Today the Supreme Court issued a divided ruling on the core provisions of the Patient Protection and Affordable Care Act. The Court upheld the so-called individual mandate,1 finding that although the mandate violated the Commerce clause of the Constitution, the mandate was a constitutional exercise of Congress’ taxing power. While this ruling enabled the Court to leave the Act’s significant health insurance reform measures in place, a majority of the Justices also found that the Act’s Medicaid program expansion violates Congress’ spending authority by predicating federal Medicaid funding — including funding for existing programs — on a state’s acceptance of the terms of the expansion. The court found that the remedy for this violation was to preclude Congress from placing current Medicaid funding in jeopardy for states that decline to expand their Medicaid programs, rather than to invalidate the expansion altogether.
The Court’s ruling means that the many provisions of the Act that already have taken effect — including the ban on insurers denying coverage for pre-existing conditions and lifetime limits, certain industry tax levies, and toughening of health care fraud and abuse laws — will remain in effect. None of those provisions were directly challenged in the cases considered by the Court, but would have been at issue if the Court had struck down a portion of the Act and concluded that the Act was not severable. The ruling also paves the way for future implementation of the law’s many provisions that come into force beginning in 2013 such as the creation of state health exchanges, the so-called Sunshine Act concerning payments by drug and device companies to physicians and teaching hospitals, various Medicare reimbursement methodology changes, and future levies on employers and individuals.
For the business community, the ruling is a mixed bag. While it lessens the uncertainty that hung over the entire health care industry in anticipation of the Court’s ruling, the decision to uphold the Act means increased regulatory requirements and costs for employers generally and for specific sectors within the health care industry. In the short term, the decision is likely a boost for health plans with significant exposure to Medicaid as well as hospitals and health care providers, if the various states choose to expand their Medicaid programs as provided for in the Act and thereby dramatically expand the number of Americans on Medicaid. The ruling also is likely a net negative for other sectors, including device makers that face a new excise tax and drug makers that face a similar sector tax and an expedited approval pathway for generic biologics.
The Act’s ultimate impact will depend in large part on whether and how many states opt to expand their Medicaid programs given the blunted penalty under the Supreme Court’s ruling. If states choose not to expand their program, and many Americans choose to pay the penalty rather than purchase health insurance, the population of uninsured Americans will not drop by the 30 million figure previously projected. In turn, hospitals may not see a drop in the number of uninsured Americans seeking services through emergency rooms and drug and device companies may not see an increase in product use to offset the new excise taxes.
In the cases at issue in the Supreme Court’s opinion, the Eleventh Circuit found the individual mandate unconstitutional on the merits but upheld the expansion of Medicaid. A number of other federal Courts of Appeal also considered the ACA, with varying results. Only the D.C. and Sixth Circuits considered the merits of constitutional challenges to the ACA but, unlike the Eleventh Circuit, upheld the individual mandate. Other Circuits dismissed challenges on procedural grounds: the Fourth Circuit dismissed a challenge to the individual mandate by individual plaintiffs based upon the Anti-Injunction Act and another by the State of Virginia for lack of standing; the Third, Eighth and Ninth Circuits also dismissed cases for lack of standing. Additional ACA challenges pending in the Third, Fifth and Sixth Circuits were stayed pending the Supreme Court’s review.
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