Tax Watch logo

Beginning in 2014, many individuals will be required to have minimum essential health insurance coverage or pay a penalty (an individual mandate).

Navigating health reform

A Health Care Overview After the Supreme Court Decision

  • 7/18/2012

Just days after the Supreme Court’s decision, the Congressional Research Service (CRS) updated its analysis of the Patient Protection and Affordable Care Act (PPACA), and its companion law, the Health Care and Education Reconciliation Act of 2010 (HCERA). The Supreme Court upheld the PPACA/HCERA on June 28, 2012, with the exception of the mandatory expansion of Medicaid, in National Federation of Independent Business et al. v. Sebelius.

CCH take away: “The Supreme Court held that Congress did not have the Constitutional power under the Commerce Clause to force individuals to purchase health insurance," Kimberly McCarthy, partner, Partridge, Snow & Hahn, LLP, Providence, RI, told CCH. "However, Congress does have the power to tax people to encourage them to purchase health insurance, just as it provides incentives for conduct elsewhere in the tax code (such as the deduction of home mortgage interest to promote home ownership). It does not matter that the health care legislation used the label penalty as opposed to tax in the individual mandate; it functions like a tax and is collected by the IRS, so as long as the penalty is not so high as to leave people with no reasonable choice other than to purchase health insurance, it is Constitutional under the power to tax.”


Beginning in 2014, many individuals will be required to have minimum essential health insurance coverage or pay a penalty (an individual mandate). Certain employers with more than 50 employees that do not offer qualified health insurance may be subject to penalties if any of their full-time workers enroll in exchanges and receive premium assistance tax credits.

Comment: In H. J. Res. 112, GOP lawmakers expressed their concern that the IRS’s regulations on the health insurance premium tax credit exceeded the scope of the PPACA. The IRS indicated that the PPACA supports the interpretation that credits are available to taxpayers who obtain coverage through a state or federal exchange. The IRS further observed that Congress did not intend to limit the premium assistance tax credit to state exchanges.


Before the Supreme Court’s decision, the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) estimated that the law’s insurance coverage expansion would cost $1.39 trillion over 10 years, CRS reported. However, they projected offsets of $350 billion from penalties, excise taxes, and net savings, for a net cost of $1.04 trillion over 10 years. In March 2012, CBO and JCT increased their projection of the net cost by $40 billion.

At the same time, CBO and JCT projected direct spending savings (primarily from slowing Medicare growth) and new revenues of $1.25 trillion over 10 years. The revenues include additional Medicare payroll taxes, taxes on investment income, fees on insurers, and fees on pharmaceuticals and medical devices.


Before the Supreme Court rejected the mandatory expansion of Medicaid, the law was projected to increase the number of nonelderly Americans with health insurance by 33 million in 2021, CRS reported. Expansion of Medicaid and the Children’s Health Insurance Program (CHIP) was expected to bring in 17 million additional individuals, while a net of 16 million people were expected to purchase their own private coverage through insurance exchanges.

Comment: “Since 1982, all 50 states have adopted the Medicaid program, and Medicaid funding provides 10 percent or more of the budgets of those states," McCarthy explained. The Supreme Court ruled that the expansion fundamentally changes Medicaid so that it "is no longer a program for the neediest among us, but rather an element of a comprehensive national plan to provide universal health insurance coverage.” States that do not agree with that transformative new Medicaid strategy cannot be penalized by taking away their existing Medicaid funding. Even though that provision was unconstitutional, the Supreme Court held that the provision was severable, and the rest of the PPACA stands, McCarthy observed.

©2012 CCH. All Rights Reserved.