. The court concluded that this penalty was too severe and, thus, unconstitutional. But the court also said the Medicaid penalty could be "severed", meaning that the rest of the Health Care Reform law stands. A simplified interpretation of the court's ruling on this complicated issue is that states have the choice to participate in the Medicaid expansion and receive the additional funding, or to continue providing the unexpanded benefits at the current funding level. The court held that Congress may not withhold all funding from states that choose not to participate in the expansion.