On June 28, 2012, the Supreme Court of the United States delivered its opinion about key legal issues in lawsuits challenging federal health care reform passed by Congress in 2010 through a law known as the Patient Protection and Affordable Care Act (“ACA”).

The short version of the story is that the ACA mostly survived the legal challenges. The long version is far more complicated and will take years to play itself out and at the cost of quite a bit more uncertainty and financial investment by health care providers. For today though, the following article will summarize the Court’s legal reasoning and finish up with some thoughts about what providers and clients should prepare for over the coming months.

A.        Majority Opinion Summary

Chief Justice Roberts delivered the majority opinion of the Court. Opinions of the Court in such controversial cases usually are not unanimous, and that was the case here with five of the Justices essentially upholding the law, and four of the Justices dissenting and saying the law should have been invalidated. That is known as a 5-4 opinion. Of course, in the world of the Supreme Court cases, the majority opinion is the “law” of the case and carries the day.

Justice Roberts ruled on four key legal issues that had been brought by individuals, states, and an association in lower federal district courts. This main case started out in Florida and worked its way up to the Eleventh Circuit Court of Appeals.

1. Anti-Injunction Act

In what can be called a threshold or jurisdictional issue, the Court first analyzed whether a federal law, the Anti-Injunction Act, barred the Court from even listening any further to the case. Using some tricky reasoning, Justice Roberts decided that the penalty was not a tax under the Anti-Injunction Act. In short, that meant the Court could listen and decide upon the rest of the case “on the merits.”

2. Insurance Mandate

For the federal government to do anything, it generally must have that power spelled out in the United States Constitution. States, on the other hand, can do some things that the federal government cannot such as make laws that provide for the general health and welfare of its residents under state police powers.

Here, the question of whether Congress could impose a requirement that individuals purchase health insurance was considered the main focus of the cases challenging the ACA. Surprisingly, Justice Roberts formed the majority opinion of the Court upholding the mandate as constitutional but for reasons most legal scholars had not predicted.

At first, he wrote that the insurance mandate was unconstitutional under the Commerce Clause of the Constitution. The Commerce Clause usually is construed very broadly by the Court to permit Congress to legislate most activities that touch on interstate commerce. So this opinion may be a retreat from a broad reading of the Commerce Clause.

But, rather than strike down the insurance mandate, Justice Roberts declared that it was constitutional based upon the federal power of Congress to lay and collect taxes (i.e., the Taxing Clause). The legal reasoning focused on the fact that individuals who fail to purchase insurance are assessed a penalty by the Internal Revenue Service. This penalty essentially is a tax and Congress is within its power to assess taxes.

Notably, this line of reasoning was in sharp contrast to his earlier conclusion that the penalty was not a tax under the Anti-Injunction Act. Welcome to the confusing world of Supreme Court opinions.

3. Medicaid Expansion

The only issue that resulted in a change to the ACA was the challenge to the Medicaid Expansion. By 2014, all states had to change the eligibility requirements in their state-run Medicaid programs to bring in many more recipients. This expansion was estimated to extend Medicaid assistance to roughly 16 million individuals nationwide at the annual cost of $100 billion. The federal government was willing to pay for 100% of that added cost for a period of time with the states kicking in a small percentage at later dates but likely having to absorb the increased administrative costs. The deal under the ACA was that states either participated or they would lose all of their federal matching funds for existing Medicaid programs.

Many commentators had dismissed the Medicaid Expansion issue as a nonissue because the federal government conditions the provision of funds to states all the time. Some states argued, however, that this was unconstitutional under the Spending Clause because the “expand or lose funds” policy was improperly coercive. Justice Roberts agreed.

Rather than strike down the entire Medicaid Expansion though, he only struck the provision that forced states to lose funding if they did not expand their programs. Now, presumably, states are free to decide whether to expand their programs without the risk of losing matching funds for existing programs.

4. Severability

Another issue addressed by the Court, albeit in a rather cursory fashion, was known as severability. As the concept goes, if some part of a legislative act is deemed to be unconstitutional, that requires the court to look at the entire act to see if the rest of the act can remain as is or if some or all of it also needs to be struck down. For example, the federal government lawyers had argued in support of the ACA that if the mandate is struck down, the guaranteed issue and the community insurance rating provisions should also be severed from the ACA.

The issue of severability never arose here though with the insurance mandate, but it did come up with the Medicaid Expansion ruling. The severability issue might have given the Court the ability to strike down the entire ACA. That all or nothing approach did not materialize. Justice Roberts swiftly concluded that carving out the coercive provision of the Medicaid Expansion was not fatal to the rest of the ACA.

B.        Minority Opinion Summary

Other Justices wrote their own opinions too either concurring with or dissenting from the majority opinion. These opinions have no legal weight (i.e., they are not “law”), but they can be used to predict or influence how future cases might be decided.

Justice Ginsberg, while supporting the outcome of the overall case, sharply disagreed with Justice Roberts that the individual mandate was not constitutional under the Commerce Clause. She also disagreed with his conclusion that the Medicaid Expansion should be optional to the states.

Justice Scalia delivered the main dissenting opinion that expectedly concluded the entire ACA should be invalidated and that we start over looking for more rational ways to do what Congress set out to do.

C.        Legal and Practical Effect of the Judicial Opinion

For now, not much changes for health care providers responding to the mandates of the ACA. Everything but the Medicaid Expansion issue stays the same unless Congress acts in response to the Supreme Court opinion. The states will soon have to grapple with whether they participate in the Medicaid Expansion or not, and that raises a large number of legal, financial, and practical issues for states and their residents.

We all probably can agree that the process of working on federal health reform over the past two years largely has been a partisan affair with both sides of the isle causing a showdown like this one before the Supreme Court. Like it or lump it, the ACA is reshaping our health care financing system. The next pieces we desperately need to address, however, that were not addressed under the ACA, are price transparency in the cost of health care services or items, and a payment system that is not so dependent upon insurance claims or employment status as the basis for financing.

What that means is anyone’s guess at the moment because Congress did not provide those tools or answers under the ACA. But, the ACA stands as is, for the most part, after the Court’s decision.