On June 28th, the U.S. Supreme Court declared the mandate requiring U.S. citizens and legal residents to maintain minimum essential health coverage, to be a permissible exercise of Congress's taxing powers under the Constitution. The court further held that the payments required of individuals who do not maintain minimum health coverage under the "individual mandate" were not a penalty. This means the taxation is constitutional.
The Court held that the individual mandate was within Congress's power under the Constitution's Taxing Clause. The Court concluded that the individual mandate is not a legal command to buy insurance, but rather a tax on the choice to forgo buying insurance. It does not apply to people who do not file income tax returns. The fact that the Patient Protection Act calls it a penalty instead of a tax was not controlling, the Court said.
The entire act was upheld, although the Court did limit the federal government's power to terminate states' Medicaid funds. The chief justice found the part of the Patient Protection Act, under which the states will be required to accept a much larger pool of people as eligible for benefits under the program or lose all funds they receive for Medicaid, not just those for the increased coverage, to be invalid.
Several health care-related elements of the 2010's health care reform legislation are already in effect, and the Court's decision allows them to continue. These include
Ø a temporary high-risk pool for individuals with preexisting health conditions;
Ø a prohibition on lifetime dollar limits for essential benefits in insurance policies; and
Ø a requirement that dependents be allowed to stay on their parents' health coverage until they turn 26.
In addition, insurers are prohibited from excluding preexisting conditions for children under age 19 and, starting in 2014, will be prohibited from discriminating against any individual based on a preexisting medical condition. Also in 2014, states will be required to establish health insurance exchanges, and the insurance premiums of individuals in households with income up to 400% of the poverty line will be subsidized.
Other key health-related provisions that go hand in hand with the individual health insurance mandate are:
Ø Guaranteed issue: A requirement that health insurers sell coverage to anyone regardless of health status;
Ø Community rating: A requirement that people in the same age group pay the same premium regardless of health status; and
Ø Employer responsibility: A requirement that every company with a workforce of more than 50 full-time-equivalent employees offer affordable health insurance to its employees.
In addition to making sweeping changes to the U.S. health care system, the health care reform legislation added a number of new taxes and made various other revenue-increasing changes to the Code to help finance health care reform. The legislation also made several health care-related changes to the Code to benefit certain taxpayers, including a credit to offset part of the costs of health insurance for low-to-middle income individuals and families and a credit to offset part of the costs to small businesses of providing health insurance for their employees.
If you have questions on the Health Care Reform, please contact your Nohre & Co. Account Manager at 715.834.2225.
