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December 05, 2011 Articles

Supreme Court to Review Constitutionality of Health-Care Law

The Court grants certiorari to review various challenges to the Patient Protection and Affordable Care Act

By Jim Shelson

In March 2010, Congress enacted the Patient Protection and Affordable Care Act. Four circuit courts of appeals have since ruled on challenges to the act. On November 14, 2011, the U.S. Supreme Court granted certiorari to review various challenges to the act.

The Act

The Patient Protection and Affordable Care Act contains five essential components. First, the act establishes tax incentives for small businesses to purchase health insurance for their employees, and it requires specified large employers to offer health insurance to their employees. Second, the act provides for the creation of state-operated "health benefit exchanges" to allow individuals and small businesses to obtain price-competitive health insurance. Third, the act expands federal programs to assist the poor with obtaining health insurance and it expands eligibility for Medicaid. Fourth, the guaranteed issue requirement bars insurance companies from denying coverage to individuals with preexisting conditions, and the community rating requirement bars insurance companies from charging higher rates to individuals based on their medical histories. Fifth, the act's "requirement to maintain minimum essential coverage," which takes effect in 2014, "requires every ‘applicable individual’ to obtain ‘minimum essential coverage.'" This requirement is known as the "individual mandate."

Fourth Circuit

The Fourth Circuit considered two cases challenging the act but did not reach the merits in either case. In Commonwealth of Virginia v. Sebelius, 656 F.3d 253 (4th Cir. 2011), Virginia challenged the constitutionality of the individual mandate, but the Fourth Circuit held that it lacked standing to sue.

In Liberty University, Inc. v. Geithner, 2011 WL 3962915 (4th Cir. 2011), the Fourth Circuit held that the Anti-Injunction Act (AIA), 26 U.S.C. § 7421(a), which provides that "no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person," barred review of the case on its merits because the act imposed penalties, not taxes.

Sixth Circuit

In Thomas More Law Center v. Obama, 651 F.3d 529 (6th Cir. 2011), the plaintiffs challenged the constitutionality of the act. The plaintiffs were Thomas More Law Center, a public interest law firm, and four individuals. "The individual plaintiffs are United States citizens, Michigan residents, and federal taxpayers" who claimed that the individual mandate "unconstitutionally compels them to purchase health insurance."

The Sixth Circuit first addressed whether the AIA barred judicial review of this action and concluded that the individual mandate imposed a penalty, not a tax; so, the AIA did not bar consideration of the merits.

The Sixth Circuit also addressed whether the individual mandate is a constitutional exercise of the authority of Congress under the Commerce Clause. The Sixth Circuit began its analysis by noting that a congressional enactment is entitled to a "presumption of constitutionality" and will be invalidated only upon a "plain showing that Congress has exceeded its constitutional bounds."

The Commerce Clause grants Congress the power "[t]o regulate commerce with foreign Nations, and among the several States, and with Indian Tribes." The Sixth Circuit considered whether the individual mandate is within Congress’s power to regulate activities that "substantially affect" interstate commerce.

The Sixth Circuit found that Congress may use this category of its commerce power to regulate two classes of activities. First, "Congress may regulate economic activity, even if wholly intrastate, if it substantially affects interstate commerce." Second, "Congress may also regulate even non-economic intrastate activity if doing so is essential to a larger scheme that regulates economic activity."

The Sixth Circuit determined that the class of activities the individual mandate regulates is "the activity of participating in the national market for health care delivery, and specifically the activity of self-insuring for the cost of those services."

The plaintiffs challenged the individual mandate on its face as an unconstitutional exercise of congressional authority. A statute is facially invalid only when there is no set of circumstances in which the statute’s application would be constitutional. "[O]ur task is to determine whether self-insuring for the cost of health care services is an economic activity, and whether Congress had a rational basis to conclude that, in the aggregate, this activity substantially affects interstate commerce."

Applying this standard, the Sixth Circuit held that the individual mandate is facially constitutional under the Commerce Clause for two independent reasons. "First, the provision regulates economic activity that Congress had a rational basis to believe has substantial effects on interstate commerce. In addition, Congress had a rational basis to believe that the provision was essential to its larger economic scheme reforming the interstate markets in health care and health insurance."

In so holding, the Sixth Circuit rejected the plaintiffs' contention that the individual mandate regulates inactivity—that is, the decision not to purchase health insurance. "[F]ar from regulating inactivity, the provision regulates active participation in the health care market" because of two unique characteristics of this market: "(1) virtually everyone requires health care services at some unpredictable point; and (2) individuals receive health care services regardless of ability to pay."

Eleventh Circuit

In Florida v. United States Department of Health and Human Services, 648 F.3d 1235 (11th Cir. 2011), 26 states, two individuals, and the National Federation of Independent Business (NFIB) sued to challenge the constitutionality of the act. The Eleventh Circuit considered four issues: (1) whether the act's expansion of Medicaid is constitutional, (2) whether the individual mandate is constitutional, (3) whether the individual mandate is authorized by the Taxing and Spending Clause, and (4) whether the individual mandate is severable from the rest of the act.

The Eleventh Circuit began its analysis of the constitutional challenges "with a presumption of constitutionality, meaning that 'we invalidate a congressional enactment only upon a plain showing that Congress has exceeded its constitutional bounds.'"

The Eleventh Circuit analyzed whether the act's expansion of Medicaid is constitutional under the spending clause. The spending clause provides that "Congress shall have Power . . . to pay the Debts and provide for the common Defence and general Welfare of the United States." In short, the spending clause permits Congress to fix the terms on which it disburses money to the states.

The state plaintiffs claimed that the Medicaid expansion violates the "coercion doctrine," which holds that because the Tenth Amendment reserves certain powers to the states, Congress may not use the spending powers to "coerce" the states into compliance with a federal objective.

The Eleventh Circuit found that the Tenth Amendment limits congressional spending to the extent that "Congress cannot place restrictions so burdensome and threaten the loss of funds so great and important to the state's integral functions as a state . . . as to compel the state to participate in the 'optional' legislation."

The Eleventh Circuit concluded with "some hesitation" that the act's expansion of Medicaid is not unduly coercive for five reasons. First, the states were warned from the beginning of the Medicaid program that Congress reserved the right to make changes to the program. Second, the federal government will bear nearly all of the costs associated with the expansion. Third, the states have sufficient notice to decide whether they will continue to participate in Medicaid by adopting the expansions. Fourth, the states have the power to tax and raise revenue and are therefore able to create and fund programs of their own if they do not like Congress's terms. Fifth, it is not a foregone conclusion that states that choose not to participate in the expansion will lose all of their Medicaid funding.

The Eleventh Circuit next considered whether the individual mandate violates the Commerce Clause and the Necessary and Proper Clause. The Necessary and Proper Clause authorizes Congress "[t]o make all Laws which shall be necessary and proper for carrying into Execution" its enumerated powers. The Necessary and Proper Clause is not a delegation of a new and independent power. It is a means of exercising the powers that are otherwise granted to Congress. "As it relates to the commerce power, the Supreme Court has essentially bound up the Necessary and Proper Clause with its substantial effects analysis."

The plaintiffs claimed that "activity" is a prerequisite to valid congressional regulation under the Commerce Clause.

    The plaintiffs point out that by choosing not to purchase insurance, the uninsured are outside the stream of commerce. . . . Since they are not engaged in commerce . . . they cannot be regulated pursuant to the Commerce Clause. The plaintiffs emphasize that, in 220 years of constitutional history, Congress has never exercised its commerce power in this manner.

The Eleventh Circuit found that the distinction between activity and inactivity is "useful only to a point." It noted that the Supreme Court "has never expressly held that an activity is a precondition for Congress's ability to regulate commerce—perhaps, in part, because it has never been faced with the type of regulation at issue here."

The Eleventh Circuit stated that "the question before [it is] whether the federal government can issue a mandate that Americans purchase and maintain health insurance from a private company for the entirety of their lives." The court held that the federal government cannot do so because of the unprecedented nature of the individual mandate, because of the fact that Congress's exercise of its commerce authority to pass the individual mandate failed to afford sufficient and meaningful limiting principles, and because of the negative implications for our federalist structure.

The Eleventh Circuit stated that economic mandates such as the one contained in the act are so unprecedented that the government was unable to identify any Supreme Court precedent that addresses their constitutionality. The Supreme Court has never interpreted "the Commerce Clause to allow Congress to dictate the financial decisions of Americans through an economic mandate."

The Eleventh Circuit considered whether the aggregation doctrine permitted the individual mandate. "Aggregation is a doctrine that allows Congress to apply an otherwise valid regulation to a class of intrastate activity it might not be able to reach in isolation." The court found that using the aggregation doctrine to support the individual mandate failed to provide any limiting principles on Congress's exercise of its commerce authority. "Applying aggregation principles to an individual's decision not to purchase a product would expand the substantial effects doctrine to one of unlimited scope. . . . [W]e are unable to conceive of anyproducts whose purchase Congress could not mandate under this line of argument."

Moreover, the Eleventh Circuit rejected the government's claim that the individual mandate is a tax validly enacted under the Taxing and Spending Clause because the individual mandate operates as a regulatory penalty, not a tax.

Finally, the Eleventh Circuit found that the individual mandate is severable from the rest of the act. "The Act's other provisions remain legally operative after the mandate's excision, and the high burden needed under Supreme Court precedent to rebut the presumption of severability has not been met."

District of Columbia Circuit

In Seven-Sky v. Holder, 2011 WL 5378319 (D.C. Cir. 2011), four individual plaintiffs sought declaratory and injunctive relief to prevent the government from enforcing the individual mandate.

The D.C. Circuit first considered whether the AIA prevented it from exercising jurisdiction to decide the case. The court concluded that it did not because the AIA applies to taxes, not penalties, and the individual mandate imposed penalties, not taxes.

The D.C. Circuit next addressed the plaintiffs' claim that the individual mandate exceeded Congress's authority under the Commerce Clause because Congress cannot require individuals to purchase a product. The D.C. Circuit reviewed the plaintiffs' claims as a facial challenge to the individual mandate.

The D.C. Circuit's analysis focused on the Supreme Court case of Wickard v. Filburn, 317 U.S. 111, 63 S. Ct. 82 (1942). In Wickard, the Court considered a federal statute that restricted the amount of wheat that an individual could grow. A farmer, Filburn, grew more wheat than the statute permitted. Filburn claimed that the statute was unconstitutional as applied to him because he was using the wheat to feed his family, and not to sell it in any market. The Supreme Court rejected his claim because "even growing wheat for personal consumption, not for sale in any market, could affect the national price, and therefore was within Congress's commerce power."

The D.C. Circuit noted that, in Wickard, the Supreme Court upheld a statute that forced some farmers into the market to buy wheat that they could otherwise provide for themselves. "Wickard, therefore, comes very close to authorizing a mandate similar to ours, at least indirectly, and the farmer's 'activity' could be as incidental to the regulation as simply owning a farm."

Wickard led the D.C. Circuit to reject the plaintiffs' claim that the Commerce Clause allows Congress to regulate activity, but not inactivity, because they "cannot find real support for their proposed rule in either the text of the Constitution or Supreme Court precedent." Indeed, "[t]he shift to the 'substantial effects' doctrine . . . recognized the reality that national economic problems are often the result of millions of individuals engaging in behavior that, in isolation, is seemingly unrelated to interstate commerce."

Moreover, cases since Wickard "have minimized the significance of any particular individual's behavior yet further. They have repeatedly confirmed that the actual impact of any one individual's conduct on interstate commerce is immaterial, so long as a rational basis exists for believing that a congressional enactment, as a whole, substantially relates to interstate commerce."

Under existing Supreme Court precedent, "[a] single individual need not even be engaged in any economic activity—i.e., not participating in any local economic activity—so long as the individual is engaged in some type of behavior that would undercut a broader economic regulation if left unregulated." With respect to the individual mandate, "Congress reasonably determined that as a class, the uninsured create market failures; thus, the lack of harm attributable to any particular uninsured individual, like their lack of overt participation in a market, is of no consequence.”

The D.C. Circuit concluded that the individual mandate certainly is an encroachment on individual liberty, but is no more so than a command that restaurants or hotels are obliged to serve all customers regardless of race, that gravely ill individuals cannot use a substance their doctors prescribed as palliative for excruciating pain, or that a farmer cannot grow enough wheat to support his own family.

The court went on to state, "The right to be free from federal regulation is not absolute, and yields to the imperative that Congress be free to forge national solutions to national problems, no matter how local—or seemingly passive—their individual origins."

Supreme Court Review

On November 14, 2011, the Supreme Court granted certiorari to review four issues raised by the act: (1) whether the individual mandate is constitutional under the Commerce Clause, (2) whether the individual mandate is severable from the remainder of the act, (3) whether the act's expansion of Medicaid is constitutional, and (4) whether the suit challenging the act is barred by the AIA. Florida v. Dep’t of Health & Human Servs., 2011 WL 5515163 (U.S.); Dep't of Health & Human Servs. v. Florida, 2011 WL 5515164 (U.S.); Florida v. Dep't of Health & Human Servs.,  2011 WL 5515165 (U.S.). Oral argument is expected to occur in March 2012.

Keywords: Patient Protection and Affordable Care Act, Fourth Circuit, Sixth Circuit, Eleventh Circuit, D.C. Circuit

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