[authors: Elizabeth F. Hodge, Thomas A. Range, Sheryl D. Rosen, and Robert E. Slavkin]

On June 28, 2012 the United State Supreme Court, by a 5-4 vote, upheld the constitutionality of the vast majority of the Affordable Care Act ("ACA"), including the "individual mandate." The Court also found that while the ACA's provisions expanding the Medicaid program are constitutional, the penalty included in those provisions for those states that refuse to participate in expansion violates the Constitution. In this Practice Update, we will outline first the two major aspects of the Court's ruling, the 'Individual Mandate' and the expansion of Medicaid, and then provide you with a listing of implementation dates of the ACA for your use and future reference.

The Court's Opinion

The Opinion of the Court is truly fascinating, and we encourage you to read through it.

It is important to recognize that when the Court held its six (6) hours of oral argument from March 26 - 28, 2012, it essentially was hearing argument on four (4) issues related to the ACA: 1) Whether the Anti-Injunction Act bars the Court from considering the constitutionality of the law’s “individual mandate” until after the mandate takes effect; 2) Whether the individual mandate is constitutional; 3) Whether the individual mandate is severable from the rest of the health reform law; and 4) Whether it is constitutional for the health reform law to expand Medicaid as it does.

Justice Roberts, joined by Justices Ginsburg, Breyer, Sotomayor, and Kagan, outlines the majority's argument in great detail, ruling out the Commerce Clause as the route to constitutionality along the way. The majority ruled that the 'Individual Mandate' is constitutional as a tax, and that the Medicaid expansion, as drafted is unconstitutional. The ACA, as enacted, provided the federal government the ability to withhold all Medicaid dollars from a state that refused to participate in the Medicaid expansion.

The Court ruled that the federal government may only withhold those dollars that would have been used to fund the expansion for that state. However, this issue, flagged by a majority of the Court, does not invalidate the ACA as a whole. The ACA, minus the Medicaid expansion penalty, survives. Therefore, as a practical matter, health care providers and insurers need to move forward with compliance with the many aspects of the ACA, which includes health insurance exchanges, future taxation of medical devices and implementation of value-based purchasing of insurance. Moreover, state governments, including Florida, which have delayed compliance with the ACA pending the outcome of this case, now have steep implementation deadlines to meet, including, but not limited to, deciding whether or not to participate in the Medicaid Expansion program.

Individual Mandate

The individual mandate requires most Americans to maintain "minimum essential" health insurance coverage. Starting in 2014, those who do not comply with mandate must make a "shared responsibility payment" to the Federal Government. This amount is to be paid to the Internal Revenue Service with an individual's taxes and assessed and collected in the same manner as a tax penalty. Although the Court found that the individual mandate is not a valid exercise of Congressional power under the Commerce Clause, a 5 justice majority found that the mandate could reasonably be interpreted as imposing a tax and therefore was constitutional under Congress's power to "lay and collect Taxes." The Court stated that the Federal Government does not have the power to order people to buy health insurance, but it does have the power to impose a tax on those without health insurance.

The actual terms of the individual mandate are as follows: As of 2014, those without health insurance coverage will pay a fee of $95. In 2015 that fee goes up to $325, and in 2016 the fee levied will be $695. After 2016, the fee will be tied to the Consumer Price Index to assess annual increases to the fee.
 
Medicaid Expansion

The "Medicaid expansion" provision of the ACA requires states, by 2014, to expand existing Medicaid programs to cover all adults under age 65 with income levels at or below 133% of the federal poverty level and to offer new a "essential health benefits" package. The ACA provides for increased federal funding to the states to help offset the cost of the program expansion. If a state does not comply with these new coverage requirements, as modified by the Supreme Court's decision, the Secretary of the Department of Health and Human Services will not allocate these new funds to the state and may withhold the state's existing Medicaid funds.

The Court held that pursuant to its Spending Clause powers, Congress may attach appropriate conditions to federal spending programs to preserve control over the use of federal funds. Thus, Congress could refuse to grant these new funds to those states that refuse to accept the new conditions. However, by effectively compelling states to participate in the expansion by threatening to withhold existing Medicaid payments, which currently make up a substantial portion of states' budgets, the Court ruled that Congress exceeded its authority under the Constitution and the principles of federalism. The Court stated that this violation is remedied by prohibiting the Secretary from applying the penalty to withdraw existing Medicaid funds if a state fails to comply with the expansion requirements.

Timeline for Implementation 

Below we have provided a listing of key provisions of the ACA affecting health care providers, insurers and individuals, listed by implementation dates of those provisions. For ease of reference, we have created two sub-categories, those which have already been implemented, and those which will be implemented, by date. In addition to this timeline, below, we encourage you to review the Practice Update produced by our colleagues in our firm's Labor and Employment Practice Group for an in-depth discussion of immediate and future concerns for employers under the ACA.

IMPLEMENTATION HIGHLIGHTS OF THE AFFORDABLE CARE ACT

Already Implemented
2010
June 21, 2010:	Adults with pre-existing conditions became eligible to join a temporary high-risk pool, which will be superseded by the health care Exchange in 2014.
July 1, 2010:	10% tax on tanning in tanning salons.
September 23, 2010:	Insurers prohibited from imposing lifetime dollar limits on essential benefits, like hospital stays in new policies issued. Dependents permitted to remain on their parents' insurance plan until 26th birthday. Insurers prohibited from excluding pre-existing medical conditions (except in grandfathered individual health insurance plans) for children under the age of 19. Individuals affected by the Medicare Part D coverage gap receive a $250 rebate, and 50% of the gap eliminated in 2011. The gap will be eliminated by 2020. Insurers' abilities to enforce annual spending caps restricted, and completely prohibited by 2014. Insurers prohibited from dropping policyholders when they get sick. Insurers required to reveal details about administrative and executive expenditures. Insurers required to implement an appeals process for coverage determination and claims on all new plans. Enhanced methods of fraud detection implemented. Medicare is expanded to small, rural hospitals and facilities. Medicare patients with chronic illnesses monitored/evaluated on a 3 month basis for coverage of the medications for treatment of such illnesses.
2011
January 1, 2011:	Insurers required to spend 85% of large-group and 80% of small-group and individual plan premiums (with certain adjustments) on healthcare or to improve healthcare quality, or return the difference to the customer as a rebate. Flexible spending accounts, Health reimbursement accounts and health savings accounts cannot be used to pay for over the counter drugs, purchased without a prescription, except insulin.
2012
January 1, 2012:	Employers must disclose the value of the benefits they provided beginning in 2012 for each employee's health insurance coverage on the employees' annual Form W-2's. Note: This requirement was originally to be effective January 1, 2011 but was postponed by IRS Notice 2010-69 on October 23, 2010.
To Be Implemented
2013
January 1, 2013:	Self-employment and wages of individuals above $200,000 annually (or of families above $250,000 annually) will be subject to an additional tax of 0.9%. Note: 0.9% of $200,000 is $1,800 ($2,250 of $250,000).
2014
January 1, 2014:	Insurers prohibited from discriminating against or charging higher rates for any individuals based on pre-existing medical conditions. Impose an annual penalty of $95, or up to 1% of income, whichever is greater, on individuals who do not secure insurance; this will rise to $695, or 2.5% of income, by 2016. Families have a limit of $2,085. Insurers are prohibited from establishing annual spending caps. Expand Medicaid eligibility; individuals with income up to 133% of the poverty line qualify for coverage, including adults without dependent children. Two years of tax credits will be offered to qualified small businesses. $2,000 per employee tax penalty on employers with more than 50 employees who do not offer health insurance to their full-time workers (as amended by the reconciliation bill). Employed individuals who pay more than 9.5% of their income on health insurance premiums will be permitted to purchase subsidized private insurance through the Exchanges. If the employer provides an employer sponsored plan, but the individual earns less than 400% of the Federal Poverty level and could qualify for a government subsidy, the employee is entitled to obtain a "free choice voucher" from the employer of equivalent value to the employer's offering which can be spent in the exchange to buy a subsidized policy of his own choosing. Chain restaurants and food vendors with 20 or more locations are required to display the caloric content of their foods on menus, drive-through menus, and vending machines. Establishment of health insurance exchanges, and subsidization of insurance premiums for individuals with income up to 400% of the poverty line, as well as single adults. New excise tax goes into effect that is applicable to pharmaceutical companies and is based on the market share of the company; it is expected to create $2.5 billion in annual revenue. Most medical devices become subject to a 2.3% excise tax collected at the time of purchase. Health insurance companies become subject to a new excise tax based on their market share; the rate gradually raises between 2014 and 2018 and thereafter increases at the rate of inflation.
2015
January 1, 2015:	Impose an annual penalty of $325, or up to 1% of income, whichever is greater, on individuals who do not secure insurance; this will rise to $695, or 2.5% of income, by 2016. Families have a limit of $2,085.
2016
January 1, 2016:	Impose an annual penalty of $695, or up to 1% of income, whichever is greater, on individuals who do not secure insurance. Families have a limit of $2,085.
2017
January 1, 2017:	States may apply to the Secretary of Health & Human Services for a waiver of certain sections in the law, with respect to the individual state, such as the individual mandate.
2018
January 1, 2018:	All existing health insurance plans must cover approved preventive care and checkups without co-payment. A new 40% excise tax on high cost ("Cadillac") insurance plans will be introduced.