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Justices Uphold Individual Mandate, Set Limits On Medicaid Expansion

Jun 28, 2012

Updated: 6:40 p.m.

The U.S. Supreme Court Thursday upheld nearly all of the landmark federal health law, affirming its requirement that most everyone carry insurance, but complicating the government’s plan to extend coverage to the poorest Americans.

Chief Justice John Roberts Jr. joined the court's four liberals in upholding the mandate, the best-known and least popular part of the law. The court also upheld hundreds of other rules embedded in the law designed to help millions more Americans obtain insurance and to refashion the health care industry.

But a majority of the justices voted that the government could not compel states to expand Medicaid, the federal and state program for the poor, by threatening to withhold federal money to existing Medicaid programs.

That change creates unexpected challenges for the Obama administration's plan to extend insurance to 30 million more Americans. More than half of those—mostly childless adults in poverty or slightly above it -- were to be covered by expanding Medicaid, but now states can opt out.

The ruling creates a new arena for political battles in the 26 states —primarily Republican—that sued to overturn the law. Passing up the Medicaid expansion is a mixed bag, saving the states some money in the long term, but bringing no relief to millions of uninsured or the doctors and hospitals that care for them. Within hours of the decision, Republican officials in several states, including Missouri, Idaho, Nebraska and Mississippi, said they were likely to oppose expanding the program.

The court's decision also may have heightened the role of health care in the upcoming presidential and congressional elections. Republicans have vowed to kill the law if they win control of the presidency and both chambers of Congress.

President Barack Obama welcomed the ruling, saying, "We will continue to implement this law.  And we'll work together to improve on it where we can.  But what we won't do—what the country can’t afford to do — is refight the political battles of two years ago, or go back to the way things were." 

However, Mitt Romney, the presumptive GOP presidential nominee, pledged to repeal the law if he is elected: "What the court did not do on its last day in session, I will do on my first day if elected president of the United States."

House Speaker John Boehner, R-Ohio, said: "Today's ruling underscores the urgency of repealing this harmful law in its entirety."

Mandate Upheld

Creating an unusual majority coalition, Roberts joined the four liberals on the court in upholding the mandate, which had been viewed as the most legally tenuous part of the law. Roberts concluded the penalty for not carrying insurance fell within Congress' taxing power, even though the court’s liberal wing had justified the mandate as a reasonable regulation of interstate commerce. 

Under the mandate, people who refuse to buy insurance will face a tax penalty. By the year 2016, that will amount to either $695 a year or 2.5 percent of income, whichever is greater. Roberts wrote that while the penalties were "plainly designed to ex¬≠pand health insurance coverage… taxes that seek to influence conduct are nothing new."

The decision leaves intact other major parts of the law that require insurers to accept all customers regardless of their health status and provide tax credits to those who need help to buy coverage. Those provisions go into effect in 2014.

The ruling eliminates one of the main justifications states have used to delay setting up new, online insurance markets called exchanges, where small businesses and individuals can shop for coverage.

While 14 states and the District of Columbia have authorized creation of these exchanges, another 33 have taken only initial steps or none at all, and three states have declared they won’t do it at all. The law requires the federal government to run the exchanges if state officials are unwilling or unable to do so.

"I'm disappointed and shocked that Justice Roberts led the charge to uphold the constitutionality of the mandate and called it a tax," said Bill McCollum, who filed the first state lawsuit against the act when he was Florida's attorney general. "I certainly don't think it’s a tax. It’s a sad day for the American people."

Medicaid Expansion Curtailed

The court's ruling on Medicaid took away one of the federal government's primary inducements to get states to participate in its expanded health coverage for the very poor. The law would have allowed the government to withhold all Medicaid money to states that didn’t go along with its expansion to cover people who earned up to 133 percent of the federal poverty level, or about $31,000 for a family of four.

Today, about 60 million people are enrolled in the program, mostly children, pregnant women and the elderly, and the expansion would have added another 17 million. Roberts said that Congress had not revised an existing program, but essentially created a whole new one, and therefore was not entitled to yank longstanding funding for states that wouldn’t go along with the changes.

"The financial 'inducement' Congress has chosen is much more than ‘relatively mild encourage¬≠ment'—it is a gun to the head," Roberts wrote. "The threatened loss of over 10 percent of a State’s overall budget … is economic dragooning that leaves the States with no real option but to acquiesce in the Medicaid expansion."

The law calls for the federal government to pick up all the costs of the Medicaid expansion from 2014 to 2016. After that, states would gradually start having to pay a portion, but the federal government’s share would not fall below 90 percent.

Within several hours of the decision, Republican officials in several  states had said they were inclined to turn down new federal money because they could not afford to pick up their eventual share.

Missouri House Budget Committee Chairman Ryan Silvey said Missouri won’t take federal money to expand Medicaid since the state would have to add in more than $100 million a year starting in 2017.. “I don’t see any chance of that happening,” he said. "It's just not a sustainable option."

Nebraska Gov.  Dave Heineman said in a statement that he would forego the money.

"If this unfunded Medicaid expansion is implemented, state aid to education and funding for the University of Nebraska will be cut or taxes will be increased," he said. "If some state senators want to increase taxes or cut education funding, I will oppose them."

Maxine Bell, Republican chairwoman of Idaho’s House Appropriations Committee, said her state will likely skip the expansion.

"I assume we can't pursue it [the expansion] because we can barely afford what we're doing now," she said. "I can't imagine where we'll find the revenue."

Tate Reeves, Mississippi's lieutenant governor, said his state’s share of the expansion would add almost 400,000 new enrollees and cost the state an estimated $1.7 billion over the next 10 years. "Mississippi taxpayers simply cannot afford that cost, so our state is not inclined to drastically expand Medicaid," said Reeves, a Republican.

But health policy experts say that state officials who decline the money will likely face the wrath of providers and advocates for the poor.

"They [states] could delay for a year or two, but the pressure from hospitals and the politics would be 'why are we doing this?' It economically makes no sense," said John Holahan, director of the Urban Institute’s Health Policy Center. Holahan noted that several states waited until the 1970s to start Medicaid after Congress authorized the program in 1965.

Gail Wilensky, who ran Medicare and Medicaid under President George H.W. Bush, said the government retains other levers to pressure states to participate, including special permissions the government gives states to craft their own rules in other areas. "Does [the administration] have some coaxing power? They have a lot," she said.

Politics Continue

The court ruling is unlikely to be the last word on the law. In fact, Republicans quickly seized on Roberts’ declaration that the mandate was a tax to argue that the Democratic architects of the law had misrepresented it.

"The election is two or three times the importance of court decision," said Robert Laszewski, a consultant to the insurance industry.

Signed into law March 23, 2010, after being passed without a single Republican vote, the health care legislation was promptly challenged, with 26 states filing or joining lawsuits challenging its constitutionality.

From the start, Republicans argued the law was an overreach of federal authority and that its new taxes and fees would hurt the economy.  Democrats said that slowing health care spending with provisions such as a powerful advisory board to curb Medicare costs and the so-called "Cadillac tax" on high-cost insurance benefits, would boost the economy.  At the same time, they said, the law would provide relief to millions who could not afford or qualify for insurance coverage.

Implementing the law is estimated to cost about $1 trillion over nine years, much of that for the insurance subsidies and expansion of Medicaid, according to the Congressional Budget Office.  That is slated to be paid for through savings wrung from Medicare, along with new taxes on industry, high income earners and employer-provided insurance.

Gearing Up For Deadlines

The high court’s decision comes a year and a half before January 2014, when some of the most significant changes called for in the law take effect.  Those include the launch of new state-based marketplaces where consumers will shop for coverage, the fining of employers with 50 or more workers who fail to provide affordable coverage and the Medicaid expansion.

Whether the federal government and the states will be able to meet the deadlines is far from certain. States that waited for the court decision may find they have run out of time since they must submit a blueprint for the marketplaces by Nov 16.

"We could have 20 or 25 states not ready," said Laszewski.

In addition, many must resolve a host of technical challenges, including revamping aging computer systems, to prepare for increased Medicaid enrollment – and to link with federal agencies, such as the IRS, to help determine applicants’ eligibility for Medicaid or tax subsidies.

Today’s decision "doesn't resolve any of the technical aspects the states are facing," said Joseph Antos, a health policy scholar at the conservative American Enterprise Institute.

Still, the court's ruling gives much of the health care industry more confidence to move forward.

"Clarity benefits the country. The last thing you need is uncertainty," said David Cordani, CEO of insurer Cigna.

Sarah Barr, Mary Agnes Carey, Kristen Carriker, Matthew Fleming, Phil Galewitz, Jenny Gold, Jay Hancock, Shefali Kulkarni, David Schultz, Marilyn Werber Serafini, Stuart Taylor, Christian Torres and Andrew Villegas contributed.

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