Some Aspects of the Act Will Take Effect Soon
This
Alert is Part I of two Alerts relating to the recent decision of the U.S.
Supreme Court upholding most of the Patient Protection and Affordable Care Act
("PPACA" or the "Act"). Part I discusses the
decision. Part II discusses its practical effects as respects
aspects of the Act which will become effective soon.
On
June 28, 2012, the U.S. Supreme Court upheld the vast majority of PPACA.
Many of its provisions were effective upon enactment. Others will not
take effect until January 1, 2013 and beyond. Those provisions will take
effect as scheduled unless Congress and the President act to the
contrary. This Alert summarizes the Supreme Court's decision.
Background
and Court Decision.
In National
Federation of Independent Business v. Sebelius, the U.S. Supreme Court was
asked whether two provisions of the Act were within the U.S. Congress' legislative
powers under the U.S. Constitution. Those two provisions and a
preliminary issue are discussed below.
The
Preliminary Issue.
The
Court [1] first considered whether it could hear the case. Under the
Anti-Injunction Act, no person may sue to prevent the collection of a
tax. Instead, a person must generally pay the tax and then sue for a
refund. Thus, the Court examined whether Congress intended the penalty
imposed by the individual mandate to be a "tax" within the meaning of
the Anti-Injunction Act. The Court reasoned that, because the Act refers
to the fee as a "penalty" and not a "tax", Congress must
have intended that the fee should not be a "tax" as that term is used
by the Anti-Injunction Act.
The
Individual Mandate.
First,
the Court was asked to consider whether the "individual mandate" was
a valid exercise of Congress' power. The individual mandate imposes a
"penalty" upon individuals who fail to maintain minimum essential
health insurance coverage. For tax years beginning after December 31,
2013, non-exempt U.S. citizens and legal residents who do not maintain that
coverage will be required to pay that penalty.
The
Court next considered whether the individual mandate was a valid exercise of
Congress' power under the Commerce Clause of the U.S. Constitution and the
Necessary and Proper Clause. Under the Commerce Clause, Congress has the
authority to regulate interstate commerce. Under the Necessary and Proper
Clause, Congress may enact legislation necessary and proper to its exercise of
the Commerce Clause power. The Court ruled that the latter is not an
independent grant but is instead dependent on, and can only be exercised to
implement, the Commerce Clause power or some other enumerated power.
The
plaintiffs argued that, instead of regulating existing commerce, the individual
mandate would force individuals to engage in commerce (i.e. buy health
insurance).
The
Court held that the power to regulate interstate commerce does not allow
Congress to require persons to engage in interstate commerce ("The
language of the Constitution reflects the natural understanding that the power
to regulate assumes there is already something to be regulated"; "The
language of the Constitution reflects the natural understanding that the power
to regulate assumes there is already something to be regulated"; "The
Framers gave Congress the power to
regulate commerce, not to compel
it."). Thus, the Court held that the Act could not be upheld under
the Commerce Clause.
However,
the power to regulate interstate commerce is only one of several powers granted
to Congress under the U.S. Constitution. For example, Congress also has
the power to levy and collect taxes under the "Tax Clause."
The
Court concluded that the penalty imposed by the individual mandate is a tax
within the meaning of the Tax Clause. In reaching this conclusion, the
Court cited certain aspects of the penalty that are similar to taxes imposed by
the Federal Government. For example, the penalty imposed by the
individual mandate is not for unlawful conduct, is collected by the Internal
Revenue Service, is paid with Federal income taxes, and varies (subject to floors
and caps) proportionately with an individual taxpayer's gross income. On
this basis, the Court upheld the individual mandate as a tax.
Medicaid Expansion.
Second, the Court considered whether, under the Spending Clause,
Congress could require States to expand coverage under their Medicaid programs
or, if they didn't, forfeit all Federal Medicaid assistance. In sum,
PPACA would have required States to expand the classes of individuals who are
eligible for Medicaid, would have restricted States from imposing stricter
eligibility standards or procedures than were in place on March 23, 2010 (the
effective date of the Act), and would have established a level of "minimum
essential coverage" that States would be required to provide. If any
State refused to expand its coverage, then it would lose all Medicaid
funding.
The Spending Clause grants Congress the power "to pay the
Debts and provide for the . . . general Welfare of the United
States." The legitimacy of Spending Clause legislation, however,
depends on whether a State voluntarily and knowingly accepts the terms of such
programs ("[T]he Constitution simply does not give Congress the authority
to require the States to regulate."). The Court held that when
Congress threatens to terminate other grants as a means of pressuring the
States to accept a Spending Clause program, the legislation runs counter to
this Nation's system of federalism.
The
Court reasoned that, because the penalty for States that do not adopt the new
Medicaid standards imposed by PPACA would be so severe (forfeiture of all
Federal Medicaid assistance), the expansion of the Medicaid program constituted
coercion by the Federal Government. Citing Supreme Court precedent which
prohibits the Federal Government from "commandeering" State legislatures
for Congress' own purposes, the Court determined that the Medicaid expansion
was akin to a "gun to the head". Accordingly, the Court struck
down the Medicaid expansion provisions.
Severability.
Having
determined that the individual mandate was constitutional but that the Medicaid
expansion was unconstitutional, the Court considered whether the entire Act
should be struck down because it was partially unconstitutional. For
example, as Justices Scalia, Kennedy, Thomas and Alita noted in dissent, unlike
many Congressional enactments, the Act contained no severability clause that
would save the constitutional portions of the Act if other portions were
declared unconstitutional. And, if Congress had intended that the Act
stand or fall as a whole, the Court should not re-write the Act to sustain it
in part ("The Court today decides to save a statute Congress did not
write."). The dissent noted that the Act contained numerous
provisions, both related and unrelated to the individual mandate and the
Medicaid expansion, and that, instead of dealing with all of those provisions
separately, the Act was presented and approved as a package deal.
Accordingly, if the entire package was not upheld, the dissent argued that it
would be inappropriate to uphold that the remaining portions of the Act.
However,
the majority (and thus the Court) concluded otherwise and upheld the
constitutional portions of the Act.
___________________________________________________
[1] All references to the "Court's" decision are to the
majority decision with respect to the issue involved.
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