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On June 28, 2012, the Supreme Court issued its ruling in National Federation of Independent Business v. Sebelius and decided the constitutionality of the Patient Protection and Affordable Care Act (ACA), the major health care legislation enacted by Congress in 2010. The 5-4 opinion of the court, authored by Chief Justice Roberts, upheld the constitutionality of the ACA’s central features, i.e. the individual mandate and the expansion of Medicaid (except for the provision of the Medicaid expansion that could have resulted in loss of all Medicaid funding for states which refused to participate in the expansion).

The Court’s ruling came after four different circuit courts of appeal had ruled on the constitutionality of the ACA. Interestingly, not one of the circuit courts ruled the same way as the Supreme Court on all the issues. The Court’s majority opinion, the concurring opinions, and the dissenting opinions totaled approximately 190 pages.

Chief Justice Roberts, in a sort of prologue before the Opinion of the Court, explained the proper role of the Court in reviewing the constitutionality of laws enacted by Congress. He clearly explained that the Court does not determine whether a law is good or bad or wise but determines only whether there is a constitutional basis to support what Congress has done. If such basis exists, he explained that the Court must uphold the law.

The opinion of the Court then held that (1) the Commerce Clause was nota constitutional basis for the individual mandate but (2) Congress’ power to levy taxes was a constitutional basis for the mandate. The Court held that, to the extent the individual mandate required people to buy health insurance, it compelled people to engage in commerce. The Court ruled that the reach of the Commerce Clause did not extend that far. The Court held that the individual mandate could also be construed as not requiring people to buy insurance,rather, as giving people the choice of buying insurance or paying a tax. Since this construction of the law passed Constitutional muster, the Court wasobligated to construe the law in this manner and thus uphold its constitutionality.

The Court addressed the argument that the language of the ACA imposed a“penalty” rather than a “tax” upon those who did not buy insurance even if they were at an income level presumed to be able to afford the insurance. The Court ruled that, in substance, notwithstanding the language chosen by Congress, the“penalty” was a “tax”. The Court cited an estimate that as many as four million people will choose to pay the tax rather than buy insurance.

Next, the Court considered the ACA’s Medicaid expansion provisions. The Court noted that 42 U.S.C. § 1396c authorized the Secretary of Health and Human Services to declare that a state which chose not to participate in the expansion could lose all its funding for Medicaid. Since such states could thus lose in the neighborhood of 10% of their entire budgets, the Court determined that this threat amounted to a “gun to the head”. The Court ruled that the use of such threat was unconstitutional but also ruled that this provision was severable and thus the remainder of the ACA would stand.

Even though the ACA, including the individual mandate, has thus been upheld, it is not yet known if any states will decline to participate in the Medicaid expansion. It has been estimated that as many as 16 million additional people would become eligible for Medicaid under the expansion if all states participate. However, if the 26 states which challenged the ACA opted not to participate, as many as 8.5 million people might remain ineligible. In Texas alone 1.8 million would not have coverage. In Florida, it is estimated the expansion would cover an additional 951,000 people if Florida participates. For the first three years, the federal government will pay 100% of the cost of additional eligible Medicaid recipients. The federal government’s percent agethen will reduce slightly each year so that by 2020 it will pay 90% and the states will have to pay the balance. In the aggregate, between 2014 and 2022,the federal government would pay $931 billion and the states roughly $73 billion, or about 7%. This cost to the states is the reason given by some states for why they may not participate.

Because of uncertainties as to participants and what, if any, action Congress may take, the full effect of the Supreme Court’s ruling with respect to the nation's 50 million uninsured is yet to be determined.

For more information about this case, please contact Edward M. Waller, Jr.