Mind the Gap: Supreme Court’s Affordable Care Act Decision Does Not Bridge the Gap of Potential Uninsured Patients for Hospitals and Health Systems

Although the Supreme Court upheld the constitutionality of the individual mandate of the Affordable Care Act (“ACA”), the ruling does not bridge the gap of potential uninsured patients for hospitals and health systems. Under the ACA, the individual mandate requires nearly all Americans to purchase and maintain health insurance. However, if an individual does not maintain health insurance, the only consequence is that he or she must make an additional payment to the IRS when paying his or her taxes. The failure to maintain insurance is not an unlawful act.

The practical question is this: Will people follow the individual mandate and maintain health insurance or will they elect to simply pay the amount owed to the IRS when filing their taxes? The Court notes that:

In 2016, individuals making $35,000 a year are expected to owe the IRS about $60 for any month in which they do not have health insurance. Someone with an annual income of $100,000 a year would likely owe about $200. The price of a qualifying insurance policy is projected to be around $400 per month.

Based on the Court’s example, the expected amount owed to the IRS is 50% to 85% less than the projected expense to purchase a qualifying insurance policy. Therefore, it is possible that healthy, young, low-risk individuals will choose to pay the IRS rather than an insurance carrier. It is also possible that the departure of these individuals from the market may increase insurance premiums for the remaining population that needs health insurance. Ultimately, this process could result in unanticipated levels of uninsured individuals.

The second part of the Court’s ruling was that the federal government cannot penalize the States for declining to participate in the expansion of the Medicaid program. Under the ACA, the Medicaid program will include coverage for all individuals under the age of 65 with incomes below 133% of the federal poverty level. However, because each State can decide whether or not to participate in the expanded coverage, it is unknown whether this category of individuals will be insured or uninsured. If the States elect not to participate in the expansion, it is likely that these individuals will be uninsured as they cannot typically afford the cost of insurance.

Ultimately, the rulings on both the individual mandate and the Medicaid program raise questions as to the level of uncompensated care that hospitals and health systems will continue to face in the wake of the Affordable Care Act. Hospitals and health systems should closely follow the legislative activity in the states where they operate to determine whether the Medicaid expansion is approved. In addition, hospitals and health systems should evaluate alternative methods to reduce expenditures. While there may be an influx in the number of insured individuals under the ACA, the cost of providing care to the uninsured will likely remain a prevalent part of providing care.

© 2012 Michael P. James, J.D., M.B.A., CSSGB

Michael James provides representation and counseling related to all facets of business enterprise and healthcare matters. For more information, you can contact Michael at mjames@michaeljameslaw.com, (810) 936-4040 or www.michaeljameslaw.com.

The Supreme Court Determines that States Cannot be Penalized for Declining to Participate in Medicaid Expansion under the Affordable Care Act

In a landmark decision, the Supreme Court upheld the constitutionality of the individual mandate of the Affordable Care Act (“ACA”), which requires nearly all Americans to purchase and maintain health insurance. However, an important component of the ACA was struck down as unconstitutional. Specifically, the Court determined that the federal government cannot penalize the States for declining to participate in the expansion of the Medicaid program.

Before the ACA, Medicaid provided coverage to seven categories of needy individuals: pregnant women, children, needy families, the blind, the elderly and the disabled. The ACA was designed, in part, to provide affordable health care to all Americans. As part of that goal, the ACA included an expansion of the Medicaid program to include all individuals under the age of 65 with incomes below 133% of the federal poverty level. Under the ACA, new Medicaid recipients would receive an essential health benefits package equivalent to the recipient’s obligations under the individual mandate, through 2016.

The ACA required that the States comply with the expansion of the Medicaid program or risk losing their Medicaid federal funding. This funding typically represents a sizable portion of a State’s overall budget. Although the Court acknowledged that Congress has the ability to attach appropriate conditions to federal taxing and spending programs, the Court believed that the ACA crossed the line between encouragement and coercion. The Court determined that the States could not have anticipated that Congress would transform the program so dramatically. As such, the Court believed that the financial inducement for the States’ compliance with Medicaid expansion under ACA was akin to “a gun to the head”. In essence, the States had no choice but to acquiesce to the expansion of the Medicaid program. Accordingly, the Court determined that incentivizing the States to comply with the Medicaid expansion by threatening to terminate their existing Medicaid funding was unconstitutional.

Ultimately, the Court ruled that Congress may offer funds under the ACA to expand the availability of health care and require that States accepting such funds comply with the conditions of their use. However, Congress is not free to penalize States that choose not to participate in the expansion of Medicaid by taking away their existing Medicaid funding. Based on the Court’s ruling, the States are free to decide whether or not to participate in the expansion of the Medicaid program. It is unknown how many States will elect to opt out of the expanded program. In light of the Court’s ruling, it is also unclear what action Congress may take to either modify the Medicaid expansion or offer the States options to phase in their participation.

I will actively monitor state and federal legislative activity related to the Court’s ruling and provide up-to-date coverage and analysis of any initiatives related to the Medicaid program.

© 2012 Michael P. James, J.D., M.B.A., CSSGB

Michael James provides representation and counseling related to all facets of business enterprise and healthcare matters. For more information, you can contact Michael at mjames@michaeljameslaw.com, (810) 936-4040 or www.michaeljameslaw.com.

Supreme Court Upholds Affordable Care Act

Today, the US Supreme Court issued a historic ruling, and upheld the Affordable Care Act, which became law on March 23, 2010. The ACA created sweeping reform to the health care system in the United States. The driving principles behind the ACA are to provide affordable health care to all Americans, reduce the growth of the health care costs and improve the health of our communities.

At the heart of the Court’s ruling was a determination that the individual mandate of the ACA is constitutional. The individual mandate requires nearly all Americans to purchase and maintain health insurance. The Court determined that the penalty associated with the individual mandate is a permissible tax that can be imposed by Congress under the taxing power.

The ACA required that states comply with new eligibility requirements for Medicaid or risk losing their federal funding. Specifically, the ACA expanded the Medicaid program from covering medical services for particular categories of vulnerable individuals to a program designed to meet the heath care needs of the entire non-elderly population with income below 133% of the poverty level. The Court determined that the States could hardly anticipate that Congress would transform the program so dramatically. As such, the Medicaid expansion violates the Constitution by threatening the States with the loss of their existing Medicaid funding if they decline to comply with the expansion. The Court’s solution to this issue was to strike down, as unconstitutional, the ability of the Secretary of Health and Human Services to withdraw existing Medicaid funds from a State that fails to comply with the requirements set out in the expansion.

Follow Business Law Analysis for continued coverage and analysis of the Supreme Court’s ruling.

© 2012 Michael P. James, J.D., M.B.A., CSSGB

Michael James provides representation and counseling related to all facets of business enterprise and healthcare matters. For more information, you can contact Michael at mjames@michaeljameslaw.com, (810) 936-4040 or www.michaeljameslaw.com.