WASHINGTON (AP) — Who gets thumped by higher taxes inPresident Barack Obama's health care law? The wealthiest 2 percent of Americans will take the biggest hit, starting next year. And the pain will be shared by some who aren't so well off — people swept up in a hodgepodge of smaller tax changes that will help finance health coverage for millions in need.

For the vast majority of people, however, the health care law won't mean sending more money to the IRS.

And roughly 20 million people eventually will benefit from tax credits that start in 2014 to help them pay insurance premiums.

The tax increases — plus a mandate that nearly everyone have health coverage — are helping make the law an election-year scorcher. Obama is campaigning on the benefits for the uninsured, women and young adults. His rival, Mitt Romney, and Republican lawmakers are vowing to repeal "Obamacare," saying some health care reforms are needed but not at this cost.

Lots of the noise is about the financial consequences for people who decline to get coverage and businesses that don't offer theirworkers an adequate health plan. Some 4 million individuals without insurance are expected to pay about $55 billion over eight years, according to the Congressional Budget Office's estimates. Employers could be dinged an estimated $106 billion for failing to meet the mandate, which starts in 2014.

But that mandate money, whether it's called taxes or penalties, is overwhelmed by other taxes, fees and shrunken tax breaks in the law. These other levies could top $675 billion over the next 10 years, under the CBO's projections of how much revenue the government would lose if the law were repealed.

The biggest chunk is in new taxes on the nation's top 2 percent of earners — some $318 billion over a decade.

Other major taxes are aimed at the health care industry, and some of that cost is sure to be passed along to consumers as higher prices.

A rundown of the most significant tax changes — and who pays: 

To read more, click here

Source: The Associated Press, Thursday, August 9, 2012

The Response to the Current State of Health Care  

The Congressional Health Care Caucus is continuing its series of how Congress should react to the Supreme Court Decision.  Both panelists will discuss their reactions to the decision as well as share how this development will impact their industry.  

Karen Ignagni, President and CEO of America's Health Insurance Plans (AHIP)

Dan Danner, President and CEO of the National Federation of Independent Business (NFIB)

Monday, July 23
12:30- 1:30 pm

2218 Rayburn House Office Building
If you are unable to join us, it will be live streamed, here

Open to Members, Staff, Interns and the Public

Hosted by Rep. Michael C. Burgess, M.D.
Chairman, Congressional Health Care Caucus

In a monumental decision, the Supreme Court delivered a long awaited ruling on four contested issues in the Patient Protection and Affordable Care Act (PPACA).  These four issued included: whether the Anti-Injunction Act precludes the Court from considering challenges to PPACA’s monetary sanctions, for failure to purchase a minimum level of health insurance, prior to their implementation; whether the individual mandate exceeds Congress’ power; if the mandate were found to be unconstitutional, would the law be severable; and, did the vast expansion of Medicaid violate states’ rights.   On June 28, 2012 the Supreme Court voted 5-4 to uphold the law in large part.  In a majority opinion read by Chief Justice John Roberts with Justices Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor and Elena Kagan the Court upheld the major provisions of the law.  In addition, although the Court found the expansion of the Medicaid provision to be Constitutional, they struck down as unconstitutional the related provision that allowed the federal government to withhold funding from states for their traditional Medicaid program that chose not to implement the expansion under the PPACA.  In a strongly worded dissenting opinion, Justices Kennedy, Antonin Scalia, Clarence Thomas and Samuel Alito concurred that not only was the mandate unconstitutional, the whole law should have been struck down due to the “exceed[ing] federal power both in mandating the purchase of health insurance and in denying nonconsenting states all Medicaid funding.”

Anti-Injunction Act

Chief Justice Roberts explained in his majority decision that delaying a decision due to the Anti-Injunction Act was not considered in this case.  He also indicated since the government did not intend the mandate to be considered a tax, it would make it inapplicable in this situation.  In reference to Congress never referring to the penalty due to noncompliance as a tax he contends, “Congress did not intend the payment to be treated as a “tax” for the purposes of Anti-Injunction… That label cannot control whether the payment is a tax for purposes of the Constitution, but it does determine the application of the Anti-Injunction Act.    

Individual Mandate

In a 5-4 vote, the Court ruled that the individual mandate was constitutional, not under the Commerce Clause, but under Congress’ power to tax.  The Court relied upon a constitutional analysis to determine the shared responsibility payment as a tax on individuals who choose to go without health insurance.  Chief Justice Roberts also acknowledged there was not sufficient evidence to uphold it under the Commerce Clause or the Necessary and Proper Clause because, “the power to regulate commerce presupposes the existence of commercial activity to be regulated.”

Severability Clause

Since the individual mandate was upheld, severability was not an issue.  Both the majority and concurring decision arrived at this point.  However, the Justices who penned the dissent argued the whole law should have fallen since a portion of the Medicaid decision was found to be unconstitutional. 

Medicaid

In a split decision, the Court upheld the expansion of Medicaid as constitutional; however, it also decided the Secretary of the Department of Health and Human Services (HHS) may not revoke existing Medicaid funding for states that decline to participate in the expansion.  The PPACA transformed Medicaid into a program that covers the needs of all citizens under 138% of the federal poverty level ($14,500 for an individual and $29,700 for a family of four in 2011) into a program where income was the only factor as opposed to previous participants who had to meet both income and categorical (i.e. pregnant woman or child) eligibility.  According to Chief Justice Roberts, this expansion and departure from the traditional program – essentially deeming the expansion a new program - exceeds what any state might have anticipated.  States may choose not to participate - leaving them ineligible to receive federal funds under the expansion - without fear of losing funding for their entire Medicaid program.    

The Response to the Current State of Health Care  

The Congressional Health Care Caucus is continuing its series of how Congress should react to the Supreme Court Decision.  Should the Court have ruled on PPACA, Dr. Goodman will address their decision and steps forward.  If the decision is still pending, he will lay out the foundation for a market-based approach to health care reform.   

If you are unable to join us, it will be streamed live, here

Hosted by Rep. Michael C. Burgess, M.D.
Chairman, Congressional Health Care Caucus

For more information and to RSVP – Rebekah.West@mail.house.gov | 5-7772

STATEMENT OF PRINCIPLES

SAFETY NET

We support a healthcare safety net, which guarantees all Americans access to healthcare that is consistently and adequately funded by a rational system that ensures coverage regardless of employment or economic status to encourage maximum participation by physicians.  Funding for this safety net should be government subsidized without mandates.

PATIENT/DOCTOR RELATIONSHIP     

The sanctity of the patient-physician relationship must be the foundation of healthcare in America and is the product of every individual's right to choose. This bond is freely chosen and based upon mutual trust, informed consent, and privileged confidentiality involving every citizen.  This sacred trust must not be violated.

PERSONAL RESPONSIBILITY   

In order to have a sustainable healthcare system every patient has to have a personal investment in the cost and maintenance of their care.  The patient should be empowered to responsibly choose the best use of their health care resources.

CHOICE (PHYSICIANS AND PATIENTS)         

Patients are entitled to the maximum possible freedoms in choosing how to care for themselves and their families.  Physicians and healthcare professionals are entitled to the maximum possible freedoms in choosing how they provide care for their patients, manage their practice, and compete in the market.

PRIVACY (DIGITAL AND EMR)  

Privacy must stand at the core of the trusted and inviolable patient/physician relationship in order to maximize the quality of care we provide our patients.  Patient's personal information, particularly digital, must be protected.  That information must be owned by the patient. It is the only the patients' to share with their informed consent and must be protected from all third parties including the government.

PATIENT OWNERSHIP / PORTABILITY                       

Health insurance may be purchased across state lines consistent with interstate commerce.  Each American deserves the opportunity to own their individual healthcare policy with guaranteed renewability and community rating that is appropriate for their family needs, not contingent upon a specific job, and irrevocable except by personal choice or cases of fraud.

PAYMENT AND PRICE TRANSPARENCY       

Transparency should be encouraged by all those who participate in the healthcare marketplace.  It is the patient's right to know the cost of care and the payment provided by insurance or government.  It is the core of the free market for consumers and professionals to know the true costs and prices of all goods and services provided.

FUNDING (PREMIUM SUPPORT/ DEFINED CONTRIBUTIONS)

Individual citizens should be permitted to own a Health Liberty Account (HLA) that may receive defined contributions from employer or government, or a tax-deductible contribution from any source, that is dedicated to the purchase of healthcare coverage and payment for healthcare services. Those unable to fund their own HLA would be eligible for adequate funding for annual healthcare coverage with a defined contribution from the government.

TAX PARITY (DEDUCTIONS)                 

The purchase of health benefits are should be tax deductible whether purchased by the employer or individual, regardless of income.  Charitable healthcare should be a tax deductible item by the physician. 

FRAUD, WASTE AND ABUSE (INEFFICIENCY)        

Physicians are committed to protecting the taxpayers by stopping fraud (e.g. phantom billing, home health, and medical equipment fraud) and considering methods to accomplish this goal, including smart cards.  Physicians are committed to strengthening and reinvigorating the peer review system.  Physicians and their professional scientific organizations should continue to seek efficiencies by eliminating wasteful healthcare spending that does not improve outcomes.

LIABILITY REFORM         

The fear of lawsuits drives up the cost of medical care due to the practice of defensive medicine.  Tort reform will lower inefficient spending and help to ease the upward pressure on healthcare costs.  Examples of such reforms include caps on non-economic damages and the formation of expert medical panels to evaluate and when indicated compensate significant adverse outcomes to eliminate costly litigation. 

To view this document as a PDF, click here

New 3.8% Medicare Tax on "Unearned" Net Investment Income

Net investment income- Income received from investment assets such as bonds, stocks, mutual funds, loans and other investments

Capital gain- When a capital asset is sold, the difference between the basis in the asset and the amount it is sold for (or a capital loss if it is sold for less)

Basis- the cost of an asset which includes the purchase price, shopping, installation, and other services associated with the asset

Adjusted gross income (AGI) - measure of income used to determine how much of your income is taxable and is calculated as your gross income from taxable sources minus allowable deductions, such as unreimbursed business expenses, medical expenses, alimony and deductible retirement plan contributions.

Where is the 3.8% tax found and when will it take effect?

Section 1402 of the Health Care and Reconciliation Act of 2010, which amends the Patient Protections and Affordable Care Act, outlines the new unearned income Medicare tax, and goes into effect January 1, 2013.

Who is subject to this tax?

Taxpayers with incomes or an adjustable gross income (AGI) over $200,000 who file individually or $250,000 for married couples filing jointly could be subject to this tax.  The provision imposes a 3.8 percent tax (identical to the combined employer/employee tax rates on earned income) on income from interest, dividends, annuities, royalties and rents which are not derived in the ordinary course of trade or business, excluding active S corporation or partnership income.  Gross income does not include items, such as interest on tax-exempt bonds, veterans’ benefits, which are excluded from gross income under the income tax.  If capital gains on a primary home sale exceed $250,000 for individuals or $500,000 for a married couple, and the income threshold is met, the excess realized gain is subject to the 3.8% tax.

How does this relate to the sale of a home?

There is no sales tax on home sales in the Reconciliation Act; instead, there is a tax which includes capital gains, rents, dividends and interest income that will only apply to taxpayers under limited conditions. 

When determining if an individual or a couple is subject to the 3.8% tax:

·         A home sale MAY result in a capital gain that increases net investment income

·         A home sale MAY result in a capital gain that increases a taxpayer’s AGI

NOTE: When selling a home any profit is considered capital gain resulting in a taxpayer’s possible eligibility to qualify for the 3.8% unearned income tax.

How is this different from the Medicare payroll tax?

Unlike the Medicare payroll tax, this is an unearned income tax.   Unearned income is the income that an individual derives from investing capital. It includes capital gains, rents, dividends and interest income. 

How does this pertain to the sale of a primary home?

For the majority of people selling their primary residence this tax will not apply.

Any gain from the sale of a principal residence that results in a capital gain that is less than $250,000 (individual) or $500,000 (joint return) will continue to be excluded from taxation. The new 3.8% tax does not apply to the current excluded amounts for the capital gains of a primary home sale. 

The new Medicare tax would apply only to any gain realized that is more than the $250,000/$500,000 existing primary home exclusion (known as the “taxable gain”), and only if the seller has adjustable gross income (AGI) above the $200,000/$250,000 AGI thresholds.  In such cases, taxpayers pay the tax on the amount of money that exceeds the capital gain ($500,000 for married couples, $250,000 for individuals) or a factor of their AGI as deatiled in the formula below. 

The tax is not imposed on the total AGI, nor is it imposed solely on the investment income. Rather, the taxable amount will depend on the operation of a formula. The taxpayer will determine the LESSER of (1) net investment income OR (2) the excess of AGI over the $200,000/$250,000 AGI thresholds. Thus, if net investment income is the lesser amount, then the 3.8% tax is applied only to the net investment income amount. If the excess over the thresholds is the smaller amount, then the 3.8% tax would apply only to the excess amount.

STEP ONE

·         The tax will apply to taxpayers with an AGI in excess of $200,000 if single or $250,000 if married if they also have unearned income.

·         NOTE: Unearned income includes capital gains which is why this could apply to the sale of a home.

Ex) A single individual has a salary of $220,000 which is in excess of the $200K threshold, therefore they could be subject to the tax if they have unearned income.

Ex) A married couple has a combined salary of $295,000 which is in excess of the $250K threshold, therefore they could be subject to the tax if they have unearned income.

Ex) A married couple has a salary of $200,000, although their salary alone doesn’t meet the income threshold,

        they could still be subject to the tax if their capital gain is at least $50,000.  It is important to remember to add

the salary with the capital gain to determine the total AGI.  If the sum of the two for this couple is more than  $250,000, they are subject to the tax.  

Ex) A single individual has a salary of $80,000 which is less than the $200K threshold, therefore he is not automatically subject to the tax.  However, he could still be subject to the tax depending on if he has a capital gain and the amount added to his income amounts to more than $200K (individual threshold).     

STEP TWO

·         Currently, a taxpayer who sells their primary residence is excluded from taxation on any capital gain up to $250,000 if single or $500,000 if married on the sale of their home

·         If a couple sells their primary residence for a capital gain of more than the $250K/$500K threshold, the difference is added to their AGI

Ex) A couple sells their house for $800,000 and net a capital gain of $600,000.  You must take the $600K (amount of capital gain) and subtract $500K (tax exemption for a couple) resulting in $100,000 which will be added to their AGI.  If the couple has a combined salary of $160,000 (under the $250K income threshold) they are still subject to the tax since the combined salary is added to the capital gain resulting in a total of $260,000. ($160,000 of combined salary + $100,000 of capital gain) which meets the income threshold for couples filing jointly ($250K).

Ex) A couple has a combined salary of $275,000 and sells their house for $400,000 and net a capital gain of $30,000.  Even though the couple meets the $250K income threshold, since the couple sold their house for less than the $500K capital gain exemption threshold, there is nothing added to their AGI, thus no tax.

STEP THREE

·         For those who qualify to pay the tax, the amount of tax owed will be equal to 3.8% multiplied by the lesser of (1) net investment income or (2) the amount by which their AGI exceeds the $200K/$250K threshold.

Tax= 3.8% x [lesser of (AGI- $200K/$350K or net investment income)]

What this actually means for the sale of a PRIMARY home

·         A single individual with salary of $100,000 a year sells his house for $270,000 with a capital gain of $50,000. 

o   To determine his AGI: add his salary of $100,000, to his capital gain ($100,000 salary + $50,000 capital gain) is less than the $250K allowed for a single person selling their primary residence there is no added capital gain to his salary.

o   Since his AGI falls below the $200K threshold for a single individual, he is NOT subject to the tax

·         A couple with a combined salary of $260,000 a year, which meets the initial income requirement, and sells their house for $1.2 million with a capital gain of $700,000.

o   To determine their AGI: add their combined salary of $260,000 to $200,000 ($700,000 capital gain- $500,000 tax exclusion for couples).  Their resulting AGI is $460,000.  Since their AGI is above the $250K threshold they are subject to the tax. 

o   To determine how much tax they pay you must compare the two options and take the lesser of the two

§  Amount AGI exceeds income threshold: $460,000 - $250,000 = $210,000

§  Net investment income (capital gain above capital gain exclusion): $700,000 - $500,000 = $200,000

o   Therefore, since the lesser is the net investment income that is what the 3.8% tax is applied

§  $200,000 x 3.8% = total tax of $7,600

What happens if I have other properties?

If all of your income is derived from real estate investments that you own and operate, you are not subject to the 3.8% tax.  You property is considered your “trade or business” and although you are not responsible for the 3.8% tax you could be responsible for a tax on the earned income.

If you use rental properties for an investment, then they are not considered a trade or business, no matter the income you bring in.  Rental homes that have been rented for more than 14 days could be subject to the new 3.8% tax, assuming that you meet the $200,000/$250,000 AGI threshold. 

In the sale of a secondary home there is no tax exclusion for the first $250,000/$500,000 of a capital gain. 

Ex)A couple has a combined income of $2 million a year and sells their vacation home for $1.2 million and net a capital gain of $700,000. 

To determine their AGI since the income threshold has been met: There is NO tax exclusion since this is a secondary residence.  Therefore, add their combined salary ($2 million) to their capital gain ($700,000) which results in an AGI of $2.7 million.

o   To determine how much tax they pay you must compare the two options and take the lesser of the two.

§  Amount AGI exceeds income threshold: $2.7 million - $250,000 = $2.45 million

§  Net investment income (capital gain above capital gain exclusion): $700,000 - $0 (no exclusion) = $700,000

o   Therefore, since the lesser is the net investment income that is what the 3.8% tax is applied.

§  $700,000 x 3.8% = total tax of $26,600

Ex) A single individual with an income of $120,000, which is under the $200K income threshold, sells his vacation home for $750,000 and nets a capital gain of $250,000.

o   Note: the income threshold has NOT been met (his salary of $120K falls below the $200K threshold).

o   However, since there is no exclusion for secondary homes his capital gain is the full $250,000, which is added to his AGI and will push him over the $200K threshold ($120,000 income + $250,000 capital gain = AGI of $370K).  He is now subject to the tax.

§  Amount AGI exceeds income threshold: $370,000-$200,000 = $170,000

§  Net investment income (capital gain above capital gain exclusion): $250,000 - $0 (no exclusion) = $250,000

o   Therefore, since the lesser is the AGI that is where the 3.8% tax is applied.               

§  $170,000 x 3.8% = total tax of $6,460

The unearned income tax applies to all capital gains, not only home sales

Ex) A couple with a combined salary of $260,000, which is over the $250K income threshold for married couples, have $50,000 in dividend and interest income (which is a capital gain).  Therefore, add their combined salary ($260,000) to their capital gain ($50,000) which results in an AGI of $310,000.

o   Since their AGI of $310,000 is above the income threshold of $250K for married couples they are subject to the 3.8%tax

§  Amount AGI exceeds income threshold: $310,000-$250,000=$60,000

§  Since this is not a primary property sale, there is no exclusion.

o   Therefore, to determine the tax the couple will be subject to the amount the AGI exceeds the income threshold ($60K) is multiplied by 3.8%.

§  $60,000 x 3.8% tax = total tax of $2,280

Ex) A single individual with a salary of $70,000, which is under the $200K income threshold for single individuals has received annuities for $60,000 (which is a capital gain).  Therefore, after adding his salary ($70,000) to his capital gain ($60,000) resulting in a total of $130,000, he is not subject to the 3.8% tax since $130,000 falls below the individual income threshold of $200,000. 

For more information from the National Association of Realtors, click here

 For more information from the National Association of Realtors, click here 

 To view this document in a PDF, click here 

The Obama Administration’s careful construction of the health care law, delaying its entire implementation until 4 years after passage, allowed the CBO’s initial score to appear much lower than it would actually be. The statute’s true ten-year cost estimate will not be available until next year, given it is not overturned by the U.S. Supreme Court or repealed. However, CBO’s latest projections demonstrate a much more accurate cost estimate for a projected ten years over its initial six year approximation. 

Conducted in conjunction with the staff of the Joint Committee on Taxation (JCT), the CBO’s 2012 report also presented updated cost estimates of the ACA’s insurance coverage provisions. The law’s coverage provisions, on net, add to the budgetary impact of the health care law on the federal government. Through 2022, the last year of available projections, the gross cost of coverage expansions is $265 billion. Meaning, the first decade of the Affordable Care Act may, ultimately, cost the federal government around $2 trillion--- more than double its original estimate. 

The country’s weaker economic conditions will begin to contribute to more people obtaining health coverage through Medicaid than estimated a year ago. Under ACA, beginning in 2014, Medicaid will be expanded to all U.S. citizens under 133% of the federal poverty level (FPL); creating a national foundation of coverage based on income. Whereas, Medicaid, traditionally, has only been available to certain categories of individuals. As a result, fewer people will be getting health coverage through their employers or the health care law’s new subsidized insurance exchanges. 

Additionally, the ACA is expected to increase Medicaid and the Children’s Health Insurance Program (CHIP) enrollment by 17 million; up 1 million from last year’s CBO baseline. This change will cost the federal government even more money the first expected. According to CBO, the net costs, specifically the combined effects on federal revenues and mandatory spending, may lead to an additional gross cost of $1.5 trillion for Medicaid, CHIP, tax credits and other subsidies for the purchase of health insurance through newly established exchanges and tax credits for small employers. 

While these costs are figured to be slightly offset by estimated receipts from penalty payments, the new excise tax on high-premium insurance plans and other budgetary effects, the cost of these insurance provisions would still be approximately $1.1 trillion. Ultimately, through the enactment of all of the ACA’s coverage provisions, the federal deficit will increase by an estimated $1.083 billion. Yet, another cost the U.S. government cannot afford. 

Senior Research Fellow at the Mercatus Center at George Mason University and Public Trustee for Social Security and Medicare Trust funds, Charles Blahous, has further illustrated the actual costs of the health care law within his report “The Fiscal Consequences of the Affordable Care Act.” His findings, released April 10, 2012, demonstrate that contrary to promises by President Obama and others supporting the ACA, the provisions within the law do actually add to federal spending and the deficit. 

Blahous presents two primary arguments. First, the health care law’s cuts to Medicare should be included in contributing to Medicare’s solvency, and should not be redirected towards reducing the deficit. Health and Human Services Secretary Kathleen Sebelius, in March of 2011, admitted that the ACA double-counts its reductions in Medicare spending, by asserting that the law lowers the deficit and expands Medicare’s solvency. Mr. Blahous claims these Medicare cuts cannot be double-counted for savings from the law, as done by CBO. The ACA’s fiscal effects have been misunderstood because government scorekeeping conventions contrast with enacted law. 

For instance, the health care law relies upon large amounts of savings already required under prior law to continue the solvency of the Medicare Hospital Insurance (HI) Trust Fund. Such savings do not illustrate new net savings, available to be used without increasing the deficit, but replacements for spending reductions that would have occurred by the law without the ACA. Moreover, the health care law attempts to use the same cost-savings to finance new health entitlement spending---- thus, exceeding its cost-savings provisions. The notion of “double-counting” has evolved into evaluating the actual change in law upon the ACA’s total enactment.

Second, Congress is, more than likely, to increase the ACA’s spending causing them to fail to enforce the law’s spending cuts and tax increases. This will, in turn, deteriorate the law’s fiscal results. Several of the provisions contained within the law may not be enforced as originally dictated. Blahous points out that the costs of new health exchanges may be drastically higher than first projected. Further, the rising projected revenues of provisions like the “Cadillac-plan” tax and the new 3.8-percent surcharge on incomes over $200,000/$250,000 may not even fully occur. The Independent Payment Advisory Board’s (IPAB) cost-saving recommendations might be legislatively overridden; and the CLASS program--- which CBO previously scored as saving $70-$86 billion over 10 years, is not expected to be implemented. 

Both the effects on projected federal deficits and the effects on federal health care spending from the ACA are co-dependent upon one another. In fact, if the government were to try and ensure that their fiscal outlook was not worsened, fully two-thirds of its new health exchange subsidies would need to be repealed before benefits begin in 2014. Also, all of the new health subsidies and most the law’s Medicaid/CHIP expansion would need to be eliminated in order to divert larger federal health care financing commitments. 
Thus, there is a wide belief that in order for health care reform to be effective, it must both improve net federal finances and bring down the health care cost curve--- according to Mr. Blahous’ findings, the ACA is projected to do neither.  Ultimately, the health care law will increase the pre-existing unsustainable government commitment to health care spending, worsen projected federal deficits, all while noticeably increasing the already bleak federal government’s fiscal outlook. 

Introduction

The Patient Protection and Affordable Care Act’s Road to the Supreme Court of the United States

Coverage, accessibility, cost accountability and quality of health care are just a few of the issues the Obama Administration claimed to reform with the Patient Protection and Affordable Care Act (P.L. 111-148, PPACA). Proponents of the legislation praised how successful PPACA would be in addressing the woes plaguing the American health care system; opponents, however, projected the Act would do more harm than good. Despite PPACA being signed into law on March 23, 2010, and amended on March 30, 2010 by P.L. 111-152, the Health Care and Education Reconciliation Act of 2010 (HCERA), its provisions have been subject to legal debates over the statute’s constitutionality.

While the impact of the law is heavily debated, four primary arguments surround the debate against PPACA’s constitutionality before the Supreme Court. These include the individual mandate, the application of the Anti-Injunction Act, the lack of a Severability Clause in the statute, and the Medicaid expansion contained in the law. As of January 1, 2014, under the Patient Protection and Affordable Care Act, all U.S. citizens are required by law to either purchase qualified health insurance deemed so by the federal government or be covered under a government-sponsored program. If an individual chooses not to partake in either option a “tax penalty” of $95.00 or 1% of income, whichever is greater, will be imposed. By 2016, however, the penalty stands to increase to $695.00 for an uninsured adult up to $2,085.00 per household, or 2.5% of  income, whichever is more. 

Aside from issuing a “tax penalty,” the Patient Protection and Affordable Care Act will also issue employer penalties. By 2014 the health care law will require all businesses, larger than 25 full-time employees and eligible for a tax credit, to begin offering affordable coverage. If not, the employer is subject to penalties for either not providing any health insurance to their employees or not providing affordable enough coverage. The penalty for businesses who do not offer coverage, but have employees who have received a premium tax credit or cost sharing subsidy in an exchange, is $2,000.00 annually times the number of full time employees minus 30; increasing each year by the growth in insurance premiums. Additionally, employers that do not offer affordable coverage will pay a $3,000.00 annual penalty for each full time employee receiving a tax credit, up to a maximum of $2,000.00 times the number of full time employees minus 30. The penalty is increased similarly to the employers who do not offer any coverage at all--- each year by the growth in insurance premiums.

The most pressing argument against PPACA comes from opponents who argue Congress does not have the authority under the Commerce Clause to enact the individual mandate--- forcing citizens into health coverage or, essentially, charging them a fine. Many insist that the individual mandate is essential to upholding the entirety of the law and without it the law should fall. In support of their argument, opponents point to the lack of provision(s) within the U.S. Constitution guaranteeing a right to health care services from the government for those who cannot afford it; despite proponents who argue the power of Congress to enact the law exists within both the Commerce Clause and the Necessary and Proper Clause. 

Six challenges to the Patient Protection and Affordable Care Act arose within the U.S. District Courts; of those cases, two have been ruled on and two have been dismissed within the U.S. Circuit Court of Appeals. The first decision handed down on June 29, 2011, by the Sixth Circuit Court of Appeals in Cincinnati, upheld the entirety of the health care law. The second ruling was announced on August 12, 2011, from the Eleventh Circuit Court of Appeals in Atlanta. This decision found the individual mandate to be unconstitutional, but found the provision severable from the rest of the law. Therefore, the Eleventh Circuit issued their opinion that the rest of the law should still stand.

Despite the Eleventh Circuit finding that the “district court placed undue emphasis on the [PPACA’s] lack of severability clause,” it recognized the proximity of the severability question, with specific regard to two reforms under the health care law: guaranteed issue health insurance, and the prohibition on preexisting condition exclusions. The Eleventh Circuit’s opinion is important for three primary reasons. First, the court’s ruling establishes a circuit spilt because of the Sixth Circuit’s ruling that upholds the constitutionality of the individual mandate; meaning, Supreme Court review was anticipated. Second, this is the first decision handed down from a judge appointed by a Democrat to rule against the Obama Administration on the constitutionality of any provision within the health care law. Lastly, the Eleventh Circuit case has been considered, perhaps, the most important legal challenge to PPACA. This has much to do with the fact that 26 states have contested it, in addition to the National Federation of Independent Business, as well as, the questionability behind the validity of PPACA’s conditions on states’ access to federal Medicaid funds--- claiming them coercive.

On September 28, 2011, in response to the Eleventh Circuit Court’s ruling, the Justice Department petitioned the Supreme Court of the United States (SCOTUS) to decide the constitutionality of the individual mandate within the Patient Protection and Affordable Care Act; particularly asking for review of the Eleventh Circuit Court’s decision. The Supreme Court announced on November 14, 2011, that it would hear challenges against PPACA and granted a writ of certiorari in the case Florida v. HHS (Health and Human Services). By ordering a writ of certiorari, the Court enabled itself to review the decisions and proceedings of the lower courts, including the transmittance of records per case, through an appeal to determine whether any irregularities were made in original rulings.

Shortly following their announcement, SCOTUS also declared it would rule on the constitutional challenges on PPACA from two other appellate cases associated with Florida v. HHS including: U.S. Department of Health and Human Services (HHS) v. Florida (No. 11-393) and National Federation of Independent Business v. Sebelius (No. 11-393). The four central issues combined from the court’s decisions will be considered through an unusual 5.5 hours of oral arguments presented to the Supreme Court.

While the Court has already prioritized time for arguments regarding issues over the individual mandate, SCOTUS has also requested that both parties involved in Florida v. HHS raise the question of whether or not the suit violates the Anti-Injunction Act. This stems from whether the individual mandate qualifies as either a “tax penalty” or  a “fine” on the participants involved. Additionally, in the examination of The National Federation of Independent Business, a party to the Florida v. HHS lawsuit, the issue of severability will be discussed.

The oral arguments will begin on March 26^th and continue through March 28^th of this year. On March 26^th, SCOTUS will hear 1 hour of arguments on the Anti-Injunction Act. Day 2 will include 2 hours on the individual mandate, and day 3 will include 2.5 hours of debate regarding the Severability Clause and Medicaid expansion.

The United States Justice Department is remaining staunch in its argument that if the Court finds the health law’s mandate unconstitutional, it should only strike the community rating and guaranteed issue provision, not the entire law. Regardless of if or which way the Supreme Court rules on PPACA, their decision or lack-there-of will both economically and politically change U.S. health care history--- making it easily the most consequential and far reaching  issue to be debated before the U.S. Supreme Court since Brown v. Board of Education. 

Interconnected: The Individual Mandate and Insurance Reforms

The Congressional Health Care Caucus is continuing its series leading up to the Supreme Court reviewing the Patient Protection and Affordable Care Act.  This forum will examine the codependent relationship between the individual mandate and insurance reforms and the effect removing one would have on the entire market.   

Alissa Fox, Senior Vice President – Office of Policy and Representation, BlueCross BlueShield Association

Tom Wildsmith Consulting Actuary, The Hay Group

Monday, March 5, 2012

11:30-12:30pm

2218 Rayburn House Office Building

Open to Members, Staff, Interns and the Public

Click here to watch online

To follow again, here is Alissa Fox's handout

Hosted by Rep. Michael C. Burgess, M.D.
Chairman, Congressional Health Care Caucus

For more information and to RSVP – Rebekah.West@mail.house.gov | 5-7772