Supreme Court’s Consideration Of ACA’s “Individual Mandate” Has Three Possible Outcomes
This article was originally published in The Pink Sheet Daily
Executive Summary
At stake is the requirement for individuals to purchase health insurance and whether that provision is severable from the rest of the Affordable Care Act. From the pharmaceutical industry’s perspective, the most disruptive outcome would be to have the entire law overturned.
The U.S. Supreme Court will consider three possible outcomes related to the question of the Affordable Care Act’s mandate that all Americans must purchase health insurance.
On Nov. 14, the Supreme Court granted certiorari to three cases pertaining to a lawsuit brought by 26 states challenging the health care reform law.
The overarching question will be whether Congress exceeded its constitutional authority in requiring all individuals to purchase insurance or face a financial penalty. If the individual mandate, as it is commonly known, is upheld by the court, that would bring about the first possible outcome: that ACA would continue to be implemented, and no adjustments would need to be made.
However, if the court rules that the individual mandate is unconstitutional and cannot be enforced, two other outcomes are possible based on whether the court says that provision is severable from the remainder of the law. Either of those outcomes would cause uncertainty for the pharmaceutical industry.
Should the individual mandate be ruled severable, the rest of the law could be implemented. The uncertainty then would be about how many currently uninsured individuals would become covered. The industry supported ACA and offered a number of financial concessions with the understanding that the law would greatly expand health coverage, providing a larger market for products.
The Congressional Budget Office has estimated that without the individual mandate, which is slated to take effect at the start of 2014, 16 million to 24 million individuals may remain uninsured. However, a recent study suggests that new enrollment in insurance could still be substantial even without the mandate (Also see "ACA Would Cover 23 Million Uninsured Even Without Individual Mandate - Lewin Study" - Pink Sheet, 2 Nov, 2011.).
The most disruptive outcome for the pharmaceutical industry would be an alternative ruling that the individual mandate is both unconstitutional and non-severable, causing the whole law to be struck down (Also see "If States Win Lawsuits Against Health Reform Law, How Might Pharma Fare?" - Pink Sheet, 25 Oct, 2010.). Not only would the hope of an expanded market evaporate, but serious questions would arise about the status of the financial contributions the industry has already made to health care reform.
For example, under the law, drug firms have already increased the minimum amount of rebates they pay for drugs used in Medicaid, have been providing 50% discounts on drugs used by Medicare Part D beneficiaries in the “donut hole,” and recently started paying a market-share based fee to the federal government. Whether and how the various payments should be reimbursed would take some time to sort out.
ACA includes other provisions affecting the pharmaceutical industry that would be in jeopardy if the entire statute is voided, even though they are not related to expanding health care coverage. Among these are the new authority given to FDA to approve generic biologics, the revised definition of Medicaid average manufacturer prices for drugs and the creation of the Patient-Centered Outcomes Research Institute.
A number of suits challenging ACA have been moving through the court system, but the decision referenced in the cases before the Supreme Court is the one by the Court of Appeals for the Eleventh Circuit on the suit brought by the states. The appeals court ruled that while the individual mandate is unconstitutional, the provision is severable. That ruling partially upheld the ruling by the federal district court in Florida, which had ruled the mandate unconstitutional and non-severable (Also see "Federal Judge's Ruling To "Void" Affordable Care Act Encompasses Entire Reform Law" - Pink Sheet, 31 Jan, 2011.).
Another issue from the states’ lawsuit will also be considered by the Supreme Court. The question is whether Congress exceeded its powers by coercing states to participate in an expansion of Medicaid under ACA. The Eleventh Circuit and the district court both rejected the states’ coercion challenge to the Medicaid expansion.
It is not yet known when the court will hear oral arguments, but the court’s calendar has unassigned time available for arguments in January, February, March and April. The court’s current term ends in June, so a decision is expected by then.