The U.S. Supreme Court held the attention of the nation (and employers) on Thursday, June 28, when it released its highly anticipated decision on the healthcare reform law (the Affordable Care Act, or ACA) enacted in March 2010. In a decision that surprised many analysts, the Court upheld the law in a 5-4 opinion authored by Chief Justice John Roberts.
So what did the Court rule, and what does its decision mean for employers going forward?
The Court addressed two constitutional challenges to the ACA: one regarding the individual mandate, which starting in 2014 will require most individuals to obtain health insurance or pay a fine, and one involving the ACA’s expansion of Medicaid.
The Anti-Injunction Act. The Court first had to determine whether it was too soon to decide the case because of the Anti-Injunction Act (AIA), a federal law that requires a tax to be collected before it can be challenged in court. The Court determined that since the ACA doesn’t require that the penalty for failure to comply with the individual mandate be treated as a tax for AIA purposes, the AIA didn’t apply to this lawsuit.
Individual mandate. The Court next addressed the individual mandate, the most publicized challenge to the ACA. The Court rejected the government’s arguments that the individual mandate was a valid exercise of the U.S. Congress’ power under the Commerce Clause and the Necessary and Proper Clause of the U.S. Constitution. The majority opinion noted that the mandate, which “forces individuals into commerce precisely because they elected to refrain from commercial activity,” couldn’t be sustained under the Commerce Clause.
After rejecting the argument that the Commerce Clause supports the individual mandate, the Court turned to the government’s second argument–that the individual mandate was within Congress’ taxing power. The Court agreed with that argument, asserting that the mandate is constitutional as a tax. According to the majority opinion, “Imposition of a tax nonetheless leaves an individual with a lawful choice to do or not do a certain act, so long as he is willing to pay a tax levied on that choice.”
Medicaid expansion. Finally, the Court upheld the ACA’s expansion of Medicaid, with a new limitation. According to the Court, the Medicaid expansion is lawful as long as the government doesn’t penalize states that decide not to participate in the new program by taking away their existing Medicaid funding.
Next Steps for Employers
So what do employers need to be thinking about? According to Fritz Richter and David Thornton, members of the law firm of Bass, Berry & Sims PLC, “Regardless of your position on [the Court’s] decision, an undeniable result is that it provided certainty for employer sponsors.” Richter and Thornton emphasized that employers have invested significant resources to comply with the ACA. They noted that there have been significant implementation costs incurred to date as well as investments in planning for compliance with the fast-approaching 2013 and 2014 requirements. They recommend that employers “breathe, reacquaint themselves with the impending requirements, and then start planning aggressively toward the next phases of implementation.”