This is one of a continuing series of articles the blog has been publishing in recent weeks, explaining more fully the new federal health care law, and the Supreme Court’s review of the constitutionality of key parts of the law. This article deals with a part of the Affordable Care Act that the Supreme Court will not be reviewing, but this part also could be affected by what the Court does on the issues before it. The provision discussed here might be called the “other mandate” of the ACA: a requirement that employers provide insurance to their workers. It is separate from the individual mandate — the requirement that all Americans must obtain health insurance by the year 2014. (All articles in this special series on the ACA can be found here.)
Almost every page of the nearly 2,700 that make up the new federal health care law has generated political and legal controversy, but the one major command of the law that has troubled the federal courts the least is a new requirement that employers — in both the private and public sectors — provide adequate medical insurance for their workers. State governments, of course, have challenged that as a serious infringement on their sovereignty, and private employers have complained that it seeks to micromanage their worker benefit programs. But not one federal judge has expressed constitutional doubt about this mandate, and, indeed, the Supreme Court has opted not to consider the state and private challenges to it. Still, it, too, is at some risk, since the entire act’s validity is, in a sense, at stake.
In passing the Affordable Care Act last year, Congress frequently chose to use language that made controversial provisions seem less so, and the mandate for employers was no exception. It is not actually called a mandate; rather, it is the “employer responsibility provision.” And Congress dressed it up with a finding that such a requirement was necessary to promote business competition. “Employers who do not offer health insurance to their workers,” Congress wrote, “gain an unfair economic advantage relative to those employers who do provide coverage.” Moreover, the lawmakers said that employers without insurance plans contribute to higher costs of insurance for those who do provide it, making it harder for those employers to provide coverage. Congress also added a human justification: the requirement was necessary, it said, lest “millions of hard-working Americans and their families” be “left without health insurance.”
But, however the mandate was worded, the fact is that large employers covered by the provision do not have a choice about obeying the requirement. Significant financial penalties will be assessed if large employers do not meet the obligation laid upon them, beginning in 2014. The employer mandate, Congress concluded, was essential to help achieve the overall goal of the entire ACA: to provide nearly universal health insurance coverage, by assuring coverage to most of the 50 million or so Americans who do not now have it.
Right now, some 176 million Americans are covered by private insurance provided by employers. Individuals who buy plans only for themselves now number 24.7 million nationwide. Together, those private sources of health benefit coverage represent about 32 percent of all health care spending, now totaling somewhere above $2.5 trillion . Public plans — provided by federal, state and local governments — cover another 44 percent of that total.
The ACA sought to attack the problem of the uninsured with five major approaches, and the employer mandate is one of those. (The others are: guaranteed coverage in plans provided by insurance companies, the mandate to individuals to obtain health insurance, state-run health insurance markets, called “exchanges,” where individuals and small employers’ workers can shop for insurance packages, and expansion of the federal-state Medicaid program of care for the poor and the disabled.)
Illustrating how several parts of the new law work together, the employer mandate is linked to the individual mandate because one of the ways individuals can obtain insurance by the 2014 deadline is to get it from their employers. The penalty systems for the two kinds of mandates, however, operate independently of each other.
The Act treats larger and smaller employers differently, with the dividing line at 50 full-time employees. (The Act calculates whether an employer has the minimum number to put it in the large category based on its average full-time payroll per month during the preceding calendar year) For those with a payroll of that size, each employer must provide what the Act calls “minimum essential coverage.” That is not a phrase that means the kinds of health problems that the insurance must cover. Rather, it refers to the types of plans that will satisfy the mandate, and many plans that exist will satisfy the mandate no matter which health problems they cover, and that includes plans that the employers sponsor themselves.
There are two basic requirements for coverage plans offered by large employers. All full-time employees and their dependents must be provided with insurance, at an “affordable” premium. In addition, the employer’s plan must cover 60 percent or more of the actual costs of benefits, leaving the workers’ share no more than 40 percent.
If a large employer’s plan fails in either one of those respects, a financial penalty will be assessed. A plan can fail if the company has not offered insurance to all workers and their dependents, or the employer offers a plan that is not affordable and that pays less than 60 percent of the costs of benefits. Moreover, the test of whether the employer plan is affordable is whether at least one full-time employee could not afford the premium and had to turn to an “exchange” to obtain insurance with the help of a tax credit or a subsidy payment.
If the employer offers no plan at all, it is to pay what the Act explicitly calls a “tax,” not a penalty, of $2,000 a year for each employee, paid to the Internal Revenue Service at the rate of $167.67 per month of failure per worker. The penalty, though, does not apply to the first 30 full-tine employees. If the employer does offer a plan, but it is not affordable to all workers and does not cover at least 60 percent of the benefit costs, the employer must pay a tax of $3,000 a year for each employee, paid to IRS at the rate of $250 per month of failure per worker.
Small employers — those with a per-month average over the prior year of fewer than 50 employees — are not subject to the mandate or penalty provisions. Their employees are allowed to band together to increase their buying power, to shop for plans in the state-run insurance “exchanges.” The exchanges must offer plans that include a specific array of “essential” health problems in their coverage.
Although the employer mandate has been challenged, in a number of the cases in federal courts, the government has always been quite confident that none of the challenges would succeed. That’s because it has been clear as a constitutional matter, since at least 1941 (United States v. Darby), that Congress’s authority under the Constitution’s Commerce Clause did include the power to regulate wages, hours and working conditions. And, since 1974, Congress has used that power to regulate what employers offer in group health insurance plans for their workers. Because Congress explicitly named the penalties for large employers’ failure to provide adequate insurance coverage as a form of tax, the government also has defended the requirement as an exercise of Congress’s taxing power under the Constitution’s General Welfare Clause.
The challenges — from states in their capacity as employers and from private employers large enough to come under the mandate and penalty provisions — continued in two of the cases that were filed in the Supreme Court following lower court rejections of the constitutional objections. A group of 26 states included it as one of the questions they wanted the Justices to address (in Florida, et al., v. Health & Human Services Department, docket 11-400), and Liberty University in Lynchburg, Va., suing as an employer with 3,900 full-time employees, also raised it among the questions in its petition (Liberty University, et al., v. Geithner, 11-438).
When the Justices on November 14 agreed to take on the challenges to the ACA, they picked carefully and selectively among the questions raised. They declined to take on the issue of the employer mandate as it applied to the state governments raised in the 26 states’ petition, and it granted no part of the Liberty University petition.
The states, arguing that the mandate would “impose immediate and expensive requirements on the states” that would burden their ability to carry out governmental functions, and that the obligations would continue to increase over time, contended that they went beyond Congress’s powers under Article I, and ran afoul of state sovereignty under the Ninth and Tenth Amendments. The federal District Court in Florida that first heard the states’ challenges rejected these complaints, concluding that Congress’s authority under the Commerce Clause has long been upheld when it seeks to regulate a state government that chose to enter into the economic marketplace. As long as states as employers were treated no differently from private employers, the judge concluded, they get no greater protection from federal regulation. The District Court relied heavily upon the Supreme Court’s 1985 decision in Garcia v. San Antonio Metropolitan Transit Authority, upholding the federal minimum wage and overtime pay law as enforced against states.
“Virtually any and all attempts to regulate the wages and conditions of employment in the national labor market (which Congress has long done) will result in similar restrictions and adversely impact the state fisc,” Senior District Judge Roger Vinson of Pensacola, Fla., wrote. “I see no persuasive reason why healthcare benefits — which are generally viewed as a condition of employment and part of an employee’s compensation package — should be treated differently than other aspects of compensation and conditions of employment that the Supreme Court has already held Congress may regulate and mandate against the states.” If the insurance mandate for employers is invalid for states in their role as employers, the judge said, that would also jeopardize other federal laws, such as the minimim wages and overtime pay provisions of the Fair Labor Standards Act (upheld by the Supreme Court 70 years ago).
The states did not press their challenge to the employer mandate in the Eleventh Circuit Court, presumably because the District Court had relied so much upon the Supreme Court’s Garcia decision, and the states’ lawyers concluded that only the Supreme Court could reconsider that precedent. The states renewed that challenge in their Supreme Court petition, urging the Court explicitly to reconsider the Garcia decision. The petition argued that more recent Supreme Court rulings had undermined the reasoning of the Garcia precedent, in favor of judicially enforceable limits on Congress’s authority to intrude upon state sovereignty. As noted earlier, the Court opted not to accept that question.
In the Liberty University case, a federal District judge in Lynchburg, Va., Norman K. Moon, upheld the employer mandate as within Congress’s Commerce Clause power, concluding that a string of Supreme Court precedents required that conclusion. Health insurance coverage, Judge Moon wrote, is a valuable benefit paid in exchange for labor, much like wages or salaries. The university raised the issue anew in its appeal to the Fourth Circuit Court, but that court concluded that it could not rule on the validity of the employer mandate because it was a form of tax, and any lawsuit seeking to block the collection of a federal tax was barred by the federal Anti-Injunction Act.
Taking its case on to the Supreme Court, the university again challenged the employer mandate, along with its challenge on the jurisdictional point under the Anti-Injunction Act. On the mandate, the university’s petition contended that prior Supreme Court precedents applied only to wages and hours, but not to fringe benefits, such as health insurance coverage. The Supreme Court granted no part of that petition, but will rule upon the Anti-Injunction Act issue in the case it granted involving a federal government appeal (Health & Human Services Department v. Florida, et al., 11-398).
While the federal government has argued in the Court that the Anti-Injunction Act does not bar the challenges to the individual mandate and its penalties, on the theory that they are not a form of tax, it has taken the position that the Act does bar any challenge to the employer mandate and its penalties, since those are a part of the federal tax code and could only be challenged after they actually had gone into effect in 2014.
The Justices’ coming decision on the health care law’s constitutionality, while not addressing directly the validity of the employer mandate, could have an effect on that part of the
law, too. The states and a business trade group are arguing that, if the individual mandate is struck down by the Justices, that should lead to a decision striking down the entire law because the individual mandate is so crucial to the overall goals of the law. If the Court were to upheld the individual mandate, of course, the employer mandate would remain in effect since it is not being reviewed on its own and withstood the challenges in the lower courts.
Next in this series: The new law’s expansion of the Medicaid program, and its implications for constitutional doctrine.