[author: Dan Salemi ]

As discussed in our alert from yesterday, the Supreme Court is hearing oral arguments this week in Department of Health and Human Services v. Florida, a case that challenges the constitutionality of the Affordable Care Act. On Tuesday, the Court heard arguments on the constitutionality of the Act’s “individual mandate.”

The individual mandate requires all individuals to have or obtain a minimum level of health insurance coverage by 2014. This coverage can be through an employer plan, a federal program like Medicare, a state exchange created through the Act, or obtained privately from an insurance company. Individuals who cannot afford the coverage will receive generous subsidies. But anyone who does not obtain such coverage will pay a substantial penalty beginning in 2015.

One of the purposes of the individual mandate is to make other provisions of the Act economically feasible. For example, other provisions of the Act will eventually require insurers to offer coverage at the same cost to all individuals of the same age and geographic location, regardless of an individual’s pre-existing health conditions. Before the Act, pre-existing health conditions would normally have prevented an individual from getting affordable coverage or any coverage at all. In essence, the Act now requires insurers to provide coverage to high-risk individuals, and to charge those individuals the same premiums that are charged to lower-risk individuals. (Employers who provide group health coverage are already subject to similar requirements through ERISA and HIPAA.) When Congress was drafting the Act, it determined that the requirement to cover high-risk individuals would likely increase the cost of premiums, especially in the individual market, because these individuals would be able to get coverage on the same terms as everyone else.

The individual mandate was intended to ameliorate this outcome by requiring everyone, both high-risk and low-risk, to purchase coverage. The idea is that the more people an insurer covers (and in particular, the more low-risk people an insurer covers), the less expensive everyone’s coverage will be, because low-risk individuals who had not previously decided to purchase health insurance would be required to do so for the first time.

The individual mandate has been challenged on the grounds that it is not an exercise of Congress’s specifically enumerated powers under the Constitution. More specifically, the Act’s opponents argue that the individual mandate is not a regulation of commerce or an exercise of Congress’s power to tax and spend. Opponents argue that the individual mandate is not a regulation of commerce because it requires individuals to purchase something they have not otherwise chosen to purchase (health insurance), and that the mandate therefore requires certain individuals to engage in commerce before such commerce is regulated through the other provisions of the Act. During oral arguments on Tuesday, the Solicitor General argued that everyone is effectively engaged in commerce in the health care market, because everyone will at some point need health care. According to the Solicitor General, “[u]nder the Commerce Clause, what Congress has done is to enact reforms of the insurance market . . . that preclude discrimination based on pre-existing conditions . . .[and] the [individual mandate] provision is necessary to carry into execution those insurance reforms.” Counsel for the Act’s opponents argued, however, that “[t]he Commerce Clause gives Congress the power to regulate existing commerce. . . . It does not give Congress the far greater power to compel people to enter commerce, [or] to create commerce essentially in the first place.” Based on questioning during Tuesday’s oral arguments, it appears that the constitutionality of the individual mandate will be one of the most highly debated issues among the individual justices as the Court reaches its overall decision.

It is important to point out that the survival (or demise) of the individual mandate may have a significant collateral impact on employers. Although we cannot be sure how or if the individual mandate will affect the economics of the health care market going forward, the remainder of the Act’s provisions seem to rely, at least from an economic perspective, on the survival of the mandate. That is, if the Court ultimately decides that the mandate is unconstitutional, the survival of the remaining provisions of the Act could significantly increase (absent some future accommodation from Congress) the cost of providing health care coverage to employees. The third and final day of arguments will address aspects of this important topic.