Obamacare in the Supreme Court 101: Deliberations, Rulings and Impacts

Marguerite Bowling / Rachael Slobodien / March 25, 2012

On Monday—two years after President Obama signed Obamacare into law—the Supreme Court will hear arguments challenging the health law’s constitutionality.  Heralded as the case of the century, the oral arguments heard and, ultimately, the Court’s decisions will set the precedent for hundreds of future legal rulings. They also will determine if there are any limits left to what the federal government can require regarding personal and private decisions.

From its inception, Obamacare has faced challenges on legal and moral grounds.

In fact, Heritage analysts were among the first to explain why the individual mandate that all Americans buy government-approved health insurance is unprecedented and unconstitutional.

It’s no wonder that legal challenges from the majority of the states and other organizations began pouring in shortly after the law’s passage. As these lawsuits worked their way through the district and federal appellate courts, conflicting decisions resulted, leading to the Supreme Court taking up the case.

Beginning Monday, the Court will hear six hours of arguments—six times the length allotted for most cases. In recent decades, the Court has generally set a maximum of 60 minutes for oral argument in each case (usually divided 30 minutes per side). In fact since World War II, very few cases have been allowed more than four hours; the biggest exception in the last sixty years was Brown v. Board of Education. The Court’s decision to allow six hours of oral arguments for Obamacare is another indicator of the case’s severity.

The Supreme Court will consider four main questions when the Obamacare cases come before the bench. And the answers to those questions will determine whether all, some, or none of Obamacare will remain in force after the Court’s decision.

Issues the Court Will Decide:

1. The justices will decide if the Anti-Injunction Act will prohibit states and other parties from challenging the individual mandate.
2. The Court will determine if the individual mandate that requires all Americans to buy health insurance is unconstitutional.
3. The Court will decide if the mandate, if ruled unconstitutional, can be severed from the Affordable Care Act.
4. The Court will rule if Congress exceeded its enumerated powers under the Spending Clause and violated basic federalism principles by placing heavy regulations on states that receive Medicaid funding.

Given the complexity and amount of legal issues at play, Heritage scholars Robert Alt director of Heritage’s Rule of Law programs and a senior legal fellow, and Edmund Haislmaier, senior research fellow in Heritage’s center for health policy studies, have written a paper that provides a guide to the issues before the Court, potential rulings and what the possible rulings could mean as far as health policy impacts to the private health sector and public health programs.  The information below offers a snapshot and roadmap to their paper.

While the Court may not rule until as late as June 30, this week will provide important insights to the considerations before the Court. Whatever the Supreme Court ultimately decides, Heritage health experts note it will not result in good health care policy. Congress will need to repeal Obamacare and seek patient-centered, and market-based health system reforms like those put forward in The Heritage Foundation’s long-term fiscal plan, Saving the American Dream.

First Issue: Anti-Injunction Act (AIA)

The first issue before the Supreme Court is the Anti-Injunction Act, which is a technical tax question.  It is a law that bars lawsuits challenging the tax before the tax has been paid. There are two ways this issue could play out:

Option 1: The Court finds that the Anti-Injunction Act precludes it from going to the question of the constitutionality of the individual mandate.

This means that the individual mandate would be implemented in 2014, and Americans would be required to buy health insurance coverage or pay a penalty. The constitutionality of the mandate could still be challenged, but it would have to be by someone who refused to obtain coverage and paid the penalty in 2015.

Under this theory, the Court wouldn’t reach the second and third issues (questions on individual mandate and its severability from Obamacare), but could still consider the fourth issue (the constitutionality of the Medicaid provisions).

Option 2: The Court decides the Anti-Injunction Act doesn’t apply.  Even the government has argued that the law does not impose a tax that would fall under the scope of the AIA.  This would allow the Court to then move on to considering the constitutionality of the law’s individual mandate.

Second Issue: Individual Mandate

The Court will consider if Congress exceeded its constitutional authority when it created a requirement that every American must buy a health insurance plan or pay a penalty for not complying.

Option 1: The Court upholds the individual mandate.  This means Americans would be required to purchase and maintain government-approved health insurance. This decision could have drastic impacts:

• The federal government would enforce regulations that strip away Americans’ ability to make their own health care decisions.
• Not only would Congress have the authority to compel any American to purchase health insurance, it could at any time make failure to comply a crime.
• Congress would be able to regulate virtually any aspect of American life. Congress could use the Commerce Clause, its power to regulate interstate commerce, to turn any inactivity into a commercial activity that could be regulated.
• Without real limits defined by the Court, Congress would no longer need to use incentives to encourage consumers to purchase a particular product, it would simply require the purchase. For example, Congress currently uses tax credits to encourage individuals to buy fuel-efficient vehicles or energy-efficient appliances.  If the individual mandate is constitutional, Congress could require such purchases, instead of merely incentivizing.

Option 2: The Supreme Court strikes down the mandate because it is unconstitutional.  The Court will then need to consider if the mandate can be extracted or severed from the health law.

Third Issue: Severability from the Individual Mandate

To answer the question of severability, the Court will look to understand if Congress would have passed Obamacare without a mandate, or said another way, would Obamacare operate as Congress intended without an individual mandate.  There are three different ways the Court could decide this issue:

Option 1: The Court decides to strike only the mandate from the law. But even the Obama administration has said that other insurance provisions—including those for pre-existing conditions and guaranteed issue requirements—must be invalidated for the insurance market to survive. In fact, Heritage scholars say many other Obamacare provisions would need to be struck down if the Court follows the government’s logic.

Americans would no longer face a penalty for not buying health insurance, but the insurance market would face severe upheaval if other components of Obamacare were left in place. This could result in insurers getting out of the market and Americans losing the plans they liked.  Using the Supreme Court’s test, this is surely not what Congress had in mind.

Option 2: The Supreme Court strikes the mandate and other “related” provisions in Obamacare. The problem is that there is no easy standard for the Court to use in order to determine which provisions are inseparable from the mandate. This puts the justices in the awkward position of determining which sections of Obamacare are so intertwined with the mandate that they must also be struck down.

Heritage scholars said the Court could find the following provisions non-severable:

• Guaranteed issue;
• Community rating requirements;
• Prohibition on annual dollar limits of coverage;
• Comprehensive coverage requirements;
• Insurance premium tax (known as the “Cadillac tax”);
• The Medicaid eligibility expansion for Americans who are 138-percent above the poverty level;
• Medicaid and Medicare Disproportionate Share Hospital payments;
• Limitations on cost sharing;
• New health care coverage subsidies;
• And the “Minimum Loss Ratio” requirement on health savings accounts.

Even if the Court strikes down the mandate and aforementioned insurance provisions, the insurance market is left with a hodge-podge of regulations that inhibit competition and consumer choice. Congress would have to act to rectify immediate impacts.

Option 3: The Court finds the mandate unconstitutional and that it is not severable from the law, so all of Obamacare is struck down.  Since the mandate is unconstitutional and the law implodes (in a way that Congress could not have intended) in its absence, the Court must strike down all of Obamacare.  Without the glue holding it together, the law falls apart.

The insurance provisions already in force would be struck down under this option, which Congress can easily reenact. But this process would provide lawmakers with an opportunity to create more patient-centered reforms that do not centralize health-care decision making in Washington.

Issue 4: Medicaid’s Coercive Impact on States

The final issue before the Court is whether the Medicaid expansion requirements in Obamacare—conditions made under threat of the federal government withholding all Medicaid funding from states that choose not to comply—coerce the states and violate the principles of federalism. But the Court could avoid this issue if it finds that the mandate is unconstitutional and decides that Obamacare’s Medicaid expansion must go with other provisions related to the mandate.

This could be the sleeper issue of the Court hearings, as very few Court-watchers are paying attention to it. Should the Court reach the question, there are two possible outcomes:

Option 1: The Court rules that Congress can force states to comply with the onerous requirements of Obamacare or lose all Medicaid funding. This would profoundly undermine state authority, making the states essentially tax collectors for a federal program. This would create quite a slippery slope because nothing would deter Congress from imposing similar changes on other programs that have shared federal and state funding.

This would open the door for the federal government to demand even more from state on issues that are best left on the local level. For states using innovative programs to help their low-income residents, these recipients may see changes to their current coverage or even tougher access to primary care.

Option 2: The Court strikes down Medicaid-related requirements. Here, much depends on how the Court crafts its decision. A sweeping decision could lead to a healthy reexamination of the limitations on the federal government for state spending and taxes.

A narrow decision would focus only on Obamacare and Medicaid, thus limiting any domino effect this decision could have on other federal-state programs. For example, the fact that Medicaid is so much larger than any federal grant program could prevent challenges to smaller programs.

With states given more freedom over Medicaid, it’s unlikely that any one state would drop the program (which is one of the single-biggest items in most state budgets). But states might make changes to the program that better suit the demographic and health needs of low-income residents.

The Bottom Line

This court decisions has the potential to be one of the most important decisions in American history both as a legal matter and a defense of limited government.  Whatever the Supreme Court ultimately decides, Heritage health experts note it will not result in good health care policy. The best result would be for Congress will need to repeal Obamacare and seek patient-centered, and market-based health system reforms like those put forward in The Heritage Foundation’s long-term fiscal plan, Saving the American Dream.