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Supreme Court Votes to Uphold the Patient Protection and Affordable Care Act

The court’s decision clears up some short term uncertainty about PPACA, but many questions remain

Loren Adler and Shai Akabas contributed to this post.

SCOTUS held that the individual mandate to purchase insurance and the Medicaid coverage expansion are constitutional, but the federal government may not force states to participate in the expansion by threatening them with the loss of existing Medicaid funds.

The wait is over. After a rare six hours of oral arguments and nearly three months of deliberation, the Supreme Court issued its decision this morning that the Patient Protection and Affordable Care Act (PPACA) is constitutional, by a vote of 5-4.

As we discussed while the oral arguments were taking place in March, the Supreme Court considered four issues:

  • Whether the case is ripe for argument
  • The constitutionality of the individual mandate to purchase private health insurance
  • Whether the mandate is severable from the rest of the statute
  • The constitutionality of the Medicaid Program eligibility expansion

What the Court Decided

The court ruled that the Anti-Injunction Act (AIA) does not apply to this case. If it did apply, a ruling on the merits would have been delayed until 2014 or later, when the tax penalty became enforceable. The Court held that Congress did not intend the payment to be treated as a “tax” for purposes of the AIA; instead, it is considered a “penalty.”

On the individual mandate, the court ruled that it was permissible under Congress’s power to tax. Chief Justice Roberts wrote for the majority saying that “the mandate is in effect just a tax hike on certain taxpayers who do not have health insurance.” The court, however, rejected the federal government’s argument that the mandate was constitutional under Congress’s power to regulate interstate commerce, or the Necessary and Proper Clause. As Chief Justice John Roberts said in the majority opinion, “[the Framers] gave Congress the power to regulate commerce, not to compel it.” Chief Justice Roberts cites the federal government’s argument that the court should read the “mandate not as ordering individuals to buy insurance, but rather as imposing a tax on those who do not buy that product.”

Because the court ruled that the mandate was constitutional, it declined to rule on the severability of the mandate.

The court upheld PPACA’s Medicaid expansion, but ruled that the expansion should be voluntary for states. The Justices were split on this question – Justice Ginsburg and Sotomayor voted to uphold the Medicaid expansion; Justices Roberts, Breyer and Kagan thought that the expansion should be an option, but states should not be at risk to lose all Medicaid funds if they chose not to expand coverage; and Justices Kennedy, Scalia, Alito, and Thomas voted to strike down the expansion in its entirety.

As Justice Roberts wrote, “nothing in our opinion precludes Congress from offering funds under the ACA to expand the availability of health care, and requiring that states accepting such funds comply with the conditions on their use. What Congress is not free to do is to penalize States that choose not to participate in that new program by taking away their existing Medicaid funding.”

What the Decision Means for States

PPACA was enacted into law over two years ago. Though many of the major provisions of the law do not take effect until 2014, the federal government has already spent billions of dollars to implement the law. In total, over $13 billion in funding has already flowed to states and private entities. The law represents a tremendous amount of work at the state level as leaders prepare for dramatic changes to the insurance marketplace and the Medicaid program.

Ultimately, the Court’s decision indicates that implementation of the law can continue to move forward. The ruling may mark a turning point for some states, including Alabama, New Jersey, Kentucky and Georgia, who were waiting for the Court’s decision to determine their next move on the design and launch of state-based health insurance exchanges. As a result of this delay, these states now have a very tight timetable to create insurance exchanges. Developing the necessary infrastructure and capacity required to make them function requires a large commitment of time and resources. Even if these states move forward with their planning immediately, they may not be ready in time.

Other states may wait for the outcome of the presidential election to decide whether to continue or begin work on insurance exchanges. According to recent guidance from the Department of Health and Human Services (HHS), states must submit, by November 16, 2012, an exchange “blueprint” that describes their readiness to run their own insurance exchange. With less than two weeks to turn around an application after the election, many states may find the federal government running their exchanges, in whole or in part.

What the Decision Means for Stakeholders

For quite some time now, the private health care industry has been undergoing a transformation to move toward more efficient models of payment and delivery of medical services. The Court’s decision relieves some of the uncertainty for insurers and providers in deciding how best to proceed. For instance, many of the new industry fees and payment reductions in PPACA are offset by the anticipated increase in insured individuals. More insured individuals means more private insurance reimbursement for providers, and more premium payments for insurers. If the mandate had been struck down, industry stakeholders would have faced the same payment reductions without any of these increased revenues.

Keeping PPACA in place means that deficit projections remain unchanged. Based on Congressional Budget Office estimates, accounting for the effective repeal of the CLASS Act and a few recent minor changes to the law, PPACA is scheduled to save the federal government roughly $125 billion from 2013 through 2022.

The court’s ruling clears up some short term uncertainty about PPACA, but many questions remain.

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