[author: Andrew Malahowski]

Just over two years after President Obama signed the Patient Protection and Affordable Care Act (PPACA), yesterday the United States Supreme Court heard its first of three consecutive days of oral arguments in Department of Health and Human Services v. Florida (Nos. 11-398, 11-393, and 11-400), a case that challenges the constitutionality of the Act. This is one of the most significant cases the Supreme Court has considered in years, and addresses the most significant employee benefits issue facing employers in 2012 (and beyond). For that reason, we will be reporting the highlights of all three days of the hearings before the Supreme Court.

Since the Affordable Care Act was signed on March 23, 2010, the IRS, HHS, and DOL have published hundreds of pages of proposed and final regulations, notices, FAQs, and other guidance. Sponsors of group health plans and insurers have spent considerable time on compliance efforts, as many of the Act’s significant reforms are already in place (and more requirements will go into effect in the coming years). Numerous complaints have challenged the Affordable Care Act in court since it was passed, but HHS v. Florida will provide a final proving ground (or deathbed) for the Act when the Supreme Court renders its decision this June.

In August of last year, the 11th Circuit Court of Appeals decided that the “individual mandate” of the Affordable Care Act – the requirement that all individuals secure health coverage or pay a penalty – was unconstitutional. In reviewing the 11th Circuit’s decision, the Supreme Court is considering four separate arguments on appeal, over three days (and six total hours) of oral arguments this week:

• Day One (March 26): Whether the Anti-Injunction Act prevents the Court from even considering this matter until 2015 – the first time that the individual mandate penalty will be paid by individual taxpayers.
• Day Two (March 27): Whether the individual mandate is a permissible exercise of Congress’s power to regulate interstate commerce or its power to tax and spend for the general welfare.
• Day Three (March 28): Whether the Court can strike down the individual mandate without striking down the entire Affordable Care Act (in other words, whether the individual mandate is “severable” from the rest of the Act); and whether Congress exceeded its constitutional authority when it expanded Medicaid to cover all individuals under 133% of the federal poverty line in 2014.

Yesterday, the Supreme Court considered a frequent threshold question – namely, whether it has jurisdiction to consider the matter at all. Under the Anti-Injunction Act, a tax cannot be challenged in court until it has actually been paid. Under the Affordable Care Act, the individual mandate penalty will not be assessed until 2015. Therefore, if the penalty is properly regarded as a “tax,” the Supreme Court could conclude that it does not have jurisdiction to even consider the case until 2015. While the 11th Circuit did not address the Anti-Injunction Act in its decision, the Supreme Court invited arguments on this threshold issue.

During oral arguments, the Solicitor General argued that the precise language used by Congress in enacting a penalty (or tax) is determinative. In this instance, Section 5000A of the Internal Revenue Code provides for the individual mandate to secure health insurance and imposes a “penalty” on any individual who does not secure such coverage. According to the Solicitor General, Congress “didn’t give any other textural instruction in the Affordable Care Act or in the Internal Revenue Code that the penalty should be treated as a tax” (even though, like a tax, the penalty raises revenue). On the other hand, the Court-appointed amicus curiae explained that the penalty under Section 5000A is assessed and collected in the same manner as taxes on individual taxpayers. Therefore, to reach a decision in this matter the Court will ultimately have to decide whether it wishes to accept Congress’s plain language (and its intentional use of the word “penalty”), or construe the penalty as nothing more than a tax.

The Supreme Court’s decision will undoubtedly have far-reaching implications for employers. We will provide further updates on the additional arguments as they are presented to the Court this week. Finally, we will provide an alert concerning the Court’s ultimate decision when it is released this summer.