March 2012, Vol 1
The Actuarial View
An Employee Benefits Newsletter with a Bottomline Focus

Message From An Actuary
Diane Luedtke, FSA

This edition of The Actuarial View examines the challenges to the Affordable Care Act the Supreme Court is set to hear this month. The individual mandate remains the most contentious issue. Unless the justices rely on the Anti-Injunction Act to delay the case until 2015, we will know by the summer whether this centerpiece of the legislation will survive.


Tim Luedtke, FSA, MAAA, CFA
Principal & Consulting Actuary

Diane Luedtke, FSA, CLU
Principal & Consulting Actuary

Supreme Court Set to Review ACA
Diane Luedtke, FSA

The Supreme Court is primed to hear challenges to the constitutionality of the 2010 health care reform law at the end of the month. The key issue before the Court is whether the individual mandate is constitutional. If this provision is declared unconstitutional, the Court must then decide whether it is severable from the rest of the law. The Court will also consider whether the Anti-Injunction Act prevents the justices from ruling and providing their decision until 2015. Finally, the Court will examine the constitutionality of the Medicaid expansion.

The Court will consider the issues during six hours of oral argument, the longest session in decades. The hearings are scheduled from March 26 through March 28. While there is no set time period in which the Justices must reach a decision, all cases argued during a term of Court are decided before summer recess begins. This momentous decision is expected by the end of June, more than two years after passage of the Affordable Care Act (ACA) and in the thick of both presidential and congressional campaigns.

The Supreme Court has been deluged with briefs regarding the challenges. Briefs are simply written arguments presented to a court. They are read by the Justices before oral arguments begin. The term may be a misnomer since many "briefs" exceed 100 pages in length. The parties to the ACA suits as well as other interested individuals and organizations have been filing briefs since January and will finish in mid-March.

Meanwhile, despite uncertainty regarding the outcome of the hearings, many provisions of this massive law are already effective. The federal government continues to issue guidance on the law, states are immersed in exchange development, and employers are dealing with many new requirements and preparing for forthcoming changes.

Issues Before the Supreme Court

Following dozens of cases regarding the constitutionality of the ACA in the lower courts and many conflicting decisions, the Supreme Court finally agreed to hear challenges to the Act in November 2011. The Court agreed to review four issues from challenges to the ACA by twenty-six states and the National Federation of Independent Business (NFIB). The issues to be argued are:

Minimum Coverage Provision

The central issue is whether the ACA's minimum coverage provision is constitutional. The minimum coverage provision, also known as the individual mandate, requires individuals to maintain a minimum level of health insurance or pay a penalty. The question is whether the minimum coverage provision is a valid exercise of Congress' powers under the Commerce Clause in Article I of the Constitution. The government argues that Congress had the authority to enact an individual mandate because it is a necessary component of a broader scheme of interstate economic regulation. In addition, the economic activity the provision regulates has a substantial effect on interstate commerce. Since individuals without insurance actively participate in the health care market (i.e., virtually everyone needs medical care), their costs are shifted to other market participants.1 The state respondents do not contest Congress' authority to regulate commerce. Instead, they contend that Congress does not have such unbounded power as to compel individuals to enter into commerce by forcing them to purchase health insurance.2


If the Court declares the minimum coverage provision unconstitutional, it must further decide whether this provision is severable from the rest of the Act, or whether the entire Act must fall with it. The states and NFIB both contend that the Court should hold the ACA invalid in its entirety. The states argue that "The ACA is a delicate balance of inextricably intertwined provisions, none of which can survive without the Act's core components."3 The NFIB contends that "without the individual mandate at its heart, no statute remotely resembling the Act would or could have been enacted."4 The federal government asserts that if the individual mandate is ruled unconstitutional, most of the rest of the Act should stand. Only the guaranteed-issue and community-rating provisions should be invalidated, since these would create a serious adverse selection problem without the minimum coverage provision.5

Anti-Injunction Act

The Court will consider whether the Anti-Injunction Act (AIA) bars the suit to challenge the minimum coverage provision of the ACA at this time. Under the Anti-Injunction Act, a tax cannot be challenged until actually assessed. At issue is whether the penalty assessed for failure to maintain minimum coverage is a tax or a penalty. If it is deemed a tax, it would fall within the scope of the AIA. Since the individual mandate would take effect in 2014, the tax would first be assessed in 2015. Therefore, the AIA would deprive the Court of jurisdiction to hear the challenge to the minimum coverage provision until 2015, by which time most ACA provisions would be operational.

Interestingly, no parties currently argue that the AIA bars this suit. The federal government evoked the AIA in the district court, but did not raise the issue before the appeals court. The federal government suggested the Supreme Court appoint counsel as amicus curiae (friends of the court) to brief and argue that the suit is barred by the AIA, and the Court adopted the suggestion.6

Medicaid Expansion

Medicaid is a cooperative federal-state program to fund medical care for needy individuals. States must comply with the Medicaid Act's requirements to receive federal funds. States currently are required to offer Medicaid to specific categories of low-income groups (families with dependent children, elderly, blind, disabled, children and pregnant women). States have the option of extending coverage to other low income individuals and receive federal funds for doing so. The ACA extends Medicaid eligibility to all individuals under age 65 with income below 133% of the federal poverty level beginning in 2014. The persons made newly eligible for Medicaid are primarily low-income individuals under age 65 who are not disabled and do not have children.

The states argue that the ACA Medicaid expansion is an "extreme and unprecedented abuse of Congress' spending power," yet they are forced to continue in the Medicaid program. If a state does not participate in ACA's Medicaid expansion, it will be in the intolerable situation of losing all Medicaid funding. The states note the constitutional limitation that Congress may not use its spending power coercively and contend that the ACA's amendments to Medicaid are unconstitutionally coercive. The states conclude that the ACA Medicaid expansion is unconstitutional and that therefore the ACA is invalid in its entirety.7

The federal government argues that the Medicaid expansion is a valid exercise of Congress' power to set the terms on which it will appropriate federal funds. It cites Congress' broad power under the Spending Clause and Appropriations Clause of the Constitution to establish the criteria for payments to support a federally funded program. It asserts the extension of Medicaid eligibility "is neither unprecedented nor likely to impose significantly onerous burdens on the States."8


The Court initially allotted five and one-half hours to hear oral argument for four ACA issues. In February, the Court granted an additional 30 minutes, extending the total time for oral arguments to six hours. This is an unusually large allowance for oral arguments. Normally, an argument is limited to one hour, giving each side one-half hour. Additional time is rarely accorded. Not only has the Court agreed to consider four questions concerning the ACA, it has also allotted more than one hour of argument for three of the four questions. These actions underscore the importance and complexity of the issues in this high-stakes case.

Supreme Court Schedule for Oral Arguments


Anti-Injunction Act

Minimum Coverage Provision


Medicaid Expansion

March 26

March 27

March 28

March 28

90 minutes

2 hours

90 minutes

1 hour

What if the mandate is eliminated?

Striking down the individual mandate would threaten the Administration's main goals of health care reform - providing access to affordable coverage and reducing the number of uninsured individuals. If the mandate is removed while the rest of the Act stands, many individuals will continue to be uninsured and premium rates will spiral out of control. The viability of market reforms such as guaranteed issue and community rating requires a broad spread of risk. Without a mandate, many young and healthy individuals will forego insurance. This leaves a higher-cost group of insureds, thus driving up premiums. As costs become more prohibitive, more participants will be driven to drop coverage until ultimately affordable coverage is unattainable.

Eliminating the individual mandate along with the guaranteed issue and community rating provisions would help mitigate the adverse selection issues. However, many other provisions affecting insurance costs would stay in place. These include prohibiting annual and lifetime limits on benefits, dependent coverage of children until age 26, limitations on waiting periods, minimum essential health benefits and prohibiting rescissions. Thus, employers and insurers would be left with the increased costs of implementing these provisions without the offset the individual mandate would have provided in the form of broader coverage. While this scenario puts upward pressure on premiums, it would not exhibit the rapid rate spiral of the previous scenario. In addition, it fails the goal of reducing the uninsured population.

If the Supreme Court strikes down the mandate, the ACA clearly increases premiums and does not reduce the number of uninsured individuals. Yet, removal of the mandate does not doom the Act. There are other ways to manage adverse selection. Mechanisms to consider include expanded automatic enrollment, limited open enrollment periods, late enrollment penalties and premium subsidies.

Concluding Comments

Activity surrounding the Affordable Care Act continues in high gear. Numerous briefs have been filed in anticipation of the imminent Supreme Court hearings. Despite uncertainty regarding the constitutionality of key provisions of the health reform legislation, many provisions of the Act are already effective and regulatory guidance continues to be issued. Many states have commenced development of health insurance exchanges, which need to be operational by 2014. Yet the risk remains that the law will be invalidated in whole or in part. In anticipation of the upcoming Court hearings, both sides are aggressively campaigning to build support and influence public opinion. Rallies both for and against the ACA are planned outside the Supreme Court. The sweeping health care reform law passed two years ago amidst much controversy will continue to dominate headlines in the weeks and months to come.

1Brief for Petitioners
2Brief for State Respondents on the Minimum Coverage Provision
3Brief for State Petitioners on Severability
4Brief for Private Petitioners on Severability
5Brief for Respondents (Severability)
6Brief for Court-Appointed Amicus Curiae Supporting Vacatur (Anti-Injunction Act)
7Brief of State Petitioners on Medicaid
8Brief for Respondents (Medicaid)

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