Today, the U.S. Supreme Court narrowly held that the individual mandate to purchase health insurance or pay a penalty under the Patient Protection and Affordable Care Act (as amended by the Health Care and Education Reconciliation Act of 2010) (ACA) is constitutional. Chief Justice Roberts cast the crucial fifth vote in the 5-4 decision (pdf) upholding the mandate on the grounds that the penalty for refusing to purchase insurance constitutes a tax that Congress can legitimately impose under its taxing power.

The ACA labels the individual mandate a “penalty” instead of a “tax.” That label barred application of the Anti-Injunction Act, which applies only to a “tax” and would have precluded the Court form hearing the case until the individual mandate was effective and the penalty had been applied. Chief Justice Roberts explained, however, that the label did not preclude the Court from analyzing the individual mandate under Congress’s taxing power, writing:

It is of course true that the Act describes the payment as a “penalty,” not a “tax.” But while that label is fatal to the application of the Anti-Injunction Act..., it does not determine whether the payment may be viewed as an exercise of Congress’s taxing power.

Notably, the Court did not find that the individual mandate was a permissible exercise of Congress’s power to regulate interstate commerce. In his opinion, Chief Justice Roberts writes: “the power to regulate commerce presupposes the existence of commercial activity to be regulated.” Instead, the Court found that:

While the individual mandate clearly aims to induce the purchase of health insurance, it need not be read to declare that failing to do so is unlawful. Neither the Act nor any other law attaches negative legal consequences to not buying health insurance, beyond requiring a payment to the IRS. . . . It suggests instead that the shared responsibility payment merely imposes a tax citizens may lawfully choose to pay in lieu of buying health insurance.

In approving the individual mandate on these grounds, the Court explained further that: “the Affordable Care Act’s requirement that certain individuals pay a financial penalty for not obtaining health insurance may reasonably be characterized as a tax. Because the Constitution permits such a tax, it is not our role to forbid it, or to pass upon its wisdom or fairness.”

The Court did, however, find that the ACA’s Medicaid expansion is unconstitutional to the extent that it threatened to withhold existing Medicaid funding from states, but noted that this finding did not otherwise invalidate the rest of the law. In essence, the Court determined that Congress cannot penalize states that choose not to participate in the expansion of Medicaid coverage imposed by the ACA by taking away their existing Medicaid funding. In so ruling, however, the Court asserted that it was “confident” that Congress did not intend for the rest of the ACA to fall “in light of our constitutional holding.”

Because the Court deemed the individual mandate valid, all of the ACA’s other mandates impacting employers – including the requirement that by 2014 large employers provide insurance to their full-time employees or pay a penalty – remain intact. While the question of the law’s constitutionality is now settled, many questions and challenges for employers still remain.

For more information on this decision and its implications for employers, see Littler's ASAP: Health Care Reform Stands & Employers Must Now Take Action.

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