Beyond the Supreme Court

The Supreme Court

iStock_000018811480Small-700x462(The following is from an article entitled “The Supreme Court Opens the Road to Health Care Reform, But Will California Meet the Challenge?” by Craig B. Garner, Esq. and Julie A Simer, Esq., published in the Business Law News of the State Bar of California, Issue 3, 2012)

Almost 28 months after President Barack Obama signed the Affordable Care Act (“ACA”)[1] into law, the United States Supreme Court upheld the constitutionality of health care reform.[2]  Though the underlying arguments set forth in the 59-page majority slip opinion venture deep into the labyrinth of constitutional law and test the traditional boundaries of federalism, the holding itself is clear and concise: (1) the ACA’s individual mandate is constitutional;[3] and (2) the Medicaid expansion provisions found within the ACA survive, but the Federal Government is prohibited from penalizing “[s]tates that choose not to participate in [the Medicaid expansion] by taking away their existing Medicaid funding.”[4]   The decision promises to have a dramatic effect on California, as the country’s most populous state.

In ruling that the individual mandate is constitutional, the Court rejected the Commerce Clause[5] and the Necessary and Proper Clause[6] in the Constitution as bases for upholding the mandate. The Court held that the Commerce Clause failed to provide a sufficient nexus between the requirement to purchase health insurance and its anticipated effect on interstate commerce to validate the individual mandate:

No matter how “inherently integrated” health insurance and health care consumption may be, they are not the same thing: They involve different transactions, entered into at different times, with different providers.  And for most of those targeted by the mandate, significant health care needs will be years, or even decades, away.  The proximity and degree of connection between the mandate and the subsequent commercial activity is too lacking to justify an exception . . . .[7]

Chief Justice Roberts noted that the Commerce Clause does not give Congress the authority to compel an individual “to become active in commerce by purchasing a product, on the ground that … failure to do so affects interstate Commerce.” [8]  Likewise, the Court rejected the Necessary and Proper Clause as a means to sustain the individual mandate, finding it was not “an essential component of the insurance reforms.”[9] The Court distinguished previous decisions upholding laws under the Necessary and Proper Clause, because the laws at issue in those cases “involved exercises of authority derivative of, and in service to, a granted power.”   Whereas, the individual mandate would give Congress the ability to create the “necessary predicate to the exercise of an enumerated power.” The Court added:  “Even if the individual mandate is ‘necessary’ to the Act’s insurance reforms, such an expansion of federal power is not a ‘proper’ means for making those reforms effective.[10]

Instead, the Court upheld the constitutionality of the individual mandate through Congress’s authority to “lay and collect Taxes.”[11] In so doing, the Court did acknowledge that Congress’s taxing authority can exceed its power to regulate commerce, but the Court made the subtle distinction that the power to tax affords Congress less control over individual behavior than its power to regulate commerce.[12] Under its taxing power, Congress can only require that “an individual to pay money into the Federal Treasury, no more.”[13]

California stands to gain more than any other state when its seven million[14] of the nation’s estimated 50 million uninsured comply with the individual mandate in 2014,[15] although it remains to be seen how Californians will satisfy the ACA’s most publicized provision in their quest for “minimal essential coverage.”[16] The role employer-sponsored plans will play in providing health insurance throughout the state remains to be seen, especially as many businesses consider abandoning their own health plans in favor of the statutory penalty under the ACA.[17]

Under the ACA, beginning in 2014, individuals and small businesses will be able to “shop” for insurance through exchanges. California was the first state in the nation to create a health benefit exchange,[18]  and its California Health Benefit Exchange is an independent public entity with a five-member board and 36 employees. It is the intention of California’s Health Benefit Exchange to ensure that the state will be capable of plugging any holes that may sprout within the system. According to Peter V. Lee, executive director of the California Health Benefit Exchange: “We know buying insurance is really complicated. We want to make it as easy as buying a book on Amazon.”[19]  Such a tall order for America’s most populous state will no doubt resonate throughout all major industries, and it will be incumbent upon California attorneys to guide their clients through any number of corporate, employment, insurance, constitutional and financial hurdles, not to mention the obvious health care uncertainties that remain in the wake of the Supreme Court’s historic decision.

The second part of the Court’s decision confirmed the constitutionality of the ACA’s Medicaid expansion provisions, though this came at a price.  The Court held that Congress has the authority to offer funding for states to expand Medicaid by 2014,[20] but that Congress will not be entitled to surprise states “with postacceptance or ‘retroactive’ conditions.”[21] This limitation on the Medicare expansion provision prevents the Federal Government from withdrawing existing Medicaid funding should a state refuse to participate in the expansion provisions under the ACA.[22]

Chief Justice Roberts summarized the Court’s ruling on the Medicaid expansion provisions as follows:

“The Court today limits the financial pressure the Secretary may apply to induce States to accept the terms of the Medicaid expansion.  As a practical matter, that means States may now choose to reject the expansion; that is the whole point.  But that does not mean all or even any will.  Some States may indeed decline to participate, either because they are unsure they will be able to afford their share of the new funding obligations, or because they are unwilling to commit the administrative resources necessary to support the expansion.  Other States, however, may voluntarily sign up, finding the idea of expanding Medicaid coverage attractive, particularly given the level of federal funding the Act offers at the outset.” [23]

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[1]           All references to the ACA include the 2010 Patient Protection and Affordable Care Act, Pub. L. 111-148 (Mar. 23, 2010), as amended by the Health Care and Education Reconciliation Act, Pub. L. 111-152 (Mar. 30, 2010).

[2]           National Federation of Independent Business v. Sebelius, 132 S. Ct. 2566 (2012).

[3]           The individual mandate creates an obligation on the part of most Americans to maintain “minimum essential coverage” beginning in 2014.  See 26 U.S.C. § 5000A (2010).

[4]           National Federation of Independent Business, at 2607. Specifically, the Court’s holding restricts the ways in which the Federal Government can apply 42 U.S.C. section 1396c to such states.

[5]           U.S. Const., Art. I, § 8, Cl. 1.

[6]           § 8, Cl. 18.

[7]           National Federation of Independent Businesses, at 2591.

[8]           Id. at 2573 (emphasis in original).

[9]           Id. at 2592.

[10]         Id.

[11]         Id. at 2593 (quoting U.S. Const., Art. I, § 8, Cl. 1).  The Court also addressed challenges to justiciability, and in particular whether the Anti-Injunction Act [26 U.S.C. § 7421(a)] prevented a ruling on the merits of the case.  The Court held that the ACA did not require the penalty provisions to be treated as a tax for violations of the individual mandate, and as such the Anti-Injunction Act did not apply.  Id. at 2594-95.  In their dissenting opinion, Justices Scalia, Kennedy, Thomas and Alito disputed that Congressional taxing authority should control, but nonetheless took issue with the Government’s position that “the very same textual indications that show this is not a tax under the Anti-Injunction Act show that it is at tax under the Constitution.  That carries verbal wizardry too far, deep into the forbidden land of the sophists.”  (Id. at 2656 (Scalia, Kennedy, Thomas and Alito, JJ, dissenting) (emphasis in original).

[12]         Id. at 2600 (“Once we recognize that Congress may regulate a particular decision under the Commerce Clause, the Federal Government can bring its full weight to bear.  Congress may simply command individuals to do as it directs.  An individual who disobeys may be subjected to criminal sanctions.”).

[13]         Id.  The Court also noted that the ACA waives any criminal penalties in the event a taxpayer fails to comply with the penalty imposed by the individual mandate.  See 26 U.S.C. § 5000A(g)(2)(A).

[14] The California Health Care Landscape, Henry J. Kaiser Family Foundation, (December 2011), available at

[15]       The individual mandate exempts prisoners and undocumented aliens from compliance, see 26 U.S.C. § 5000A(d), and vitiates any penalty for individuals with income below a certain threshold.  See 26 U.S.C. § 5000A(e).

[16]       “Minimal essential coverage” includes coverage under Medicare, Medicaid or other federally funded health care programs, employer-sponsored plans, health insurance through the soon-to-be established health insurance exchanges, “grandfathered” plans, and certain approved high risk pools established under the ACA.  26 U.S.C. § 5000A(f)(1).

[17]         Under the ACA, businesses with more than 50 full-time employees must offer health insurance that satisfies the minimum essential coverage requirements or pay an annual penalty in the amount of $2,000 for each employee (reduced by 30 employees solely for the purpose of calculating the penalty).  26 U.S.C. § 4980H (2010).

[18]         Assem. B. 1602 (Perez) (Cal. 2010); see also Cal. Gov’t Code § 100500 (2011); Cal. Health & Safety Code § 1366.6 (2011).

[19]   Victoria Colliver, Health Care Exchange Will Offer Policies, , SF Gate, San Francisco Chronicle, (June 29, 2012) at page 2, available at

[20]        The expansion includes covering “all individuals under the age of 65 with incomes below 133 percent of the federal poverty line” and establishing health insurance programs for new Medicaid beneficiaries that satisfy the threshold requirements under the individual mandate.  National Federation of Independent Business, at 2601 (emphasis in original); see also 42 U.S.C. § 1396a(k)(1) (2012).

[21]         National Federation of Independent Business, at 2606 (quoting Pennhurst State School and Hospital v. Halderman, 451 U.S. 1, 25 (1981)).

[22]         Id. at 2607.

[23]        Id. at 2608.  In essence, the Court held that the ACA lacked the constitutional authority to obligate state acquiescence in response to Congressional edict.  Rather, “Congress may offer the States grants and require the States to comply with accompanying conditions, but the States must have a genuine choice whether to accept the offer.”  Id.