Supreme Court Health
Reform Ruling Debrief
Where to Go from Here?
Barbara J. Zabawa, Attorney, Whyte Hirschboeck Dudek S.C.
July 12, 2012
The Pre-Decision Hype
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March 19, 2012: The New Republic reports an ABA survey showing
85% predicted Court will uphold law.
June 19, 2012: The New York Times reports that 80% of Intrade
investors believed the Court would reject the individual mandate.
June 22, 2012, Uwe E. Reinhart writes in the New York Times that he
would bet the SCOTUS would strike down the individual mandate
only.
Mid-June 2012, Richard Mourdock accidently releases videos
“celebrating” the decision, as well as “lamenting” it.
Speaker John Boehner cautioned House Republicans in Mid-June to
not seem too joyous if all or part of the law was struck down.
June 27, 2012, the Capital Times runs a story interviewing two local
observers, a constitutional law scholar and health consumer
advocate, who both believe that Court will find the individual
mandate unconstitutional.
Barbara J. Zabawa predicts during numerous discussions that the
easiest decisions will be to strike it all or uphold it all and that the
severability issue is too messy.
The Pre-Decision Hype
• Lessons learned:
– Don’t follow the crowd
– Don’t bet money on Supreme Court
decisions
– SCOTUS is very good at keeping secrets
Quick Survey
The Decision
• NFIB v. Sebelius, 567 U.S. ____ (2012)
• Issued on June 28, 2012
• 5-4 decision upholding the “individual
mandate” to purchase insurance under
the federal government’s taxing
power.
– C.J. Roberts, joined by J. Ginsburg, J.
Breyer, J. Sotomayor and J. Kagan.
The Decision
• Anti-Injunction Act
– The majority decides the AIA does not
apply because Congress chose to
describe the “shared responsibility
payment” for those who do not purchase
health insurance as a “penalty,” not a tax.
• Labels matter
• Because AIA is a creature of Congress,
Congress can describe a payment as a penalty
even though treated as a tax.
The Decision
• Commerce Clause argument does not
win the day for the government.
– C.J. Roberts and Justices Kennedy, Scalia,
Thomas and Alito found the individual
mandate to be an invalid exercise of
Congress’ power under the Commerce
Clause, Art. I, s. 8, cl. 3.
The Decision
• According to C.J. Roberts, the
individual mandate does not regulate
an existing commercial activity, but
seeks to compel those not already
engaged in commerce to purchase a
product (i.e., health insurance).
The Decision
• “People, for reasons of their own, often
fail to do things that would be good for
them or good for society. Those failures
– joined with similar failures of others –
can readily have a substantial effect on
interstate commerce. Under the
Government’s logic, that authorizes
Congress to use its commerce power to
compel citizens to act as the Government
would have them act.” C.J. Roberts, at
23.
The Decision
• Individual mandate could not be
sustained under “Necessary and Proper
Clause.”
– Even if individual mandate is necessary to
ACA’s insurance reforms, such an expansion
of federal power is not a “proper” means for
making those reforms effective. C.J. Roberts,
at 30.
– The Necessary and Proper Clause does not
license the exercise of any “great substantive
and independent powers beyond those
specifically enumerated.” Id. at 28.
The Decision
• The Government’s “alternative”
argument wins the day:
– The majority finds that despite the
importance of labeling something as a
“penalty” for purposes of the AIA, such a
label is not important for purposes of
determining whether the payment is a
legitimate exercise of Congress’ taxing
power.
The Decision
• Citing to cases like New York v. United
States, 505 U.S. at 171 (1992), the
majority finds precedent that
exactions not labeled as taxes were
authorized under Congress’ power to
tax.
– “Every reasonable construction must be
resorted to, in order to save a statute
from unconstitutionality.” C.J. Roberts, at
32.
The Decision
• The exaction in the ACA requires those
without health insurance to pay an
amount to the IRS through the normal
taxation process.
• This “functional approach” justifies
treating the mandate as a tax.
– The “tax” is not a penalty in that the amount
due to the IRS will be far less than the price
of insurance, and by statute, it can never be
more. C.J. Roberts, at 35.
The Decision
• Moreover, the Chief Justice points out
that the mandate contains no scienter
requirement and the IRS is not allowed
to use those means most suggestive
of a punitive sanction, such as
criminal prosecution.
The Decision
• The Chief Justice states that many taxes
seek to influence conduct.
– Tax incentives exist to encourage purchasing
a home or pursuing an education.
– The ACA’s individual mandate “tax”
encourages the purchase of health
insurance.
• However, the Chief Justice notes that the CBO
estimates 4 Million/year will choose to pay the IRS
rather than buy insurance.
The Decision
• Limits Federal Authority on Medicaid
Expansion.
– C.J. Roberts, joined by Justices Breyer and
Kagan, concluded that the ACA’s
Medicaid expansion violates the
Constitution by threatening states with
the loss of their existing Medicaid
funding if they decline to comply with the
expansion.
The Decision
• Justices Ginsberg and Sotomayor
concurred in the judgment by C.J.
Roberts.
– Disagreed that the withholding of
Medicaid funds in their entirety would
violate the Spending Clause.
– Agreed that the offending provision
should be severed and the ACA should be
allowed to stand.
The Decision
• C.J. Roberts held that the federal
government could meet constitutional
standards by precluding DHHS from
withdrawing all existing Medicaid funds
if a state chooses not to participate in
the Medicaid expansion program.
– Roberts concluded that finding the
withdrawal of Medicaid funds
unconstitutional does not affect the rest of
the ACA.
Impact on Employers
• Based on the Supreme Court ruling,
employers should move forward on
implementing and preparing for the
various ACA provisions.
Impact on Employers
• Next steps
– Prepare for reporting employer provided
health coverage in form W-2;
• Are you aggregating group health plan
valuation data for this reporting requirement?
– Finalize Summary of Benefits and
Coverage material for inclusion in the
2013 Open Enrollment package.
Impact on Employers
– Reflect the 2013 plan year $2500 cap on
salary deferral contributions into
healthcare spending accounts in 2013
Open Enrollment material, payroll
processes, and administration systems.
– Prepare to receive, and properly distribute
or apply any MLR rebates associated with
2011 insured health coverage.
Impact on Employers
– Understand and begin to determine the
patient-centered outcomes trust fund fees
due in July 2013.
– Determine whether you are eligible for
the Small Business Health Care Tax
Credit.
Impact on Employers
– Mind the forthcoming changes to the
nondiscrimination rules.
– Conduct a “Health Reform Analysis” with
regard to the benefit plans you offer
currently.
• Do you provide a “Cadillac Plan?”
• Does your plan provide minimum value and is
it “affordable” for purposes of the premium
tax credit available in 2014?
Impact on Employers
• The Health Reform Analysis will help
determine the likelihood of whether you
will owe a “shared responsibility
payment.”
– Applies to employers with 50 or more FTEs
(defined as 30+ hours/week) and who:
• Do not offer health care coverage or
• Fail to offer coverage that meets minimum value
and affordability requirements, and
• Have an employee that receives a premium tax
credit in a Health Insurance Exchange.
Impact on Employers
• Amount of penalty:
– For employers who do not offer any
coverage:
• $2,000 annually times the number of FTEs
minus 30.
– For employers who do offer coverage that
fails to meet the requirements:
• $3,000 annually for each FTE receiving a tax
credit, up to a maximum of $2,000 times the
number of FTEs minus 30.
Impact on Employers
• Health Reform Analysis should help
determine your role in continuing to
offer current level of coverage.
– Other considerations:
• Recruitment value of health insurance
• Ability to pair health plan coverage with
employee wellness initiatives
• Employee/Community expectations
• Tax exemption of benefits vs. wages
Impact on Employers
Examples of Impact (from kff.org)
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About This Company
Highland College is a small college, but an important source of jobs in the community. The
college offers comprehensive health coverage as a way to attract and retain talented
employees.
See How Health Reform Affects Highland College
Highland College will likely continue offering coverage to employees and their dependents. The
college will not have to alter the coverage, except to provide dependent coverage up to age 26.
If, however, the college alters the benefits or cost-sharing requirements of the plan in such a
way that it loses its grandfathered status, the plan would have to provide some additional
benefits, such as providing coverage for certain preventive services with no cost-sharing.
Because Highland College employs more than 250 employees, it will be required to
automatically enroll employees into the employer plan if they do not opt out of coverage.
If, in 2018, the value of the coverage offered by the college exceeds the threshold of $10,200
for single coverage and $27,500 for family coverage, the plan will be considered a high-cost
plan and the college will be charged a tax of 40% on the amount by which the premiums
exceed the thresholds. Highland College may pass this tax on to its employees who would pay
higher premiums or it may choose to reduce the cost of the plan to avoid the tax.
As long as the college continues to offer coverage, it will not be assessed any penalties, unless
the employee share of the premium exceeds 9.5% of income for any employee and that
employee chooses to purchase coverage in the state exchange and receives a premium subsidy.
In that event, Highland College would be required to pay the lesser of $3,000 per employee
receiving a subsidy or $2,000 per full-time employee, excluding the first 30 employees.
Should Highland College decide to stop offering coverage to its employees, and any employees
receive federal subsidies for purchasing coverage in the state exchange, the college would be
assessed a penalty of $2,000 per full-time employee excluding the first 30 employees
($1,940,000).
Examples of Impact (from kff.org)
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About This Company
Fresh Food Market is a local market specializing in locally produced foods. It
recently opened and is trying to establish a client base to sustain its operations. It
currently employs 16 full-time workers and although it would like to provide them
with health insurance, it cannot afford to do so until it is more established. The
owner and several employees have coverage through spouses or parents, but
about half are uninsured.
See How Health Reform Affects Fresh Food Market
The health reform law exempts Fresh Food Market and other small employers with
fewer than 50 employees from any penalties related to not providing health
insurance. Its uninsured employees may be eligible for Medicaid or for subsidies to
help them purchase coverage in the state Exchange.
If Fresh Food Market believes it can begin offering coverage, it would likely be
eligible to receive a tax credit for two years of up to about 20% of the costs of
providing health coverage to its employees as long as it chooses to purchase
coverage for its employees through the Small Business Health Options Program
(SHOP) Exchange and it pays at least 50% of the total premium. The full tax credit
of 50% of employer premium costs is available to small employers with 10 or fewer
employees and average annual wages of less than $25,000.
Examples of Impact (from kff.org)
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About This Company
Real Clean Janitorial Services employs 60 full-time employees to clean offices in
the local area. Real Clean does not currently offer insurance to its employees.
Some of its employees obtain coverage through a spouse but most are uninsured.
See How Health Reform Affects Real Clean Janitorial Services
Although the health reform law does not require employers with 50 or more
employees to provide health insurance coverage, those that don’t will face a
penalty if any employee receives a subsidy to purchase coverage in the state
exchange. Since many of Real Clean’s employees are both low-income and
uninsured, it is likely that at least one will choose to purchase coverage in the
exchange and receive a subsidy. In that case, Real Clean will be assessed a fee of
$2,000 per full-time employee, excluding the first 30 employees from the
assessment, or $60,000. Even if Real Clean does not offer coverage, its uninsured
employees will have new coverage options. Those with incomes below 138% of the
poverty level will be eligible for Medicaid while employees with incomes above that
level will be able obtain coverage through the state exchange and may be eligible
for premium and cost-sharing subsidies.
If Real Clean chooses to provide coverage in lieu of paying the penalty, the
coverage may have to meet new standards around benefits and cost-sharing. Real
Clean may have the option of purchasing the coverage through the Small Business
Health Options Program (SHOP) Exchange.
Examples of Impact (from kff.org)
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About This Company
Kate and Nate, both family physicians, formed the Pate Medical Group about ten years ago. They have a
thriving practice and currently employ eight full-time workers. The Pate Medical Group provides health
insurance to their employees and tries to keep the employee costs low. However, when their plan
renewed this year, the premium increased nearly 20%, in part because one of their employees was
recently diagnosed with cancer and is undergoing expensive treatment. The practice can afford the
additional costs; however, they will have to hold off hiring another part-time medical assistant.
See How Health Reform Affects The Pate Medical Group
Under health reform, the Pate Medical Group will likely continue offering the current coverage to its
employees and dependents. As long as the medical group does not reduce benefits or significantly
increase employee cost sharing, the plan will be grandfathered and can remain as it is, with the
exception of having to offer dependent coverage up to age 26. If Kate and Nate decide to make changes
to the coverage, the changes would have to comply with new standards that include offering a
comprehensive set of benefits, offering coverage for certain preventive services with no cost-sharing,
limiting deductibles to $2,000 for individuals and $4,000 for families and limiting employee out-ofpocket costs to the current limits for health savings accounts ($5,950 for individuals and $11,900 for
family in 2011).
If the Pate Medical Group wanted to offer a greater choice of plans to its employees, it could purchase
coverage through the state-based Small Business Health Options Program (SHOP) Exchange. The
premiums in the SHOP Exchange may or may not be cheaper.
New premium rating rules in the Exchange and in the small group market prohibiting insurers from
basing premium rates on the health status of employees may help lower premium increases in the
future related to having a sick employee.
Although Kate and Nate are not considering dropping health insurance coverage for their employees, if
they did decide to drop coverage, they would not be assessed a fee because they employ fewer than 50
employees.
Examples of Impact (kff.org)
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About This Company
ACME Manufacturing makes auto parts. Although it has shrunk in size over the years, it still
employs 150 full-time employees. The company provides health insurance to its employees and
their dependents. The coverage is fairly comprehensive, although in response to recent
premium hikes, the company adopted a $2,000,000 lifetime limit on coverage and has
increased slightly the plan deductible requiring employees to pay more out-of-pocket for the
coverage. It also began imposing a three-month waiting period for coverage for new
employees.
See How Health Reform Affects ACME Manufacturing
ACME will likely continue offering coverage to its employees. The coverage will not change
much though the company will have to get rid of the lifetime limit on coverage and it will need
to offer dependent coverage up to age 26. It will be allowed to retain the waiting period, but it
cannot exceed 90 days. If ACME continues to raise deductible levels and these increases exceed
specified thresholds, the plan will have to meet new limits on out-of-pocket spending and will
be required to cover certain preventive services with no cost-sharing.
As long as the company continues to offer coverage, it will not be assessed any penalties,
unless the employee share of the premium exceeds 9.5% of income for any employee and that
employee chooses to purchase coverage in the state exchange and receives a premium subsidy.
In that event, ACME would be required to pay the lesser of $3,000 per employee receiving a
subsidy or $2,000 per full-time employee, excluding the first 30 employees.
If ACME stops offering coverage and any of its employees receive federal subsidies in the state
exchange, it would be assessed a penalty of $2,000 per full-time employee, excluding the first
30 employees from the assessment ($240,000).
Questions?
• For more information, contact:
Barbara J. Zabawa, Health Care Team Lead
at:
Whyte Hirschboeck Dudek, S.C.
33 East Main Street, Suite 300
Madison, WI 53703-4655
Phone: 608-234-6075
Email: bzabawa@whdlaw.com