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.