In National Federation of Independent Business et al. v. Sebelius, one of the most highly anticipated decisions of the year, the US.Supreme Court ruled that the “individual mandate” set forth in the Patient Protection and Affordable Care Act (the “Act”) is constitutional. As a result of this Supreme Court decision, almost every individual in the United States must either obtain health coverage—through an employer, a government-sponsored program such as Medicare or Medicaid, or individual insurance—or pay a penalty.

In a 5-4 decision with Chief Justice John Roberts surprisingly to many, upholding the Act based on the below rationale, the majority of the Court found that the Act’s individual mandate is constitutional only if it fits within one of Congress’s limited powers as enumerated in the US Constitution.

Relevant Laws

The powers under the US Constitution that were considered in this case were:

• the power to regulate commerce
• the power to “lay and collect” taxes

Commerce Clause

The Commerce Clause of the US Constitution permits Congress to regulate existing activity, not to compel and force activity that does not exist. By requiring an individual to purchase health coverage, the Act compels individuals to act, i.e., to engage in an activity that such individual would not otherwise have undertaken. Therefore, the Court decided that Congress does not have the power to enact the individual mandate relying on the Commerce Clause, as many commentators would have expected.

Taxing Laws

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The Court then went on to consider Congress’s power to lay and collect taxes. The Court determined that the individual mandate may reasonably be viewed as a tax and therefore it is constitutional under Congress’s taxing power. Although references within the Act to the individual mandate as a “penalty” rather than a “tax” can be noticed, such references do not preclude the Court from analyzing and further concluding that the mandate is in fact a tax for purposes of determining its constitutionality.

Those sections of the Affordable Care Act that have already gone into effect shall remain unchanged. Individuals, employers and health plans already working within the US health care system will need to begin complying with the Act’s other requirements as they are phased in and begin to take effect over time.

What does this mean for employers?

For employers, the Court’s decision to uphold the law means that significant changes will be forthcoming, including the opening of state insurance exchanges in the year 2014. Beginning in 2014, all individuals will have an opportunity to purchase individual health insurance from a state exchange. If the exchanges provide workable health care coverage alternatives, employers will need to choose, from a financial and human resource perspective, whether to continue to offer employer-sponsored group health insurance coverage to employees or not.

Of course, employer-sponsored health insurance is always a huge selling point from a human resource perspective, however, employers and employees now have options and alternatives not previously available to them. Employers should meet with qualified counsel to assess the impact of these exchanges on employers’ group health insurance plans and their companies generally. How this will affect the employer-employee relationship moving forward is to be determined.