Supreme Court Upholds the Affordable Care Act
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1 Supreme Court Upholds the Affordable Care Act What it Means for Employers and the Future of Health Care in the US June 28, 2012 Jennifer Kraft, Employee Benefits Department Mark Casciari, Employee Benefits Litigation Practice Group Sheryl Dacso, Healthcare Practice Group
2 Overview The Supreme Court s Decision Employee Benefits Compliance Implications Thoughts On The Future of Healthcare In The United States Seyfarth Shaw LLP
3 Summary of Today s Judgment The Judgment of the Court rejects the Constitutional challenge to the Affordable Care Act (ACA). The Judgment is complicated. Justices Roberts, Ginsburg, Breyer, Sotomayor and Kagan joined in a Judgment finding: The federal Anti-Injunction Act does not bar the Constitutional challenge. The individual mandate is upheld under Congress s authority under the Taxing Clause in the Constitution, even though Congress labeled the mandate a penalty, not a tax Seyfarth Shaw LLP
4 Prelude to the Judgment Chief Justice Roberts Congressional authority is limited to that expressly provided to Congress in the Constitution: The federal government is one of enumerated powers the federal government can exercise only those powers expressly granted to it. So, Congress cannot act without relying on its enumerated powers, even if such action would not violate express prohibitions in the Constitution. In relying on its enumerated powers, it has great latitude and may use all appropriate means to accomplish its ends. By contrast, the States can act without relying on enumerated powers in the Constitution, unless the Constitution would prohibit such action Seyfarth Shaw LLP
5 Probing the Judgment The federal Anti-Injunction Act does not bar the Constitutional challenge. The federal Anti-Injunction Act precludes any lawsuit seeking to restrain the assessment or collection of any tax. The statute protects the federal government s ability to collect a consistent stream of revenue. Taxes can ordinarily be challenged only after they are paid, by suing for a refund. ACA described the mandate in terms of a penalty, and this characterization means that the Constitutional challenge to the mandate is not barred by the Anti-Injunction Act. ACA s reference to procedures for collecting the penalty, which are like procedures for collecting a tax, does not convert the penalty into a tax Seyfarth Shaw LLP
6 Probing the Judgment The individual mandate is upheld under Congress s authority under the Taxing Clause in the Constitution, even though Congress labeled the mandate a penalty, not a tax. The mandate penalty is collected by the IRS through the normal means of taxation. The penalty is not so high that there is really no choice but to buy health insurance. The penalty is limited to willful violations. The penalty therefore is, in substance, a tax Seyfarth Shaw LLP
7 Probing the Opinions the Commerce Clause Justices Roberts, Scalia, Kennedy, Thomas, and Alito opined that the individual mandate is not a valid exercise of its enumerated power to regulate commerce. The power to regulate presupposes the existence of commercial activity to be regulated; in other words, the power to regulate assumes that there is something to regulate. Construing the Commerce Clause to permit Congress to regulate individuals because they are doing nothing would create a new Congressional power that is not now enumerated in the Constitution. For example, the Commerce Clause does not allow Congress, in the name of curing the obesity epidemic, to order Americans to buy vegetables. The Commerce Clause is not a general license to regulate an individual from cradle to grave, simply because she will predictably engage in activity that may affect interstate commerce Seyfarth Shaw LLP
8 Probing the Opinions Medicaid Expansion Justices Roberts, Breyer, Kagan, Scalia, Kennedy, Thomas, and Alito opined that Medicaid expansion violates the Spending Clause in the Constitution by threatening States with the loss of their existing Medicaid funding if they decline to participate in the expansion. Justices Roberts, Breyer, Kagan, Ginsburg, and Sotomayor opined that ACA s conditioning all Medicaid funding on State compliance with ACA Medicaid conditions does not invalidate ACA Medicaid expansion remains available to any State that affirms its willingness to participate. States can choose not to participate and retain non-aca Medicaid funding Seyfarth Shaw LLP
9 Probing the Dissenting Opinion Justices Scalia, Kennedy, Thomas, and Alito dissent. The individual mandate is unconstitutional. The ACA s Medicaid expansion is unconstitutional. The entire ACA should have been held to be an invalid exercise of Congressional power. The Court decides to save a statute Congress did not write. It rules that what the statute declares to be a requirement with a penalty is instead an option subject to a tax. And it changes the intentionally coercive sanction of a total cut-off of Medicaid funds to a supposedly noncoercive cut-off of only the incremental funds that the Act makes available.... [t]he fragmentation of power produced by the structure of our Government is central to liberty, and when we destroy it, we place liberty at peril Seyfarth Shaw LLP
10 Benefits Compliance Implications Changes already in effect will stay in place: Adult dependent children covered No lifetime and limited annual limits on essential health benefits No pre-existing condition exclusions for children under 19 Non-grandfathered plans cover 100% preventive care No FSA reimbursement for over-the-counter drugs Early Retiree Reinsurance Program funds can still be used Seyfarth Shaw LLP
11 Benefits Compliance Implications Implementation of ACA will continue. Changes for 2012 and 2013: Summaries of Benefits and Coverage W-2 Reporting Advance Notice of Material Modifications Medical Loss Ratio Rebates FSA limit $2,500 Comparative Effectiveness Fee Nondiscrimination Requirements Essential Health Benefits Seyfarth Shaw LLP
12 Benefits Compliance Implications Changes for 2014 Employer Mandate Employer Mandate Employers with: 50 or more full-time equivalent employees Required to provide minimum essential coverage to all full-time employees or pay penalty Seyfarth Shaw LLP
13 Benefits Compliance Implications Changes for 2014 Employer Mandate: Two Alternative Penalties Failure to Provide Minimum Essential Coverage Employer fails to provide minimum essential coverage Any employee receives tax credit/subsidy through a state-based exchange Penalty = $2,000 X # of full-time employees Seyfarth Shaw LLP Free Rider Penalty Employer offers health insurance coverage, but not affordable coverage that provides minimum value Affordable Cost of coverage no more than 9.5% of household income Minimum value Covers at least 60% of actuarial value of health costs Any employee receives a tax credit/subsidy through a state-based exchange Penalty = the lesser of: $2,000 X # of full-time employees or $3,000 X # of full-time employees receiving a credit/subsidy through an exchange
14 Benefits Compliance Implications Near Term November Elections Seyfarth Shaw LLP
15 The Future of Healthcare Regardless of the decision, the following are likely to continue: Hospitals will continue to expand by merging and bringing doctors into their work force. ACOs and other integrated delivery organizations will continue to evolve as new health care delivery models that employers will want to access for their employees Health Plans will seek to offer ACO insurance products to expanded population of individual enrollees through the HIE Physician groups will consolidate and seek a seat at the table with the hospitals as partners Insurers will partner with hospitals and physicians to improve quality and achieve better integration of financing and delivery of health care Incentives (and disincentives) will continue for increased use of health information technology Compensation will be based on quality, evidence-based standards and savings Seyfarth Shaw LLP
16 Health Care Industry Will Continue To Face Challenges Unrelated to the Supreme Court Decision HIPAA and HITECH enforcement expands to include provider audits Aggressive Fraud and Abuse enforcement will continue at both State and Federal Levels Antitrust scrutiny continues as providers seek to consolidate IRS continues to evaluate excess benefit arrangements by exempt organizations New theories of liability will emerge in response to changes in reimbursement and new incentives related to eliminating unnecessary services (see Seyfarth Shaw LLP
17 Questions? Jennifer Kraft: Employee Benefits Department, Chicago Mark Casciari: Employee Benefits Litigation Practice Group, Chicago Sheryl Dacso: Healthcare Practice Group, Houston Seyfarth Shaw LLP
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