By Eric Klein

The Supreme Court ruled today 5-4 that the Affordable Care Act is constitutional and upheld the individual mandate, requiring most Americans to maintain "minimum essential" health insurance coverage. The decision was written by Judge Roberts for the majority. The Court held that the argument relying on the Constitutional commerce clause would not support the Affordable Care Act, but then looked to the constitutional right of Congress to impose taxes. Noting that the enforcement and operational structure for the individual mandate compliance and penalties was administered through the Internal Revenue Service, the Court upheld the individual mandate as a valid exercise of the Taxing Clause of the U.S. Constitution.

A notable result of the decision also was the holding by the Court that the federal government could not penalize states by withholding or withdrawing Medicaid funding for those states which choose not to participate in the Medicaid expansion. The Court reasoned that the type of change contemplated to the Medicaid program by the Affordable Care Act was transformational and not contemplated previously and therefore was not subject to the prior statutory reservation of rights by the federal government that allowed the alteration or amendment of the Medicaid program.

Further analysis of the decision is required, but this holding may allow for states individually to choose not to support the Medicaid expansion program and to do so without fear of reprisal from the federal government. Put another way, the Supreme Court decision potentially removes the "stick" held by the federal government and therefore may require a shift by the federal government to more of a "carrot" approach (i.e., providing incentives to the states for allowing the Medicaid expansion to proceed). Use of an incentive approach obviously will carry a price tag and may be difficult to accomplish, given the current economic conditions and the pending election.

In any event, we expect to see additional legislative or regulatory action to address this Medicaid state expansion aspect of the Supreme Court decision. The question arises though as to whether or not the Obama administration will wish to address this prior to the November election or to undertake this post-election. If post-election, the timing for such regulatory or legislative action may be somewhat pressured in light of the 2014 Affordable Care Act implementation schedule. Therefore, there will be significant state level activity on this issue, with opportunities for industry input, lobbying and contracting. We also anticipate seeing an acceleration of the current hospital and physician consolidation trends in order to accommodate the expected increased covered population.

We will be providing additional analysis of the Supreme Court decision in further blog postings.

Affordable Care Act Supreme Court Decision