In a landmark ruling released on Thursday, June 28, 2012, the United States Supreme Court upheld the constitutionality of the Patient Protection and Affordable Care Act (“Affordable Care Act”), President Obama’s health care overhaul passed in 2010.  National Federation of Independent Business v. Sebelius, 567 U.S.___ (2012).

Congress enacted the Affordable Care Act in order to increase the number of Americans covered by health insurance and decrease the cost of health care. Soon after its enactment, twenty-six States, several individuals, and the National Federa­tion of Independent Business filed a lawsuit challenging the constitutionality of two key provisions in the Act, the “individual mandate” and the Medicaid expansion. The individual mandate requires most Americans to maintain “minimum essential” health insurance coverage. For most Americans, the means of satisfying the individual mandate is to purchase insurance from a private company. Beginning in 2014, those who do not comply with the mandate must pay a “shared responsibility payment” or penalty to the Internal Revenue Service with the individual’s tax­es.

The other key provision of the Act challenged in court was the Medicaid expansion. The Affordable Care Act expands the scope of the Medicaid program and increases the number of individuals the States must cover. In that regard, the Act requires state programs to provide Medicaid coverage by 2014 to adults with incomes up to 133% of the federal pov­erty level, whereas many States now cover adults with children only if their income is considerably lower, and do not cover childless adults at all. If a State does not comply with the Act’s new coverage require­ments, it may lose not only the federal funding for those require­ments, but all of its federal Medicaid funds.

The Federal District Court for the Northern District of Florida held that Congress lacked constitutional power to enact the individual mandate. The district court determined that the individual man­date could not be severed from the remainder of the Act, and therefore struck down the Act in its entirety.  The Court of Appeals for the Eleventh Circuit affirmed in part and reversed in part. The appeals court affirmed the dis­trict court’s holding that the individual mandate exceeded Congress’s power, but determined that the mandate could be severed from the remainder of the Act, so it left the remaining provisions of the Act intact. Granting certiorari, the Supreme Court held that the individual mandate may be upheld as within Congress’s power under the Taxing Clause of the U.S. Constitution, Art. I, §8, cl. 1. The Court considered the “shared responsibility payment” for constitutional purposes as a tax. Interestingly, the Court held that the indi­vidual mandate is not a valid exercise of Congress’s power under the Commerce Clause because the mandate “does not regulate existing commercial activi­ty. It instead compels individuals to become active in commerce by purchasing a product, on the ground that their failure to do so affects interstate commerce.” The Court said that “[c]onstruing the Commerce Clause to permit Congress to regulate individuals precisely because they are doing nothing would open a new and potentially vast domain to congressional authority.”

The Court also held that the Medicaid expansion violated the Constitution by threatening States with the loss of their existing Medicaid funding if they decline to comply with the expansion. Under the Act, the Secretary of Health and Human Ser­vices has the authority to penalize States that choose not to participate in the Medicaid expansion by taking away all of their existing Medicaid fund­ing which often constitutes up to 10% of a State’s overall budget. The Court characterized this threatened loss of a significant portion of a State’s budget as “economic dragooning,” leaving the States with no real option but to acquiesce in the Medicaid expansion. The Court remedied the constitutional violation by precluding the Secretary from applying the Act in such a way so as to withdraw existing Medicaid funds for failure to comply with the requirements set out in the Medicaid ex­pansion without affecting the other provisions of the Affordable Care Act.

The majority opinion ended with a brief explanation of the Court’s role in determining the validity of the Affordable Care Act:

The Framers created a Federal Government of limited powers, and assigned to this Court the duty of enforcing those limits. The Court does so today. But the Court does not express any opinion on the wisdom of the Affordable Care Act. Under the Constitution, that judgment is re­served to the people.

The Supreme Court opinion is annexed here – National Federation of Independent Business v. Sebelius, 567 U.S.___ (2012)