U.S. SUPREME COURT UPHOLDS THE INDIVIDUAL MANDATE OF THE 2010 LANDMARK FEDERAL HEALTHCARE REFORM LEGISLATION
On June 28, 2012, the last day of its term, the U.S. Supreme Court issued its long-awaited decision on the constitutional challenges to the Patient Protection and Affordable Care Act (“PPACA”), the 2010 overhaul of the healthcare system otherwise known as “Obamacare.” This decision left most of the PPACA untouched.
The court’s 5-4 decision had two main components. First, the so-called “individual mandate” remains intact. This pivotal provision requires most Americans to maintain the “minimal essential” health care insurance coverage mandated by statute. If an individual is not exempt and does not receive healthcare coverage through his employer or a government program, he must purchase insurance coverage from a private company. Beginning in 2014, each person who does not comply must make a “shared responsibility payment,” referenced in the statute as a “penalty” but not as a “tax.” This penalty payment will be made to the Internal Revenue Service with the individual’s taxes.
The court majority upheld the individual mandate as a reasonable exercise of Congress’ power under the Constitution to tax people. Essentially, the court held, Congress can create an obligation and tax people for failing to comply. Although without import for the PPACA’s survival, the Court agreed with the other main constitutional challenges to the mandate, including that (1) the individual mandate indeed violates the Commerce Clause, a constitutional provision allowing Congress to regulate interstate commerce and that is often broadly interpreted to permit regulation of many aspects of the economy and the lives of Americans (one example being the civil rights statutes); and (2) the individual mandate could not be upheld under the Necessary and Proper Clause (allowing Congress to enact laws necessary to carrying out some other congressional power). These are likely curbs on future congressional action.
A second part of the Supreme Court’s decision overturned the portion of the PPACA that allowed the government to penalize states for failure to comply with increased coverage for the poor under Medicaid. Under the Act, states must by 2014 provide increased Medicaid coverage to adults having up to 133% of the federal poverty level. Although the federal government is to provide increased funding to cover the states’ cost in expanding Medicaid, if a state fails to comply all state Medicaid funds would be removed. Rejecting what the Court called this “economic dragooning” that left no real choice to the states, the Court held that the states could not reasonably expect such spending. Since these Medicaid changes are a key part of the PPACA, questions remain as to the funding of health coverage for those in low income brackets.
The Constitutional Fight being over: What Happens Next?
This new court decision does not impose additional requirements on employers. However, the failure of the challenges to overall constitutionality of the PPACA means all companies should develop a plan to ensure compliance with its requirements as they become effective. Health care employers are subject to a host of additional obligations.
Schedule of PPACA effective provisions:
Steps to Comply:
Non-grandfathered plans must cover prevented services without cost-sharing.
Elimination of lifetime benefit limitations.
Dependent coverage must not be cut-off before age 26.
Dependent coverage for those under age 19 must include pre-existing conditions.
No retroactive cancellation of coverage absent fraud or material misrepresentation.
Plan administrators must distribute a “Summary of Benefits and Coverage” at the first open enrollment or first “plan year” starting after September 22, 2012. Summary must be no more than 8 pages.
Consult benefit brokers and consultants, or attorneys, about preparation of Summary.
Employers must report aggregate cost of employer-sponsored health insurance coverage on W-2 forms for 2012 (due January 31, 2013).
Consult with payroll department or payroll company to ensure this occurs.
Flexible spending account contributions limited to $2,500 annually.
High penalties for companies with insured medical insurance plans that discriminate in favor of highly compensated individuals. Effective with IRS guidance not yet issued.
Review of plan for discrimination in favor of highly compensated employees
Companies with more than 200 employees must automatically enroll all full-time employees. Effective with IRS guidance not yet issued.
An employer with more than 50 full-time employees that does not offer coverage and 1 or more full-time employees receiving the premium assistance tax credit will make a payment of $750 per full-time employee.
“Pay or Play” Penalties: Employers will be subject to penalties if they fail to offer coverage to all full-time employees or if coverage not “affordable.”
Review of plans to ascertain whether cover all full-time employees
Prohibitions of all preexisting condition exclusions.
Prohibitions of all annual benefit limitations.
Prohibition of waiting periods higher than 90 days.
Employers can increase wellness incentives without violation of HIPAA.
Employers subject to penalty if provide “excessive” health benefits