The U.S. Supreme Court has upheld nearly every provision of the Patient Protection and Affordable Care Act (the Act), meaning that the health care industry and employers will need to prepare for full implementation of the Act this year and next in anticipation of a new health delivery and health benefits world in 2014. The only provision of the Act not affirmed by the Court affects state decisions on whether to participate in Medicaid expansion, and that likely will only have an impact on a state-by-state basis after 2016.

With the decision issued Thursday, June 28, 2012, only a new Act of Congress, signed by the President, will alter the program that changes benefit rules for most employers and imposes new regimens of payment and regulation for providers. For that reason, public policy discussions concerning the Act will likely dominate this November's race for Congress and the Presidency.

The Act attempts to ensure all Americans have health benefits by requiring that individuals purchase insurance or pay penalties; by creating standard packages of acceptable coverage; by requiring larger employers to offer benefits or pay a penalty; by creating state insurance exchanges to create vigorous competition for insurance; by subsidizing insurance purchases for the middle class; and by expanding Medicaid to cover a segment of Americans that earn more than the poverty level. In doing so, it also changes significantly the rules and reimbursements for health care providers that treat patients under those health benefits regimens.

In a victory for judicial conservatives seeking to slow the expansion of federal powers, Chief Justice John Roberts's 5-4 opinion united the Court's conservatives on one proposition: the Constitution's Commerce Clause does not provide the basis for permitting Congress to require that all Americans purchase health insurance. The conservative dissenters agreed on that principle directly, and the court's liberal members disagreed on the commerce clause but joined Roberts's majority opinion that upheld the law on other grounds. The Court narrowly upheld the mandate under the government's power to tax. The Court characterized the mandate as a tax because the monetary penalty for failing to purchase insurance is collected by the Internal Revenue Service through the normal means of taxation.

Regarding Medicaid expansion, the Court found that the Act's mechanism for enforcing the expansion did violate the spending power of the U.S. government. In a move the Court likened to a "gun to the head," the Act uniformly expands Medicaid to those whose earnings do not exceed 133% of the federal poverty level by threatening to withhold all existing Medicaid funding from states that do not comply with the expansion. A footnote of the Court's opinion characterized this as a "your money or your life" proposition. However, a splintered majority ruled that this impermissible over-reach was completely remedied by limiting the federal government's power under the Act to withhold states' existing funds (as of the time of the ruling). Under current law, Medicaid eligibility varies by state, but usually applies only to those who earn less than the poverty line. In addition to its state-wide Medicaid expansion to individuals who earn at 133% of the poverty line, the Act imposes a 10% cost-sharing burden on the states for the additional expenses, estimated to be about $100 billion per year in aggregate (and thus a $10 billion aggregate additional expense for the states).

As a result, federal expansion of Medicaid will begin in 2014 in all states, and the federal government will pay 100% of all costs. Starting in 2016, the federal government will shift 10% of those costs to the states. If a state does not wish to participate, the feds may use the Act to withhold funding related to the Medicaid expansion the state did not pursue, but they may not punish the state by withholding all Medicaid funding.

Employers must now complete their plans for complying with the law's mandates in time for implementation in 2014. Similarly, providers, for whom much of the law has already been implemented, will need to adjust their strategies to make more commercial sense out of the options available to them under the Act. The work put towards establishing insurance exchanges in each state - delayed in many cases by uncertainty over the result just settled - will now resume. States that choose to not establish an exchange will soon be subject to federal rules that implement such exchanges for them and their citizens. Federal funds for the establishment of exchanges, CO-OPs, federally qualified health clinics and experimental reimbursement programs will continue under the jurisdiction of federal regulatory agencies, and may become the focus of new Congressional inquiries as attention on the Act's implementation switches from the judicial to the political realm.

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