Good News for Medicare: Supreme Court Upholds Affordable Care Act

Last week, the Supreme Court upheld the constitutionality of the Affordable Care Act (ACA), but did place potential limits on the Medicaid expansion portion of the law.[1] The several opinions by the Justices are lengthy (a total of 193 pages in the "slip opinion" released by the Court and 81 pages in the version published in the Supreme Court Reporter), some of the reasoning is unusual, and the line-ups of the majority on the several issues, including the main one, cross the Court's traditional ideological demarcation.  This Alert will briefly summarize the decision and then set out how the Affordable Care Act, now upheld, will improve benefits for Medicare recipients.

Four issues confronted the Justices in making this decision:

1. Whether the courts even had jurisdiction to consider the case;
2. Whether, if they did, the so-called individual mandate is constitutional;
3. Whether, if it is not, some or all other portions of the ACA must also be invalidated; and
4. Whether the Medicaid expansion portion of the ACA was constitutional, and, if not, what could be done.

One of the interesting portions of the resolution was the shifting alliances among the Justices on these questions.  On virtually every issue, a different group of Justices coalesced to form a majority.  A true oddity of the case is that the Court concluded (in its only unanimous holding) that, for one aspect of the case, the penalty for not complying with the mandate to purchase health insurance was not a tax, but, for another portion of the case a majority held that the penalty was a tax.  Distressed by this contradiction, the dissenters, four of the five acknowledged conservatives (Justices Scalia, Kennedy, Thomas, and Alito), noted that this action "carries verbal wizardry too far, deep into the forbidden land of the sophists."

Jurisdiction to Hear the Case

The Court's first task was to determine whether, under the Anti-Injunction Act, the federal courts had jurisdiction of the case.  That law prohibits challenges to taxes until they are assessed.  Thus, if the individual mandate's penalty was a tax, the case was premature, because no penalty can be assessed until that portion of the law goes into effect in 2014.  Chief Justice Roberts, who is considered one of the five conservative members of the Court, concluded on behalf of himself and the four more liberal Justices (Ginsburg, Breyer, Sotomayor, and Kagan) that, since Congress had called it a penalty, it was not a tax for purposes of the Anti-Injunction Act and therefore the prohibition in that statute did not apply.  In their separate opinion, the four other conservatives agreed.  Consequently, the Court could reach step two, the legality of the law.

Constitutionality of the Individual Mandate

Since the federal government has limited powers, the individual mandate, like all federal laws, can only be upheld if the Constitution authorizes it.  The Chief Justice thus reviewed the applicability of the Constitution's Commerce Clause and Congress' taxing power.  For the former, which was the main argument advanced by the government in defense of the individual mandate, the Chief Justice concluded that the Commerce Clause did not provide the necessary authorization because the Clause regulates activity, and not buying health insurance is actually inactivity.  On this issue, he was joined by the other four conservative Justices to create a majority against the validity of the individual mandate.  Justice Ginsburg's opinion for the four more liberal Justices rejected this analysis, concluding that, in the unique circumstances surrounding health care, not buying health insurance was a form of commerce and therefore the mandate was authorized by the Commerce Clause. 

The Chief Justice then turned to the taxing power argument, where he returned to his alignment with the Court's more liberal wing to create a different 5-Justice majority upholding the individual mandate.  He noted a traditional rule of American jurisprudence that, if a statute has two possible meanings, it should be read in the manner that does not result in a violation of the Constitution.  He then concluded that it was reasonable to construe the individual mandate not as a requirement that individuals buy insurance, but as creating a "tax on going without health insurance."  Accordingly, it fell within the Constitution's authorization for the federal government's taxing power. 

It was this seeming contradiction to the earlier conclusion that led the four conservative dissenters to suggest sophistry.  But this action saved the individual mandate – and ACA.  It was therefore unnecessary for the majority to consider the third issue: whether other portions of the statute should also fall as not severable from the mandate.  The four dissenters would have held that the ACA was dependent on the mandate and therefore that the entire law should have been held unconstitutional. 

Medicaid Expansion

The Chief Justice then turned to the last issue, Medicaid expansion.  On this issue, the challengers to ACA claimed that the statute's expansion of the Medicaid program, to include all adults under 65 with incomes below 133% of the poverty level, was not valid under the Spending Clause.  They argued that the penalty to a state for not extending Medicaid to this group was so extreme – the withdrawal of all federal Medicaid funding to that state – that it amounted to coercion, a theory discussed in previous Supreme Court decisions but never previously used by the Court to strike down a law.  Chief Justice Roberts agreed with this argument, as did two of the more liberal Justices (Breyer and Kagan) who joined the Chief Justice's opinion, and the four conservative Justices in their separate opinion.  Thus, an entirely new majority of seven found the Medicaid expansion unconstitutional. 

The Chief Justice did not stop there, however.  He concluded that the unconstitutionality could be remedied by changing the penalty for a state's not implementing the expansion to withholding only the federal funds earmarked for the expansion.  Although Justices Ginsburg and Sotomayor had concluded that the expansion itself was constitutional, they agreed in the alternative with the Chief Justice's remedy to the holding of unconstitutionality.  As a consequence, the same 5-Justice majority that had found the mandate constitutional under the taxing power also determined that the Medicaid expansion was constitutional in light of the judicially revised and less coercive penalty.

The issue now for the Medicaid expansion portion of ACA is whether any states will refuse to expand their Medicaid rolls.  From the expansion's implementation in 2014, through 2017, federal funding of the expansion will be 100%, and then drop gradually by 2020 to 90% annually.  That is a significant inducement, but some state officials have already indicated that they will not implement the expansion – an odd stance, since it means that federal taxpayers in those states will not benefit, but will help fund the expansion in other states.  

Effect of ACA on Medicare

The decision upholding ACA ensures that the many improvements to the Medicare program continue to be available for the millions of American families who rely on Medicare. Some of these improvements are already saving older and disabled Americans thousands of dollars in costs and improving their care:

• Reducing Costs for Prescription Drugs.  People with Medicare are already benefiting from the phase-out of the "Donut Hole" coverage gap that requires Medicare Part D enrollees to pay the full price for their drugs after a certain threshold of coverage has been met and until a catastrophic limit has been met.  Beneficiaries now pay only 50% of the cost of brand name drugs in the Donut Hole and 86% of the cost of generic drugs. So far, beneficiaries have saved an average of $635 per person on their drug costs from this provision, a figure that is expected to rise to $4,200 per person by 2021. The Affordable Care Act is on track to fully eliminate the Donut Hole by 2020, ensuring that people enrolled in Part D plans have better access to the drugs they need.
• Improving Accountability and Value of Medicare Advantage (MA) Payments.  ACA more fairly reimburses private Medicare plans.  Pursuant to the law, Medicare Advantage payments were restructured to better match payment in traditional Medicare.  Prior to the restructuring, MA payments were, on average, 13% higher than those for traditional Medicare.[2]  Also, MA plans are prohibited from charging higher cost-sharing than traditional Medicare for skilled nursing facility care, chemotherapy and kidney dialysis.  Further, starting in 2014, MA plans will be required to spend a specific percentage of premiums on actual coverage rather than on administration, marketing or profits.
• Saving Lives with Preventive Health Services for Medicare Recipients. ACA added coverage for preventive care and made most preventive screenings and services free for people with Medicare. So far, over 24 million women with Medicare have received recommended preventive screenings and services with no co-pays or deductibles. ACA also added an annual Wellness Visit, all at no cost to the beneficiary.
• For more information about how the Affordable Care Act strengthens the Medicare program, see www.MedicareAdvocacy.org/ACA.

Conclusion

The Supreme Court's decision upholding the Affordable Care Act means the law will continue to expand access to health care and improve the lives of the millions of Americans and their families who count on Medicare. The law ensures that future generations will have access to benefits by strengthening the Medicare Trust Fund and by supporting delivery system reforms that will help reduce the growth in health care costs.  ACA promotes health and wellness for beneficiaries by emphasizing prevention, quality, and care coordination.  Health care reform also benefits the families of Medicare beneficiaries by extending access to health insurance coverage to millions of uninsured individuals, and by protecting everyone against insurance company practices that deny health insurance coverage to people when they need it.  Thus, the Supreme Court's decision is good news for Medicare, beneficiaries, families and taxpayers.