Defying expectations, the Supreme Court issued a 5-4 ruling upholding the individual mandate and the Affordable Care Act in its entirety and limiting but not invalidating the Medicaid provision.
Chief Justice John Roberts provided the support needed to make the majority and uphold the health reform law. In his opinion, Roberts noted he supported the individual mandate as constitutional based on Congress' taxing authority; it is not constitutional under the Constitution's Commerce Clause. The constitutionality of the taxing authority outweighs the unconstitutionality of the Commerce Clause argument, thereby upholding the mandate.
"The mandate can be regarded as establishing a condition -- not owning health insurance -- that triggers a tax -- the required payment to IRS," Roberts wrote.
Because the mandate was upheld, the remaining parts of the Patient Protection and Affordable Care Act (ACA) also remain intact, including two of the most far-reaching consumer breakthroughs of the ACA that rely on the individual mandate: guaranteed issue, which requires payers to insure all applicants regardless of their health status, and community rating, which prohibits insurers from charging customers more based on pre-existing conditions and demographics.
During oral arguments in March, the government had asked the justices that if they overturned the individual mandate, then they should also strike the two consumers protections because premiums would skyrocket. An individual mandate would produce a broad pool of both high-and low-risk customers for insurers. Without the mandate, insurers would be stuck with the sickest and most expensive patients, so they would hike premiums to pay for escalating costs.
The health reform law is designed to provide for the biggest increase in the number of insured individuals since the creation of the Medicaid and Medicare programs in the 1960s.
The justices took a narrower view of the law's Medicaid expansion by limiting the potential penalty to states if they did not participate in the program.
The justices upheld the expansion of the Medicaid program for low-income individuals and families, for which the federal government and states share costs. But the justices held that the provision is constitutional as long as states would only lose new funds if they didn't comply with the new requirements, rather than all of their Medicaid funding as originally put forth.
The Medicaid expansion was expected to survive the challenge because the lower courts had upheld it, said Timothy Jost, law professor at Washington and Lee University in Lexington, Va.
"No federal court has ever held a federal law to be unconstitutional based on this theory," he said at a recent Medicaid conference.
Medicaid will widen its safety net to those earning up to 133 percent of the poverty level from 100 percent, accounting for about 15 million individuals who will be insured under the health reform law. Under ACA, the federal government will pay 100 percent of the cost of the expansion through 2016 and phase down to 90 percent by 2020. Currently, states pay from 40t o 50 percent of Medicaid costs. Many states had already begun to increase coverage on their own, especially for children.
The ACA will also increase pay to primary providers who treat Medicaid patients to that of Medicare rates and provide federal tax credits that will help consumers within a certain income range afford to purchase health coverage on the individual insurance market and the creation of health insurance exchanges, which will be state-based online marketplaces.
Specifically, the four questions the justices ruled on were:
• Whether Congress has the power under the Constitution to require all Americans to obtain health insurance or pay a penalty;
• if the court strikes the individual mandate, whether the rest of the contested law remains intact or should that be struck also;
• whether the Anti-Injunction Act, which prohibits a challenge to a tax until the tax or penalty has been imposed, can block the lawsuit; and
• whether Congress can require states to significantly expand their Medicaid programs or risk losing all their federal funding for Medicaid if they don't comply.
Some health and economic policy experts believe that experimentation around changes in the way healthcare is delivered and eventually paid for are already beginning to take root regardless of the outcome of the health reform lawsuit. The ACA has already provided momentum, tools and a framework to accelerate it.
Healthcare organizations and public and private payers are testing different payment models for improved quality of care, according to Peter Orszag, economist and vice chairman of global banking at Citigroup and former director of the Office of Management and Budget.
"Regardless of the decision, 10 years from now, providers will be bearing much more risk for care than today, whether it's through bundled payments or ACOs, independent of what happens in the Supreme Court," he said at a recent World Health Care Congress conference.
"More intensive health IT and computerized decision support will be a big growth area no matter what happens in the Supreme Court or in the presidential elections," he said, adding that "a lot of the important things are happening regardless of what happens in the Supreme Court."
While the Supreme Court ruling will bring some certainty in the immediate term, the future of healthcare and how it will change is still in the distance, with elections in November sure to shape how it is rolled out, slowed, or possibly beat back and with most of the visible reforms, like health insurance exchanges, not taking effect until 2014.
The federal government has already put into effect some provisions that have proven popular, such as allowing young adults under 26 to stay on their parents' insurance; rebates being paid by insurance companies to customers when they spend too much of premium on administrative costs; and providing payments to seniors to bridge the gap in drug coverage known as the "donut hole."