In a highly anticipated decision, the US Supreme Court ruled on June 28, 2012, that the Affordable Care Act's (ACA's) individual mandate is a constitutional exercise of Congress's power to tax. Under the individual mandate, beginning in 2014, individuals must purchase health coverage that provides minimum levels of coverage or make an annual payment. The Court also limited the ACA's expansion of Medicaid, concluding that the government cannot threaten States that fail to expand their Medicaid programs with the loss of their existing Medicaid funding.

The decision is the culmination of lengthy litigation that:

The Court's decision includes an opinion by Chief Justice Roberts, with some subparts joined by a majority of the justices, and separate concurring and dissenting opinions.

Addressing a jurisdictional question, the Court first determined whether the dispute was barred by the Anti-Injunction Act (AIA), an Internal Revenue Code rule that prohibits pre-enforcement actions to enjoin the collection of federal taxes. The Court:

The AIA therefore did not apply to the dispute, permitting the Court to reach the merits of the case.

Five justices, including Chief Justice Roberts, rejected the government's argument that:

The Chief Justice's opinion stated that the individual mandate could not be sustained under the commerce power because:

The Court also rejected the argument that Congress's commerce authority allowed it to dictate an individual's conduct in the present based on anticipated future activity (that is, that everyone will participate in the health care market at some point in their lives).

However, a five-justice majority agreed that the individual mandate was a valid exercise of Congress's power under the Taxing Clause, notwithstanding the payment's label under the ACA as a penalty. The majority concluded that the payment required for not obtaining health insurance under the individual mandate was properly characterized as a tax. According to the Court, the fact that the payment was described in the ACA as a penalty rather than a tax did not determine whether the payment was an exercise of Congress's taxing power. Applying a functional test, the Court reasoned that:

That the individual mandate sought to influence decisions about whether to buy health insurance did not make it an invalid exercise of Congress's taxing power. Also, the Court concluded that the individual mandate payments were not a direct tax requiring apportionment among the states.

The justices were divided on whether the ACA's expansion of Medicaid exceeded Congress's authority. These rules would:

Opposing the expansion, the states argued that Congress was impermissibly coercing them to accept the Medicaid expansion by threatening to withhold their Medicaid funding, both existing and new, if the states failed to accept accompanying conditions. Joined by two other justices, the Chief Justice:

However, states that voluntarily accept funds from Congress under the ACA's Medicaid expansion could be required to comply with Congress's conditions on use of the funds.

For employer-sponsors of group health plans, the Court's decision means that for now, and subject to the outcome of the fall elections, the ACA requirements will continue to take effect under the timeframes set out in the March 2010 law and subsequent implementing guidance (see Practice Note, Effective Dates and Summary of Key Provisions under the Affordable Care Act (ACA) Chart). Employers that took a wait-and-see compliance approach in advance of the Court's ruling will now need to implement those ACA requirements having 2012 and 2013 compliance dates (for example, the summaries of benefits and coverage (see Practice Note, Summaries of Benefits and Coverage under the ACA) on a compressed schedule. Of course, a number of the ACA's requirements are already in effect (for two examples, see Practice Notes, Coverage for Adult Children to Age 26 under the ACA and Internal Claims and Appeals under the ACA), though in many cases the agencies must finalize rules that were issued in interim form. Also, additional guidance is still needed for several of the ACA requirements, including:

At least some of this guidance can be expected in the coming months, particularly now that the Supreme Court has ruled on the ACA's constitutionality. Finally, it should be noted that the ACA is also the subject of another legal challenge involving the requirement, under the law's preventive services rules, to provide coverage for contraceptives without cost-sharing.

Practical Law will continue to update and expand its ACA resources to keep up with this rapidly changing area of the law. For more information, see Practice Note, The Affordable Care Act (ACA) Overview.