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06.28.2012 | Legal Advisory

This morning the Supreme Court released its decision regarding the Obama administration’s healthcare reform legislation. The Court has decided that the individual mandate of the Affordable Care Act, or the ACA, is constitutional. The Court also addressed the law’s Medicaid expansion, and limited Congress’s ability to withhold federal funding from participating states. The rest of the ACA remains intact and is the law of the land.

The Individual Mandate Survives
Chief Justice Roberts, writing for the majority, declined to strike down the ACA’s most controversial provision– the requirement that most Americans buy health insurance by 2014 or pay a penalty. The individual mandate garnered much attention in the months leading up to the decision. Today, the Court held that the measure is proper pursuant to Congress’s power to tax, but not under its ability to regulate interstate commerce.

Over the past few months, analysts focused on the Court’s interpretation of the scope of Congress’s constitutional commerce power. The Chief Justice determined that the mandate went too far by regulating inactivity, i.e. the commerce clause permits regulation of activity, but Congress cannot require it. He joined four other justices in the conclusion that the mandate must survive the Court’s scrutiny as a constitutional exercise of the federal government’s taxing authority.

Under the ACA, health plans and insurers cannot deny coverage based on preexisting conditions or charge different rates based on a person’s health status. If the Court had deemed the individual mandate unconstitutional, it might have also struck down these measures to forestall potential premium increases and systemic instability. In that scenario, uncertainty – pending further federal and state legislative action – would have loomed over the industry.

Politically popular provisions, including parents’ right to cover children until they turn twenty-six, were also saved by the Court’s decision. Over the past few weeks, some of the nation’s insurers announced their intent to voluntarily preserve some of the ACA’s more widely-supported measures. After today’s decision, they must do so.

The Medicaid Expansion is Not Mandatory
The Court also addressed the Medicaid expansion that would have added roughly 17 million people to its rolls. Under the ACA, Congress was empowered to penalize those states not participating in the expansion by withholding each nonparticipating state’s total Medicaid funding. Chief Justice Roberts determined that such a broad denial, characterized as so coercive as to be a “gun to the head,” was not permissible.

In practice, this means that the Medicaid expansion is available to any state that is willing to join. Participating states must then meet the expansion’s requirements, or face withholding of the enhanced federal funds associated with the expansion. States that currently participate in Medicaid but do not wish to join the expansion are free to decline it. They may continue as before without losing federal money. States not participating in the Medicaid expansion are ineligible only for the increased funding that is available to states that opt-in to the expansion. 

This advisory was prepared by the Life Sciences practice group at Nutter McClennen & Fish LLP. For more information, please contact your Nutter attorney at 617.439.2000. 

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.