On June 28, 2012, the U.S. Supreme Court issued its highly-anticipated opinion deciding the constitutionality of the federal health care overhaul known as the Affordable Care Act (ACA). The Court upheld the entire Act except a provision related to expanding eligibility for Medicaid. Chief Justice John Roberts, writing for the Court, construed the individual mandate as an option to have “minimum essential coverage” or to pay a tax and upheld the provision on the basis that the Act merely uses a tax penalty as a means of incentivizing an individual to have minimum essential coverage. The Court also held that the Medicaid expansion provision, although unconstitutional, can be severed so that the remainder of the Act can stand despite the unconstitutionality of one portion. Florida, et al. v. United States Department of Health and Human Services, et al., Nos. 11-393, 11-398, and 11-400, U.S. Supreme Court (June 28, 2012).

The case has been one of the most closely-watched matters on the Court’s docket this year, particularly by the employer community, because it called into question the constitutionality of two key provisions in the Act. By anyone’s standards, Florida v. HHS has been an extraordinary case. The ACA is one of the most ambitious and far-reaching legislative efforts since the New Deal, and the case put every one of its provisions in jeopardy. Speculation over what the Court would decide in Florida v. HHS ran especially high after the arguments in March, along with speculation that some issues in the case might be decided without a majority opinion. Now the waiting is over, even if the uncertainties, challenges, and opportunities for employers are not.

Summary of the Court’s Holding

With one exception, the ACA, including its “individual mandate” that requires most individuals to have health care coverage, is constitutional. Even though the Court determined that the individual mandate provision exceeded Congressional power under the Commerce Clause and the Necessary and Proper Clause of the U.S. Constitution, five justices agreed that the individual mandate was a permissible exercise of the power of Congress to impose taxes. This decision turned upon the Court’s conclusion that the individual mandate penalty, which would have been imposed on an individual who does not have health care coverage, is a permissible federal tax.

With respect to Medicaid expansion, the Court held that Congress exceeded its powers by threatening to withhold all Medicaid funds from states that decline to expand Medicaid coverage. The Court held that Congress cannot threaten to withhold existing Medicaid funds from states that choose not to expand Medicaid coverage, but that Congress can deny those states additional money for Medicaid expansion. On this issue, the Supreme Court agreed with the argument set forth by Ogletree Deakins in an amicus brief (written by Asheesh Agarwal and Tom Christina) filed on behalf of Indiana state legislators, the James Madison Institute, and economist Christopher Conover.

What Happens Next?

Today’s decision does not mean that the validity of the Act is settled once and for all. The Court already has one request pending in another case to hear an appeal involving the constitutionality of other portions of the Act. Additional similar lawsuits are winding their way through the lower federal courts, and more cases may be brought in the near future.

For now, however, and for the foreseeable future, there is no basis in any court decision for treating the Act as invalid. The Court’s decision does not address the validity of Title I of the Act, the general employment-related section. The prudent course for employers at the present time is to proceed with compliance with the Act on the assumption that it will remain valid and be implemented as originally designed.

Practical Impact

According to Tom Christina, a shareholder in Ogletree Deakins’ Greenville office: “Employers and states should proceed as if the law is constitutional. Future legal challenges, and, of course, the November elections, may determine the law’s ultimate fate, but for now, prudence is the wisest course of action.”

Additional Information

Ogletree Deakins will discuss the Court’s health care ruling and its impact on employers in a webinar, which will be held on July 26, 2012, at 2:00 p.m. EST/11:00 a.m. PST. To register for this informative webinar, please click here.

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