PPACA Survives Constitutional Challenge in Supreme Court

The U.S. Supreme Court has rejected most constitutional challenges to the Patient Protection and Affordable Care Act ("PPACA"), leaving the law's individual mandate intact.

Individual Mandate.  PPACA's individual mandate requires most Americans to carry health insurance or pay a penalty to the IRS, starting in 2014. Although the Court found that Congress did not have the power to impose the individual mandate under the Commerce Clause, it held that Congress could enact the individual mandate under its taxing power.

PPACA describes an individual's "shared responsibility payment" for not having health insurance as a "penalty," not a "tax." Nevertheless, the Court held that the shared responsibility payment could be treated as a tax for constitutional purposes. The Court noted that the payment is not so high that individuals have no choice but to buy health insurance and that the payment is collected solely by the IRS through its normal means. The Court read Congress's choice of language- stating that individuals "shall" obtain insurance or pay a "penalty"-as imposing a permissible tax on those who go without insurance.

Employer-Responsibility Penalty. In addition to invalidating the individual mandate, the dissenting justices would have invalidated the employer-responsibility penalty (as well as other parts of PPACA, such as health insurance exchanges). The employer-responsibility penalty requires employers with at least 50 employees to provide health insurance options that meet minimum criteria or face the possibility of a monetary penalty, if one of their employees qualifies for subsidized coverage and buys health insurance through an exchange.

Without the individual mandate and other parts of PPACA, the dissenting justices found that preserving the employer-responsibility assessment would have upset the PPACA's design of "shared responsibility." This would leave employers as the only parties bearing any significant responsibility, and that was not intent of Congress. However, because the Court upheld the individual mandate, the employer-responsibility penalty was also upheld.

Medicaid Expansion. PPACA required states to either expand Medicaid eligibility to more lower-income people or lose all federal Medicaid funding. The Court held this choice to be unconstitutional. However, the Court did hold that the federal government may withhold those additional federal funds available under PPACA from states that refuse to comply with PPACA's Medicaid expansion.

Bottom Line. Now that the PPACA has survived the constitutional challenges, its ultimate fate will be determined through the political process. PPACA will certainly be a key issue in the federal elections this November.

As the Supreme Court's decision leaves PPACA virtually untouched, employers should have their plan documents reassessed by qualified employee benefit professionals to ensure compliance with the law.