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Supreme Court Upholds Health Care Mandate, but States May Avoid Medicaid Expansion

Posted on: June 28th, 2012

By Ben Mathis

In a 5-4 opinion authored by Chief Justice John Roberts, the Supreme Court upheld the key “individual mandate” provision of the Patient Protection and Affordable Care Act.

Contrary to early media reports, however, a divided and more complicated part of the decision gives individual States the right to avoid participating in the expansion of medicaid eligibility, which is a core component of the Act.

I.  Insurance Mandate

The rationale of the mandate portion of the decision and the composition of the majority was surprising to most court observers. The Chief Justice joined the four justices most commonly viewed as the “liberal” wing of the court while Justice Anthony Kennedy was in dissent with the three most conservative justices.

Chief Justice Roberts, writing for the majority, found that the Act was unconstitutional under both the commerce clause and the necessary and proper clause of the Constitution. However, the Chief Justice concluded that the “penalty” for not having insurance could reasonably be construed as a “tax,” and therefore, it was a proper exercise of the taxing power of the federal government. Interestingly, the Chief Justice was the only justice who concluded the mandate was constitutional because it actually was a tax. The other justices were divided 4-4, with four finding the mandate unconstitutional in any form and four finding it a proper exercise of constitutional power even if it was not a tax.

Notably, the issue of whether the mandate was a “penalty” and not a “tax” was not the focus of the lengthy Supreme Court arguments. This was primarily because the President and those sponsoring the legislation insisted the mandate was not a tax. Nonetheless, in the court cases that followed, the Administration argued as an alternative ground that the mandate requirement was actually a tax. Still, the emphasis in all of the arguments and briefing by the Administration was that the mandate was a constitutional exercise of commerce clause regulation.

As has so often been the case in the past, the Supreme Court surprised most everyone, not so much with the outcome of their ruling on the individual mandate, but with their rationale. For those favoring the mandate to purchase insurance, they can celebrate that it will go forward barring legislative efforts to repeal or reform it. For those opposing the law, there is still much in the decision to embrace. Most of the opposition to the law was based on the view that there would be no limits to the ability of government to regulate an individual’s daily life if the Act withstood constitutional scrutiny. On that point, however, the Supreme Court was clear that the Act was an unconstitutional overreach by the President and the Congress. This portion of the decision likely will be relied upon in future cases where the legislative power to regulate by the federal government is challenged.

In the end, this part of the case, as decided by Chief Justice Roberts, was illustrative of the old adage, “if it walks like a duck and quacks like a duck, it must be a duck.” Here, despite the attempt to call the insurance requirement a “mandate” that would be enforced by a “penalty,” the Chief Justice begged to differ. He found that it was simply a “tax.” (Estimates are the mandate penalties will total approximately $500 billion). And, as most Americans know, the government has the right to tax. As another old adage says, the only two things certain in life are death and taxes. That is one thing we all can agree on.

II.  Medicaid Expansion

While early media reports focused on the individual mandate issue, a significant part of the decision addressed the right of the federal government to compel states to pay for increased medicaid coverage by threatening to cut off all medicaid funding from the federal government.

On this issue, the decision was very complicated as shifting majorities formed to first rule a portion of the Act was unconstitutional and then to decide what States may do in the future regarding medicaid.

Less well known than the individual mandate is that a major part of the health care legislation was to increase medicaid eligibility by forcing States to participate in the expansion or have all their medicaid funding cut off. The Court, in a very splintered opinion, essentially held this was an unconstitutional “coercion” by the federal government under the Spending Clause.

As a consequence, a majority of the Court held that States can refuse to participate in the medicaid expansion without losing all of their medicaid funds. In other words, States can continue with their current, unexpanded medicaid programs and reject future medicaid expansions mandated by the federal government.

This part of the decision is potentially a very significant victory by the States and may well undermine the Act’s goal of expanding insurance coverage. It could lead to many States refusing to participate in the Act’s requirement to expand medicaid eligibility and provide insurance coverage to those not covered by employer plans. As a result of the decision, States now have the option of simply refusing to expand coverage eligibility and not face the prospect of losing their existing medicaid funding.

The full implications of this part of the decision are far from clear at this time. The impact will depend on how many States effectively “opt-out” of the increased medicaid expansion. That remains to be seen, but given the estimated costs of the medicaid expansion, many States, including those not opposing the Act, have expressed concern at the ultimate expense. Clearly, the battle over a major aspect of the Act will now move to individual state legislatures as they confront the decision as to whether to follow the federal government’s lead in expanding medicaid coverage.

To read the full opinion, click here.

For more information, contact Ben Mathis at 770.818.1402 or[email protected].

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