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Supreme Court Spotlight: Obamacare - Victory or Defeat?

Theodore Y. Choi, Esq. on 7/19/2012

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In 2010 Congress enacted the Patient Protection and Affordable Care Act (hereinafter referred to as "Act"), which was championed by President Barack Obama and is commonly referred to as "Obamacare." The Act was created in an effort to increase the number of Americans covered by health insurance and decrease the costs associated with health care coverage. On June 28, 2012, in an eagerly awaited decision, the U.S. Supreme Court (hereinafter referred to as "Supreme Court") ruled on the provisions contained in the Act.

The main and most controversial portions of the Act are the individual mandate provision and the Medicaid expansion provisions.

The individual mandate provision of the Act outlines that:

  • Americans, unless exempt, are required to maintain "minimum essential" health coverage. 26 U.S.C. §5000A.
  • For individuals who are not exempt, and do not receive health insurance through an employer or government program, insurance must be purchased from a private company.
  • Exempt individuals include those with very low incomes who are members of certain religious groups, or who face insurance premiums that would exceed 8% of family income even after including employer contributions and federal subsidies.

Beginning in 2014, all those who do not comply with this requirement will be required to make a "shared responsibility payment" to the Federal Government. 26 U.S.C. §5000A(b)(1). This payment is classified by the Act as a "penalty" which must be paid to the Internal Revenue Service with an individual's taxes and is assessed and collected in the same manner as tax penalties. 26 U.S.C. §§5000A(c), (g)(1).

The purpose of the Medicaid expansion provision of the Act was to enhance and expand the scope of the current Medicaid program and increase the number of individuals that States must cover. As it stands currently, the Medicaid program provides federal funding to assist pregnant women, children, needy families, the blind, elderly and the disabled in obtaining the necessary medical care but does not provide any coverage for childless adults or even adults with children whose income does not fall significantly below the federal poverty level. Under this provision:

  • States must provide Medicare coverage to adults with incomes up to 133% of the federal poverty level, whereas currently, many States only cover adults with children only if their income is considerably lower than the federal poverty level.
  • In order to effectuate the increase in Medicaid coverage, the Act would increase federal funding to cover the States' costs. 26 U.S.C. §1396d(y)(1).
  • If a State fails to comply with the Act's new coverage requirement, it would not only lose the federal funding for those requirements, but would also lose its Medicaid funding altogether. 26 U.S.C. §1396(c).

It is easy to discern why the mandates of the Act sparked a controversial debate which will continue well into the future. In a narrow 5-4 decision, the Supreme Court upheld the individual mandate provision of the Act but struck down the Medicaid provision. In general, the Democrats celebrated the idea of Americans being provided access to health insurance, but Republicans contend that the ruling is a dangerous expansion of government.

First and foremost, the Supreme Court ruled that the Anti-Injunction Act was not a bar to the lawsuit challenging the constitutionality of the Act. The Anti-Injunction Act bars suits where the payment is classified as a "tax." The mere label of the payment in the Act as a "penalty" rather than a tax, was controlling in determining whether the Anti-Injunction Act was a bar to a lawsuit. However, the Supreme Court warns that the label, although determinative of whether the Anti-Injunction Act is applicable, was not controlling in assessing whether the payment is a tax for purposes of the Constitution.

In its ruling, the Supreme Court found that the individual mandate provision, although impermissible under the Constitution's Commerce Clause or the Necessary and Proper Clause, was valid as a tax. In striking down the individual mandate provision under the Commerce Clause, the Supreme Court held:

  • The Constitution grants Congress the power to regulate Commerce – a power which presupposes the existence of commercial activity to be regulated;
  • The Act sets out to create commerce by compelling individuals to become active in the marketplace on the premise that the failure to do so affects interstate commerce and thus, the Act did not regulate existing commercial activity.
  • The Act would punish individuals for doing nothing and would open a vast domain of Congressional authority.

Similarly, under the Necessary and Proper Clause of the Constitution, the Supreme Court held:

  • The Necessary and Proper Clause of the Constitution provides authority to Congress to exercise authority derivative of, and in service to, a granted power.
  • The individual mandate clause of the Act gives Congress the ability to create the necessary prerequisites within its granted powers in order to draw those who would normally fall outside of its realm, within its regulatory powers.

Despite failing under the Commerce Clause and the Necessary and Proper Clause, the Supreme Court found that the individual mandate provision was proper under the Taxing Clause. In following past precedent, the Court took a functional approach to determine whether the individual mandate provision of the Act was properly within Congress' power to tax. Under such analysis, the Supreme Court determined that "[t]he payment is not so high that there is really no choice but to buy health insurance; the payment is not so limited to willful violations, as penalties for unlawful acts often are; and the payment is collected solely by the IRS through the normal means of taxation." The Supreme Court found that the individual mandate provision of the Act does not impose any legal consequences for failure to obtain health insurance other than requiring a payment to the IRS. Furthermore, as a tax on insurance is unlike other direct taxes, it does not need to be apportioned to a State's population to be in compliance with the Direct Tax Clause.

In upholding the individual mandate provision, Chief Justice John Roberts stated, "It is reasonable to construe what Congress has done as increasing taxes on those who have a certain amount of income, but choose to go without health insurance." He also stated, "the federal government does not have the power to order people to buy health insurance … the federal government does have the power to impose a tax on those without health insurance."

Contrastingly, the Supreme Court struck down the Medicaid provision of the Act finding:

  • The provision violated the Constitution by threatening the loss of a State's existing Medicaid funding for failure or refusal to comply with the proposed expansion.
  • The Spending Clause of the Constitution presupposes a State's voluntary and knowing acceptance of a program.
  • The Medicaid provision of the Act threatens to terminate other grants as a means of pressuring States to accept the Medicaid provision of the Act, which is not a power provided to Congress under the Constitution and runs afoul of our Nation's system of federalism.

Nevertheless, the upholding of the individual mandate provision of the Act was the subject of much praise by Democrats. Supporters of the national health care system stated that the law would reduce health care costs, expand coverage and protect consumers. In place of creating a national health system, the law bans insurance companies from denying coverage to people with pre-existing medical conditions, bans insurers from setting a dollar limit on health coverage payouts and requires them to cover preventive care at no additional cost to consumers.

Following the decision, in a televised White House statement, President Barack Obama stated: "today's decision was a victory for people all over this country whose lives are more secure because of this law." The underlying principle behind the Supreme Court's decision was to ensure that no American should go bankrupt because of illness.

However, the new decision has been met with much criticism. Critics of the new law claim that the new law gives the government too much power to make decisions over issues of what should be a personal decision. Republican Rep. Michele Bachmann of Minnesota stated that the ruling "means now, for the first time in the history of the country, Congress can force Americans to purchase any product, any service." The Supreme Court's ruling comes at a time very close to the 2012 Presidential election. Presidential nominee Mitt Romney criticized the ruling as a bad law. "What the court did not do in its last session, I will do on the first day if elected President of the United States, and that's to repeal Obamacare." On the opposite end of the spectrum, President Obama stated "I know the debate over this law has been divisive. It should be pretty clear that I didn't do this because it was good politics. I did it because I believe it is good for the country." Now that the stage has been set, the extent of the beneficial or detrimental effects of the new law remains to be seen.

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