Overview

On June 28, 2012, the Supreme Court announced its decision to uphold almost all of the Patient Protection and Affordable Care Act (ACA), ending a lengthy legal battle over the health care reform law. The law, the centerpiece of President Obama’s domestic policy, made dramatic reforms to the U.S. health care market. Most notably, the law:

  • Expands the Medicaid program.
  • Establishes health insurance exchanges meant to ease comparison between competing plans.
  • Creates new consumer protections and strengthens consumer rights.
  • Requires businesses to offer health insurance to their employees.
  • Penalizes individuals who do not hold insurance.

Opponents of the law challenged the constitutionality of the law based on the last provision, popularly known as the “individual mandate,” and on the way in which the law expanded Medicaid coverage. In its decision, the Supreme Court upheld the law, but interpreted the penalty on individuals who do not hold insurance as a tax and barred the federal government from forcing states to expand Medicaid coverage by withholding all federal Medicaid funding. Ultimately, the ruling was a success for supporters of the law, which will have significant repercussions in the U.S. health care market and in U.S. politics.

The Individual Requirement and Medicaid Expansion in the Law

The individual requirement to purchase health insurance or pay a fine formed the core of the ACA. Supporters of the law argued that, since the law included numerous consumer protections which threatened to drive up costs, the law would have to include a way to prevent moral hazard, i.e., to prevent individuals from holding off on purchasing insurance until they are already sick. Therefore, policymakers included the individual requirement in order to enable consumer protections while avoiding moral hazard.

Meanwhile, the ACA provided for a simultaneous expansion of the Medicaid program, which is run by the states under federal guidelines and funded jointly by states and the federal government. The ACA increases the eligibility ceiling of the Medicaid program, which is supposed to provide health insurance for underprivileged individuals and families, from 100 percent to 133 percent of the federal poverty level. As the ACA was written, states would be required to accept the increase, which would be initially funded wholly by the federal government, or lose all Medicaid funding.

Legal Challenges to the ACA

Twenty-six Republican-led states and several business groups filed suits against the law after it began to go into effect. These opponents of the law argued that the federal government could not coerce states to expand Medicaid by threatening to cut off Medicaid funding. Moreover, they challenged the individual requirement on the basis that Congress did not have the authority to require individuals to purchase a product, even insurance.

Supporters of the law pointed to a traditionally broad interpretation of the Commerce Clause, which gives Congress the power to regulate interstate commerce. They argued that, since everyone will at some point purchase health care, requiring individuals to buy health insurance only regulated the timing of their purchase, rather than force them to purchase health care. As a secondary argument, the government argued to the courts that the requirement to purchase health care was not a mandate that would require all Americans to hold insurance, but only a tax on a dangerous activity—not holding health insurance—which allowed Americans to choose between purchasing insurance or going without insurance and paying a tax.

The Supreme Court’s Decision

After moving through the U.S. court system, the challenge to the ACA reached the Supreme Court. The Court upheld the law with a majority of five justices voting in favor of the law. However, the justices supported the law for different reasons, reflecting differing interpretations of federal power.

Four justices—Ginsburg, Breyer, Sotomayor, and Kagan—would have voted to uphold the individual requirement under the Commerce Clause, while another four—Thomas, Scalia, Alito, and Kennedy—opposed it in any case. The decisive vote came from Chief Justice John Roberts, who deemed the individual requirement to be constitutional as a tax, but not as a mandate. In his view, the Commerce Clause argument, which would have supported a mandate, was invalid because the government would be creating commerce to regulate rather than regulating existing commerce. However, because the law does not actually require individuals to have coverage, but only choose between holding insurance and paying a tax without health insurance, it could be upheld under Congress’ taxing powers.

Additionally, the Court decided to disallow the removal of Medicaid funds from states that refused to expand their programs. Because states were so dependent on Medicaid funding, removing all of it would amount to excessive coercion by the federal government. However, the federal government could incentivize states to accept the expansion by only providing additional funding to states that expanded their programs.

What the Decision Means for the Future

Overall, the decision should be read as a victory for supporters of the law. States are unlikely to refuse additional Medicaid funding, meaning that even those who oppose the ACA will ultimately likely expand their programs. As long as politics do not overturn the law, the ACA reforms are likely to have a significant impact on the U.S. health care market.

Constitutionally, the Supreme Court’s decision placed limits on the powers of federal government. Although the Court upheld the law, it did not accept an expansion of the Commerce Clause or a broad interpretation of Congress’ spending powers. Although the Court’s decision has significant policy repercussions, its conservative Chief Justice limited the law’s status as a precedent for federal expansion.