United States: Affordable Care Act Hangs in the Balance After Oral Arguments

From Monday, March 26, 2012, through Wednesday, March 28, 2012, the Supreme Court of the United States held six hours of oral arguments in three pending cases involving constitutional challenges to the federal health reform law, the Patient Protection and Affordable Care Act, Pub. L. No. 111-148 (the Act). The three cases pit the federal government against 26 state attorney generals and a powerful trade association representing business owners. This article summarizes the issues addressed in each day of the hearing. The outcome of these cases cannot be predicted, but the discussion here provides some insight into the challenges that the Court faces in deciding the issues.

The Court organized the hearings sequentially in order of the issues presented with respect to the individual mandate. On Day 1, the Court heard arguments on a procedural issue of whether the Anti-Injunction Act prevents the states from challenging the individual mandate before its requirements are imposed. On Day 2, the Court assumed for purposes of the arguments that the Anti-Injunction Act would not prevent the states from challenging the individual mandate provision before it is imposed and addressed the issue of the constitutionality of the individual mandate provision itself. On Day 3, the Court assumed for purposes of the arguments that the individual mandate could not be upheld as constitutional and addressed the question of whether the individual mandate could be severed from the law or whether the entire law must be struck down. In addition, on Day 3 the Court addressed the issue of whether the federal government can impose Medicaid expansion upon the states, which is unrelated to the individual mandate.

Day 1: Anti-Injunction Act

The Court heard 90 minutes of oral argument regarding the applicability of the Anti-Injunction Act. The Anti-Injunction Act prevents a legal challenge to a tax until the tax has actually been imposed. The payments imposed by the individual mandate on those who do not obtain insurance will not be collected until April 2015. If these payments are found to be a tax, then the Anti-Injunction Act will apply.

Interestingly, all parties involved agree that the Anti-Injunction Act does not apply. The federal government maintains that the penalty for failure to maintain minimum coverage is a "penalty" and not a "tax," and the states argue their challenge is on separate grounds that do not touch the Anti-Injunction Act (i.e., that the individual mandate and expansion of Medicaid are unconstitutional). Nevertheless, the Court appointed an independent advocate (amicus curiae) to argue that the Court should dismiss the case "for lack of jurisdiction" because the payments are a tax and not a penalty. If the Court finds that the Anti-Injunction Act applies to the individual mandate, the entire challenge of the Act would be dismissed, at least until 2015 when the payments are assessed and collected and a new suit is brought. Such a controversial finding would force the future of health reform back in the hands of the legislative process until 2015, yet this finding is questionable after Day 1. As Justice Breyer noted, "Congress has nowhere used the word 'tax.' What it says is penalty."

Day 2: Individual Mandate

The individual mandate provision of the Act amends the Internal Revenue Code to provide that a U.S. citizen or resident (with some exceptions) who fails to maintain a minimum level of health insurance must pay a penalty. The requirement to obtain insurance can be met through enrollment in an employer-sponsored plan, individual coverage, Medicare, Medicaid or other federally recognized program or plan of insurance.

In two hours of oral arguments, the parties and the justices struggled with the question of whether the individual mandate is within Congress' powers either under the Commerce Clause or taxing power permitted by the U.S. Constitution. The "Commerce Clause" of the Constitution grants Congress the power to regulate commerce among the states. The "Power to Tax and Spend Clause" grants Congress the power to collect taxes for the general welfare of the United States. The federal government is arguing that Congress has the authority to enact the individual mandate under both of these authorities. The question of whether the individual mandate is within Congress' constitutional authority under the Commerce Clause depends upon whether the activity that it purports to regulate — the purchase of insurance — is "commerce" and whether the Commerce Clause includes the ability to require an individual to engage in that commerce. The crux of the issue turns on whether the particular activity here — the requirement to purchase health insurance — is within the boundaries of the powers enumerated to Congress under the Constitution or whether this is an example of plenary power by Congress.

Many Supreme Court experts and pundits have suggested that the Court will split along ideological lines — i.e., four justices ruling in favor of the individual mandate (Ginsburg, Kagan, Breyer, Sotomayor) and four striking it down (Alito, Scalia, Thomas and Roberts) — leaving Justice Kennedy as the deciding vote. The questions posed by the justices in oral arguments appeared to support this theory.

Given the composition of the Court, the questions and statements of Justice Kennedy may be particularly insightful in discerning how the final decision might look. For instance, within minutes of the commencement of oral arguments, Justice Kennedy asked pointedly, "Can you create commerce in order to regulate it?" The parties and the justices appeared to agree that, once someone has purchased insurance, Congress can regulate it, but under the individual mandate, individuals are first required to purchase insurance. Justice Kennedy again appeared skeptical, stating that "the reason this is concerning, is because it requires the individual to do an affirmative act ... here the government is saying the federal government has a duty to tell citizens it must act, and that is different from what we have in previous cases and that changes the relationship of the federal government to the individual in the very fundamental way." Justice Kennedy also suggested that because "the affirmative duty to act to go into commerce" is "unprecedented," the government has a "heavy burden of justification to show authorization under the Constitution."

The parties and the justices also attempted to identify limits to the Commerce Clause using examples and drawing comparisons, including comparing the requirement to purchase health insurance to burial services, broccoli, cell phones, cars and wheat. But the focus appeared to be on what might be the unique aspects of the health insurance industry, largely that the decision not to buy insurance, coupled with the conclusion that all individuals will at some point in their lives need healthcare services and require uncompensated care, drives up the cost of insurance for those individuals who do buy insurance.

The parties and justices also discussed what alternatives Congress has to the individual mandate. These included mandating the purchase of insurance at the time an individual seeks uncompensated care; using tax power to raise revenue for a national health service, similar to the approach used under Medicare; a tax credit for the purchase of insurance; and creating a government subsidy to cover the costs necessary to pay for the guaranteed issue, guaranteed renewability and other insurance market reform provisions.

The oral argument on the individual mandate does provide some insight into the current thinking of the justices on this critical question in the case, but there is absolutely no way of knowing the outcome based upon the questions and statements appearing in oral argument alone. Perhaps Justice Kennedy demonstrates this best in one of the closing statements, which swings in the opposite direction from his initial question at the opening of oral argument. Justice Kennedy agreed that Congress, in issuing the individual mandate, leverages the uninsured in order to regulate the insured and stated, "the government tells us that's because the insurance market is unique .... But I think it is true that if most questions in life are matters of degree, in the insurance and health care world ... the young person who is uninsured is uniquely proximately very close to affecting the rates of insurance and the costs of providing medical care in a way that is not true in other industries. That's my concern in the case."

The question of whether the uninsured are "uniquely proximately very close" to affecting the rates of health insurance and the costs of providing medical care could become a focal point of the final decision. The fact that this came from what is considered by experts to be the deciding vote in this case makes it particularly insightful.

Day 3, Part 1: Severability

The final day of oral arguments started with the issue of, assuming the individual mandate is unconstitutional, whether the rest or some portion of the Act could, or must, be struck down.

Many times a law contains a "severability clause" that states that if some provisions of the law, or certain applications of those provisions, are found to be unconstitutional, the remaining provisions, or the remaining applications of those provisions, will, nonetheless, continue in force as law. The Act did not contain a severability clause. The federal government argues that assuming the mandate is found unconstitutional, only two provisions of the law are tied to the individual mandate and should not stand: the law's requirement to cover people with pre-existing conditions and the requirement that insurance companies use community rating, as opposed to experience rating (through which premiums are based on health history).

The states argued that if the individual mandate is ruled unconstitutional, then the entire law should be struck down because the individual mandate is essential to the core provisions of the Act, including the operation of the state health insurance exchanges. Moreover, the states argued that Congress would not have passed the Act without the individual mandate, and Congress intentionally refrained from including a severability clause. Justice Scalia seemed to agree, stating, "my approach would be to say if you take the heart out of the act the act is gone." However, Justice Sotomayor challenged this notion, pointing to other states that have implemented guaranteed issue and community rating provisions without a mandate. A Court-appointed amicus curiae argued that the entire Act, except for the mandate, should be kept intact.

Justice Sotomayor suggested that if the mandate was found unconstitutional, it would be the role of Congress to determine what other parts of the law should remain: "What's wrong with leaving it ... in the hands of the people [Congress] who should be fixing this, not us." Justice Scalia says it was "unrealistic" to leave such a task to Congress, suggesting that it would make better sense to allow Congress to start from scratch. "What happened to the Eighth Amendment? You really want us to go through these 2,700 pages," he asked. "Is this not totally unrealistic? That we are going to go through this enormous bill item by item and decide each one?" Justice Breyer questioned whether both parties could sit down and determine a list of provisions they agreed could stand, and then hold more hearings with the justices. Neither party seemed amenable to this idea.

Day 3, Part 2: Medicaid Expansion

The final issue addressed in oral arguments related to proposed expansion of Medicaid. Medicaid is a voluntary program jointly funded by the state and the federal governments. Federal Medicaid funding is an important source of state revenues and is conditioned on the states' providing care to certain demographic groups, such as children, the elderly and pregnant women. The Act will expand Medicaid coverage to all persons under 133 percent of the poverty line in 2014, many of whom will be more likely to apply for Medicaid if they come under the requirements of the individual mandate. The states must either accept the expansion or forgo all Medicaid money from the federal government. Interestingly, while states currently pay approximately half of all Medicaid costs, the federal government will initially pay for 100 percent of the expansion, dropping to 90 percent by 2020.

If the Medicaid expansion is upheld, the potential effects on healthcare providers include a great expansion of the coverage pool and potential loss of entire state-level markets if states opt to use their "nuclear option" in forgoing the federal funds and refusing to provide Medicaid services — an option that is seen as so unpalatable by the states that they claim it amounts to coercion.

Generally, Congress may place any condition it wants on expenditure of funds under its spending power unless that condition amounts to coercion. While the Supreme Court has in previous decisions expressed that such a limit may exist, it has never found any condition placed on any federal money granted to the states to be coercion, and here the states failed to convince the lower courts that the Medicaid expansion amounted to coercion. This precedent, combined with the voluntary nature of the Medicaid program and the federal government's commitment to foot most of the bill for the expansion, has led many commentators to note that this issue is the weakest part of the states' challenges to the law.

The justices appear to be split on this issue as well. For instance, Justice Kagan noted: "Why is a big gift from the federal government a matter of coercion?" However, Justice Alito noted that Congress' apparent assumption that no state could ever afford to reject Medicaid funding should be taken as obvious coercion. Interestingly, Justice Alito also commented that the federal government's threat to withhold Medicaid funds may not be credible, as the goal of the Act is to provide near-universal healthcare coverage: "... it's a realistic possibility the Secretary is going to say, well, okay, fine, you know. We are going to cut off your new funds but we are not going to cut off your old funds and just let that condition sit there."


Many consider the arguments relating to the Act to be some of the most important that have ever been presented to the Supreme Court. The requirements of the Act have dramatically shifted the healthcare industry. Now that the arguments are complete, the viability of the Act is in the hands of the Supreme Court — but healthcare providers cannot afford to lie idle pending a decision. Instead, organizations should continue to identify ways to best position themselves in what will continue to be a dynamic and ever-changing landscape, regardless of the Court's decision.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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