Understanding the Supreme Court’s Decision on Healthcare

On Thursday, June 28, 2012, the US Supreme Court rendered a landmark decision on the Obama Administration’s Health-Care Reform Act.

In a 5 to 4 decision, the Court supported the major provisions, particularly the individual mandate.

In this post, the Gazelle Index staff explains in simple terms the various provisions of the Health-Care Reform Law that were at issue in the Supreme Court’s decision.

They are the individual mandate and the Medicaid expansion requirement. In a subsequent post, we will discuss the details of the Health Care Act.

Very few people understand the New Healthcare Reform Law. Therefore, it is understandable why some are unclear on the Supreme Court decision regarding it.

Ironically, even CNN and Fox News’s initial reporting on the decision was mistaken. They claimed incorrectly that the court had overturned the individual mandate, which is the heart and soul of the Law. In fact, the Court did just the opposite.

Persons wishing to read the precise language of the decision should refer to the slip opinion, entitled, “National Federation of Independent Businesses et. al v. Sebelius, Sec. of Health and Human Services, et. al”.

The best available summary of the details of the Law is provided by the Kaiser Family Foundation entitled, Summary of New Healthcare Reform Law.

We write this post for the ordinary individual who does not have the time or interest to wade through the voluminous Health Care Law and legal opinion.

Understanding the Health Care Act

The formal name of the law is the Patient Protection and Affordable Care Act. In lay terms, it is simply referred to as the Health-Care Reform Act.

The act has a number of provisions, which are designed to create universal health care coverage in America. The various provisions fall under the following categories:

  • Individual Mandate;
  • Employer Requirement,
  • Expansion of Public Assistance through Medicaid;
  • Premium and Cost-Sharing Subsidies to Individuals;
  • Premium Subsidies to Employers;
  • Tax Changes Related to Financing Health Insurance Reform;
  • Health Insurance Exchanges;
  • Changes to Private Insurance;
  • Cost-Containment

A Quick Summary of the Law

  • Almost all citizens will be required to purchase health insurance starting in 2014. This is referred to as the individual mandate. It is the core provision of the Law that was ruled to be constitutionally valid by the US Supreme Court.
  • Subsidies will be given to families to purchase health insurance if their incomes range between 133 to 400% of the poverty level.
  • In 2012, the income of a family of four which places them at 133% of the poverty line is $30,657.
  • Non-exempt individuals who do not obtain coverage will be penalized by the IRS at 1% of applicable income in 2014, 2% in 2015, and 2.5% thereafter.
  • For example, in 2014 an individual whose income is $20,000 will pay a fee of $95. In 2015, an individual, whose income is $25,000, will pay a fee of $325. In 2016, an individual, whose income is $37,000, will pay a fee of $695.
  • Every state must create a mechanism (i.e. Health Exchange) through which health coverage can be purchased.
  • Employers with 50 or more workers who do not provide health insurance to full-time workers will be assessed a penalty by the IRS.
  • For example, if an employer has 50 or more workers and does not provide insurance the penalty will be $40,000.
  • States are responsible for expanding Medicaid to provide health insurance to individuals whose incomes range up to 133% of the poverty threshold, which is $30,657 in 2012.
  • Medicaid currently provides funding to states to assist pregnant women, children and needy families, the elderly, blind and disabled.
  •  The Act would increase the number of individuals covered by Medicaid, including those with incomes up to 133% of the federal poverty line.
  • The Act also increases federal funding to states to cover Medicaid expansion.
  • The entire Medicaid provision of the law was rendered unconstitutional by the Supreme Court.

Understanding the Court’s Ruling

Twenty-six states and the National Federation of Independent Businesses sued the government claiming the Health Reform Law was an invalid expansion of congressional power.

In particular, they challenged the constitutionality of the individual mandate, and the Medicaid expansion provisions.

The Supreme Court’s interpretation of the law was as follows:

  • The objective is to increase the number of Americans covered by health insurance and decrease the cost of healthcare.
  • Individuals are required to maintain minimum essential health insurance or pay a penalty to the government.
  • As it was written, the Health Care Law referred to the individual mandate as a penalty and not a tax.
  • However, the Court argued that the mandate must be interpreted as imposing a tax on individuals who do not have health insurance. This notion of the penalty as a tax is reinforced because the fee it is collected by the IRS.
  • By interpreting it as a tax, the individual mandate falls within congressional powers to “lay and collect taxes.” Therefore, five of the nine justices upheld the individual mandate provision, while four justices dissented.
  • If it were interpreted as a penalty, the Court would have ruled the individual mandate unconstitutional.
  • The justices ruled that the Medicaid expansion provision violates the Constitution because it threatens states with the loss of existing Medicaid funding if they do not comply with the expansion.
  • This provision is a threat because states face a potential loss of over 10% of their budget for not complying. Therefore, states are forced to participate rather than doing so voluntarily and knowingly. As such, this provision is unconstitutional.

Even though the Medicaid provision was overturned, the court argued that Congress would have wanted the remainder of the Act to be enforced had it known that states would have a genuine right to opt out of participating. Therefore, all remaining provisions of the Healthcare Law were rendered Constitutional.

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