Risk & Compliance

Supremes Fired Up over Health-Care Case

The high court sets aside an unusually large block of time for oral arguments; companies are advised to hold off on implementing provisions slated ...
Jeff MamorskyNovember 16, 2011

As we predicted in prior articles, on November 14 the Supreme Court decided to hear legal challenges to the Patient Protection and Affordable Care Act, commonly referred to as health-care reform or Obamacare. The central issue in the case involves the constitutionality of the individual mandate; that is, the requirement that all, or at least most, individuals purchase a qualifying health-insurance policy starting in 2014.

Contrary to the predictions of many legal experts, the Supreme Court also agreed to hear a number of other challenges to the law. The fact that the justices set aside five-and-a-half hours for oral arguments, more than for any other case in recent history, suggests the importance they are placing on the legal challenges.

The 26 states, along with the National Federation of Independent Business, that have filed suits over the law insist that with the individual mandate, Congress overstepped its constitutional right to regulate interstate commerce. The Obama Administration argues that the mandate does not require people to participate in commerce, but rather regulates how they pay for the health-care services that virtually everyone will require during their lifetime.

So far, two federal appeals courts have upheld the mandate, while one ruled it unconstitutional and another refused to reach a decision. (Concerning the law’s expansion of Medicaid, another issue the Supreme Court agreed to consider, not a single lower court has agreed with the states’ position.)

What happens if the Supreme Court does not uphold Congress’s right to legislate the individual mandate? The provision is aimed at spreading risk and helping to control insurance premiums. Requiring every individual to carry a minimum policy will allow the federal government to prohibit insurers from denying coverage to patients with preexisting medical conditions. But without a mandate, Americans would likely reason that they could save money by postponing the purchase of an insurance policy until they needed one due to illness or injury. That would raise insurance premiums to unaffordable levels.

The court will consider two procedural issues that will be significant concerning the law’s implementation. One is the issue of severability — whether the mandate can be considered unconstitutional without destroying the rest of the law. There is concern from the Obama Administration that if the mandate were to be deemed unconstitutional, then the denial of exclusions for preexisting conditions would also have to be removed, as the two are intertwined for the reasons explained above. It is because of this entanglement that the states insist the entire law rests on the fate of the mandate.

Second, the court will closely review the issue of ripeness. Essentially, the justices stated that they will hear arguments about whether they can reach a decision now at all. One lower-court judge said the constitutional questions about the mandate will have to wait until 2014 because of the Anti-Injunction Act, a federal law that says a tax must take effect before citizens can try to overturn it in the courts. Under this 19th-century law, the individual mandate could not be challenged in court until 2015, when the first tax penalties for failing to purchase health insurance are scheduled to be paid.

No one can predict how the Supreme Court will decide the case. The fact that a majority of circuit courts have upheld its constitutionality has no bearing on that decision. Still, it is likely that the Supreme Court’s four liberal justices will uphold the law in its entirety. The outcome, therefore, will depend heavily on the five conservative justices. Although conservatives tend to vote on the side of limiting federal power, it is not at all clear that will be the outcome in this case, especially because several conservative appellate judges have already preserved the law.

Until the Supreme Court issues a final ruling on the various challenges to the health-care law, we continue to recommend that companies begin preparations for implementing its provisions. If the Supreme Court upholds the act’s constitutionality while severing the individual mandate, the act will remain on the books but will have costly results. It would likely need to be revised or amended.

Therefore, we suggest that companies should not be overzealous in adopting the act’s far-reaching measures. Provisions nearing their effective date should be implemented, but those slated to take effect in the future should not be adopted until their effective dates draw closer.

Until a final decision is reached, it is important for CFOs as well as human-resources officials to continue familiarizing themselves with the act and to discuss its implementation. We will continue to monitor developments in the case and keep you informed as they unfold.

Jeff Mamorsky is co-chair of the global benefits practice at law firm Greenberg Traurig.