Supreme Court Upholds Health Care Reform Law

This blog post focuses only on how the Supreme Court’s decision affects businesses in their capacity as “employer” and administrator of their group health plans.  This post does not address the many significant issues that may be faced by hospitals, health care providers, drug and medical device manufacturers, health insurers or state governments.

The Supreme Court’s Decision

On June 28, the Supreme Court released its decision in National Federation of Independent Business v. Sebelius.  The Court ruled on various issues, including the Patient Protection and Affordable Care Act’s “individual mandate” and “Medicaid expansion” provisions.

  • Individual Mandate.  The individual mandate generally requires all citizens to buy health insurance by 2014 or pay a financial penalty.  The Court upheld the mandate even though it found that Congress cannot force citizens to buy health insurance using its authority under the Commerce Clause.  The Court instead characterized the individual mandate as a “tax” on not buying health insurance and held that imposing the tax is a permissible exercise of Congressional taxing power.
  • Medicaid Expansion.  The Medicaid expansion provision requires the states to expand their Medicaid coverage to all people below a certain income level, not just the elderly, blind, pregnant and children.  If a state refuses to expand coverage, it would have lost all of its federal Medicaid funding before the ruling.  The Court held that the threat of losing all federal Medicaid funding violates the Spending Clause.  However, the Court will allow the federal government to withhold from non-complying states any new Medicaid funding that is related solely to expanded Medicaid coverage. 

What Should Employers Be Doing Now

While there may be future legislative attempts, or litigation, to repeal or revise some the Act’s provisions, it is unlikely that anything significant will happen until after the November elections.  Given the relatively limited amount of time employers have to fully comply with the Act, employers should consider proceeding as if the Act will remain the law of land.  This means that employers should consider ensuring that all of the Act’s current requirements have been implemented and continuing their efforts to implement the Act’s remaining requirements, especially those that become effective later this year and in 2013.

The Department of Labor already has started conducting random audits to verify compliance with the Act’s initial requirements.

  • 2012 and 2013 Key Provisions.  The following are some of the Act’s key provisions that become effective later this year and in 2013: 
  1. Providing employees with a “summary of benefits and coverage” starting with open enrollments on or after September 23, 2012;
  2. Collecting data to report the cost of employees’ health care on their W-2’s, beginning with 2012;
  3. Preparing for the new “clinical effectiveness research” tax that employers with self-insured plans will have to pay for the 2012 through 2018 plan years.  The tax is equal to $1 ($2 after the first year) multiplied by the average number of persons covered under the plan;
  4. Amending plan documents to add the $2,500 limit on health care flexible spending accounts that become effective in 2013;
  5. Offering contraceptive drugs and devices to female plan participants (on a first dollar basis) with no cost-sharing that become effective in 2013; and
  6. Ensuring that employees who earn more than $200,000 (if single) or $250,000 (if married filing jointly) are aware that they will be subject to an additional 0.9% Medicare payroll tax on wages in excess of those amounts and that they will be subject to a 3.8% tax on their net investment income, beginning in 2013.
  • 2014. In 2014, the Act’s “employer responsibility” provisions (otherwise known as the “pay or play” rules) go into effect, and the health insurance exchanges and governmental subsidies for health insurance become available.  Given the significant impact that these provisions may have on a company’s finances and employee relations, employers should consider continuing to evaluate their options with respect to designing their medical benefit structures and workforces for 2014 and beyond.  However, with no final regulations on many key provisions, employers still will not be able to definitively determine their options.

Contact Us

The Supreme Court’s ruling most certainly does not answer all of the questions on the Patient Protection and Affordable Care Act.  The interpretation of the Act, and recommendations on best practices for employers, will continue to evolve as new regulations are issued, enforcement activities increase, and legal and legislative challenges continue.  We will continue to monitor the situation and post updates regarding any significant developments.  If you have questions, contact Steve Goodson, Lisa Wintersheimer Michel, John Meisenhelder, Mark Sims, Laura Hughes, Antoinette Schindel or Jay Thweatt.              

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