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Implications for Employers and Analysis of the Supreme Court’s Affordable Care Act Decision


Implications for Employers and Analysis of the Supreme Court’s Affordable Care Act Decision

June 29, 2012

Yesterday the Supreme Court of the United States made its historic decision regarding the constitutionality of the Patient Protection and Affordable Care Act (PPACA), upholding the vast majority of the PPACA’s provisions in a narrow 5-4 ruling.


  • For employers, this means that they will have to continue providing health insurance to employees’ dependents up to the age of 26.
  • By March 1, 2013, employers will also be required to provide their employees with a notice in plain language of the existence of state created health care exchanges. These notices must inform employees of the existence of exchanges and the services provided by them; they must include contact information for the exchange; they must also inform employees of their eligibility to participate, eligibility for cost sharing subsidies, premium tax credits and free choice vouchers.
  • Additionally, on January 1, 2014, employers with 50 or more full time employees must offer the minimum essential coverage to their employees and employers must contribute 60 percent of the cost of the premium. Failure to do either will result in a tax.
  • For the State of New York, this means that it will have to create a health insurance exchange, which is a state-created entity through which individuals may purchase government-approved health insurance plans.
  • Small businesses with 100 or fewer employees also have the option to offer health insurance to their employees through an exchange rather than through an employer-sponsored plan.
  • For individuals, this means that on January 1, 2014, all United States citizens and their dependents must possess the minimum essential health care coverage; failure to do so will result in a tax. Because the individual mandate was upheld, the rest of the Act is deemed to be constitutional.

If you have questions about the Supreme Court’s decision, or on how the upholding of the PPACA may impact your business, please contact Sean P. Beiter (716.566.5409;, or another member of Goldberg Segalla’s Labor and Employment Practice Group.


Chief Justice Roberts, who was nominated to the Court by President George W. Bush, delivered the decision for the Court. This was considered to be a surprise in light of the justice’s tough lines of questioning during oral argument.

The first question that the Court considered is whether the Anti-Injunction Act applies: the Court held that the Act did not apply, as the “[s]hared responsibility payment” included in the PPACA for individuals that forgo health insurance is not referred to as a “tax” in the statute; it is referred to as a “penalty.” The Supreme Court held that Congress’s use of the term penalty was significant, because in other sections of the statute, it had used the term tax to refer to other exactions. The Court thus presumed that this was a deliberate act on Congress’s part to differentiate between tax and penalty. Thus, the Court determined it could proceed to the merits of the case, because the Act does not require that the penalty be treated as a tax, and therefore the Anti-Injunction Act did not apply.

Paradoxically, the Court determined that the individual mandate was constitutional, because the penalty constitutes a tax, and Congress has the enumerated power to lay and collect taxes.

With regard to the government’s first argument that the individual mandate is constitutional, because failure to purchase health insurance has a substantial effect on interstate commerce, the Court held that the individual mandate could not be sustained under the Commerce Clause. It reasoned:

The individual mandate, however, does not regulate existing commercial activity. It instead compels individuals to become active in commerce by purchasing a product, on the ground that their failure to do so affects interstate commerce.

It determined that allowing the government to regulate individuals merely because their decision to “do nothing” affects interstate commerce would unduly expand the government’s authority. Roberts wrote, “Indeed, the government’s logic would justify a mandatory purchase to solve almost any problem.” He emphasized that the commerce power does not exist for the government “to compel citizens to act as the government would have them act.” Thus, the Court did not uphold the constitutionality of the individual mandate under the Commerce Clause.

The Court then considered the government’s alternative argument, that the mandate must be upheld as within Congress’s power to collect and lay tax. The government asked the Court to view the mandate not as compelling individuals to purchase health insurance but instead as taxing those individuals who do not purchase health insurance.

The Court reasoned that where a statute has two meanings and one violates the Constitution, then the construction that does not violate the Constitution should be adopted. The Court articulated, under this alternative proposal, the individual mandate is not a legal command to buy health insurance, it is “just another thing the government taxes, like buying gasoline or earning income.” In examining the provisions of the Act that require individuals who forgo purchasing health insurance to pay a penalty, the Court determined that the penalty was, for all practical purposes, a tax. It determined that for constitutional purposes, the individual mandate could be considered a tax and not a penalty, because the shared responsibility payment is not excessively high and thus punitive, it contains no scienter requirement, and it is collected solely by the IRS through normal means of taxation. The Court acknowledged that the tax is designed to affect individual conduct; however it noted that this is nothing new, and pointed to the high taxes on cigarettes. As such, the Court upheld the individual mandate in determining that it constituted a tax and that the Constitution permits Congress to lay such a tax.

In addressing its own contradiction, the Court asserted that the decision of whether the Anti-Injunction Act applies does not affect the decision of whether an exaction is within Congress’s constitutional power to tax.

The Court also addressed the constitutionality of states’ increased responsibilities under the Act with regard to Medicaid. States argue that the Medicaid expansion constitutes coercion rather than encouragement, because their failure to participate in the new program would result not only in the government withholding new funds, but the government would also take away their existing Medicaid funds.

Currently, under Medicaid, government funding is conditioned on the requirement that states provide assistance to needy pregnant women, children, families, the elderly, the blind, and the disabled. There is no requirement to cover most childless adults. There is flexibility in coverage; the average state covers only those unemployed parents who make less than 37 percent of the federal poverty line and only those employed parents who make less than 65 percent of the federal poverty line.

On January 1, 2014, the Act will condition funding on the requirement that states expand Medicaid coverage to all individuals under the age of 65 with incomes below 133 percent of the federal poverty line. States must also provide Medicaid recipients an “essential health benefits package” under the PPACA. Failure of a state to expand Medicaid coverage would result in the government withholding new funds and existing funds. Under the Act, if the states adopt the Medicaid expansion, the federal government will pay 100 percent of these costs through 2016; subsequently, their contribution will gradually decrease to 90 percent.

The Court held that in this case, Congress’s “encouragement” to expand coverage constitutes a “gun to the head.” It determined that, under the Spending Clause, nothing precludes Congress from offering funds to states that expand Medicaid coverage; however, Congress may not penalize states who choose not to by participate by taking away their existing Medicaid funds.


The PPACA ws as signed into law by President Obama on March 23, 2010. Just hours later, Florida State Attorney General William McCollum brought suit along with attorneys general and governors from 26 other states, two private citizens, and the National Federation of Independent Business. The defendants are the United States Department of Health and Human Services, the Department of Treasury, the Department of Labor, and their secretaries.

The Supreme Court granted the petition for a writ of certiorari on November 14, 2011.

On March 26, 27, and 28, 2012, it heard oral argument. Day one of oral argument was about whether the issue is ripe. Specifically, argument concerned whether the Act constitutes a tax, because The Anti-Injunction Act prohibits the Court from striking down tax laws before they take effect, and many of the provisions of the Act have not yet gone into effect.

The second day, the Court heard argument on the constitutionality of the individual mandate, specifically, whether the government is able to compel individuals not engaged in commerce to purchase a product, health insurance, from a private company. The individual mandate portion of the PPACA would make it mandatory for all United States citizens and their dependents to possess minimum essential health insurance coverage, whether it is through Medicare, Medicaid, an employer, or a state health insurance exchange. The Act places a maximum on the amount of an individual’s contribution based on household income. Additionally, it allows for premium tax credits and cost sharing subsidies for individuals with an income up to 400 percent of the federal poverty line and whose contribution to health care is more than 8 percent of their household income.

In making its argument to the Court, the government asserted that an individual’s failure to purchase health insurance has a “substantial and deleterious effect” on interstate commerce by creating the cost-shifting problem. Section 1501 of the PPACA describes how this mandate is constitutional by explaining that the individual contribution requirement is commercial, economic, and substantially affects interstate commerce. It points specifically to the effect an individual’s decision to forgo health care has on households and medical providers. It also points to how private health insurance is used to purchase drugs, medical supplies, and medical equipment, all of which is shipped in interstate commerce. Additionally it addresses how health insurance is sold by national or regional companies in interstate commerce and how claims payments flow through interstate commerce.

Alternatively, the government argued that if the mandate was not upheld under the commerce power, then it should nevertheless be upheld, because the penalty on those individuals who do not purchase health care is an increase in their taxes; thus, the mandate should be upheld, because Congress has the power to lay and collect taxes.

On the third and final day, the Court heard arguments on whether the rest of the law would be upheld if the individual mandate was deemed unconstitutional.