What Will the Supreme Court Ask About Health Reform?

A Kaiser Family Foundation panel outlined what will be at stake for states when the high court hears arguments on the Affordable Care Act's constitutionality.
by | March 15, 2012

At the end of this month, the Supreme Court will hear oral arguments on a constitutional challenge to the Affordable Care Act (ACA), a lawsuit sponsored by 26 states and the National Federation of Independent Businesses that was filed almost as soon as President Barack Obama signed the act into law in March 2010. If the court decides to rule on the lawsuit, a decision is expected by the end of June before the conclusion of the court’s current session.

That decision has heavy implications for states. The ACA includes an extensive expansion of Medicaid (expected to add up to 20 million people to the program’s rolls) and asks states to create a health insurance exchange where individuals and small businesses can compare and purchase insurance plans. Market reforms, such as rules for the medical loss ratios that insurance companies must maintain, would also require cooperation from state governments.

The 26-state lawsuit challenges two specific provisions of the ACA: the individual mandate, which requires those without health insurance to purchase it or pay the federal government if they don’t, and the expansion of Medicaid to cover individuals and families with income up to 133 percent of the federal poverty level. The case has come through 26 federal district courts (two of which struck down the individual mandate) and seven federal appeals courts (one of which struck it down) to reach the Supreme Court.

The Kaiser Family Foundation (which does not have a position on the ACA or the legal challenge) hosted a panel discussion to outline the legal questions that the court must consider and speculate on the potential impact of the various directions that the court could go. To preview the oral arguments, scheduled for March 26-28, Governing summarized the legal analysis of MaryBeth Musumeci, senior health policy analyst at the Kaiser Family Foundation, with additional insights from the panel on the lawsuit’s implications.

JURISDICTION

First, the court must decide if it is going to make a ruling at all on the individual mandate. If the justices determine that the mandate’s financial penalty is a “tax” under the Anti-Injunction Act, then that challenge will be dismissed. The Anti-Injunction Act prevents preemptive challenges to taxes imposed by Congress, so the court would have to decide if the mandate falls under the law’s definition of a tax.

Several federal judges have already taken that position, according to the New York Times. Opponents would likely have to wait until April 2015, the first period of tax filings after the mandate takes effect in 2014, to file another lawsuit.

In a heated election year, some have speculated that the court would use the Anti-Injunction Act as an “out” to avoid the issue until after the 2012 elections. The consensus among the panelists, though, was that the court would likely decide to rule on the case this summer. “The case should be decided now, and I think it will be,” said Joe Onek, principal at the Raben Group, a Washington law firm focused on public policy issues.

INDIVIDUAL MANDATE

If the court decides to rule on the mandate, it will likely examine three clauses to determine its constitutionality:

  • the Commerce Clause, which gives Congress the authority to regulate interstate commerce;
  • the Necessary and Proper Clause, which gives Congress the authority to make laws related to its constitutional powers;
  • the Taxing and Spending Clause, which gives Congress the authority to impose taxes.

If the court finds the individual mandate constitutional, then it would simply take effect in 2014.

If the court finds it unconstitutional, however, then the justices must determine the severability of the mandate from the rest of the ACA. In other words: Can the law stand without the mandate?

The states that filed the lawsuit are expected to argue that it can't. If the court rules that the mandate is not severable, then the entire ACA would be invalidated.

If the court rules that it is severable, the court could either:

  • Strike down the mandate only;
  • Strike down the mandate and the guaranteed issue and community rating provisions (the former requires insurers to allow individuals to purchase insurance regardless of their health; the latter requires that all enrollees in a health plan, regardless of age, gender or health, pay the same or similar premiums). The federal government has supported this position, Musumeci said, with the belief that those provisions would not be effective without the individual mandate.

The mandate was included in the law to ensure the market reforms worked, said Larry Levitt, senior vice president at the Kaiser Family Foundation. Because more sick people would be able to enroll in health insurance plans, their medical costs must be offset by healthier people also joining the market and paying premiums.

If the mandate is struck down but the rest of the law stands, “no one knows what would happen,” Levitt said. Congress would have a few options, he theorized:

  • Allow states to pursue their own individual mandates;
  • Rework the mandate as an explicit tax that would be waived if you have health insurance;
  • Alter some of the ACA’s commercial protections.

Which of those options would be politically or financially viable, though, is hard to say, Levitt concluded. “It would be very difficult to fix,” said Chris Jennings, president of Jennings Policy Strategies and former senior health policy adviser to President Bill Clinton.

MEDICAID EXPANSION

The court will also decide if the ACA’s Medicaid expansion is constitutional. The clause in question will again be the Taxing and Spending Clause and whether the federal government has the right to impose conditions (such as expanding Medicaid eligibility) for states to receive federal funding. It is noteworthy that the ACA calls for the federal government to match 100 percent of the costs for the new population until 2016. That match then dips to 90 percent by 2020.

The federal government will argue that the expansion is within Congress’s right to impose such conditions, which has been recognized in the past, Musumeci said, while the opposing states will contend that the ACA makes them “an offer they can’t refuse” and is therefore outside the bounds of the clause.

If the court upholds the Medicaid expansion, then it would take effect in 2014 as outlined in the law.

If the court finds it unconstitutional, then the justices would again decide on the question of severability. The court could:

  • Find the Medicaid expansion is not severable from the rest of the ACA, which would invalidate the entire law;
  • Strike down only the Medicaid expansion;
  • Strike down the expansion and other portions of the law.

The expansion of Medicaid is a fundamental piece of the ACA’s efforts to extend coverage to the uninsured, said Diane Rowland, executive vice president at the Kaiser Family Foundation. The most immediate result would be that Medicaid eligibility would fall back to the varying state levels that existed before the ACA, she said, and more rollbacks would be likely as states aim to cut costs for the program.

The ruling could also lead to the opening of a “Pandora’s box,” Rowland said, calling other federal grant and aid programs into question. Would any federal conditions for those programs also be considered optional, rather than mandatory? The overturn of the Medicaid expansion could change “the entire relationship between how the states and the federal government interact,” she said.

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