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HUB
International is committed to keeping clients updated on new developments involving
the Patient Protection and Affordable Care Act, which was signed into law on
March 23,2010
New Court Rules
Individual Mandate Unconstitutional:
Supreme Court
Action Inevitable
An appeals court has ruled that a portion of the
Patient Protection and Affordable Care Act (PPACA,
also known as the federal healthcare law) is unconstitutional. The specific provision
cited as violating Constitutional principles is
the rule directing that all legal residents purchase
health insurance (with limited exceptions), or pay a penalty.
Although the U.S. Supreme Court has final authority to select the cases it will
review, this newest decision should ensure that the highest court does
step in to make a final
determination because only a Supreme Court ruling will resolve the different Appellate
rulings around the nation. Timing for when the Court may agree to hear
the case is yet unknown. The Supreme Court may hear the case and issue
a decision next year, or it may wait until 2014 when the individual mandate
takes effect.
Impact on Employers
This recent court case does not address the issue of the employer mandate, other
than to describe it as part of the court's terse summary of the law; instead,
the ruling
centered on the individual mandate. Specifically, the
Eleventh Circuit explained that Congress does not
have the Constitutional authority to require an individual to enter into a contract
to purchase a product for the whole of that citizen's life simply because
that person might at some time experience a need for that product, which
in turn might impact the health care industry, the insurance market, and
federal health programs.
Employers, even those in the Eleventh Circuit where this case originates, will
not benefit from this ruling in the short run, and the issue of the employer
mandate may not be appealed to the Supreme Court as a result of that decision.
The Eleventh Circuit Court stated all other provisions of the law will
remain in effect despite this ruling. However, fallout from the
case may spur Congress to reconsider reform. The validity of the law's
individual mandate requirement is a fundamental PPACA feature. Insurers
insisted on it being included, and pressure for repeal is expected to increase
if the individual mandate falls, but the rest of the law stays in place.
Again, the court's laser focus on the individual mandate means the
employer mandate likely will not be addressed even in an appeal of this
case to the Supreme
Court.
Please note the whole Eleventh Circuit Court may now hear this case (known as
en banc review), as only three judges participated in the original decision.
That en banc review by the Eleventh Circuit may delay an appeal somewhat.
The decision in this recent case stems from a challenge initiated by 26 U.S. states
which argued the individual mandate (not scheduled to go into effect until
2014) is unconstitutional. These states assert Congress did not have the
authority to compel the requirement of maintaining health insurance. The
states also assert that the penalty is not the kind of tax
permitted under the federal taxation power. The Eleventh Circuit includes: Alabama,
Florida, and Georgia.
Other Recent Court Case - Opposite Result
By contrast, the U.S. Appeals Court for the Sixth Circuit recently upheld the
individual mandate as valid under the U.S. Constitution's "commerce clause." Here,
the court noted that Congress enjoys broad power to regulate activities affecting
interstate commerce and to levy appropriate taxes. The Sixth Circuit ruling has
already been appealed to the Supreme Court. The new decision will be appealed as
well. The Sixth Circuit includes: Kentucky, Michigan, Ohio, and Tennessee.
Impact on Rest of the Law
The Eleventh Circuit court addressed severability -- whether the rest of the law
will stand if the individual mandate is thrown out. The court did not dwell on the
issue of the employer mandate relative to the individual mandate in this context
either. Of interest, the court said even if the individual mandate fails, the two
main pillars of insurance industry regulation should stand, namely guarantee issue
and elimination of preexisting conditions. The employer mandate would
remain in place as well.
Impact on Insurance Companies
Health insurance carriers have expressed concern about the Eleventh's Circuit's
ruling allowing the rest of the law to stand despite invalidation of the
individual mandate and what
that might portend about how the Supreme Court may rule in this area.
The lack of specific statutory language tying the health coverage mandate to the
two main insurance reform components (guaranteed issue and no pre-ex),
suggests that these two concepts would survive, even if the individual
mandate were removed. Such an outcome significantly expands carriers' exposure
beyond their expectations when they sat at the table with Congress to craft
the law. If the case is upheld by the U.S. Supreme Court, employers
ultimately will have mixed feelings as insurers pull out of health insurance
markets. We already experienced that unintended consequence when the rule
on no pre-ex for persons
under age 19 went into effect.
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