Months of anticipation over what will become of the Affordable Care Act (ACA) drew to a close as the Supreme Court upheld the landmark piece of legislation passed in 2010. In a 5-4 vote, with Chief Justice John Roberts voting with the left, the Court found the entire law, including the controversial individual mandate, constitutional. The decision is an enormous victory for President Obama and his administration’s sweeping health care overhaul.

Chief Justice John Roberts wrote the majority opinion. Along with him in the majority were Justices Sonia Sotomayor, Stephen Breyer, Ruth Bader Ginsburg and Elena Kagan. Justices Anthony Kennedy, Samuel Alito, Antonin Scalia and Clarence Thomas were in dissent.

The outcome of the historic case means many provisions directly impacting Medicare, the future of America’s health care system and the country’s public health remain in place for now. In addition, it may influence the outcomes of several key congressional races and this year’s presidential election.

Political Reaction

To be sure, the decision is a victory for President Obama and his administration, although during a press conference held a couple of hours after the decision was released, he passed along this victory to the "people all over this country whose lives will be more secure because of this law and the Supreme Court’s decision to uphold it."

Republicans have been vowing since the ACA made its way to the Supreme Court to repeal it one way or another with Congressional action should the High Court fail to do so. Mitt Romney, the presumptive Republican presidential nominee, said that, if elected in November, he will work to repeal and replace the law, although he hasn't said precisely how. In the wake of the decision, Romney called the decision incorrect and "bad law." 

At The Heart of The Issue

But for now, the ACA is enjoying its moment of glory. Or is it? 

The outcome of the case hinged on the constitutionality of two key ACA components. Challengers of the ACA’s individual mandate, which requires that all Americans purchase health insurance by 2014 or face fines, argued that Congress usurped its powers to regulate interstate commerce because the Constitution gives it the power to regulate only those individuals that are actively engaged in any particular market. The Obama administration and the law’s defenders argued—and the Supreme Court agreed—that because everybody will be a consumer in the health care market at some point, Congress was within its power to regulate the financing of it.

The Court found constitutional the penalties associated with the individual mandate. Justice Roberts wrote, "Our precedent demonstrates that Congress had the power to impose the exaction in §5000A under the taxing power, and that §5000A need not be read to do more than impose a tax. That is sufficient to sustain it. The “question of the constitutionality of action taken by Congress does not depend on recitals of the power which it undertakes to exercise."

The Court also needed to decide whether the law’s expansion of Medicaid eligibility to 133 percent of the poverty level is constitutional. At issue was whether the federal government has violated the principles of federalism set forth by the Constitution by forcing states to participate to a greater extent in the federally subsidized program providing health care to the poor. 

With regards to this provision, the Court found that the expansion provision is constitutional but that it would be unconstitutional for the federal government to withhold Medicaid funds for noncompliance with the expansion provisions. The Medicaid expansion provision is narrowly upheld but states that choose not to participate in the expansion of the program do not risk losing federal funds for maintaining the status quo.

"Nothing in our opinion precludes Congress from offering funds under the ACA to expand the availability of health care, and requiring that states accepting such funds comply with the conditions on their use. What Congress is not free to do is to penalize States that choose not to participate in that new program by taking away their existing Medicaid funding," the Court wrote. 

Additionally, questions have already arisen about the stark contrast between the law's intent and the reality that many poor people in many states may end up in a sort of uninsured no-man's-land in which they do not qualify for Medicaid and also do not qualify for subsidized health insurance. 

Medicare and the Affordable Care Act

The scores of provisions in the ACA directly relating to Medicare will continue to be implemented as planned due to the Court's decision, unless a Republican Congress takes action to repeal the law. From the entitlement program’s financing to quality improvement initiatives and beyond, Medicare will see numerous ACA-related changes taking effect over the next few years.

Tax Changes (all scheduled to take effect on Jan. 1, 2013):

• Increases to the Medicare Hospital Insurance (Part A) tax rate on wages from 1.4 percent to 2.3 percent on earnings over $200,000 for individual taxpayers and $250,000 for married couples filing jointly;

• A 3.8 percent Medicare contribution tax on net investment income for higher-income taxpayers;

• Elimination of the Medicare Prescription Drug Plans (Part D) subsidy tax deduction for employers that provide retiree prescription drug coverage.

Cost Containment Provisions:

• Equalizes payment rates between Medicare Advantage Plans (Part C) and traditional Medicare fee-for-service (Medicare Hospital Insurance (Part A) and Medicare Medical Insurance (Part B)). Starting in 2012, the ACA phases in benchmarks calculated as a percentage of per capita fee-for-service Medicare spending, provides bonus payments to Part C plans that provide high quality care, adjusts Part C plan payments for coding practices related to the health status of enrollees [LS1]  and prohibits these plans from imposing cost sharing requirements for certain services that are higher than those under the traditional Medicare program. In 2014, Part C plans will not be allowed to have Medical Loss Ratios (payout ratios) lower than 85 percent;

• Reduces annual cost increases for inpatient hospital, home health, skilled nursing facility, hospice and other Medicare providers, and adjusts for productivity;

• Freezes the threshold for income-related Part B premiums for 2011 through 2019, and reduces the Part D premium subsidy for those with incomes above $85,000 for individuals and $170,000 [LS2] for couple (effective Jan.1, 2011);

• Establishes an Independent Payment Advisory Board (IPAB) responsible for making recommendations to reduce the per capita rate of growth in Medicare spending if spending exceeds a target growth rate;

• Reduces Medicare Disproportionate Share Hospital (DSH) payments initially by 75 percent and subsequently increases payments based on the percent of the population uninsured and the amount of uncompensated care provided (effective fiscal year 2014);

• Eliminates the Medicare Improvement Fund. The fund was available to the secretary of Health and Human Services to make improvements under the original Medicare fee-for-service program under Parts A and B (effective upon enactment);

• Allows providers organized as Accountable Care Organizations (ACOs) that voluntarily meet quality thresholds to share in the cost savings they achieve for the Medicare program (shared savings program established Jan. 1, 2012);

• Creates the Center for Medicare & Medicaid Innovation to test, evaluate and expand innovative payment structures to reduce program costs while maintaining or improving quality of care (established Jan. 1, 2011);

• Penalizes hospitals through reduced payments for certain 30-day readmissions (effective Oct. 1, 2012);

• Reduces Medicare payments to certain hospitals for hospital-acquired conditions by 1 percent (effective fiscal year 2015).

Waste, Fraud and Abuse:

• Reduces waste, fraud and abuse by increasing provider screening and oversight and by requiring providers and suppliers to establish compliance programs (already in effect);

• Develops a database to capture and share data across federal and state programs, increases penalties for submitting false claims, strengthens standards for community mental health centers and increases funding for antifraud activities (effective dates vary).

Quality Improvement:

• Establishes a national Medicare pilot program to develop and evaluate bundled payments for acute inpatient hospital services, physician services, outpatient hospital services, and post-acute care services (establish pilot program by Jan, 1, 2013; expand program, if appropriate, by Jan. 1, 2016);

• Establishes the Community Care Transitions Program, which helps high-risk Medicare beneficiaries who are hospitalized avoid unnecessary readmissions to the hospital by coordinating care and connecting patients to services in their communities (effective Jan. 1, 2011);

• Creates the Independence at Home demonstration program to provide high-need Medicare beneficiaries with primary care services in their homes (effective Jan. 1, 2012);

• Establishes a hospital value-based purchasing program in traditional Medicare (Parts A and B) to pay hospitals (and lays the groundwork for expansion to skilled nursing facilities, home health agencies and ambulatory surgery centers) based on performance, and extends the Medicare physician quality-reporting initiative beyond 2010 (effective Oct. 1, 2012);

• Improves care coordination for dual eligibles (beneficiaries on Medicare and Medicaid) by creating the Federal Coordinated Health Care Office within the Centers for Medicare & Medicaid Services (CMS) to more effectively integrate Medicare and Medicaid benefits and to improve coordination between the federal government and the states (effective Mar. 1, 2010);

• Provides a 10 percent bonus payment to primary care physicians in Medicare from 2011 through 2015 (effective for five years beginning Jan. 1, 2011).

Prevention/Wellness:

• Eliminates cost-sharing for certain preventive services recommended by the U.S. Preventive Services Task Force and waives the Medicare deductible for colorectal cancer screening tests (effective Jan. 1, 2011);

• Authorizes Medicare coverage of annual personalized prevention plan services, including a comprehensive health risk assessment; and reimburses providers 100 percent of the physician fee schedule amount with no adjustment for deductible or coinsurance for personalized prevention plan services when these services are provided in an outpatient setting (effective Jan. 1, 2011);

• Provides incentives to beneficiaries to complete behavior modification programs (effective Jan. 1, 2011, or when program criteria is developed, whichever is first).

Long-term Care:

• Requires skilled nursing facilities to disclose information about ownership, accountability requirements and expenditures, and to publish standardized information to a website so Medicare enrollees can compare the facilities (effective dates vary).

Beneficiary Protections:

• Provides a $250 rebate to Medicare beneficiaries who reach the Part D coverage gap in 2010 (effective Jan. 1, 2010);

• Gradually phases down the beneficiary coinsurance rate in the Part D coverage gap from 100 percent to 25 percent by 2020;

• For brand-name drugs, requires pharmaceutical manufacturers to provide a 50 percent discount on prescriptions filled in the Part D coverage gap beginning in 2011, in addition to federal subsidies of 25 percent of the brand-name drug cost by 2020 (phased in beginning in 2013);

• For generic drugs, provides federal subsidies of 75 percent of the generic drug cost by 2020 for prescriptions filled in the Part D coverage gap (phased in beginning in 2011); between 2014 and 2019, reduces the out-of-pocket amount that qualifies an enrollee for catastrophic coverage;

• Makes Part D cost sharing for full-benefit dual eligible beneficiaries receiving home- and community-based care services equal to the cost sharing for those who receive institutional care (effective no earlier than Jan. 1, 2012);

• Expands Medicare coverage to individuals who have been exposed to environmental health hazards from living in an area subject to an emergency declaration made as of June 17, 2009, and who have developed certain health conditions as a result (effective upon enactment);

• Provides a 10 percent bonus payment to primary care physicians and to general surgeons practicing in health professional shortage areas, from 2011 through 2015 (effective Jan. 1, 2011);

• Provides payments totaling $400 million in fiscal years 2011 and 2012 to qualifying hospitals in counties with the lowest Medicare spending (effective Jan. 1, 2011);

• Prohibits Medicare Advantage Plans (Part C) from imposing higher cost-sharing requirements for some Medicare covered benefits than is required under the traditional fee-for-service program (effective Jan. 1, 2011).

A Momentous Ruling

The Supreme Court's decision will have an enormous impact on the nation’s health care landscape today and into the future. 

As the nation’s largest purchaser of health care, Medicare is often a catalyst for change in the broader health care marketplace. The program essentially sets the prices for health care services through its purchasing power. Whether in establishing the reimbursement climate for health care services or changing the incentive structure inherent in certain payment policies, when the program implements successful changes in health care delivery the private sector often follows suit.

The CMS has widely publicized some of the ways the ACA has already helped beneficiaries. Recently the secretary of the Department of Health and Human Services, Kathleen Sebelius, issued a statement saying the average Medicare beneficiary will save $4,200 over the next nine years because of the ACA and that the law will save seniors with high drug costs even more by closing the gap in prescription drug coverage known as the “donut hole.”

In addition to mandating full coverage for a free annual wellness visit for Medicare beneficiaries, the ACA has also scrapped cost-sharing for certain cancer screenings as well as other preventive care benefits. But the ACA’s impact on Medicare goes beyond those obvious changes.

The law has poured hundreds of millions of dollars into strengthening fraud-fighting programs in Medicare. And a number of agencies created by the ACA could shift Medicare toward health care delivery models that might achieve both higher quality and lower costs. Finally, a number of other quality-improvement initiatives meant to protect and enhance the health of both Medicare beneficiaries and others are the direct result of the ACA.

There is no doubt the Supreme Court ruling holds enormous power and the decision is an important signal to the country and to conservatives that health care is a critical issue that must be addressed.

What’s Next?

Even though the ACA survived the Supreme Court’s scrutiny, it could still be challenged by a Republican electorate that recently referred to the law as a “malignant tumor.” 

If Republican presidential candidate Mitt Romney is elected this November, he will have the chance to follow through with his campaign promise to repeal “Obamacare,” the Republican pejorative for the health care law.

Regarding the Supreme Court decision, Romney told supporters in Atlanta recently, “Gosh I hope they do the right thing and turn this thing down, and say it’s unconstitutional because it is.” 

Although, in many important ways, the health care reform law Mitt Romney passed as governor of Massachusetts, which included an individual mandate, served as model for the ACA, he is staunchly opposed to the Obama administration’s adaptation on the grounds that what was good for his state in 2006, is illegal and a bad fit for the country as a whole.

“This piece of legislation is bad policy, it’s bad for our health care, and I can tell you if I’m president I’m going to stop it in its tracks on day one.”