The impact of the Patient Protection and Affordable Care Act (PPACA, or Act) on both health care providers and health care payors during the past few years has been undeniable. Even more irrefutable is that the myriad rules, regulations, and guidance materials (both official and unofficial) that PPACA has spawned interpreting its complex web of reforms, requirements, and prohibitions has caused industry-wide uncertainty and anxiety.  

Adding to these general anxieties has been the concern that PPACA, or at least its primary parts, may be found unconstitutional. Fortunately, the United States Supreme Court will likely answer this question in the coming months when the Court issues its decisions in the consolidated challenges to the Act’s constitutionality.

The Issues Before the Supreme Court

The Supreme Court must essentially decide three distinct issues: (1) is PPACA’s requirement that individuals maintain insurance providing minimal essential coverage or pay a tax (the individual mandate) an unconstitutional expansion of Congress’ Commerce Clause authority; (2) if the individual mandate is unconstitutional, is it severable from the rest of Act; and (3) whether PPACA’s expansion of the Medicaid program to cover individuals with income levels of up to 133 percent of the federal poverty level is unconstitutionally coercive.5

The Individual Mandate

The individual mandate has been described by both sides as a core component of PPACA. By requiring that nearly every individual obtain health insurance coverage, Congress attempted to prevent adverse selection by requiring that healthy and low-risk individuals purchase insurance in order to broaden the risk pool, thereby making the Act’s costly health insurance reform provisions more palatable to the insurance industry. However, since its inception, the individual mandate has been challenged as an unconstitutional expansion of congressional power under the Commerce Clause. While the issue of whether the individual mandate is or is not constitutional has been debated ad nauseam during the past few years, there is no real way to predict how the Supreme Court will rule on this issue. More interesting are the possible ramifications if the Supreme Court does find the provision to be unconstitutional.

Severability

Should the Supreme Court find that the individual mandate is unconstitutional, it must then decide whether it is severable from the remainder of PPACA, or if the entire Act must fail with it. However, even if the Supreme Court does find that individual mandate is generally severable, it may hold that certain provisions of the Act are so intertwined with the individual mandate that they also must be struck down.

In a rare instance of agreement, both the federal government and plaintiffs have argued in briefs to the Supreme Court that both the guaranteed issue and community-rating provisions of PPACA should be severed from the remainder of that Act if the individual mandate is found unconstitutional. However, the federal government has contended that, at a minimum, the portions of the Act that have already gone into effect (including such major market reforms as prohibition on lifetime benefit limits, minimum medical loss ratio requirements, and mandatory coverage for dependants up to age 26) are sufficiently independent from the individual mandate to survive any severability, as they took effect up to three years prior to implementation of the individual mandate. The federal government has further argued that the Supreme Court must analyze each and every provision of the 2,700-page Act to determine whether Congress would have enacted them without the individual mandate.

Consequently, it is equally possible that the Supreme Court will:

  • Find the individual mandate constitutional, in which case the entire Act remains in place
  • Find the individual mandate is unconstitutional, but completely severable, thereby allowing the Act’s remaining health care reform provisions to be implemented unaltered
  • Find the individual mandate is unconstitutional, and partially severable, conducting an analysis of each and every provision of the statute, and striking down the portions of the Act directly impacted by the individual mandate
  • Find the individual mandate is unconstitutional and not severable from the Act, in which case the entire Act is struck down

As noted above, should the Supreme Court look at the Act on a provision-by-provision basis, both the guaranteed issue and community-rating portions of PPACA will likely be struck down with individual mandate. Furthermore, a strong argument could be made that the majority of health care reforms (such as annual and lifetime limit prohibitions, minimum medical loss ratios, and rescission prohibitions) were at least implicitly based on the assumption that the cost of such reforms would be borne by the greatly expanded pool of insureds forced into the market by the individual mandate. Medicaid Program

Unlike certain other federal programs that operate primarily on the federal level, Medicaid operates through federal and state partnerships, whereby the states are reimbursed for providing the medical assistance to certain categories of individuals. Title II of PPACA expands the Medicaid program by requiring that states cover all individuals under age 65 with income levels of up to 133 percent of the federal poverty level beginning in 2014, or risk losing their federal reimbursement. The federal government would pay 100 percent of the cost of the expansion for the first three years (2014 – 2016) and then a decreasing amount until 2020, at which point the federal government’s share of the cost would be set at 90 percent. The Congressional Research Service has estimated that the expansion will provide insurance coverage for approximately 16 million people by 2019.

The states involved in the lawsuit, however, have argued that this expansion of Medicaid is an unconstitutional coercive use of the federal government’s spending authority. Essentially, the states argue that due to the sheer size of the federal government’s Medicaid funding (totaling hundreds of billions of dollars a year), the states have no choice but to accept the expansion or face dire economic consequences. However, this argument was not persuasive to the Eleventh Circuit, which found the Medicaid expansion to be a permissible federal incentive program, providing states with a “real choice” due, in large part, to the fact that the federal government would be bearing nearly all of the costs of the expansion and that the states have “plenty of notice” to decide whether to continue to participate in Medicaid or to create and fund similar programs under their own terms.

Just as the individual mandate addressed the demand side of the PPACA equation by ensuring a larger pool of insureds, the Medicaid expansion addressed the issue of supplying insurance coverage to those unable to afford private market plans. As such, should the Supreme Court strike down the Medicaid expansion as unconstitutionally coercive, it would likely significantly reduce the ability of lower-income individuals to meet the individual mandate. This in turn could potentially undermine Congress’ stated goal of near-universal health insurance coverage.

Conclusion

With oral arguments set to begin later this month, the Supreme Court will have a number of months to deliberate on its decision before it is expected to announce its opinion in mid-summer. In the interim, the executive branch and the Department of Health and Human Services show no sign of slowing down on PPACA’s implementation, issuing new regulations and guidance materials on a nearly daily basis. As such, the entire health care industry will need to continue to comply with the Act, while at the same time preparing for a world without PPACA.