Bloomberg News

Top Court Health-Care Ruling Relies on Congress Tax Power

June 28, 2012

The U.S. Supreme Court decision upholding President Barack Obama’s health-care law relies on Congress’s power to impose taxes, not the interstate-commerce authority that was the focus of most debate.

Chief Justice John Roberts, appointed by President George W. Bush, was joined by the court’s four Democratic appointees in declaring that the Constitution allows Congress to make Americans pay a penalty if they don’t have health insurance. That provision is at the core of the law that seeks to expand health insurance to millions of Americans and reduce costs.

Here are questions and answers about what the justices said and why:

What does the Patient Protection and Affordable Care Act do?

The law requires most people to have insurance by 2014 or pay a penalty. States will set up insurance exchanges where people who lack employer-provided insurance can buy coverage. The law also requires insurers to cover people with pre-existing health conditions and expands Medicaid coverage for the poor. Some provisions are already in effect: closing a gap in Medicare prescription-drug coverage, providing free preventive care such as flu shots, and letting 2.5 million young adults stay on their parents’ insurance until age 26.

What was the court’s reason for upholding the insurance requirement?

Congress has power under the Constitution to “lay and collect taxes, duties, imposts and excises.” Roberts wrote for the court that the health-care law’s mandate that people have insurance or pay a penalty can be viewed as imposing a tax on those who go without insurance. While the payment is “plainly designed to expand health insurance coverage,” he said, “taxes that seek to influence conduct are nothing new.”

Joining Roberts’s reasoning on that point were Justices Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor and Elena Kagan, all nominated by Democratic presidents.

What is the penalty?

The penalty for not having insurance is phased in starting in 2014, when the minimum coverage requirement takes effect. The law sets minimum and maximum penalties. In the first year, the minimum annual penalty is the greater of 1 percent of household income or $95 per adult and $47.50 per child, up to $285 per family. That grows by 2016 to the greater of 2.5 percent of household income or as much as $2,085 per family.

The maximum annual penalty is capped at the national average premium for a health-insurance policy that meets requirements specified in the law.

Why did the court say Congress couldn’t make people buy insurance under its power to regulate interstate commerce?

Roberts agreed with the four dissenters, all Republican appointees, that this argument by the Obama administration for upholding the law wasn’t valid. Congress has the power to regulate interstate commerce, but a person’s decision not to buy health insurance doesn’t qualify as commerce, said Roberts and the dissenters. Therefore, they said the law couldn’t be justified on those grounds.

The ruling limited the expansion of Medicaid. How and why?

The law seeks to expand the federal-state Medicaid program to cover people with incomes up to 138 percent of the federal poverty level. States that didn’t comply with the expansion could have lost all or part of their federal Medicaid funds. Under the court’s ruling, states can be required to provide expanded coverage if they take the new Medicaid money, although the government can’t revoke states’ existing Medicaid funding if they refuse to expand coverage.

What did the dissenters say?

Congress can’t make healthy people buy insurance if they don’t want it, and the expansion of Medicaid also exceeds federal power, wrote Justices Antonin Scalia, Anthony Kennedy, Clarence Thomas and Samuel Alito. The rest of the health-care law must fall with those provisions, the justices said.

How did opponents of the health-care law respond to the decision?

House Majority Leader Eric Cantor, a Virginia Republican, said the Republican-controlled chamber will vote July 11 to repeal the law. House Republicans already have voted 30 times to eliminate, cut funding or scale back parts or all of the health- care law. Those efforts haven’t advanced in the Democratic- controlled Senate. Republican presidential candidate Mitt Romney also backs repeal of the law and said he would work to do so “on my first day if elected president of the United States.”

How did health-care company shares react to the ruling?

Hospital companies led by HCA Holdings Inc. (HCA:US) jumped in New York trading, and Medicaid insurers paced by Molina Healthcare Inc. (MOH:US) rose. Commercial carriers such as WellPoint Inc. (WLP:US) fell in the face of the law’s new regulations. HCA, the biggest U.S. hospital chain, based in Nashville, Tennessee, rose 11 percent to $29.47. Dallas-based Tenet Healthcare Corp. (THC:US), the third- biggest chain, jumped 5.4 percent to $5.25, while Long Beach, California-based Molina rose 8.6 percent to $23.16. Indianapolis-based WellPoint, the second-largest U.S. health insurer, fell 5.2 percent to $65.90.

What is public opinion about the health-care law?

A plurality of Americans, 43 percent, say they want to retain the 2010 law with only small modifications, while 15 percent say the measure should be left alone, according to a Bloomberg National Poll of 1,002 adults taken June 15-18. One- third say it should be repealed.

To contact the reporter on this story: Laurie Asseo in Washington at lasseo1@bloomberg.net

To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net


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Companies Mentioned

  • HCA
    (HCA Holdings Inc)
    • $69.82 USD
    • 0.84
    • 1.2%
  • MOH
    (Molina Healthcare Inc)
    • $47.84 USD
    • 1.23
    • 2.57%
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