McGuireWoods Healthcare Reform Guide: Installment No. 17 – Constitutional Challenges to Health Reform Move to Courts of Appeal

McGuireWoods Healthcare Reform Guide: Installment No. 17

February 2, 2011

For the reasons stated, I must reluctantly conclude that Congress exceeded the bounds of its authority in passing the Act with the individual mandate. . . . Because the individual mandate is unconstitutional and not severable, the entire Act must be declared void. . . . In accordance with Rule 57 of the Federal Rules of Civil Procedure and Title 28, United States Code, Section 2201(a), a Declaratory Judgment shall be entered separately, declaring ‘The Patient Protection and Affordable Care Act’ unconstitutional.

State of Florida v. Department of Health and Human Services, Case No: 3:10-cv-91, pages 76-78 (N.D. Fla. January 31, 2011).

In a lawsuit brought by 26 state attorneys general, two private citizens, and the National Federation of Independent Business, the District Court for the Northern District of Florida has held that Congress lacked authority under the Constitution to enact the “individual mandate” of Section 1501 of the Patient Protection and Affordable Care Act (PPACA). Because Judge Roger Vinson found that the mandate could not be severed from the rest of PPACA, he also ruled that the PPACA was unconstitutional in its entirety.

In agreement with Commonwealth of Virginia v. Sebelius (appeal and cross-appeal pending in the Fourth Circuit Court of Appeals), State of Florida held that the Commerce Clause did not authorize Congress to impose the individual mandate. In an earlier ruling, the Court had found that the individual mandate was not a valid exercise of Congress’s taxation power. In contrast, two earlier federal district court rulings found Section 1501 constitutional under the Commerce Clause. See Liberty University, Inc. v. Geithner (appeal pending in the Fourth Circuit Court of Appeals); Thomas More Law Center v. Obama (appeal pending in the Sixth Circuit Court of Appeals).

In State of Florida, Judge Vinson reasoned that the Commerce Clause did not permit regulation of inactivity. Thus Congress could not rely upon the Commerce Clause as authority for punishing the failure to purchase health insurance:

It would be a radical departure from existing case law to hold that Congress can regulate inactivity under the Commerce Clause. If it has the power to compel an otherwise passive individual into a commercial transaction with a third party merely by asserting — as was done in [PPACA] — that compelling the actual transaction is itself “commercial and economic in nature, and substantially affects interstate commerce” [see Act § 1501(a)(1)], it is not hyperbolizing to suggest that Congress could do almost anything it wanted.

In concluding that the individual mandate exceeded the constitutional limits of the Commerce Clause, the Court’s 78-page opinion quotes James Madison, Thomas Jefferson, Alexander Hamilton, Chief Justice John Marshall, the Federalist Papers, and other historical sources, including Samuel Johnson’s A Dictionary of the English Language published in 1773.

The Court’s decision on the individual mandate was expected, given Judge Vinson’s earlier comments during oral argument in the case. But the Court also ruled that the individual mandate could not be severed from the rest of PPACA and therefore concluded that the entire act was unconstitutional. The district court in Commonwealth of Virginia, although finding the individual mandate unconstitutional, held that Section 1501 was severable from the rest of PPACA and that extensive expert testimony and evidence was needed before the court could determine what portions of PPACA would survive independently without the individual mandate. The issue of severability in Commonwealth of Virginia is also on appeal to the Fourth Circuit.

In deciding that the individual mandate could not be severed from the rest of PPACA, Judge Vinson gave great weight to the fact that a severability clause had been removed from an earlier version of the legislation:

The lack of a severability clause in this case is significant because one had been included in an earlier version of the Act, but it was removed in the bill that subsequently became law. In other words, the severability clause was intentionally left out of the Act. The absence of a severability clause is further significant because the individual mandate was controversial all during the progress of the legislation and Congress was undoubtedly well aware that legal challenges were coming. Indeed, as noted earlier, even before the Act became law, several states had passed statutes declaring the individual mandate unconstitutional and purporting to exempt their residents from it; and Congress’ own attorneys in the [Congressional Research Service] had basically advised that the challenges might well have legal merit as it was “unclear” if the individual mandate had “solid constitutional foundation.” …Moreover, the defendants have conceded that the Act’s health insurance reforms cannot survive without the individual mandate, which is extremely significant because the various insurance provisions, in turn, are the very heart of the Act itself…

State of Florida, pages 67-68.

Although concluding that PPACA was “void,” Judge Vinson did not issue an injunction against enforcement of the act. The Court said that its declaratory judgment was the “functional equivalent of an injunction” because of the presumption that officials of the Executive Branch will adhere to the law as declared by the courts. “Thus, the award of declaratory relief is adequate and separate injunctive relief is not necessary.” Id., page 75.

The Court also addressed PPACA’s expansion of the Medicaid federal-state insurance program. Judge Vinson rejected the states’ claim that the Medicaid expansion unconstitutionally burdened the states, observing that states have the option to withdraw from the Medicaid program. Nevertheless, the Court’s ruling that the individual mandate is unconstitutional and not severable, if upheld, would invalidate the Medicaid expansion together with the rest of PPACA.

What Happens Next?

The Obama administration has publicly stated that the Florida Court’s ruling is wrong, will be appealed, and will not delay implementation of PPACA. News sources have quoted a lawyer for the 26 state plaintiffs to the effect that the ruling relieves the plaintiffs of any obligation to comply with PPACA unless the Court’s judgment is stayed. As yet, the federal government has not requested a stay, and given the declaratory nature of the judgment, it is not clear that a stay will be requested. The federal government has 60 days to appeal the district court judgment to the Court of Appeals for the Eleventh Circuit in Atlanta.

Meanwhile, all briefs have been filed in the Sixth Circuit appeal of the Thomas More case, in which the district court upheld the constitutionality of the individual mandate on a motion to dismiss. The Fourth Circuit Court of Appeals has set an expedited appeals process for the Liberty University and Commonwealth of Virginia cases, which reached opposite conclusions on the individual mandate. Opening briefs will be filed in these cases beginning Feb. 28, 2011, and the cases are tentatively scheduled to be argued during the May 10 -13, 2011, session of the Fourth Circuit. Based on this schedule, we will likely see one or two appellate court rulings on these issues by July or August of this year.

Issues that the Courts of Appeal Must Address

The district court cases have refined the issues and arguments that the Fourth, Sixth, and Eleventh Circuit Courts of Appeal will shortly face.

Is the Penalty for Violating the Individual Mandate Really a Tax?

Congress deliberately chose not to structure the individual mandate penalty as a tax, even though that would have provided a more solid constitutional method of imposing the individual mandate to purchase health insurance. Lawyers for the Obama administration continue to argue that “the penalty is really a tax,” but to date all the courts to consider the issue (even those ultimately ruling for the federal government) have rejected the tax arguments, including the contention that legal challenges to the individual mandate are barred by the Anti-Injunction Act’s prohibition on lawsuits to prevent the federal government’s collection of a tax..

Does the Commerce Clause Authorize Congress to Require Individuals to Buy Health Insurance?

Proponents argue that the individual mandate is essential to regulation of healthcare and that Congress can surely regulate healthcare. Further, the Obama administration has argued that the decision to forego health insurance is itself an economic activity that impacts interstate commerce by shifting costs to others. These arguments prevailed with the district courts in Thomas More and Liberty University, but stumbled in Commonwealth of Virginia and State of Florida, where the district courts found that this rationale would justify limitless federal power. If the federal government is to prevail in the Courts of Appeal, it will need good answers for the judges who, like Judge Vinson, ask whether Congress can require individuals to eat broccoli to promote public health or to buy General Motors cars to protect the federal government’s investment in GM.

If the Individual Mandate Is Unconstitutional, Can It Be Severed from PPACA, or Is All of PPACA Void?

An appellate court that strikes down the individual mandate must next decide where to draw the line between the parts of PPACA that must fall with the individual mandate, and the parts that can be severed and stand independently. If faced with the question of severability, appellate courts will ask whether Congress’ deliberate removal of a severability clause from an early version of PPACA justifies the conclusion (reached by Judge Vinson in State of Florida) that PPACA is too complex for piecemeal rewriting of the statute and should be invalidated in its entirety.

To prevail on its Commerce Clause argument, the administration has argued that the individual mandate is absolutely necessary for PPACA’s insurance market reforms to work as intended. This implies that substantial portions of PPACA may be invalidated if the individual mandate is struck down by the courts.

Judge Hudson, in Commonwealth of Virginia, did not want to face the issue of “what to sever” prematurely and believed that additional testimony and evidence would be needed for a court to decide what should be severed from PPACA. This approach follows the general principle that courts should sever only the unconstitutional portions of the law and leave the remainder intact, consistent with the intent of Congress. However, this approach to severability means that if the individual mandate falls, courts will have to litigate the issue of what other parts of PPACA can survive. Appellate judges may ask whether massive, controversial legislation like PPACA should be edited in the courts or simply returned to Congress to be rewritten.

When Will the Supreme Court Resolve All This?

Supreme Court resolution of these issues appears unlikely until 2012. Until greater clarity is available, all 50 states, employers, insurers, and providers must devote extensive time and resources to meet PPACA’s deadlines, even though doubts exist as to whether the individual mandate – or PPACA itself – is constitutional.