THE ERISA INDUSTRY COMMITTEE Health Policy Focus On

THE ERISA INDUSTRY COMMITTEE Health Policy Focus. On Conference Call: The Constitutionality of the Affordable Care Act—The Supreme Court's Decision Friday, June 29, 2012 (1: 00 pm - 2: 30 pm) Alden Bianchi | Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P. C.

Brief Procedural Summary • The cases that the court accepted are: – National Federation of Independent Business v. Sebelius (No. 11 -393) – U. S. Department of Health and Human Services v. Florida (No. 11 -398) – Florida v. Department of Health and Human Services (No. 11 -400) • The decision is entitled: National Federation of Independent Business et al. v. Sebelius, Secretary of Health and Human Services, et al.

Questions Certified • The Initial Barrier – the Anti-Injunction Act • The Individual Mandate – Can the Government Require Individuals to Get Health Insurance? • Severability — Can the Rest of the Act Stay Intact if the Individual Mandate Fails? • Medicaid Expansion – Can the Government Require States to Expand?

The Anti-Injunction Act • The Anti-Injunction Act provides that “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person. . ” • The challenge seeks to restrain the collection of the shared responsibility payment from those who do not comply with the individual mandate • According to the Court – Congress did not intend the payment to be treated as a “tax” for purposes of the Anti-Injunction Act – The Act describes the payment as a “penalty, ” not a “tax” – That label does not control whether the payment is a tax for purposes of the Constitution, but it does determine the application of the Anti-Injunction Act

Act Fails under Commerce Clause • The power to regulate commerce presupposes the existence of commercial activity to be regulated • The individual mandate, however, does not regulate existing commercial activity; it instead compels individuals to become active in commerce by purchasing a product • “Construing the Commerce Clause to permit Congress to regulate individuals precisely because they are doing nothing would open a new and potentially vast domain to congressional authority” • The Framers knew the difference between doing something and doing nothing. They gave Congress the power to regulate commerce, not to compel it. • Ignoring that distinction would undermine the principle that the Federal Government is a government of limited and enumerated powers

Act Fails “Necessary & Proper” • The individual mandate cannot be sustained under the Necessary and Proper Clause as an integral part of the Act’s other reforms • Prior cases upholding under that Clause involved exercises of authority derivative of, and in service to, a granted power • The individual mandate, by contrast, vests Congress with the extraordinary ability to create the necessary predicate to the exercise of an enumerated power and draw within its regulatory scope those who would otherwise be outside of it • Even if the individual mandate is “necessary” to the Affordable Care Act’s other reforms, such an expansion of federal power is not a “proper” means for making those reforms effective

The Taxing Power • Administration's argument that the mandate should be upheld as within Congress’s power to “lay and collect Taxes” must be considered since, “every reasonable construction must be resorted to, in order to save a statute from unconstitutionality, ” Hooper v. California, 155 U. S. 648, 657 • Question: “fairly possible” to interpret the mandate as imposing such a tax. . . ” • The Act describes the “shared responsibility payment” as a penalty, not a tax • While fatal to the AIA, it does not control whether an exaction is within Congress’s power to tax • Instead, the Court follows a functional approach, disregarding the designation of the exaction, and viewing its substance and application

The Taxing Power (cont’d) • Thus, the shared responsibility payment may for constitutional purposes be considered a tax – The payment is not so high that there is really no choice but to buy health insurance – The payment is not limited to willful violations, as penalties for unlawful acts often are – The payment is collected solely by the IRS through the normal means of taxation • While the payment is intended to induce the purchase of health insurance, the mandate need not be read say that failing to do so is unlawful • The Act attaches no negative legal consequences to not buying health insurance, beyond requiring a payment to the IRS • It may also be read as imposing a tax on those who go without insurance

Direct Tax • Even if the mandate may reasonably be characterized as a tax, it must still comply with the Constitution's Direct Tax Clause, which provides: – “No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken. ” Art. I, § 9, cl. 4 • A direct tax is one imposed upon an individual person or on property, as distinct from a tax imposed upon a transaction • A tax on going without health insurance is not like a capitation or other direct tax under this Court’s precedents • It therefore need not be apportioned so that each State pays in proportion to its population

Medicaid Expansion • The Medicaid expansion violates the Constitution by threatening States with the loss of their existing Medicaid funding if they decline to comply with the expansion • The Spending Clause grants Congress the power “to pay the Debts and provide for the. . . general Welfare of the United States. ” Art. I, § 8, cl. 1 • Congress may use this power to establish cooperative state-federal Spending Clause programs, provided that a State voluntarily and knowingly accepts the terms of such programs • When Congress threatens to terminate other grants as a means of pressuring the States to accept a Spending Clause program, the legislation runs counter to this Nation’s system of federalism

Medicaid Expansion (cont’d) • The Act gives HHS has the authority to penalize States that choose not to participate in the Medicaid expansion by taking away their existing Medicaid funding, but— – The threatened loss of over 10% of a State’s overall budget the States with no real option but to acquiesce; therefore the Act’s expansion accomplishes a shift in kind, not merely degree – The Act transforms Medicaid into a program to meet the health care needs of the entire non-elderly population with income below 133% of the FPL • The Medicaid expansion thus violates the Constitution by threatening States with the loss of their existing Medicaid funding if they decline to comply with the expansion • The constitutional violation is fully remedied by precluding the Secretary of HHS from applying the act so as to withdraw existing Medicaid funds for failure to comply with the Act’s requirements

Impact on Employers • W-2 reporting • July 1, 2012 – Claims and appeals processes • No later than August 1, 2012 – Medical loss ratio rebates: August 1, 2012 – Preventive health services • September 23, 2012 – Summary of benefits and coverage: • Quality of care reporting: Nondiscrimination December 31, 2012 – Annual limits • January 1, 2013 – – Flexible spending arrangements – Retiree prescription drug expenses – FICA tax • March 1, 2013 –Notice of exchange option • July 31, 2013 -- Comparative clinical effectiveness research fees

Impact on Employers (cont’d) • December 31, 2013 – Plan communications with providers • 2014 – Employer shared responsibility excise tax • Other requirements: – Notices regarding whether the health coverage offered qualifies as MEC – Automatic enrollment required for employers with more than 200 full-time employees – Restricted annual limits on essential health benefits do not apply beginning in 2014 – Cafeteria plans of employers with 100 or fewer employees may offer coverage of full-time employees through an Exchange – Preexisting condition exclusions for adult enrollees and other discrimination based on health status must not be permitted – Wellness program restrictions not permitted – Waiting periods over 90 days not permitted • 2018 – High cost health plan or “Cadillac plan” tax

Questions & Answers Alden J. Bianchi | Member Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P. C. One Financial Center | Boston, MA 02111 Phone: 617. 348. 3057 | Fax: 617. 542. 2241 E-mail: abianchi@mintz. com