On June 28, 2012, the United States Supreme Court issued its long-awaited decision on the constitutionality of the Patient Protection and Affordable Care Act (PPACA) and its companion law, the Health Care and Education Reconciliation Act (HCERA). In a nutshell, the nation’s highest court upheld the law – except for certain Medicaid provisions. The 5 to 4 decision preserves many farreaching tax provisions and health insurance reforms. In coming months, lawmakers and legal scholars will examine all of the nuances of the Court’s highly complex decision. More immediately, individuals and businesses are concerned about what steps they need to take next.
After passage of the PPACA, several states challenged the law on constitutional grounds. The cases started in the federal district courts, worked their way through the circuit courts of appeal and eventually landed before the Supreme Court. In March 2012, the Supreme Court heard three days of oral arguments on whether the individual mandate in the law is a proper exercise of Congress' taxing power or its power under Constitution's commerce clause. The Court also heard arguments on the viability of the PPACA without the individual mandate. Another issue before the Court was whether the law’s expansion of Medicaid exceeds the government's spending authority. Finally, the Court heard arguments on whether the Anti-Injunction Act (Code Sec. 7421) applies.
The PPACA includes a shared responsibility requirement for individuals. This has come to be known as the individual mandate. Broadly, this provision requires individuals to obtain minimum essential health coverage or pay a penalty starting in 2014. Many individuals, however, are exempt from the penalty. These include individuals covered by Medicare and Medicaid, individuals with coverage under military health plans, undocumented individuals, and others. The PPACA also imposes no penalty on individuals who could not afford coverage. Additionally, individuals with employerprovided coverage generally are treated as having minimum essential coverage and are exempt from the penalty unless the coverage is deemed unaffordable. In National Federation of Independent Business et al. v. Sebelius, June 28, 2012, Chief Justice Roberts and Justices Ginsburg, Breyer, Sotomayor, and Kagan found that the individual mandate was a valid exercise of Congress’ taxing power under the Constitution. “Under the mandate, if an individual does not maintain health insurance, the only consequence is that he must make an additional payment to the IRS when he pays his taxes. That, according to the Government, means the mandate can be regarded as establishing a condition—not owning health insurance—that triggers a tax—the required payment to the IRS. Under that theory, the mandate is not a legal command to buy insurance. Rather, it makes going without insurance just another thing the Government taxes, like buying gasoline or earning income.”
The majority concluded: “Our precedent demonstrates that Congress had the power to impose the exaction in Section 5000A under the taxing power, and that Section 5000A need not be read to do more than impose a tax. That is sufficient to sustain it.” Justices Scalia, Kennedy, Thomas, and Alito dissented. According to the dissenting justices, the majority’s decision that the individual mandate imposes a tax in essence was a rewrite of the PPACA and not an interpretation. The dissenting justices would have struck down the entire law.
Along with the individual mandate, the PPACA includes many tax provisions, which remain law. It cannot be over-emphasized that the tax provisions impact nearly every individual and business.
Here’s a run down some of the tax-related provisions:
• Code Sec. 45R small employer health insurance tax credit
• Additional Medicare tax for higher income individuals
• Medicare tax on investment income
• Contribution limits on health flexible spending arrangements (health FSAs)
• Increased itemized medical expense deduction threshold
• Excise tax on high-dollar health insurance plans
• Additional tax on distributions from health savings accounts (HSAs) and certain other arrangements
• Excise tax on certain medical devices
• Indoor tanning excise tax
• Tax credit for therapeutic discovery projects
• Disclosure of cost of employer-provided coverage on Forms W-2 for informational purposes
• Limits on use of health FSA dollars on over-the-counter medications
• Enhanced simple cafeteria plan rules for small businesses
• Changes to retiree prescription drug subsidies
• Codification of the economic substance doctrine
• Branded prescription drug fees
• Reforms for charitable hospitals