Health Care Reform Moves Forward

In a stunning 5-4 decision authored by Chief Justice John Roberts, the United States Supreme Court upheld the controversial individual mandate and most other provisions of the Patient Protection and Affordable Care Act (the "ACA") in National Association of Independent Business, et al. v Sibelius (Docket 11-393).

Individual Mandate Upheld

It was widely anticipated that the Supreme Court would uphold or strike down the individual mandate under the Commerce Clause of the U.S. Constitution. Chief Justice Roberts held that the individual mandate exceeded Congress's power under the Commerce Clause because it regulated "inactivity" the decision not to purchase health insurance and Congress does not have the power to compel activity in commerce. However, noting that it was the Court's obligation to uphold a law if there is any basis on which to do so, he held that the individual mandate passed Constitutional muster under Congress's taxing power.

Justice Ginsburg's opinion, joined by Justices Kagan, Sotomayor and Breyer, would have found the individual mandate constitutional under both the Commerce Clause and the taxing power. Justice Ginsburg argued that the fact that an individual does not purchase insurance will inevitably result in activity in the health care market, as every citizen uses the health care system sooner or later. Applying traditional Commerce Clause analysis, this inevitable use results in a substantial effect on interstate commerce and Congress had a rational basis for including the individual mandate as a solution to the "free rider" problem.

The dissent, in which Justices Scalia, Kennedy, Thomas and Alito joined, would have found the individual mandate unconstitutional under both the Commerce Clause and the taxing power. The dissent agreed that the individual mandate exceeded Congress's power to regulate under the Commerce Clause. The dissent disagreed that the penalty associated with the failure to maintain minimum essential coverage is a constitutional "tax." In the dissent's view, the penalty is just that a penalty for failing to comply with a mandate and cannot be fairly characterized as a tax.

Medicaid Expansion Survives but Is Optional

A major objective of the ACA was to provide universal, or near universal, access to health insurance coverage. One of the major pillars in achieving this objective was to expand the categories of persons eligible for Medicaid by allowing any person with income below 133% of the federal poverty level to enroll in Medicaid.

Although the federal government will provide a significant level of funding for the Medicaid expansion, its funding will decrease over time, leaving states to fund the difference. If a state refused to change its Medicaid eligibility rules, the "stick" employed by Congress was to cause that state to lose all of its federal Medicaid funds.

Chief Justice Roberts, joined by Justices Breyer and Kagan, found that this "stick" violated the Constitution. Congress is allowed to create incentives under the Spending Power to encourage states to act in accordance with federal policies. But when "pressure turns into compulsion," the law fails. In other words, states must have a legitimate choice as to whether to accept the federal conditions in exchange for federal funds. Here, the threat to withhold all federal Medicaid funds is a "gun to the head" of states and is impermissibly coercive.

Even though the law as written violated the Constitution, Chief Justice Roberts determined that under the severability clause of the Medicaid Act, the Secretary of Health and Human Services has the authority to administer it in a constitutional manner. That is, if a state chooses to expand Medicaid, it will receive the federal funds to pay for the expanded coverage. If a state chooses not to expand Medicaid, it will only lose the federal funds that would have been granted for the expansion not all of the state's federal funding for the Medicaid program.

Justices Ginsburg and Sotomayor would have found the Medicaid expansion constitutional. In her opinion, Justice Ginsburg noted that the Court had never before found a federal grant to cross the line between temptation and coercion.

The joint dissent agreed that the Medicaid expansion is a...