For the last three years, NCA has been lobbying members of Congress and the Obama administration to change the Patient Protection and Affordable Care Act (PPACA). With the majority in the Senate firmly against any changes and with President Obama decidedly against altering his seminal domestic policy initiative, our efforts often fell on deaf ears.
Since the legislative and executive branches of government consistently rejected our requests to make the law a bit more pro-club—or at least a bit more pro-business—it was clear that the only avenue left for change was through the judicial branch.
After years of legal motions, briefs and arguments, the U.S. Supreme Court finally had its say on the legality and enforceability of PPACA. Most Court observers believed the make-up of the Court meant the law was doomed to defeat. However, those observers were proven wrong on June 28. Shockingly, the justices did not strike down the law.
After the ruling, most club leaders asked how the justices reached this decision and what it means for the private club industry. This article will try to answer those questions.
The U.S. Supreme Court Ruling
The main legal criticism of PPACA dealt with the provision known as the “Individual Mandate.” The Individual Mandate requires nearly every American to purchase health insurance or be fined. For the federal government, the case was simple. The U.S. Solicitor General came prepared to prove that the Constitution’s Commerce Clause permits Congress to pass a law that penalizes someone if he or she chooses not to purchase health insurance.
In addition, the Solicitor General was also ready to argue that the penalty discussed in the law was actually a tax. Since the Constitution specifically grants Congress the power “to lay and collect taxes,” this became the federal government’s fallback position. Of course, since Congress never intended the penalty to be a tax, it seemed to some that this fallback position would be very hard to prove.
For the 26 states that sued the federal government arguing that the Constitution did not grant Congress the authority to require citizens to buy health insurance, their lawyers came to the Supreme Court prepared to reiterate their winning arguments from the Federal District Court and U.S. Court of Appeals. They were ready to convince the justices that the Constitution’s Commerce Clause does not allow the federal government to require individuals to either purchase a product or face a penalty.
Under PPACA, the Individual Mandate regulates people who are not engaged in the commercial activity of buying health insurance. It encourages them to enter the health insurance market through the imposition of a penalty. Since the 26 states did not believe that was the intent of the Commerce Clause, they believed the Individual Mandate to be unconstitutional.
As for the argument that Congress was really imposing a tax and not a penalty, the lawyers for the states were prepared to point to the clear language of the law and the fact that the word “penalty” and not “tax” was used 18 times to show Congress’ intent. The “penalty” was to create a punishment for those who failed to comply with the mandate and that a penalty could not be a “tax” by anyone’s definition.
With both sides ready, the Court held oral arguments in March 2012. By the end of June, the decision was handed down: The Individual Mandate was constitutional, and the entire law was upheld. As expected, the final vote was 5–4. However, the surprise came when it was revealed which five justices voted to uphold the law and why they ruled as they did.
The Court’s four more liberal leaning members, Justices Breyer, Ginsburg, Sotomayor, and Kagan, were more inclined to accept the federal government’s arguments. There would have to be five votes for a majority. The deciding vote actually came from one of the Court’s most conservative members: Chief Justice John Roberts.
Roberts agreed with the states’ argument regarding the main issue—the Commerce Clause claim. Thus, the government’s most viable claim was completely shot down, and no one thought the law could survive without the Commerce Clause claim being upheld. As Roberts wrote,
“The Framers gave Congress the power to regulate commerce, not to compel it…. The individual man- date forces individuals into commerce precisely because they elected to refrain from commercial activity. Such a law cannot be sustained under a clause authorizing Congress to ‘regulate Commerce.’”
– Opinion of Chief Justice Roberts, pages 24 and 27. Emphasis in original.
However, Roberts picked up on the last argument made by the solicitor general: That the penalty described in the Individual Mandate was simply a tax.
“Under the [Individual Mandate], if an individual does not maintain health insurance, the only consequence is that he must make an additional payment to the IRS…. And if the mandate is in effect just a tax hike on certain taxpayers … it may be within Congress’s constitutional power to tax…. It is of course true that the Act describes the payment as a ‘penalty,’ not a ‘tax.’ But … that label … does not determine whether the payment may be viewed as an exercise of Congress’s taxing power.”
– Opinion of Chief Justice Roberts, pages 31, 32, 33.
And just like that, Roberts and four of his colleagues found the Individual Mandate fully constitutional. With that ruling, the entire law was affirmed (save for a portion dealing with Medicaid funding), and the Patient Protection and Affordable Care Act finished its long journey through America’s judicial system.
As could be expected, Justices Scalia, Thomas, Kennedy and Alito—the Court’s four remaining conservative members— were surprised by Roberts’ vote. In response, they wrote a dissent that addressed their colleague’s decision to simply change the penalty into a tax.
“[W]e have never held—never— that a penalty imposed for violation of the law was so trivial as to be in effect a tax. We have never held that any exaction imposed for violation of the law is an exercise of Congress’ taxing power—even when the statute calls it a tax, much less when (as here) the statute repeatedly calls it a penalty.”
– Dissenting opinion, pages 18–19. Emphasis in original.
The Supreme Court ruling has ended any further argument that PPACA is unconstitutional, and it eliminates all impediments to the full enforcement of the law on January 1, 2014.
What PPACA Means for Private Clubs
Private clubs have been waiting for the last three years to see whether this law will really impact them. With this ruling, their wait is over, and the effects are clear.
Under the law, health insurance companies will be required to cover more procedures and provide more benefits in their basic plans, which will likely increase premiums. Under the law, health care providers will be saddled with new government fees, which will likely be passed on to health insurance companies and their policyholders. Under the law, there will be new taxes placed on those individuals who traditionally join private clubs, which may impact what they spend at their clubs. And, under the law, there will be additional administrative costs for club leaders as they determine which of their employees—full-time, part-time, and seasonal—must be offered health insurance to avoid fines and penalties from the federal government.
In short, PPACA’s trek through the third branch of government only strengthened the once vulnerable law and quite likely weakened the financial footing of many clubs. There was no doubt that this case was going to be decided by a 5-4 vote, but the decision of the chief justice to be that fifth vote on the other side may well change the way private clubs interact with their employees and members for many years to come.
For more information on health care law compliance, see www.nationalclub.org/healthcarelaw, or download the webinar series, “The New Health Care Law and Private Clubs, part I and II” on www.nationalclub.org/education/ webinars.
Brad D. Steele is NCA’s vice president of government relations & general counsel.