Supreme Court upholds health care law, affirms coverage mandate

The U.S. Supreme Court today upheld the Affordable Care Act, ruling that the law’s health coverage mandate is constitutional.

However, the court did strike down a provision that would take away federal funding from states that refuse to expand Medicaid coverage to individuals earning less than 133% of the federal poverty rate.

The high court’s historic 5-4 decision was handed down following two years of bitter partisan battles over the Affordable Care Act’s requirement that nearly all American obtain health coverage – through Medicare, Medicaid, employer-sponsored plans, or private insurance – by 2014 or face a tax penalty. The court’s decision to leave the health care law largely intact marked a significant victory for the Obama administration.

“Whatever the politics, today’s decision was a victory for people all over this country whose lives will be more secure because of this law and the Supreme Court’s decision to uphold it,” said President Barack Obama. “In doing so, they’ve reaffirmed a fundamental principle: That here in America, in the wealthiest nation on earth, no illness or accident should lead to any family’s financial ruin.”

The court’s majority opinion was written by Chief Justice John Roberts and supported by Justices Stephen Breyer, Elena Kagan, Ruth Bader Ginsburg, and Sonia Sotomayor. However, Gingsburg and Sotomayor disagreed with the court’s position on the Medicaid expansion. Justices Antonin Scalia, Anthony Kennedy, Clarence Thomas, and Samuel Alito filed a dissenting opinion.

Individual mandate affirmed

Although the court rejected the government’s argument that the individual mandate was allowed under the commerce clause, the court’s majority did agree that the mandate’s chief enforcement mechanism – the tax penalty – was a “valid exercise” of Congress’ authority to levy taxes.

“Congress may tax and spend. This grant gives the Federal Government considerable influence even in areas where it cannot directly regulate. The Federal Government may enact a tax on an activity that it cannot authorize, forbid, or otherwise control,” Roberts wrote in the court’s majority opinion. “It is abundantly clear the Constitution does not guarantee that individuals may avoid taxation through inactivity.”

The court found that the ACA’s Section 5000A “shared responsibility” tax clause does not and cannot force people to purchase insurance. Instead, Section 5000A would simply require individuals who opted not to obtain coverage to pay a minimum tax penalty of $695 that year or a penalty amounting to 2.5% of an individual’s household income. The tax penalty will be capped at the amount the uncovered individual would have paid for insurance that meets 60% of the ACA’s minimum coverage standard.

“For most Americans the amount due will be far less than the price of insurance, and, by statute, it can never be more,” Roberts explained.

Roberts pointed out that it is not unusual for Congress to impose “taxes that seek to influence conduct”, citing existing tax incentives to encourage people to purchase homes, continue their professional education, or buy American-made goods rather than imported items.

“That Section 5000A seeks to shape decisions about whether to buy health insurance does not mean that it cannot be a valid exercise of the taxing power,” he wrote.

State Medicaid coverage expansion rejected

The court struck down the health care law’s requirement that all states expand Medicaid enrollment to a larger pool of low-income Americans who could afford health coverage otherwise. States that do not comply with the ACA’s Medicaid expansion mandate could have their entire Medicaid federal funding withheld.

Currently, states participating in the Medicaid program are required to offer health coverage to low-income pregnant women, children, families, the blind, the elderly, and the disabled. In exchange, states receive matching federal funding to provide free or low-cost health services to the disadvantaged populations. For some states, federal Medicaid funding accounts for up to 10% of their annual budget revenues.

Under the Affordable Act, however, states are asked to expand Medicaid coverage to all individuals under the age of 65 that report incomes below 133% of the federal poverty rate. So an individual earning less than $15,500 a year, a couple earning less than $20,100 a year, or a family of four reporting less than $30,600 a year in 2011 would qualify for Medicaid coverage under the Affordable Care Act. The law would require the federal government to pay for 100% of the costs covering the newly eligible Medicaid beneficiaries through 2016 but the federal funds will eventually drop down to cover 90% of the costs.

But Florida and other states objected to the Medicaid expansion, arguing that the ACA’s provision would “coerce” states to implement an unwanted federal program.

The challenge prompted Kagan to ask during oral arguments, “Why is a big gift from the Federal Government a matter of coercion? In other words, the Federal Government is here saying, we are giving you a boatload of money. There are no -­ there’s no matching funds requirement, there are no extraneous conditions attached to it, it’s just a boatload of federal money for you to take and spend on poor people’s healthcare.”

The states pointed out that Congress “crossed the line distinguishing encouragement from coercion” by choosing to withhold existing Medicaid funding to states instead of refusing to grant new funding to states that don’t implement the Medicaid expansion. Withholding funding amounts to a very severe punishment, leaving states little choice but to adopt ACA’s policy.

In the end, the court sided with the states on this issue.

“Permitting the Federal Government to force the States to implement a federal program would threaten the political accountability key to our federal system,” wrote Roberts.

Background on the individual mandate & Medicaid coverage expansion 

The Affordable Care Act was passed in 2009 to help control and manage the nation’s skyrocketing health care costs.

Health care currently accounts for 17% of the U.S. economy, and the cost of insurance premiums has been growing considerably faster than wages. As premiums rise year after year, more and more people are priced out, forcing many to drop their insurance coverage and thereby increasing the number of uninsured people in the health care system.

However, the uninsured are still able to receive medical care when they get sick because hospitals that accept federal funds are required by law to provide emergency care even if the person cannot pay for his or her treatment. To recoup the losses, hospitals and health care providers would pass on the unreimbursed costs to those who have insurance coverage, which drives up the premium costs for everyone.

To address that unsustainable cycle, the health care reform law would:

1. Prohibit private insurers from denying coverage to people, including children, with pre-existing conditions (also known as “guaranteed issue”);

2. Require private insurers to charge older, sicker people or those with pre-existing health conditions the same price as everyone else (also known as “community rating”);

3. And require nearly all Americans to obtain health insurance coverage, whether it is through public programs like Medicare and Medicaid, employer-sponsored health plans, or private insurance plans purchased through a state-run exchange (also known as the “individual mandate”).

The individual mandate is necessary to prevent people from acquiring insurance only when they become sick. Without the mandate, the insurance pool would likely contain only the old and the sick, which would drive up premium costs even more.

To help low-income obtain affordable health care coverage, the Affordable Care Act would expand the Medicaid eligibility to include all individuals under age 65 who report incomes less than 133% of the federal poverty level.

The ACA would encourage states to comply with the new rule by (1) requiring the federal government to provide 100% of the costs to cover the newly eligible Medicaid beneficiaries through 2016, after which the federal government will continue to reimburse states for at least 90% of the coverage costs; and (2) allowing the federal government to withhold existing Medicaid funding from states that do not expand coverage.

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