The Supreme Court’s Health Care Ruling

What is the significance of the ruling upholding the constitutionality of the Affordable Care Act?

by Richard R. Hammar

Resource. For a full analysis of the Affordable Care Act’s provisions to churches and church employees, see Richard Hammar’s special reports on the health care laws: (1) “Health Care Reform — How the New Laws Will Affect Your Church,” and (2) “A Valuable Credit for Churches,” available as downloads from

In 2010, Congress enacted the 2,500-page Patient Protection and Affordable Care Act (the “Act” or “Affordable Care Act”) to increase the number of Americans covered by health insurance and decrease the cost of health care. One of the key provisions in the Act is the “individual mandate,” which requires most Americans to maintain “minimum essential” health insurance coverage as defined by the Secretary of Health and Human Services. The mandate does not apply to some individuals, such as prisoners and undocumented aliens. Many individuals will receive the required coverage through their employer, or from a government program such as Medicaid or Medicare. But for individuals who are not exempt and do not receive health insurance through a third party, the means of satisfying the requirement is to purchase insurance from a private company.

The purpose of the individual mandate is to bring millions of uninsured healthy young people into the insurance system to prevent the dramatic increase in premiums that otherwise would occur due to the Act’s requirement that health insurers provide coverage for unhealthy persons with prior conditions.

On the day the President signed the Act into law, Florida and 12 other states filed a complaint in the federal district court for the Northern District of Florida. Those plaintiffs were later joined by 13 more states, several individuals, and the National Federation of Independent Business. The plaintiffs alleged, among other things, that the individual mandate provisions of the Act exceeded Congress’s powers under the Constitution. The district court agreed, holding that Congress lacked constitutional power to enact the individual mandate. The district court determined that the individual mandate could not be severed from the remainder of the Act, and therefore struck down the Act in its entirety.

A federal appeals court agreed that the individual mandate exceeds Congress’s power under the Constitution. The court unanimously agreed that the individual mandate did not impose a tax, and so could not be authorized by Congress’s power under the Constitution to “lay and collect Taxes.” The court also held that the individual mandate was not supported by Congress’s power under the Constitution to “regulate Commerce ... among the several States.”

The United States Supreme Court agreed to determine the constitutionality of the Act, and issued its ruling on June 28, 2012.

Individual Mandate

The Supreme Court, in a 5-4 decision written by Chief Justice John Roberts, ruled that the individual mandate is not a valid exercise of Congress’s power to regulate commerce. The Court stressed that Congress is an “enumerated powers” institution that can only do those things that are expressly authorized by the Constitution. It acknowledged that the Constitution grants Congress the power to “regulate Commerce.” But, it noted that the power to regulate commerce presupposes the existence of commercial activity to be regulated. To the surprise of many Court-watchers, the Court went on to rule that Congress had the authority to create the individual mandate under its constitutional authority to collect taxes.

Impact on church employees

What is the significance of the Supreme Court’s ruling upholding the constitutionality of the Affordable Care Act? Consider the following:

  • All of the deadlines and requirements in the Act remain intact. The more important deadlines and requirements for churches are summarized below:
  • Most Americans will be required to have health insurance that provides “minimum essential coverage” (as defined by the Secretary of Health and Human Services) by 2014 or face a monetary penalty of the greater of $95 or one percent of income in 2014, $325 or two percent of income in 2015, and $695 or 2.5 percent of income in 2016, up to a cap. Families will pay half the amount for children up to a cap of $2,250 for the entire family. After 2016, dollar amounts will increase by the annual cost of living adjustment. The penalty applies to any period in which an individual does not maintain minimum essential coverage and is determined monthly.

This provision is intended to bring actuarial integrity to a plan that aims to extend health care coverage to an additional 32 million Americans. There are limited exceptions for members of religious sects that are opposed on religious grounds to purchasing health insurance, individuals not lawfully present in the United States, incarcerated individuals, and members of “health care sharing ministries.”

Exemptions from the penalty will be made for those who cannot afford coverage, taxpayers with income below the filing threshold, those who have received a hardship waiver, and those who were not covered for a period of less than 3 months during the year.

  • Individuals are free to keep their existing insurance under a “grandfather” provision, subject to some conditions.
  • Beginning in 2014, uninsured individuals can purchase insurance coverage through a state-operated “Exchange.” An Exchange must offer four levels of benefits. Low-income persons may qualify for a tax credit to assist in paying their premiums.
  • Prohibits health insurers from excluding coverage of pre-existing conditions for children.
  • Provides $5 billion in federal support for a new program to provide affordable coverage to uninsured Americans with pre-existing conditions until new Exchanges are operational in 2014.
  • Prohibits insurers from imposing lifetime limits on benefits.
  • Stops insurers from rescinding insurance when claims are filed, except in cases of fraud or intentional misrepresentation of material fact.

Impact on churches

The health care reform legislation does not require employers to provide health insurance for their employees. Instead, the legislation places the responsibility to obtain coverage on individuals, subject to a penalty for noncompliance. However, an “applicable large employer” that does not offer coverage for all its full-time employees, offers minimum essential coverage that is unaffordable, or offers minimum essential coverage that consists of a plan under which the plan’s share of the total allowed cost of benefits is less than 60 percent, is required to pay a penalty if any full-time employee is certified to the employer as having purchased health insurance through a state Exchange with respect to which a tax credit or cost-sharing reduction is allowed or paid to the employee.

Key point. The health care reform law contains no special exemptions for churches. Churches are subject to the same requirements and penalties as a for-profit employer. However, note that employers with fewer than 50 employees are not subject to the shared responsibility provisions of the new law.

An employer is an applicable large employer with respect to any calendar year if it employed an average of at least 50 full-time employees during the preceding calendar year.

An applicable large employer that offers, for any month, its full-time employees and their dependents the opportunity to enroll in minimum essential coverage under an employer-sponsored plan is subject to a penalty if any full-time employee is certified to the employer as having enrolled in health insurance coverage purchased through a state Exchange with respect to which a premium tax credit or cost-sharing reduction is allowed or paid to such employee or employees.

The penalty is an excise tax that is imposed for each employee who receives a premium tax credit or cost-sharing reduction for health insurance purchased through a state Exchange. For each full-time employee receiving a premium tax credit or cost-sharing subsidy through a state Exchange for any month, the employer is required to pay an amount equal to one-twelfth of $3,000. The penalty for each employer for any month is capped at an amount equal to the number of full-time employees during the month (regardless of how many employees are receiving a premium tax credit or cost-sharing reduction) in excess of 30, multiplied by one-twelfth of $2,000.

Small Employer Health Insurance Tax Credit

One of the main objectives of the Affordable Care Act is universal health coverage. The Act contains several provisions to achieve this goal. One of them is a tax credit that will help small businesses and tax-exempt organizations afford the cost of providing health insurance for their employees. The credit is up to 25 percent of the cost of health insurance premiums paid by a qualifying employer for its employees.

For an employer to qualify for the credit it must meet the following three requirements:

  1. it has fewer than 25 “full-time equivalent employees” (FTEs) for the tax year;
  2. the average annual wages of its employees for the year is less than $50,000 per FTE, and
  3. it pays premiums for health insurance coverage under a “qualifying arrangement.”

The credit is reduced for employers with more than 10 FTEs for the tax year. It is reduced to zero for employers with 25 or more FTEs. Further, the credit is reduced for employers that paid average annual wages of more than $25,000 for the year. It is reduced to zero for employers that pay average annual wages of $50,000 or more.

Note that a church with 25 or more employees may qualify for the credit if some of its employees are part-time. This is because the limitation on the number of employees is based on FTEs. So, a church with 25 or more employees could qualify for the credit if some of its employees work part-time.

If a minister is an employee for income tax reporting purposes, he or she is taken into account in determining an employer’s FTEs for purposes of the health care tax credit. If the minister is self-employed for income tax reporting purposes, he or she is not taken into account in determining an employer’s FTEs or premiums paid.

Small businesses can claim the credit for 2010 through 2013 and for any 2 years after that. For tax years 2010 to 2013, the maximum credit is 25 percent of premiums paid by eligible tax-exempt organizations. Beginning in 2014, the maximum tax credit will increase to 35 percent of premiums paid by eligible tax-exempt organizations.

Note that qualifying tax-exempt employers (including churches) having no taxable income to be offset with a tax credit will claim a “refundable” tax credit, meaning that the amount of the credit that would otherwise have offset taxable income is refunded to them.

Extension of Dependent Coverage

The health care reform legislation requires plans that provide dependent medical coverage of children to continue to make the coverage available for an adult child until the child turns age 26 even if the young adult no longer lives with his or her parents, is not a dependent on a parent’s tax return, or is no longer a student. The extended coverage must be provided not later than plan years beginning on or after September 23, 2010. This applies to all plans in the individual market, all new employer plans, and existing employer plans if the young adult is not eligible for employer coverage on his or her own.

There is a transition for certain existing group plans that generally do not have to provide dependent coverage until 2014 if the adult child has another offer of employer-based coverage aside from coverage through the parent. The new policy providing access for young adults applies to both married and unmarried children, although their own spouses and children do not qualify.

For plan or policy years beginning on or after September 23, 2010, plans and issuers must give children who qualify an opportunity to enroll that continues for at least 30 days regardless of whether the plan or coverage offers an open enrollment period. This enrollment opportunity and a written notice must be provided not later than the first day of the first plan or policy year beginning on or after September 23, 2010. The new policy does not otherwise change the enrollment period or start of the plan or policy year.

Any qualified young adult must be offered all of the benefit packages available to similarly situated individuals who did not lose coverage because of cessation of dependent status. The qualified individual cannot be required to pay more for coverage than those similarly situated individuals. The new policy applies only to health insurance plans that offer dependent coverage in the first place. While most insurers and employer-sponsored plans offer dependent coverage, there is no requirement to do so.

Contraception and Abortifacients

The Affordable Care Act requires that most health insurance plans cover women’s preventive services without charging a co-pay or deductible beginning in August, 2012. These preventive health services include coverage, without cost sharing, for “all Food and Drug Administration approved contraceptive methods, sterilization procedures, and patient education and counseling for all women with reproductive capacity,” as prescribed by a provider. Most group or individual health insurance coverage is required to provide this coverage.

The HHS website states: “Women will have access to all Food and Drug Administration-approved contraceptive methods, sterilization procedures, and patient education and counseling. These recommendations do not include abortifacient drugs. Most workers in employer-sponsored plans are currently covered for contraceptives. Family planning services are an essential preventive service for women and critical to appropriately spacing and ensuring intended pregnancies, which results in improved maternal health and better birth outcomes.”

The requirement that churches and other religious employers provide contraception, and certain “morning after” drugs such as “Plan B” and “Ella” that are not regarded as abortifacients by HHS because they prevent conception rather than “interfere with pregnancy,” unleashed a tidal wave of opposition by the Catholic Church and many Protestants. The United States Conference of Catholic Bishops drafted a letter expressing outrage at the rule and insisting on a change. The letter stated: “The drugs that Americans would be forced to subsidize under the new rule include Ella, which was approved by the FDA as an ‘emergency contraceptive’ but can act like the abortion drug RU-486. It can abort an established pregnancy weeks after conception. The pro-life majority of Americans — Catholics and others — would be outraged to learn that their premiums must be used for this purpose.”

HHS regulations incorporate a narrow exemption for some religious employers, but many religious organizations consider it to be unacceptably narrow. The regulations define an exempt religious employer as one that:

(1) has the inculcation of religious values as its purpose;

(2) primarily employs persons who share its religious tenets;

(3) primarily serves persons who share its religious tenets; and

(4) is a non-profit organization under section 6033(a)(1) and section 6033(a)(3)(A)(i) or (iii) of the tax code. Sections 6033(a)(3)(A)(i) and (iii) refer to churches, their integrated auxiliaries, and conventions or associations of churches, as well as to the exclusively religious activities of any religious order.

While this definition of an exempt religious employer would cover some churches, it would not cover many religious organizations, agencies, schools, and parachurch ministries. To illustrate, many church-affiliated universities, seminaries, and social service agencies that provide social services for the underprivileged would not qualify.

Key point. In May of 2012, several Catholic dioceses, universities, and institutions filed a lawsuit in federal court claiming that the imposition of the contraceptive mandate on several Catholic entities contrary to their religious convictions violates the First Amendment guaranty of religious freedom. This case is pending.