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The Supreme Court, The Affordable Care Act, and You (the Independent Contractor)

By Maureen Pettibone Ryan

Yesterday, the Supreme Court upheld the Affordable Care Act (ACA) against two Constitutional challenges, and to the surprise of many, it was conservative Chief Justice Roberts who authored the opinion and provided the fifth vote, while centrist Justice Kennedy sided with the conservative dissenters.  Although the legal issues in the case are fascinating, and I will discuss them, my main focus is on how the ACA and the Court’s decision will affect independent contractors, including freelance attorneys.

It is important to note that the Affordable Care Act, although it addressed access to affordable insurance, did not address many other pressing reasons that healthcare costs are spiraling out of control and unaffordable to many Americans.  Former editors of the New England Journal of Medicine, Drs. Arnold Relman and Marcia Angell, have argued that changing compensation structures for doctors (from per-procedure to salary), clamping down on insurance companies and pharmaceutical companies, and creating more non-profits like the Mayo Clinic, among other things, would increase the standard of care and greatly decrease costs.  Dr. Relman, incidentally, argued ACA’s individual mandate is unconstitutional as neither necessary nor proper in light of the available alternative of the widely popular single-payer system, which cuts insurance companies out of the picture.  Dr. Atul Gawande also presented a convincing case study showing that when managed properly, lower expenditures could lead to higher-quality care.  As a former medical devices engineer explained to me, “These [other] reforms are orthogonal to the healthcare act,” meaning that even with the ACA, other issues must be addressed to cut healthcare costs.  And independent contractors bear these burdens more directly than employees who have costly group insurance that insulates them to a greater degree from spiraling medical costs.

In order to show how the ACA and Supreme Court decision affect independent contractors, I will discuss the scope of the decision, how the ACA and the Supreme Court’s ruling financially impact independent contractors, and finally, the legal mechanics of the decision.

The Scope of the Supreme Court Opinion

The Supreme Court handed down a decision addressing two Constitutionality challenges to the Affordable Care Act (ACA).  First, the Court decided whether the individual mandate was lawful.  The individual mandate is the provision requiring people who do not purchase health insurance to pay a penalty to the IRS, if their incomes are high enough.  Or a tax—there was a great deal of consternation among the Justices over whether the ACA’s surcharge for being uninsured was one or the other.  Second, the Court struck down a provision that would allow the Secretary of the Department of Health and Human Services to revoke all Medicare funding from states that did not agree to newly-expanded Medicare services.  Instead, Chief Justice Roberts said that states must be given a choice—either to accept expanded Medicare, or to maintain old Medicare funding and services, in order to prevent the Federal Government from controlling State programs through unconstitutional coercion.

The other provisions of the ACA were not addressed, although the joint dissent, authored by Justices Scalia, Kennedy, Alito, and Thomas, would have stricken the statute as a whole, had they achieved a majority.

How the ACA and the Supreme Court Decision Affect Contractors

Two provisions of the ACA, which go into effect in 2014, are of great importance to independent contractors and indeed, anyone who wishes to obtain insurance on their own.  These two provisions are the ban on denying coverage based on preexisting conditions, and the individual mandate.

When I left big law and became a freelance attorney with a practice of my own, I quickly learned how hard it was to get individual insurance, and how expensive.  Fortunately, in my case, I joined a partnership that allowed me to purchase group insurance.  For the untutored—group insurance means no preexisting condition exclusions, and is less expensive and offers better coverage than the plans you can currently obtain as an individual.  At least for 31-year-old me.  However, many freelance attorneys and other independent contractors in California have no access to group insurance, unless they join a partnership or company that provides such benefits.  Or unless the independent contractor is fortunate enough to be married to someone with such benefits.  Neither the ABA nor the California Bar Association currently offer their members a chance to purchase group insurance, although they did in the past.  The reason for this change?  Skyrocketing premiums because the people purchasing the insurance were actually using the insurance—that is, people would neglect to purchase the group insurance until they had significant medical costs.  This is not true in all states or in all professions—I do know of other professionals in California and attorneys in other states who are still able to obtain group coverage through professional associations.

At times, preexisting condition exclusions do more than drive up premiums—they make it impossible to even obtain individual insurance.  An acquaintance of mine was denied insurance for having a bunion.  (Bunion removal surgery is expensive, but rarely done, because the condition is not life-threatening.)  Several acquaintances of mine stayed in government jobs because their government health insurance policies, unlike many private-sector group policies, had no lifetime maximum.  Not only would these acquaintances have been unable to work at a private-sector company, they were also unable to choose to be independent contractors because policies available to individuals were too costly and imposed lifetime maximums.

The individual mandate is designed to drive down costs by requiring everyone to participate.  As Justice Ginsburg points out in her opinion, which both concurs (agrees with) and dissents from (disagrees with) Chief Justice Roberts’ majority, 60% of the uninsured visit doctors at least once in a calendar year, and over five years, 90% of the uninsured visit doctors.  Under the current system, hospitals generally foot the bill for the uninsured, which means that it is passed on to consumers with insurance.  If everyone, or almost everyone, is either insured by Medicare, insured through private insurance, or pays penalties (which are designed to be less than the cost of insurance, but not by too much), hospitals will not be put in the position of providing care without payment, and people who are free-riding on the system by betting on their individual good health will stop being subsidized by the insured.  If the system works as designed, of course.

Before the Supreme Court’s decision was released, I spoke to two insurance professionals about the impact the ACA would have on health insurance premiums.  The first, an insurance broker who previously worked for a health insurance company that provided both PPO and HMO coverage stated that it would greatly increase premiums, although she was discussing premiums in the near term.  The second, an employee of a Managed Care organization, stated that it would be very beneficial to his company because the type of basic healthcare services his company provided were the very ones covered by the ACA.  I did not press either one of them on the issue of the long-term savings the ACA intends to create—based on making inexpensive preventative care available in the hopes of treating conditions before the patient becomes seriously ill and treatment becomes both more costly and less effective.  And in truth, I think such projections are very difficult to make.

The prevailing opinion among the supporters of ACA, at least, is that in the long term, it will drive down costs due to universal or near-universal insurance and better basic and preventative care.  But in the short term, independent contractors and small businesses should expect to see premiums go up.

The Supreme Court opinion has a slightly negative affect on independent contractors compared to the original ACA, assuming that the ACA’s cost-saving measures will operate as planned.  Although the Court upheld the individual mandate as a lawful tax (which has political implications of its own—as now the president has raised taxes), the Court also gave individual states the right to opt out of an expansion of Medicare that would cover more low-income individuals.  If an independent contractor lives in a state where low-income individuals are denied expanded Medicare, it may drive up costs for those purchasing individual insurance.  Prior to the decision, the states did not have a choice—they had to provide expanded Medicare to their residents.

The Supreme Court’s Decision as a Matter of Law

The Chief Justice’s opinion was, in my view, a radical constriction of the Commerce and Necessary and Proper clauses.  Ginsburg, dissenting, interpreted the individual mandate as being lawful under both clauses, because the uninsured participate in the healthcare market (making the ACA proper under the Commerce Clause), or at the very least, affect it (making the ACA proper under the Necessary and Proper Clause).  Ginsburg also engaged in a detailed analysis of how the ACA is more respectful to the states than a merely federal system, which would also be lawful, citing Dean Evan Caminker of Michigan Law as a source.  (Full disclosure—Caminker was dean when I attended Michigan Law and I know him personally.)  But, the result in which Ginsburg ultimately concurred was that the individual mandate was Constitutional as a tax.  Because the joint dissent, authored by Scalia, Kennedy, Alito, and Thomas agreed with the Chief Justice that the ACA was not authorized by the Commerce and Necessary and Proper clauses, Chief Justice Roberts did achieve a majority for that ruling.  However, whether it is dicta or a holding remains to be seen—in other words, because the individual mandate was upheld as a tax, the fact that it was not upheld under the Commerce or Necessary and Proper clauses may not be binding in the future.  Generally, it is only the reasons that are necessary to a decision that are binding law.  Justice Ginsburg hints at as much when she writes that the Chief Justice did not need to even address the issue of the Commerce and Necessary and Proper Clauses because he upheld the independent mandate as a lawful tax.

With regard to the second issue, which concerned whether requiring the states to participate in a newly-expanded Medicare or lose all federal funding was proper, Chief Justice Roberts limited the ability of Congress to direct individual state policy through spending.  Roberts ruled that allowing the Secretary of Health and Human Services to withdraw all Medicare funding if states did not wish to participate in expanded Medicare was unduly coercive.  Ginsburg disagreed, noting that Congress clearly could have repealed old Medicare and replaced it with “Medicare II.”  Because that would be lawful, Ginsburg argued that it would be ridiculously formalistic to require Congress to entirely repeal Medicare in order to decide how it wished to spend federal funds.  The joint dissent sided with Roberts, based on a rather novel analysis that because Congress expected that all states would sooner join expanded Medicare than lose all funding, therefore, the measure was coercive.  This “state of mind of Congress” argument is a novel reason for limiting Congress’ power of the purse, to my mind.  The joint dissent revived the state of mind of Congress argument when it contended that the act as a whole needed to be struck down, instead of having the expanded Medicare enforcement provision be severed.  The joint dissenters argued that because the ACA was a compromise, including many provisions that would not have made it through Congress but for the horse-trading that accompanies the passage of such major legislation, if one provision fell, all should fall.  Once again, this was to my mind a wholly novel severability argument.  In general, severability is focused on whether a law or contract would still function without the unlawful section or provision, not whether it would have been passed or signed without that provision.

I have argued, as have more prominent commentators, that this is Roberts’ Marbury v. Madison.  He gave the public the result it wanted, but in doing so, laid the groundwork for greatly constraining the power of Congress under the Commerce Clause and Necessary and Proper Clause.  I agree with Ginsburg that Roberts’ and the other dissenters’ definition of ”commerce” was too narrow.  Since 99.5% of us will see a doctor in our lifetimes, 60% of the uninsured see a doctor in a given year, and 90% of the uninsured see a doctor in five years, we are pretty much all participating in medical commerce.  And even if we are not, under the Necessary and Proper Clause, in order to adequately regulate medical services as a matter of commerce, we need to make sure that everyone is insured, as one of many modes to regulate commerce by driving down costs.  Do I think this is a perfect law?  Far from it.  But I believed before this decision was handed down that it was clearly a Constitutional law, and I am glad that it was upheld as such.  I admit to being disappointed by the Chief Justice’s analysis on the Commerce and Necessary and Proper clauses, because I find that analysis radical and unprecedented.  On the other hand, with regard to Medicare, I am sympathetic to the arguments of Scalia et al. that it is coercive to pour so much money into and attach so many strings to federal programs that the federal government is in effect governing the states.  This concerns me greatly from a federalism perspective.

Finally, the politically-minded might think that Roberts is partisan enough that he upheld the program as a tax to hurt President Obama in the polls.  I certainly hope not, but given how radical his Commerce Clause analysis is, he has opened himself up to that criticism.  Regardless of what the Chief Justice intended, I am guessing that “Health Care Tax” or Obama’s statements on how the ACA was not a tax will be used in campaign advertisements.

Maureen Pettibone Ryan (Practice areas: Trade Secret Law/Computer Torts/Military Law)



Maureen Pettibone Ryan 

Maureen graduated from Santa Clara University with a bachelor’s in biology, and was a member of the University Honors Program, Phi Beta Kappa and Tri Beta.  Maureen obtained her J.D. from the University of Michigan Law School, from which she graduated magna cum laude and Order of the Coif.  Maureen then clerked for the Alaska Supreme Court and the Tenth Circuit Court of Appeals, which gave her extensive experience in legal research and writing, and comparative law. For three years following her clerkships, she worked at Quinn Emanuel Urquhart & Sullivan on a wide range of civil matters, including civil appeals before the Ninth Circuit.  Maureen currently handles freelance litigation projects through Montage Legal Group, and is located in Redwood City, California.  Maureen also writes for her own popular legal blog, Civil Law & Disorder.

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