McGuireWoods Healthcare Reform Guide: Installment No. 15 – District Court Finds Health Reform Individual Mandate Unconstitutional

McGuireWoods Healthcare Reform Guide: Installment No. 15

December 14, 2010

“Neither the Supreme Court nor any federal circuit court of appeals has extended Commerce Clause powers to compel an individual to involuntarily enter the stream of commerce by purchasing a commodity in the private market. In doing so, enactment of the Minimum Essential Coverage Provision exceeds the Commerce Clause powers vested in Congress under Article I.”

Commonwealth of Virginia v. Sebelius, Case 3:10-cv-00188 (E.D. Va. December 13, 2010) at page 24.

With these words, Judge Henry Hudson of the United States District Court for the Eastern District of Virginia became the first judge to rule that Congress lacked authority under the Constitution to enact the “individual mandate” of Section 1501 of the Patient Protection and Affordable Care Act (PPACA) – which requires every U.S. citizen (with a few exceptions) to maintain a minimum level of health insurance for each month beginning in 2014, or pay a penalty. The District Court ruled that this penalty exceeds the scope of Congress’s powers to regulate interstate commerce and levy taxes under Article I of the U.S. Constitution.

The District Court found that Section 1501 was not a valid exercise of Congress’s taxation power under the General Welfare Clause in Article I of the Constitution, because Section 1501 was not intended to raise revenue, but rather to regulate and punish behavior. The court noted “the unequivocal denials by the Executive and Legislative branches that the [PPACA] was a tax,” and that the final version of the PPACA substituted “penalty” for “tax” as the sanction for noncompliance in Section 1501(b)(1). Id. at 34.

Concluding that neither the taxation authority nor the Commerce Clause authorized Congress to require individuals to purchase insurance, the District Court concluded that the Minimum Essential Coverage Provision was an unconstitutional exercise of congressional powers.

The District Court did not find PPACA unconstitutional in its entirety, but only “Section 1501 and directly-dependent provisions which make specific reference to Section 1501.” The District Court also denied the Commonwealth of Virginia’s request for injunctive relief enjoining implementation of Section 1501 “at least until a higher court acts.” The court reasoned that the key provisions of Section 1501 did not take effect until 2013 at the earliest, and that a declaratory ruling was sufficient at present.

Other Cases Not Discussed

The District Court’s opinion did not discuss decisions from other district courts that found Section 1501 constitutional. See Liberty University, Inc. v. Geithner, No. 6: 10-cv-00115 (W.D. Va. November 30, 2010); Thomas More Law Center v. Obama, No. 2:10-cv-11156 (E.D. Mich. October 7, 2010), appeal pending to 6th Circuit Court of Appeals. Constitutional challenges to the health reform law are also pending in federal courts in Ohio and Florida. See U.S. Citizens Ass’n v. Sebelius, No. 5:10-cv-1065 (N.D. Ohio); Florida v. U.S. Department of Health and Human Services, No. 3:10-cv-00091-RV (N.D. Fla.). In Baldwin v. Sebelius, No. 10-cv-1033 (S.D. Cal. August 27, 2010), cert. denied ____ U.S. ____ No. 10-369 (November 8, 2010), the district court ruled that plaintiffs lacked standing to challenge PPACA’s constitutionality, and the Supreme Court declined to review that decision.

What Happens Next?

Nothing in the District Court’s ruling relieves healthcare plans of their obligations under the regulations issued thus far under PPACA, which apply for many plans beginning with the January 1, 2011 plan year.

Because only the individual mandate was declared unconstitutional, much of this landmark health reform legislation remains unaffected, even if Judge Hudson’s ruling is upheld on appeal. Expect a good deal of anguish over what provisions might be deemed to be intrinsically linked to the individual mandate. In her brief submitted to Judge Hudson, Secretary Sebelius of the Department of Health and Human Services argued that the individual mandate “is necessary to make the other regulations in the Act effective.” In deciding to severe Section 1501 from the rest of PPACA, Judge Hudson observed that “without the benefit of extensive expert testimony and significant supplementation of the record, the Court cannot determine what, if any, portions of the bill would not be able to survive independently.”

The Obama administration has expressed confidence that the individual mandate is constitutional and that Judge Hudson’s ruling will be reversed. All sides agree that the Supreme Court will ultimately decide the issue, but a Supreme Court decision is unlikely until late 2011 at the earliest, unless the Supreme Court takes direct review from the District Court, bypassing the normal court of appeals review. Such expedited Supreme Court review is very rare, but might be granted given the need for implementation of health reform over the next few years.

Notwithstanding the rarity of direct Supreme Court review, there are persuasive arguments for the Supreme Court to take the case on an expedited appeal. All 50 states are spending tremendous amounts of time and money in their efforts to meet PPACA’s deadlines. The time frame for fully implementing PPACA is too short to leave both public and private healthcare institutions in doubt about this key legal issue. If the individual mandate is found unconstitutional by the Supreme Court, the issue of severance would require further lower court proceedings to identify the other portions of PPACA that would fall with the individual mandate.

With the Republican victory in the House of Representatives, the Obama administration cannot count on a legislative fix in the event the Supreme Court strikes down the individual mandate. The health insurance industry is unlikely to tolerate the insurance restrictions of PPACA without the individual mandate that obligates U.S. citizens to purchase health insurance. Messy as the process was in Congress when this legislation was passed, litigation over the constitutionality of PPACA could look even messier.