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If the Supreme Court rules that the so-called individual mandate in the Patient Protection and Affordable Care Act (PPACA) is unconstitutional, it may also decide the fate of many tax provisions in PPACA and the Health Care and Education Reconciliation Act of 2010 (HCERA).

The Supreme Court Decision, Health Care Reform, and Taxes

  • 4/11/2012

The Supreme Court Decision, Health Care Reform, and Taxes

From March 26 – 28, 2012, the U.S. Supreme Court heard challenges to the Patient Protection and Affordable Care Act (PPACA). While much attention focused on the so-called individual mandate under the PPACA, which would generally require individuals without minimum essential coverage to obtain health insurance or pay a penalty starting in 2014, numerous tax provisions are potentially impacted. If the Supreme Court declares the individual mandate unconstitutional, it may also decide the fate of many tax provisions in the PPACA and the Health Care and Education Reconciliation Act of 2010 (HCERA).

CCH Take Away: "There are myriad tax-related provisions woven throughout the law which affect virtually all individuals, employers, and health insurers, as well as other entities in the health care industry," Garrett Fenton, of the law firm Miller & Chevalier, told CCH. "Some of these provisions are completely unrelated to health care, such as an increase in the individual tax credit for certain adoption expenses that applied for 2010 and 2011 only. Some, while related to health care reform, seem more at the periphery of the individual mandate and coverage components of the statute, such as the cap on flexible spending account (FSA) contributions, the prohibition against pretax reimbursements to pay for over-the-counter drugs from FSAs, health reimbursement accounts and health savings accounts, the increase in Medicare taxes, and the elimination of the tax deduction for employers for certain retiree prescription drug expenses."

Oral arguments

 The Supreme Court heard three days of oral arguments on whether the Anti-Injunction Act (Code Sec. 7241) applies; whether the individual mandate is a proper exercise of Congress’ taxing power or its power under the Constitution’s commerce clause; and whether the PPACA's expansion of Medicaid exceeds the government’s spending authority. The court also heard arguments on the viability of the PPACA without the individual mandate. The court is expected to announce its decision in June.

Comment: "If only part of health care reform is overturned, it will be interesting to see which (if any) of these more peripheral tax provisions are also invalidated," Fenton said. "The impact, from a tax perspective, literally could fall anywhere within the range of minimal (for example, only selected provisions relating to the mandate, like Code section 5000A), to far reaching (not only the tax provisions that enforce the mandate and the ‘market reform’ provisions, but also, conceivably, other related funding provisions of the Act)."

Tax provisions

Among the tax provisions potentially affected by the Court’s decision are (not an exhaustive list):

  • The Code Section 5000A(g) penalty on individual taxpayers for any months during which they or their dependents lack minimum essential health coverage.
  • The Code Section 36B premium assistance credit.
  • The ability of individuals to add children age 27 or under as dependents for employer-provided health coverage.
  • The reimbursement of qualified health plan premiums as a qualified benefit excludable from wages.
  • The penalty on large employers that do not offer affordable health care coverage for their full-time employees.
  • The Code Section 45R small employer health insurance credit.

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