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Locke Lord QuickStudy: Supreme Court’s ACA Ruling Upholds Individual Mandate

6/28/2012

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Supreme Court’s ACA Ruling Upholds Individual Mandate

The Supreme Court ruled today by a 5-4 majority that the Affordable Care Act’s (ACA) individual mandate is a permissible exercise of Congress’s authority to impose taxes. Chief Justice John Roberts cast the deciding vote and wrote the majority opinion. The Court’s decision on the individual mandate also spared the remaining provisions of the ACA, which a four judge minority would have scrapped along with the individual mandate. However, the Court found unconstitutional the ACA’s provision permitting the federal government to withhold Medicaid funding from states that do not comply with the ACA’s expansion of Medicaid coverage.
 
The decision likely means that the ACA will take effect as written, subject only to regulatory and legislative adjustments over time. However, Republicans are vowing to continue their efforts to repeal the law in its entirety and to use opposition to the ACA as a rallying cry in their efforts to gain control of the Presidency and Congress in November.
 
The decision to uphold the law also puts pressure on the insurance industry to move quickly to implement many of the law’s changes which first take effect in 2014. States will also be under significant pressure to establish and implement insurance exchanges, which are required by the ACA to be certified by January 1, 2013.
 
Chief Justice Roberts joined with Justices Ginsburg, Sotomayor, Kagan and Breyer to uphold the insurance mandate, which, beginning in 2014, penalizes individuals for failing to purchase insurance. This five-justice alliance agreed only that the individual mandate is a valid exercise of Congress’s taxing authority. As Chief Justice Roberts wrote, “The question is not whether that is the most natural interpretation of the mandate, but only whether it is a ‘fairly possible’ one.” Justices Ginsburg, Sotomayor, Kagan, and Breyer would also have sustained the mandate under the Commerce Clause and the Necessary and Proper Clause of the Constitution. The Chief Justice would not.
 
Justices Scalia, Kennedy, Alito, and Thomas would have rejected the individual mandate entirely, disagreeing with the Chief Justice’s decision to permit it as a valid tax. In short, the mandate survived by a 5-4 vote based on Chief Justice Roberts’ willingness to embrace one of the three primary grounds advanced by the government in support of the provision. The Court’s four more liberal members objected to the Chief Justice’s Commerce Clause analysis as too restrictive and unnecessary.
 
The four conservative justices, on the other hand, rejected the Chief Justice’s analysis of the taxing authority and would have rejected all three arguments advanced in favor of the mandate. As the dissenting justices state, “We have never held that any exaction imposed for violation of the law is an exercise of Congress’s taxing power—even when the statute calls it a tax, much less when (as here) the statute repeatedly calls it a penalty.”
 
In short, the dissenting justices rejected all grounds in support of the mandate, found that the mandate and Medicaid expansion were not severable from the ACA as a whole, and concluded that “[i]n our view it must follow that the entire statute is inoperative.”
 
With respect to the ACA’s expansion of Medicaid, the Court decided by a 7-2 vote that states may choose not to participate. Chief Justice Roberts’ majority opinion reasons that the ACA goes too far when it punishes states that reject the expansion by withholding existing Medicaid funding unrelated to the ACA. Concurring with Chief Justice Roberts in this result were not only Justices Scalia, Kennedy, Alito, and Thomas, but also Justices Breyer and Kagan.
 
Because most reporting and speculation before today’s decision focused on the individual mandate, the expansion of Medicaid may have been given less attention than it deserved. Under the ACA, Medicaid is expanded to cover all adults with incomes less than 133% of the federal poverty level. As an incentive for states to participate in the program, the ACA provides that existing, non-ACA Medicaid funding can be withheld from states that are out of compliance with the expansion. The majority of the Court found that this provision goes beyond incentive to impermissible coercion. However, in light of the fact that most of the funding for the Medicaid expansion is provided by the federal government, few states may elect to opt out of the expansion.

For more information on the matters discussed in this Locke Lord QuickStudy, please contact the authors:

Ronald D. Kurtz | T: 213-687-6794 | rkurtz@lockelord.com 
Kevin B. Kroeker | T: 213-687-6758 | kkroeker@lockelord.com
Denise Hanna | T: 202-220-6992 | dhanna@lockelord.com 
Jan Reimann Newsom | T: 214-740-8639 | jnewsom@lockelord.com