June 28, 2012 — The Supreme Court today declared in a 5-4 vote that the Affordable Care Act (ACA) — the most significant healthcare legislation since the creation of Medicare — is also a constitutional act.

The high court declared that the law’s most controversial provision — the individual mandate to obtain insurance coverage or else pay a penalty — was permissible under the taxation powers of Congress as defined by the Constitution.

The ruling comes as a shock to many observers, who predicted the court would strike down the individual mandate, if not the entire law, after its 5-member conservative wing voiced misgivings about the provision during oral arguments in March. The court decision also represents an early Christmas present for President Barack Obama, who seeks reelection this fall against a Republican opponent committed to rolling back "Obamacare."

The individual mandate was at the core of a lawsuit filed against the ACA by officials from 26 states, all but 1 of whom were Republican, as well as a business association. Similar to their Republican allies in Congress, the plaintiffs claimed that the mandate violated the Constitution's Commerce clause, which empowers Congress to regulate interstate commerce. They argued that although healthcare is a form of interstate commerce, Congress cannot compel "inactive" individuals to engage in commerce; that is, to buy or sell something. To allow the mandate to stand, they said, would open the door to further encroachments on personal liberty.

A federal district court in Florida and a federal appeals court in Georgia sided with the plaintiffs and invalidated the individual mandate. However, the Supreme Court had other precedents to follow.

The majority of lower federal courts that ruled on similar challenges to the ACA gave the mandate a clean bill of health, agreeing with the Obama administration's argument that contrary to the law's critics, individuals foregoing insurance coverage actively participate in the healthcare marketplace because they will eventually require medical attention. Their decision not to get coverage is bad for everyone else because the cost of their free or subsidized care is passed on to others in the form of higher provider costs and higher premiums, according to the administration. In addition, the decision by healthy Americans to go uninsured leaves the existing risk pool of insured Americans smaller and sicker, driving up premiums even more.

The mandate helps cure all these problems, the administration contended, by forcing "free riders" to finance their healthcare now as opposed to later, if at all.

During the oral arguments in March, several conservative Supreme Court justices did not appear to buy into the administration's point of view.

"Here the government is saying that the federal government has a duty to tell the individual citizen that it must act," said Associate Justice Anthony Kennedy, "and that is different from what we have in previous cases, and that changes the relationship of the federal government to the individual in a very fundamental way."

As it turned out, the Supreme Court did uphold the individual mandate, but in a way that few expected. The 5-member conservative majority — Chief Justice John Roberts Jr, and Associate Justices Kennedy, Antonin Scalia, Clarence Thomas, and Samuel Alito, Jr — agreed that the mandate violated the Commerce clause as spelled out in the lower court decisions. However, Roberts joined Associate Justices Elena Kagan, Sonia Sotomayor, Stephen Breyer, and Ruth Bader Ginsburg as a separate majority in upholding the mandate as a lawful exercise in taxation.

Writing for this determinative second majority, Roberts said that the court could construe the penalty for failing to obtain insurance as a tax, which Congress is authorized to levy under the Constitution’s Taxing clause. "Congress’s use of the Taxing clause to encourage buying something is...not new," noted Roberts. "Tax incentives already promote, for example, purchasing homes and professional educations."

Accordingly, the Taxing clause is sufficient to sustain the mandate even though it flunked the Commerce clause test, the court ruled. The Obama administration had previously had made that argument in case it lost on the Commerce clause issue.

Ruling Gives States More Freedom to Opt Out of Medicaid Expansion

The court's ruling on the ACA addressed more than the mandate. It also largely preserved the law's dramatic expansion of the Medicaid program. The ACA will extend Medicaid eligibility to an additional 16 million Americans through 2019. The 26 state officials who had challenged the law in federal court contended that their Medicaid programs had no choice but to participate, lest they forfeit all of their federal Medicaid funding.

At issue were the partnership roles of federal and state government. Medicaid exemplifies that partnership because it is administered by the states but is funded with both state and federal dollars — mostly federal.

The state officials argued that their dependence on federal funds enabled the federal government to coerce them into expanding Medicaid, which they find onerous. Although the federal government is footing the lion's share of the cost of covering new enrollees, the states claimed that they were hard pressed financially to contribute their share. In addition, they said they would have less say-so about the benefits their programs would offer. Yet if they did not carry out the expansion, they faced the potential loss of current and future federal funding, leaving them on their own to care for their poor and disabled residents.

This federal coercion, the state officials said, violates the 10th Amendment and its enshrinement of states' rights, which counterbalance federal rights in a federalist form of government. Instead of being partners with the federal government, state governments would be reduced to branch offices of Washington, DC.

All of the Supreme Court justices except Sotomayor and Ginsburg agreed with the state officials that the threatened loss of existing federal Medicaid funds amounted to unconstitutional coercion. However, Roberts joined Sotomayor, Ginsburg, Kagan, and Breyer in ruling that this flaw would be corrected — and Medicaid expansion retained — by forbidding the federal government from pulling out its federal contribution if a state declines to participate in Medicaid expansion.

The court also declared that a penalty levied on individuals who fail to obtain health insurance coverage beginning in 2014 does not bar consideration of the case beforehand. At issue was a law called the Anti-Injunction Act (AIA), which prohibits anyone from challenging a tax in court until it has been paid. A federal apppellate court in Richmond, Virginia, last year ruled that the ACA penalty amounted to a tax, and thus triggered the AIA. The Supreme Court disagreed, ruling that for the purposes of the AIA, Congress did not intend the penalty to function as a tax.

Sharp Dissent From 4 Conservative Justices

The 4 conservative justices who are normally allied with Roberts in majority opinions filed a stinging dissent in the ACA case. "The court today decides to save a statute Congress did not write," wrote Scalia, Kennedy, Alito, and Thomas.

The dissenters faulted the majority for justifying the individual mandate under the Constitution's Taxing clause, writing that the mandate's penalty was truly a penalty, based on the wording of the ACA. "To say that the individual mandate merely imposes a tax is not to interpret the statute, but to rewrite it," the dissenters wrote. They also scoffed at the majority's split view of the penalty when it came to the AIA vs the constitutionality of the mandate.

Scalia, Kennedy, Alito, and Thomas said the court's ruling also amended — and improperly so — the Medicaid-expansion provision of the ACA by forbidding the federal government to withdraw existing Medicaid funds from nonparticipating states. "The most natural remedy" to the problem of unconstitutional coercion, they wrote, would be to strike down the Medicaid expansion entirely.

"The reality that states were given no real choice but to expand Medicaid was not an accident," the dissenting justices wrote."Congress assumed States would have no choice, and the ACA depends on states' having no choice, because its mandate requires low-income individuals to obtain insurance many of them can afford only through the Medicaid expansion." Quoting an earlier court decision, the 4 justices wrote that making the Medicaid expansion optional despite the ACA's structure and design "would be to make a new law, not to enforce an old one. This is no part of our duty."

All in all, the foursome wrote, the majority ruling undermines the notion of state sovereignty and the limited power of the federal government. In their view, it exemplifies judicial overreaching, and "creates a debilitated, inoperable version of healthcare regulation that Congress did not enact and the public does not expect."

Day-One Responses From Across the Political Spectrum

Reaction from organized medicine to the high court's validation of the ACA was largely positive. David Bronson, MD, president of the American College of Physicians, said in a press release that the the law's individual mandate, insurance premium subsidies, Medicaid expansion, and other related reforms "are the most effective ways to expand coverage to nearly all Americans." Other groups such as the American Medical Association and the American Academy of Family Physicians (AAFP) issued statements that touted other benefits of the law without mentioning the mandate.

In an interview with Medscape Medical News, AAFP President Glen Stream, MD, said his group particularly values how the law improves pay for primary care physicians, expands the primary care workforce, and seeks to redesign primary care through initiatives such as the patient-centered medical home. At the same time, the AAFP remains committed to affordable health insurance coverage for every American.

"The mandate seems to be the only way to get everyone covered," Dr. Stream said. "If we have to have the mandate, so be it."

Dr. Stream expressed relief that the long and anxious wait for the high-court ruling is over.

"Now that the law is upheld, we can move forward and implement the features that are best and address areas where it is incomplete," said Dr. Stream. A comprehensive overhaul of the healthcare system, he said, should include tougher medical liability reforms and a permanent solution to the Medicare reimbursement crisis created by the program's sustainable growth rate (SGR) formula.

One influential physician who was not happy with the court's decision today was Rep. Phil Gingrey, MD (R-GA), who co-chairs the GOP Doctors Caucus, a group of Republican physicians, nurses, and other clinicians in the House. This group has advocated the repeal of the ACA on the grounds laid out in the legal challenge to the law.

"I was shocked, almost to the point of outrage," Dr. Gingrey told Medscape Medical News. "We didn't expect that the court would rewrite the law to make it constitutional.

"I'm not somebody who's calling for the impeachment of Chief Justice Roberts, but I sure don't want to share a beer with him anytime soon."

Dr. Gingrey said that GOP opposition to the law is far from over. "Most of my colleagues are saying 'Game on.' "

He predicted that voters this fall will react to the court's decision by putting presumptive GOP presidential candidate Mitt Romney in the White House, giving his party a majority in the Senate, and preserving its lock on the House. That sweep will set the stage for repealing the ACA in Congress, with no worry of a presidential veto.

"From a political perspective, I don't have a long face today," said Dr. Gingrey.

The Heritage Foundation, a conservative think-tank, also urged Americans today to work toward repealing the ACA. Like Dr. Gingrey, it called the court's ruling an error.

"The Supreme Court's decision to uphold Obamacare reflects a tragic misreading of the law, one which could cost us not just economically but also in terms of liberty," wrote Robert Alt, a senior legal fellow at the group, and Nina Owcharenko, a healthcare policy analyst, in a blog posting at the Heritage Foundation Web site. "On the bright side, the court recognized that there are limits to what Congress may do under the Commerce clause. But this was the silver-lining of a dark cloud. The court then fundamentally misreads ObamaCare, contorting to find another authority — the power to tax — for Congress to enact the law."

On the other end of the political spectrum, the 5-4 decision is receiving good grades. "The ruling is a victory for the Constitution, the American people, and the Obama administration," said Elizabeth Wydra, chief counsel for the Constitutional Accountability Center, a progressive think-tank and law firm in Washington, DC. "And it restores the integrity of the Supreme Court as an impartial institution. Chief Justice Roberts put aside his personal and political views and upheld the ACA."

Wydra told Medscape Medical News that the court's ruling did not especially surprise her. "It was apparent after the oral arguments that Roberts and Kennedy were in play," she said, alluding to the need for at least one conservative justice to swing over to the court's liberal minority for the law to survive. In addition, the Obama administration made a good argument when it justified the individual mandate by means of the Constitution's Taxing clause. She said she was surprised that lower federal courts failed to reach the same conclusion on this point.

The court's directive on Medicaid expansion — no loss of existing federal funds for states that opt out — will put state officials hostile to the ACA on the hot seat, she said.

"They will have the choice of following their ideological convictions and putting in jeopardy some of the most vulnerable people they serve, or working to provide them with affordable care using generous funding from the federal government," Wydra said. Through 2016, the federal government will cover 100% of the cost of providing medical care for Medicaid recipients who enter the program through the relaxed eligibility requirements of the ACA. After 2016, the federal contribution gradually decreases until it levels off at 90% in 2020, leaving states with a 10% share.

Paul Ginsburg, PhD, president of the nonpartisan Center for Studying Health System Change, predicts that the Medicaid program will successfully expand, given the amount of money the federal government is offering the states.

"I think the blue states will do it immediately," Dr. Ginsburg, a healthcare economist and policy expert, told Medscape Medical News. "The red states may hesitate, and stamp their feet, but I can't see them giving up all the [federal] help for people who would be otherwise uninsured."