1. Affordable Care Act Mandate Constitutional Medicaid Expansion Unconstitutional Rebekah N. Plowman, Partner

2. 2

3. Supreme Court Decision Strange Bedfellows Surprising and shifting Majorities 5-4 Majority found that Mandate was an unconstitutional exercise of the Congress' Commerce Clause Power –Justices Roberts Scalia, Kennedy, Thomas and Alito –The five Justices held that although Congress had the power to regulate commerce, it did not have the power to "compel" it. –All five Justices agreed that the government’s interpretations “would work a substantial expansion of federal authority” without providing any limiting principle to restrain congressional authority. –The joint opinion read that “if every person comes within the Commerce Clause power of Congress to regulate by simple reason that he will one day engage in commerce, the idea of a limited Government power is at an end." 3

4. Supreme Court Decision Strange Bedfellows 5-4 majority: Mandate constitutional under Congress’s power to lay and collect taxes. –Chief Justice Roberts aligning with Justices Ginsberg, Breyer, Sotomayor and Kagan Relied upon his judicial philosophy –Finding mandate constituted a tax was a "fairly possible” reading of the individual mandate. –Court’s duty to adopt any reasonable interpretation of a statute that avoids rendering the statute unconstitutional. 4

5. Supreme Court Decision Strange Bedfellows Roberts adopted the Government’s position which argued that rather than constituting a mandate to buy insurance, the penalty constituted a tax hike on certain taxpayers who chose not to obtain health insurance. Relying upon what he considered a “functional approach”, Justice Roberts found that the exaction imposed by the ACA’s mandate resembled a tax in many respects: –Collected solely by the Internal Revenue Service as part of the normal means of taxation, –Contains no criminal scienter requirement; and –Tax burden is relatively small and calculated with reference to income and tax status (individuals who do not pay taxes based on earning less than the filing thresholds). 5

6. Medicaid Expansion Decision 7-2 Majority Ruled: –Unconstitutionally coercive Threatened to withhold all of a State’s Medicaid grants unless the State agreed to participate in the expansion and comply with all the conditions. –Medicaid spending accounts for over 20% of the average State’s total budget, with federal funds covering 50 to 83% of those costs. Pressure turned to compulsion thereby violating the power afforded to Congress under the Spending Clause. –Roberts colorfully characterized Congress’ chosen “financial ‘inducement’” as “much more than ‘relatively mild encouragement’—it is a gun to the head.” 6

7. Medicaid Expansion Decision Roberts Ruled: –Unconstitutionally coercive ( con't ) Legitimacy of Congress to condition the grant of all Medicaid funds turns on whether the States voluntarily and knowingly accept the terms of the expanded program State could hardly anticipate that Congress’s reservation of the right to “alter” or “amend” the Medicaid program included the power to transform it so dramatically. 7

8. Medicaid Expansion –Expansion Transformed Program Existing Medicaid program required States to cover certain categories of needy individuals, such as pregnant women, children of needy families, the blind, the elderly and the disabled ACA required States to expand their Medicaid programs by covering all individuals under the age of 65 with incomes below 133% of the federal poverty line. ACA also established a new essential health package sufficient to satisfy a recipient’s obligation under the individual mandate. 8

9. Severability of Medicaid Expansion 5-4 Majority ruled: – Constitutional violation fully remedied by precluding the Secretary from withdrawing existing Medicaid funds. –Secretary not precluded from withdrawing funds if the State chooses to participate in the Medicaid expansion, but fails to comply with the expansion’s requirements. –No evidence Congress would not have wanted the expansion provisions to be severed. 9

10. Joint Dissent Dissent: Roberts rewrote the statute –If Congress thought that anything less than 100% state participation was a realistic possibility, Congress would have provided a "backup scheme” Similar to those Congress provided for health benefit exchanges –Severance places States in position of choosing between expanding Medicaid or paying huge federal tax sums for sole benefit of expanding Medicaid in other States Such decisions should be accomplished by “conscious congressional choice, not by Court-invented interpretation.” 10

11. Joint Dissent (cont'd) Financial consequences were in conflict with the ACA’s design of shared responsibility –ACA "attempts to achieve near-universal coverage by spreading its costs to individuals, insurers, governments, hospitals and employers—while, at the same time, offsetting significant portions of those costs with new benefits to each group.” These interdependencies are what the ACA refers to as “shared responsibility". –Defined as accomplished by the Mandate and Expansion offsetting insurance regulations and taxes, which offset reduced reimbursements to hospital, which offset increases in federal spending. 11

12. Political Theater –With an expansion of the Medicaid program, it is estimated that the Medicaid spending will increase by $100 billion per year, an increase of nearly 40%. –Without an expansion of the Medicaid program, the ACA's goal of achieving near-universal coverage and thereby reducing the cost of uncompensated care at hospitals is significantly impaired. 12

13. Political Theater –26 state attorneys general challenged the ACA the day after its passage –Many of those same states are reporting a reticence to participate in the Medicaid expansion program Citing the significant burden to already burgeoning State budgets. –Currently only one state with a Republican governor, Michigan, had expressed a likelihood of participating. 13

14. What Won't Change Payment reform and Integrated Delivery Systems –Current trend is unsustainable –Reform does not affect HHS ability to implement demonstration projects HIT –Payment reform and IDS require greater connectivity among provider –Data Mining results in Large Recoveries 2012 forecasted as largest fraud recoveries ever 14

15. Rebekah N. Plowman, Partner Atlantic Station 201 17th Street NW, Suite 1700 Atlanta, GA 30363 404.322.6111 Rebekah.Plowman@nelsonmullins.com 15