By now, you’ve heard of the decision of the Supreme Court to affirm in part and reverse in part appellate court rulings on the healthcare law.
Supreme Court Case Background and Facts
The court’s ruling preserved the heart of the Patient Protection and Affordable Care Act, which requires most Americans to buy health insurance by 2014 or pay the government a tax penalty.
We’ll explain 10 ways the law might affect you and your business, but first, here are the facts of the landmark case.
In Plain English
There were two main issues to be determined in the case, National Federation of Independent Business v. Sebelius:
1. Whether the individual mandate to require all Americans to purchase health insurance is constitutional.
2. Whether the federal government can force states to accept changes in Medicaid or lose their funding.
The Individual Mandate
The Court held that the healthcare law requirement that almost all Americans must purchase health insurance or suffer a penalty is constitutional. This was not based on the Commerce Clause in the U.S. Constitution, but on the taxing power of Congress. Five Justices agreed that the penalty citizens must pay if they refuse to buy insurance is, in effect, a tax that Congress can impose.
Basically, a majority of the Court accepted the Obama Administration’s “third” backup argument that, as Chief Justice Roberts put it, “the mandate can be regarded as establishing a condition — not owning health insurance — that triggers a tax — the required payment to IRS.” The first argument was based on the Commerce Clause, the second was based on Necessary and Proper Clause, and third was based on the taxing power of Congress.
The High Court noted that Americans subject to the individual mandate can lawfully forgo health insurance and pay higher taxes, or buy health insurance and pay lower taxes. The only thing that they cannot lawfully do is not buy health insurance and not pay the resulting tax.
The Court made clear it was not making a political decision. “We do not consider whether the Act embodies sound policies,” Chief Justice Roberts stated. “That judgment is entrusted to the Nation’s elected leaders. We ask only whether Congress has the power under the Constitution to enact the challenged provisions.”
The Expansion of Medicaid
The second key component of the Supreme Court case is the Medicaid expansion. The current Medicaid program offers federal funding to states to assist pregnant women, children, needy families, the blind, elderly, and the disabled in obtaining medical care. The Affordable Care Act expands the scope of the Medicaid program and increases the number of individuals the states must cover.
Specifically, the law requires state programs to provide Medicaid coverage by 2014 to adults with incomes up to 133 percent of the federal poverty level. Currently, many States cover adults with children only if their income is considerably lower, and they do not cover childless adults at all. The Affordable Care Act increases federal funding to cover the states’ costs in expanding Medicaid coverage. But if a state does not comply with the law’s new coverage requirements, it may lose not only the federal funding for those requirements — but all of its federal Medicaid funds.
The Court considered the basic question: Is the Medicaid provision constitutional if it requires states to comply with new eligibility requirements for Medicaid or risk losing their funding? The Court held that the provision can be allowed as long as states will only lose new funds if they don’t comply with the new requirements, rather than lose all of their funding.
Chief Justice Roberts noted that a state “could hardly anticipate that Congress’s reservation of the right to ‘alter’ or ‘amend’ the Medicaid program included the power to transform it so dramatically.” Therefore, the Medicaid expansion “violates the Constitution by threatening States with the loss of their existing Medicaid funding if they decline to comply with the expansion.”
|“The Federal Government does not have the power to order people to buy health insurance. Section 5000A (the individual mandate provision of the law) would therefore be unconstitutional if read as a command. The Federal Government does have the power to impose a tax on those without health insurance. Section 5000A is therefore constitutional, because it can reasonably be read as a tax.”
– Chief Justice John Roberts writing for the Supreme Court
However, the Court continues stating: “The constitutional violation is fully remedied by precluding the Secretary from applying [the statute] … to withdraw existing Medicaid funds for failure to comply with the requirements set out in the expansion. The other provisions of the Affordable Care Act are not affected. Congress would have wanted the rest of the Act to stand, had it known that States would have a genuine choice whether to participate in the Medicaid expansion.”
What Does All this Mean for You?
There are so many provisions of the Patient Protection and Affordable Care Act that are applicable to almost all Americans. Here are 10 basic ways the law may affect you:
1. Most Americans must have healthcare insurance by 2014, or pay a penalty tax for not having it.
2. An insurance company cannot turn children under age 19 down for coverage because of pre-existing conditions. Beginning in 2014, this protection extends to cover all Americans.
3. Many young people will be able to stay on a parents’ plan until they are age 26.
4. Seniors may pay less for prescription drugs.
5. Insured individuals will generally be entitled to certain preventative services without charge.
6. The private sector will continue to provide health care financed by the insurance companies.
7. More low-income people will likely be covered by Medicaid.
8. Starting in 2014, employers with 50 or more full-time equivalent employees that do not currently offer health insurance as a benefit will be required to do so, or a penalty will be imposed. However, businesses with less than 50 employees are exempt.
9. Insurance companies cannot cancel your policy and beginning in 2014, they cannot impose lifetime dollar limits on your benefits.
10. There are many tax implications in the new law for individuals and businesses. Click here for our chart listing the most important.
If you have questions about how the healthcare law may affect your business, speak with your employee benefits adviser, tax adviser and/or attorney.