On March 26, 27 and 28, 2012, the Justices of the Supreme Court of the United States (“SCOTUS”) heard oral arguments in a series of cases, including Department of Health and Human Services, et al. v. State of Florida, et al, which addresses the constitutionality of certain provisions of the Patient Protection and Affordable Care Act of 2010 (“PPACA”).  In the three days of testimony, SCOTUS debated whether (1) the Anti-Injunction Act bars a decision until a tax is actually collected under PPACA, (2) the individual mandate to buy health insurance under PPACA is a valid exercise of Congressional power under the commerce clause of the U.S. Constitution, (3) a finding that the individual mandate is unconstitutional may be severed from all of the other PPACA provisions, and (4) the expansion of Medicaid is constitutional.  The SCOTUS debates over these key issues brought national attention to the legal and regulatory challenges attendant to health care reform legislation.  An outstanding discussion of the impact of the SCOTUS debates on national health care by our EBG colleague, Stuart Gerson, may be found on the Firm's website.

What This Means for Employers.  The oral arguments over those three days took some interesting turns.  These discussions, though interesting, did not shed any light on the practical implications for employers and employers are left wondering what they can expect and what they need to do in anticipation of the Supreme Court’s decision. 

It is not possible to predict how SCOTUS will decide and whether it will address all or some of the constitutional challenges to the individual mandate.  No matter what the result, employers continue to face significant regulatory and compliance challenges in offering group health coverage to their employees.  Employers will either continue to be subject to PPACA’s requirements or be required to go through the exercise of unwinding the changes that have already been made. 

 Depending on the possible outcomes (in whole or in part) of the Supreme Court’s decision, employers should anticipate their obligations and challenges, which are discussed below:

  •  No Decision

 SCOTUS could decide that the issue is not ripe, that is, it is too early for SCOTUS to even consider a challenge to the constitutionality of PPACA.  This argument was made under the Anti-Injunction Act, which would prevent the enforcement of a tax law prior to a tax being levied.  A finding that the Anti-Injunction Act applies would allow the Court to delay a decision into 2014 or later until such time as a tax is assessed.  After the Presidential election, Congress could turn its attention to PPACA in 2013, perhaps by attempting a legislative “fix.”

 If the Supreme Court decides the issue is not ripe (in whole or in part), employers should continue to move ahead in anticipation of the many changes under PPACA coming into effect in 2014 and pay close attention to any Congressional activity impacting PPACA. 

  • Entire Health Care Reform Act Constitutional

 SCOTUS could uphold the constitutionality of PPACA (in whole or in part).   The Supreme Court would need to conclude that the commerce clause grants Congress the authority to require individuals to purchase individual coverage on a state insurance exchange or pay a tax penalty.  The Supreme Court engaged in a lively debate on day two of the oral arguments over the constitutional challenge as discussion turned to wheat, the Supreme Court’s decision upholding Congressional regulation of an individual farmer’s wheat production under the commerce clause, and broccoli, Justice Scalia’s much cited example of expanding the reach of Congressional power to regulate one’s choice of vegetable.   If the Court were to find the individual mandate to be constitutional, many commentators believe that Congressional repeal of PPACA is unlikely.  Thus, a decision that PPACA is constitutional would resolve much of the uncertainty surrounding PPACA.  This does not preclude the possibility of Congressional efforts to address the individual mandate or other aspects of PPACA with a legislative “fix.” 

 It appears that little would change for employers.  Employers would continue their efforts to come into compliance with PPACA and the proliferation of rulemaking from the Department of Health and Human Services, the Department of Labor and the Internal Revenue Service implementing PPACA. 

  • Individual Mandate Unconstitutional

 SCOTUS could strike the individual mandate provision as unconstitutional because it exceeds the authority granted to Congress under the commerce clause, while allowing the remaining provisions of PPACA to continue in effect.  It seemed clear from many commentators that day two of the arguments did not bode well for the individual mandate.  The Court closely questioned whether the individual mandate was a proper exercise of Congressional power under the commerce clause, or whether Congress exceeded its authority by regulating or penalizing inactivity, i.e., the failure to purchase health insurance.  If the individual mandate alone were found to be unconstitutional, the Court may need to address whether other provisions of PPACA, particularly the mandatory coverage provisions (e.g., coverage of preexisting conditions and community rating), are constitutional.

 Though the individual mandate is considered the “heart” of the statute, the penalties and requirements of employers remain in effect.  These include, by way of example, the requirement that employers provide group health plan coverage at a certain level of coverage or pay a penalty (the “employer responsibility penalties”), requirements that annual limitations under group health plans generally are prohibited, as well as the requirement for large employers to automatically enroll full-time employees in their group heath plans.  It is important for employers to note that a finding that the individual mandate is unconstitutional would not appear to have any significant impact on an employer’s obligations under PPACA. 

  • Entire Health Care Reform Act Unconstitutional

SCOTUS could find the PPACA unconstitutional in its entirety.  The key issue in this respect is whether the severability clause of PPACA requires that PPACA be struck down in its entirety if the individual mandate were found to be unconstitutional.  If the Supreme Court upheld the severability provision and found the entire PPACA to be unconstitutional, employers will need to look at unwinding the requirements they have previously put into place. 

Insurers are puzzled by how to roll back the PPACA changes that have been made.  For example, employers may decide as a plan design matter to continue to offer some of the benefits required by PPACA, such as dependent coverage to age 26 and preventive care benefits.  Even these decisions will be difficult and raise complexities.  For example, the expansion of dependent coverage to age 26 generally has been well received by employees and, instead of “taking back” the benefit, employers could continue to offer the coverage.  For tax purposes, however, the original Internal Revenue Service definition of dependent (generally up to age 19 or student status) will apply, leaving open the question of whether and to what extent coverage provided to adult children will be taxable.   Another example is how the Early Retiree Reinsurance program for which $5 billion has been allocated and many claims have already been distributed will be unwound.

A decision is expected near the end of the term around mid-June, so stay tuned.


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