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US Supreme Court and the Federal Health Law

U.S. Supreme Court and the Federal Health Law

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   NCSL Health Program, Denver

U.S. Supreme CourtUpdated August 31, 2012; Material added November 12, 2012

Congressional Research Services (CRS) Memorandum

CRS published a memorandum July 16 that provides an analysis of the effect of the Supreme Court's decision in National Federation of Independent Business v. Sebelius. It provides a summary of the court's decision regarding the constitutionality of the PPACA Medicaid expansion, and addresses selected questions regarding implementation of the Medicaid expansion provisions.

CRS Memorandum: Selected Issues Related to the Effect of NFIB v. Sebelius on the Medicaid Expansion Requirements in Section 2001 of the Affordable Care Act
 

Understanding the Supreme Court Decision and the Expansion of Medicaid

In a series of letters and responses to governors, HHS has begun to clarify their interpretation of the U.S. Supreme Court ruling June 28 in NFIB v. Secretary Sebelius, Department of Health and Human Service. In the initial letter on July 10, HHS Secretary Kathleen Sebelius addressed the decision and the next steps concerning the implementation of the health insurance exchanges and the Medicaid expansion with governors. Regarding the Medicaid expansion Sebelius noted that: (1) the enhanced match for new-eligibles and the flexibility to design the benefit package for covered individuals is still available to states; (2) she hopes states will implement the Medicaid expansion; and (3) “If any state were to choose not to do so, the PPACA exempts individuals who Congress determined cannot afford coverage from the individual responsibility provision. As to the very small number of affected individuals who would not qualify for the statutory exemption, Congress provided additional authority, which we intend to exercise as appropriate, to establish any hardship exemption that may be needed.”

Responding to a letter from the Republican Governors Association (RGA) requesting additional guidance from the Obama administration, CMS Acting Administrator Marilyn Tavenner clarified in a letter that no deadlines had been set for states to make a decision concerning the expansion of their Medicaid programs. RGA Chairman Governor Robert McDonnell (R-VA) has publicly stated that he asked 30 specific questions and expected 30 specific answers that he failed to receive regarding Medicaid and the expansion. He also has been quoted as saying the governors need more information, and want acknowledgement that the federal government is willing to give states flexibility to reform Medicaid.

NCSL Conference Call & HHS Events
NCSL held a conference call on June 29 to discuss the opinion, which included participants from 47 states, the District of Columbia, and the U.S. Virgin Islands. In addition, HHS held four regional forums where they expect to discuss many of the issues in the next steps to implement health reform. The schedule for these meetings is as follows:  August 14: Washington D.C.,  August 15: Atlanta, GA; August 21: Chicago, IL; August 22: Denver, CO.   NCSL urged anyone planning to attend to register as soon as possible since space is limited, https://www.quickbase.com/db/bg92mriu2. The Washington D.C. meeting on August 14 is available for viewing by webcast.

Chart of Key Issues in NFIB v. Secretary Sebelius, Department of Health and Human Services

ISSUE

FEDERAL GOVERNMENT ARGUED

STATE PLAINTIFFS ARGUED

U.S. SUPREME COURT HELD

Is the challenge to the constitutionality of the individual mandate barred by the Tax Anti-Injunction Act? 

 

The Anti-Injunction Act (AIA) is a federal law that precludes, with certain exceptions, an individual from suing the federal government to stop a tax from being assessed or collected. This issue turns on whether the penalty for failure to purchase health insurance under the ACA is a tax under the AIA and subsequently barred from court review until the mandate becomes effective in 2014 and a penalty is assessed for failure to purchase qualified coverage is assessed in 2015?[1]

  • The ''penalty'' for not purchasing health insurance is a “tax” because it is administered by the Internal Revenue Service. Under the Anti Injunction Act, a tax may only be challenged after it has been assessed.
  • The individual mandate is barred from the court’s review until it becomes effective in 2014, a penalty is assessed for failure to purchase qualified coverage and the assessed penalty is challenged. This would likely occur when the individual files a 2014 tax return.
  • The Anti Injunction Act does not bar challenges to the individual mandate because individuals who do not purchase insurance must pay a “penalty” not a “tax.” The goal of the “penalty” is to encourage individuals to purchase insurance, not to raise revenue.

The Anti-Injunction Act does not apply as a procedural bar to this case.

Does the individual mandate exceed Congress’ powers under the Commerce Clause of the U.S. Constitution?

 

The Commerce Clause gives broad authority to the Congress on matters of interstate commerce and foreign trade.

  • Congress may require Americans to purchase health insurance pursuant to its constitutional authority to regulate commerce among the states.
  • The individual mandate is a tool to help decrease cost shifting to individuals within the healthcare market.
  • The mandate is unconstitutional because Congress lacks the power to compel citizens to become active participants in a private market.
  • The Commerce Clause grants Congress the authority to regulate “activity” within the commercial market; “inactivity” is outside of congressional control.

The court upheld the individual mandate as constitutional under Congress' Article 1 taxing power.

If the individual mandate is found to be unconstitutional, can other provisions of the ACA be saved? Does the lack of a severability clause in the ACA require the whole Act to fall if any provision is found to  be
unconstitutional?

 

The ACA, unlike many acts, does not have a severability clause, which requires that if any provision is struck from the law, unrelated provisions remain in effect.

  • If the individual mandate is struck down, only two provisions of the law should not survive. The provision which prevents insurance companies from: (1) refusing coverage to individuals with pre-existing conditions; and (2) charging higher premiums based on a person’s medical history
  • The remainder of the law should stand because the other provisions are unrelated to the mandate.
  • The individual mandate is so “inextricably intertwined” with the other provisions of the law, that if it is ruled unconstitutional, the entire law must fall due to the lack of a severability clause in the ACA. 

The individual mandate was upheld.

Did Congress unconstitutionally coerce the states into agreeing to substantially expand the Medicaid program by threatening to withhold states’ federal Medicaid funding?

 

At what point do grant conditions imposed on states by the federal government cross the line or, in the case of Medicaid, involve such a large part of a state’s economy that participation in the program and the associated conditions are no longer voluntary.

  • Congress has the authority to attach conditions on the receipt of federal funds pursuant to its grant of power under the Spending Clause of the Constitution.
  • The Supreme Court has never ruled any such condition coercive.
  • The Medicaid expansion is coercive.
  • Medicaid funding has become so important to states that they must participate in the program and thus comply with the federal requirements.
  • There must be some limit to the congressional regulation of states in this manner.

The court upheld the Medicaid expansion, but makes it a voluntary provision as opposed to a mandatory provision. The court would not permit HHS to penalize states by withholding all Medicaid funding for choosing not to participate in the expansion.



[1]              Both the state plaintiffs and the federal government argued that the Tax Anti Injunction Act does not apply to the ACA’s penalty.

 

 History of the Court Challenge

The Court Decision


The U.S. Supreme Court on June 28, 2012 upheld most provisions of the Patient Protection and Affordable Care Act (PPACA), but rejected the portion of the law that authorized the government to penalize states that do not accept the expanded eligibility provision for Medicaid.

The chart below summarizes the key holdings in the case. NCSL will continue to analyze the decision and its effects on states. Check back on this page for updates in the coming days.

Kansas Senate President Stephen Morris (R), the president of NCSL, noted that lawmakers will have varied reactions to the decision. “The Supreme Court has made its ruling, and we have seen responses of both approval and disappointment.  In any event, states will now have to consider whether or not to proceed with implementation and adjust to the ramifications as they unfold. This federal overhaul of health care will be the law of the land until the U.S. Congress reaffirms, improves or dismantles any of the provisions of the health care act.”

New Hampshire Representative Terie Norelli (D), NCSL’s president-elect, said legislators still are absorbing the effect of the decision. "Lawmakers across the country will need some time to analyze the decision to understand all the implications for states. NCSL has been a leader in providing state legislatures with detailed information on healthcare reform, and we'll continue to look to NCSL for details on how it will impacts states."

The law was challenged on four fronts.

First was a procedural question over whether, under the federal Anti-Injunction Act, the law could be challenged before the penalty for not purchasing insurance was imposed. The court decided the Anti-Injunction Act does not apply in this case.

A core provision of the law, the individual mandate, was challenged on the basis that Congress exceeded its authority under the Commerce Clause by compelling people to buy health insurance. The court held that the Congress did not have authority under the Commerce Clause to compel individuals to purchase health insurance coverage, but held that the Congress did have authority under its taxing powers to impose a penalty or tax on individuals who fail to purchase such coverage. As a result, the individual mandate was upheld.

A third challenge—that the entire law or other parts of it should be struck down if the individual mandate was found unconstitutional—was moot because the mandate was upheld.

Finally, the court considered whether there is a point where grant conditions imposed on states by the federal government cross the line or, in the case of Medicaid, involve such a large part of a state’s economy that participation in the program and the associated grant conditions are no longer voluntary. The Affordable Care Act expands Medicaid eligibility to most people who are not disabled with incomes at or below 138 percent of the federal poverty level. The court held that the Medicaid expansion established in the act is Constitutional provided that the expansion is a state option. The court also held that a state could not be penalized for choosing to continue its existing Medicaid program.

“The major impact on the states from this ruling is that states now have more flexibility with their Medicaid programs,” said William T. Pound, executive director of NCSL. “Looking ahead, I am encouraged that the court addressed the issue of federal coercion. While the court didn’t draw a line, they did rule that the bill’s original all or nothing Medicaid funding scheme was unconstitutional. It will be interesting to watch in the years ahead whether other federal programs that tie state implementation with large funding grants will be deemed unconstitutionally coercive.” 

Background


In March 2010, the U.S. Congress passed H.R. 3590, the Patient Protection and Affordable Care Act, and H.R. 4872, the Health Care and Education Reconciliation Act of 2010, jointly referred to as the Affordable Care Act (ACA). A major section of the ACA is devoted to expanding access to affordable health care coverage to most U.S. citizens. The law seeks to achieve this goal by:

  • Requiring most citizens to have health insurance.
  • The “individual mandate.”
  • Insurance reforms, including guaranteed issue and community-rating.
  • Federal premium and cost-sharing subsidies for individuals with incomes up to 400 percent of the federal poverty level.
  • The establishment of health insurance exchanges to facilitate enrollment in health plans for individuals and small businesses.
  • Employer responsibility provisions to encourage employers to provide coverage to their employees.
     

The PPACA also includes many provisions that are unrelated to health reform. Those include significant funding for public health programs, funding to states for innovative projects to provide improved services to seniors and people with disabilities and improved health services for Native Americans. There also are amendments to the Medicaid and Medicare programs that are address the ongoing operation of the programs. Intense debate over the legislation led to legal action taken by 26 state attorneys general and the National Federation of Independent Business. The culmination of these actions took place March 26, 27, and 28 when the U.S. Supreme Court heard oral arguments in the case of the Department of Health and Human Services (HHS) v. Florida .

There were four issues before the court:

  • The applicability of the Anti-Injunction Act.
  • Constitutionality of the individual mandate.
  • Severability of the individual mandate provisions from other provisions of the PPACA.
  • Constitutionality of the Medicaid expansion.

 

Issues Presented to the U.S. Supreme Court in NFIB v. HHS

MARCH 26, 2012 

Issue: Anti-Injunction Act

The basic question:  Whether the challenge to the constitutionality of the individual mandate is barred by the Tax Anti-Injunction Act, under which generally a court will not enjoin the government from assessing a tax, but may later consider a suit to provide a refund of a tax.

The Anti-Injunction Act (AIA) is a federal law that precludes, with certain exceptions, an individual from suing the federal government to stop a tax from being assessed or collected. The issue here is whether the suit can go forward since the tax is not yet in effect. In this case, the court had to determine whether the penalty an individual is assessed for failing to obtain health insurance as provided for under the “individual mandate” is a tax penalty, and subject to the provisions of the act. If it is found to be a tax and subject to the act, the court, in most instances, would be precluded from hearing the case until such time as a penalty has been assessed and paid. This would not occur under current law until the individual mandate provisions become effective in January 2014. No penalty would be assessed until 2015 when 2014 taxes are filed. In other words, if the court were to determine the penalty is a tax, it could delay consideration of the constitutionality of the “individual mandate” until 2015. There are some ways the court could determine the penalty is a tax and still consider the constitutionality of the individual mandate. During oral arguments there was extensive discussion about whether the penalty was a tax and whether the AIA applies in this case.

MARCH 27, 2012 

Issue: Minimum Coverage Provision
 

The basic question:  Whether the individual mandate exceeds Congress’ enumerated powers under the Commerce Clause of the U.S. Constitution. The minimum coverage language in the ACA is located in Title I, Subtitle F, Part I, Sec. 1501.

The question before the court on Day 2 was whether the individual mandate is within the powers relegated to Congress under the Commerce Clause or under its taxing authority. The Commerce Clause gives broad authority to the Congress on matters of interstate commerce and foreign trade. The taxing powers are separate from the Commerce Clause. The PPACA requires most citizens to obtain health care coverage or to pay a penalty for the failure to do so. This individual mandate is a key part of the health reforms in the PPACA and has been one of the most controversial provisions. There was a vigorous discussion of the Commerce Clause and if upholding the individual mandate would expand the authority of Congress too far. If the court determines the individual mandate is unconstitutional, the next step is to determine whether all or part of the PPACA can stand without it.

MARCH 28, 2012 

Issue: Severability
 

The basic question: If the individual mandate is found to be unconstitutional, to what extent, if any, can the provisions related to the individual mandate be separated, or is severable from other provisions of the ACA.

During the final day of oral arguments, the morning was devoted to discussing the issue of severability. If the individual mandate is found to be unconstitutional, what if any other part of the PPACA can or should stand on its own? Which provisions are too intricately related to the individual mandate to stand alone? How would these issues be determined? How would severability be executed? The discussion was lively. The justices were keenly aware of the complexities of choosing the provisions that stay and those that would not, and, alternatively, of striking the entire law including provisions already been implemented that have no constitutionality issues. The administration argued that if the individual mandate is found to be unconstitutional, then the PPACA provisions that require community rating and guaranteed issue should also be removed, while all other provisions would be retained in the law.

MARCH 28, 2012 

Issue: Medicaid
 

The basic question: Whether the Congress unconstitutionally coerced the states into agreeing to substantially expand the Medicaid program by threatening to withhold states’ federal Medicaid funding.

The afternoon was all about Medicaid, the expansion scheduled to occur in January 2014 and whether or not the mandatory expansion is significant enough to be considered “unconstitutional coercion” on the states by the federal government. The question before the justices was at what point do grant conditions imposed on states by the federal government cross the line or, in the case of Medicaid, involve such a large part of a state’s economy that participation in the program and the associated conditions are no longer voluntary. It was noted that in the past the court has suggested that there are limits to the federal government’s “spending powers.” It has never, however, found a law to be “unconstitutionally coercive” or established a test to determine if a law is unconstitutionally “coercive.” A fair amount of time was spent attempting to define “coercion” and drawing a line between choice and coercion. There was also some discussion about whether Medicaid was substantially different than other federal grant programs because of the amount of funding.

 

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