SUPREME COURT LARGELY UPHOLDS PPACA

Today, the U.S. Supreme Court upheld the individual mandate and most of the Patient Protection and Affordable Care Act (PPACA).  As expected, it was a close decision -- 5-4 -- with Chief Justice Roberts and Justices Breyer, Ginsburg, Kagan and Sotomayor agreeing that the individual mandate is a permissible tax. Because the individual mandate was found to be acceptable, most of the rest of the law (including the exchanges and the requirement that larger employers provide minimum coverage or pay penalties of their own) automatically stands.  

BACKGROUND ON THE PPACA DECISION

The federal government had argued that Congress has authority under the Constitution to require individuals to purchase health coverage or pay a penalty (the individual mandate) under two separate powers -- the power to regulate commerce and the power to tax. Most of the debate has been over how broad the Commerce Clause is and whether a decision to not buy insurance could be considered economic activity or commerce.

As expected, the four traditionally liberal justices (Breyer, Ginsburg, Kagan and Sotomayor) concluded that Congress has the authority to impose the mandate under both powers. To the surprise of some, Chief Justice Roberts determined that while the Commerce Clause was not broad enough to support requiring individual purchases, the power to tax was broad enough, and that regardless what the penalty was called, it operates like a tax. Basically, the decision was that while Americans can’t be required to purchase health coverage, they can be taxed if they choose not to purchase coverage.

The individual mandate was considered by many to be the most controversial part of the law, and also necessary to create a large enough pool of covered individuals -- some healthy and some not -- to keep the cost of coverage affordable. Once the individual mandate was upheld, the balance of the requirements that apply to individuals and employers was also upheld.

Separately, a number of states challenged the expansion of Medicaid. PPACA provided that if states chose not to participate in the expansion, they would lose all Medicaid funding. The Court held that the expansion of Medicaid was permissible as long as the penalty for choosing not to participate in the expansion of Medicaid was limited to forfeiting the federal funds that would have been available to cover the newly eligible. As PPACA intended for much of the coverage to come through expanded Medicaid, it remains to be seen how this decision will affect implementation of the law, but the Medicaid issue should have no short-term effect on employers.

Because PPACA has been upheld, employers need to move forward with implementing the changes required by the law. The most immediate requirements are:

• All group health plans, regardless of size, must provide "summaries of benefits coverage" (SBC) with the first open enrollment beginning on or after Sept. 23, 2012.  The content and format of these SBCs must meet strict guidelines, and the penalties for not providing them are high (up to $1,000 per failure).  Insurers will be expected to provide the SBCs for fully insured plans, while self-funded plans will be responsible for preparing their own.
  ---
• Employers that issued 250 or more W-2s in 2011 must report the total value of each employee's medical coverage on their 2012 W-2 (which is to be issued in January 2013).
  ---

• High income taxpayers (those with more than $250,000 in wages if married and filing jointly, or more than $200,000 if single) must pay additional Medicare tax, and employers will be responsible for deducting a part of the tax (an additional 0.9 percent on the employee's wages in excess of $200,000) from the employee's pay beginning in 2013.
  ---

• The maximum employee contribution to a health flexible spending account (FSA) will be $2,500 beginning with the 2013 plan year.
  ---

• The Patient Centered Outcomes fee (also called the comparative effectiveness fee) is due July 31, 2013.  The fee is $1 per covered life for the 2012 year.  Insurers will remit the fee on behalf of the plans they cover, while self-funded plans will pay the fee directly.

Politically, while House Republicans have pledged to repeal PPACA, it is unlikely a repeal bill would pass the Senate, and it would be vetoed in any event by President Barack Obama.  The fall elections, of course, could result in a change in control of Congress and/or the White House, and Republican victories would likely re-energize efforts to repeal PPACA or to discontinue funding needed to implement various parts of the law.

The opinion is long (193 pages) and complex, and we will provide additional details -- through both written alerts and a webinar -- once there has been more time to study the opinion.