Supreme Court Will Hear Challenge to Health Reform

Yesterday the Supreme Court agreed to hear challenges to the Patient Protection and Affordable Care Act, the landmark health reform legislation signed into law by President Obama last year. The Supreme Court will consider several questions related to the constitutionality of the Act.

The first issue, and the one that has received the most attention so far, is whether the individual mandate is a constitutional exercise of Congress' power to regulate interstate commerce or to tax and spend for the general welfare. When the mandate goes into effect in 2014, it will require individuals to purchase insurance, unless they qualify for an exemption. This mandate raises a novel and important question about the scope of the government's power to require individuals to purchase a service from a private entity. So far two appellate courts (the Sixth and DC Circuits) have upheld the mandate based on Congress' power to regulate commerce, while the Eleventh Circuit held the mandate unconstitutional. For more on the constitutionality of the individual mandate, click here.

The Court will address two other issues related to the mandate. The first is a jurisdictional question about whether the federal courts are barred from even hearing a challenge to the mandate because of a provision in the federal tax code known as the Anti-Injunction Act ("AIA"). The penalty for failing to comply with the mandate is a tax collected by the IRS, but the AIA prohibits lawsuits that seek to prevent the assessment and collection of taxes before they are due. It requires individuals to pay their taxes first and sue later, which means the earliest an individual would be able to file suit to challenge the mandate would be in 2015. A number of cases have found that the AIA does not apply on the grounds that failure to comply with the mandate is not really enforced as a tax assessment, but rather is a "regulatory penalty" not subject to the AIA prohibition. So far, the Fourth Circuit is the only appellate court to dismiss a challenge to the mandate on this basis.

The second issue concerns the fate of the broader health reform law in the event that the mandate is held unconstitutional, and this turns on the question of whether the mandate is severable from the rest of the law. If the mandate is severable, this leaves the rest of the law intact - this was the conclusion reached by the Eleventh Circuit in Florida v. HHS, the decision accepted for review by the Supreme Court. If the mandate is not severable, then the entire Affordable Care Act could fall with the mandate - the conclusion reached by a Florida District Court, before it was reversed by the Eleventh Circuit on appeal. For a more in-depth discussion of the severability of the individual mandate, click here.

The most surprising issue taken up by the Supreme Court is whether the Medicaid expansion is constitutional. Expanding public health insurance is a critical part of the Affordable Care Act, but it has not received nearly as much attention as the private insurance reforms. Historically, Medicaid has required coverage for only certain categories of people - pregnant women, children, people with disabilities, and low-income Medicare beneficiaries. The Act expands Medicaid eligibility criteria to include all adults with income up to 133% of the federal poverty level. It is surprising that the Supreme Court will consider the constitutionality of this expansion because it is clear that Congress can condition the receipt of federal funding on state compliance with federal law, as long as those conditions bear a reasonable relationship to the purpose of the spending. Eligibility criteria are precisely the kind of funding conditions that have been in place since Medicaid's enactment and they are necessary for achieving the federal goal of increasing health care access for those in need. Challengers claim that expanded eligibility creates new state requirements that are coercive and usurp state sovereignty, but such claims typically fail in the case of voluntary programs like Medicaid (states can choose to opt out) and so far no court has found the expansion unconstitutional. For more on why a legal challenge to the Medicaid expansion is likely to fail, click here.

For a copy of the petitions filed seeking Supreme Court review of the health reform law, click here. For a copy of the order listing the cases and arguments accepted for review, click here.

Supremes Fired Up over Health-Care Case
The high court sets aside an unusually large block of time for oral arguments; companies are advised to hold off on implementing provisions slated to take effect in a few years.
Jeff Mamorsky

As we predicted in prior articles, on November 14 the Supreme Court decided to hear legal challenges to the Patient Protection and Affordable Care Act, commonly referred to as health-care reform or Obamacare. The central issue in the case involves the constitutionality of the individual mandate; that is, the requirement that all, or at least most, individuals purchase a qualifying health-insurance policy starting in 2014.

Contrary to the predictions of many legal experts, the Supreme Court also agreed to hear a number of other challenges to the law. The fact that the justices set aside five-and-a-half hours for oral arguments, more than for any other case in recent history, suggests the importance they are placing on the legal challenges.

The 26 states, along with the National Federation of Independent Business, that have filed suits over the law insist that with the individual mandate, Congress overstepped its constitutional right to regulate interstate commerce. The Obama Administration argues that the mandate does not require people to participate in commerce, but rather regulates how they pay for the health-care services that virtually everyone will require during their lifetime.

So far, two federal appeals courts have upheld the mandate, while one ruled it unconstitutional and another refused to reach a decision. (Concerning the lawג€™s expansion of Medicaid, another issue the Supreme Court agreed to consider, not a single lower court has agreed with the statesג€™ position.)

What happens if the Supreme Court does not uphold Congressג€™s right to legislate the individual mandate? The provision is aimed at spreading risk and helping to control insurance premiums. Requiring every individual to carry a minimum policy will allow the federal government to prohibit insurers from denying coverage to patients with preexisting medical conditions. But without a mandate, Americans would likely reason that they could save money by postponing the purchase of an insurance policy until they needed one due to illness or injury. That would raise insurance premiums to unaffordable levels.

The court will consider two procedural issues that will be significant concerning the lawג€™s implementation. One is the issue of severability ג€” whether the mandate can be considered unconstitutional without destroying the rest of the law. There is concern from the Obama Administration that if the mandate were to be deemed unconstitutional, then the denial of exclusions for preexisting conditions would also have to be removed, as the two are intertwined for the reasons explained above. It is because of this entanglement that the states insist the entire law rests on the fate of the mandate.

Second, the court will closely review the issue of ripeness. Essentially, the justices stated that they will hear arguments about whether they can reach a decision now at all. One lower-court judge said the constitutional questions about the mandate will have to wait until 2014 because of the Anti-Injunction Act, a federal law that says a tax must take effect before citizens can try to overturn it in the courts. Under this 19th-century law, the individual mandate could not be challenged in court until 2015, when the first tax penalties for failing to purchase health insurance are scheduled to be paid.

No one can predict how the Supreme Court will decide the case. The fact that a majority of circuit courts have upheld its constitutionality has no bearing on that decision. Still, it is likely that the Supreme Courtג€™s four liberal justices will uphold the law in its entirety. The outcome, therefore, will depend heavily on the five conservative justices. Although conservatives tend to vote on the side of limiting federal power, it is not at all clear that will be the outcome in this case, especially because several conservative appellate judges have already preserved the law.

Until the Supreme Court issues a final ruling on the various challenges to the health-care law, we continue to recommend that companies begin preparations for implementing its provisions. If the Supreme Court upholds the actג€™s constitutionality while severing the individual mandate, the act will remain on the books but will have costly results. It would likely need to be revised or amended.

Therefore, we suggest that companies should not be overzealous in adopting the actג€™s far-reaching measures. Provisions nearing their effective date should be implemented, but those slated to take effect in the future should not be adopted until their effective dates draw closer.

Until a final decision is reached, it is important for CFOs as well as human-resources officials to continue familiarizing themselves with the act and to discuss its implementation. We will continue to monitor developments in the case and keep you informed as they unfold.

Jeff Mamorsky is co-chair of the global benefits practice at law firm Greenberg Traurig.

This shit is getting demolished. There has to be a better way to supply universal healthcare without mandating that an individual has to purchase it.

Just wondering, what would you propose they do if not everyone is forced to get it and someone with no insurance has life threatening disease that can be cured easily but is expensive? Let him die, or take care of him and have others pay for it through their insurance?

who is this guy, Mel Gibson?

Just wondering, what would you propose they do if not everyone is forced to get it and someone with no insurance has life threatening disease that can be cured easily but is expensive? Let him die, or take care of him and have others pay for it through their insurance?

With that said, if the gov't had a control of their lobby system and TORT reform took place, then the cost of healthcare would naturally come down on its on just due to the way the market would handle it.

who is this guy, Mel Gibson?

From a practical standpoint, I'm not sure how we can avoid the individual mandate if we're eliminating pre-existing conditions. If insurance companies can't turn people down or charge higher premiums for having pre-existing conditions, and people aren't required to be covered, they won't purchase insurance until they get sick/hurt. At that point, it isn't insurance. Costs skyrocket and we're essentially left with people paying full price for medical care.

Exactly. You have to have healthy low risk people paying in to cover for the elderly and unhealthy. If people don't have to purchase it until they get sick then they won't. You'd have people avoiding going to the doctor for preventative health care etc. It'd be worse than it is now.

I'm not too comfortable with that idea because in theory there would be no limit to what Congress could make people buy.

Exactly. You have to have healthy low risk people paying in to cover for the elderly and unhealthy. If people don't have to purchase it until they get sick then they won't. You'd have people avoiding going to the doctor for preventative health care etc. It'd be worse than it is now.