Supreme Court’s Decision on the Affordable Care Act
Global Life Sciences: US-Healthcare Update
In a splintered decision, the Supreme Court upheld the individual mandate of the Patient Protection and Affordable Care Act (“ACA”) but partially invalidated the Act’s expansion of Medicaid. The ruling on Medicaid expansion will allow States not to participate in ACA’s expansion—and to forego funding for the Medicaid expansion—without losing their existing Medicaid funding. Given that the federal government substantially funds the Medicaid expansion, it is unclear whether any state will pursue this option.
Individual Mandate Upheld Under the Taxing Clause
The individual mandate requires most Americans to maintain a certain level of health insurance coverage. 26 U.S.C. § 5000A. Beginning in 2014, those who do not comply with the mandate must pay a “penalty” to the IRS with their taxes. § 5000A(c), (g)(1). Plaintiffs argued that Congress did not have constitutional authority to enact this mandate.
The government first defended the mandate as an exercise of Congress’ power to regulate interstate commerce. Five Justices (Roberts, Scalia, Kennedy, Thomas, Alito) rejected that argument. They reasoned that neither the Commerce Clause nor the Necessary and Proper Clause allows Congress to compel individuals to become active in commerce by purchasing a product.
The Court nonetheless upheld the individual mandate as an exercise of Congress’ power to tax. Chief Justice Roberts voted with the other four Justices (Ginsberg, Breyer, Sotomayor, Kagan) to sustain the individual mandate as a tax. He reasoned that, although the individual mandate is better read as commanding a purchase (rather than taxing), the Court is obligated, if possible, to adopt another reasonable interpretation that avoids unconstitutionality. Here, the individual mandate can be viewed as a tax on not maintaining health insurance, and therefore it falls within Congress’ taxing power.
Medicaid Expansion Struck Down Under the Spending Clause
Another key provision of ACA expands the scope of the Medicaid program by increasing the number of individuals that States must cover. 42 U.S.C. § 1396d(a). The Act increases federal funding to cover States’ costs in expanding Medicaid coverage. § 1396d(y)(1). But if a State does not comply with the new coverage requirements, it may lose not only the federal funding for those requirements, but all of its Medicaid funds. Id. § 1396c. States challenged these provisions as violating Congress’ power under the Spending Clause.
Three members of the Court (Roberts, Breyer, Kagan) held the Medicaid expansion was unconstitutional insofar as it threatened to cut off States’ existing Medicaid funding if they decline to comply with the expansion. The Spending Clause allows Congress to establish cooperative state-federal programs, but only if a State has a real choice whether to accept the terms of such a program. The Court held that by threatening to terminate preexisting Medicaid funding, Congress gave States no real option but to acquiesce in the Medicaid expansion. The court then struck the Medicaid penalty because four other dissenting justices held that this provision should fall incident to their conclusion that the entire law should be struck.
The Court then had to decide how to remedy the constitutional violation. It had at least three choices: (1) invalidate ACA in its entirety, (2) invalidate the Medicaid expansion in its entirety, or (3) invalidate 1396c insofar as it applied to the withdrawal of existing Medicaid funds for States that do not comply with the expansion requirements. A different majority of Justices (Roberts, Ginsberg, Breyer, Sotomayor, Kagan), voted for the more limited remedy, barring only the withdrawal of existing Medicaid funds from States that do not comply with the expansion requirements.
By choosing not to invalidate ACA in its entirety, the Court did not disturb any of the provisions of ACA other than the provision that would have denied all Medicaid funds to a state that failed to expand their Medicaid program. Accordingly, the rest of the Act stands, including, for example, the Medicaid Part D Coverage Gap Discount and the Medicaid Rebate changes instituted under ACA.
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