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OCTOBER 31, 2011

Legal Challenges to Health Reform (Updated)

EDITOR'S NOTE: An updated brief was published November 30, 2011.
EDITOR'S NOTE: An earlier brief was published July 8, 2011.


Both the Obama administration and plaintiffs in suits challenging the Affordable Care Act have asked the Supreme Court to rule.

What's the issue?

The Obama administration and plaintiffs in suits challenging the constitutionality of the Affordable Care Act of 2010 have petitioned the US Supreme Court to take up the cases and lay the issues to rest. These requests greatly increase the likelihood that the high court will agree to review the matter during its current session, which began in October 2011.

Assuming that the Supreme Court acts, it will in effect review at least seven decisions that have been issued by US Courts of Appeals to date. Six of the decisions have upheld the constitutionality of the law or dismissed the challenges. In one case, the Eleventh Circuit Court of Appeals ruled that the so-called individual mandate provision of the law was unconstitutional but that the rest of the Affordable Care Act could stand. It is this decision that the Obama administration has asked the Supreme Court to review and overturn.

Plaintiffs, meanwhile, want the high court to uphold this same decision, but they also want the entire Affordable Care Act to be ruled unconstitutional.

This brief provides background on the individual mandate provision of the Affordable Care Act, and it explores the legal arguments pro and con in greater detail.

What's the background?

Following enactment of the Affordable Care Act in March 2010, approximately 30 lawsuits were filed in federal courts by state governments, organizations, lawmakers, and private citizens challenging various aspects of the law. Most sought to overturn it on the grounds that certain provisions were unconstitutional.

INDIVIDUAL INSURANCE MANDATE: The central argument in these cases has been that the law's "minimum coverage requirement," popularly called the individual health insurance mandate, exceeds the scope of the US Constitution's commerce clause. This is the constitutional provision that gives Congress the authority to regulate interstate commerce.

To date, 10 lawsuits have been decided by US District Court judges. Seven of these were to uphold the constitutionality of the health care law, and three have ruled that all or part of the law is unconstitutional. At least nine other cases have been dismissed for lack of standing or for other reasons. Of the approximately 19 cases that have been decided or dismissed, nine have been appealed to various US Courts of Appeals.

As of this publication date, appellate courts have ruled on seven of these cases. Six of the decisions either upheld the law or dismissed the challenge based on procedural considerations or plaintiffs' standing or qualification to sue. One ruling held that the individual mandate was unconstitutional, but that the rest of the law was valid. Exhibit 1 shows the status of five major cases that are now challenging the constitutionality of the Affordable Care Act.

Exhibit 1
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The centerpiece of these disputes is the legality of Section 1501 of the Affordable Care Act, which spells out this "individual responsibility requirement" or individual mandate. As of 2014, the provision will require that most US citizens, nationals, and legal aliens maintain "minimum essential health insurance coverage" or pay a penalty. Coverage may be obtained through the individual market, through an employer, or through a public program such as Medicare or Medicaid.

Under the law, there will be some limited exemptions to the mandate. Specifically, the cost of obtaining the essential health insurance will not be able to exceed 8 percent of a person's household income, so that those who face insurance premiums in excess of that level may petition to be exempted from the mandate. Those whose household incomes are too low to file federal taxes will also be exempt, as will be people who are incarcerated, who are members of a Native American tribe, or who are religiously opposed to being insured. A person also will have to be uninsured for at least three months before the penalty can take effect.

Under the law, the penalties for noncompliance will range from $695 to $2,085 per year based on household income. There is a phase-in period for this penalty from 2014 to 2016.

RATIONALE IN THE LAW: Anticipating resistance to the requirement, authors of the Affordable Care Act provided a lengthy rationale for it in the text of the law. They wrote that the mandate was "essential to creating effective health insurance markets" in which people would not be screened ahead of time to detect preexisting medical conditions. In effect, they wrote, universal health insurance will only be sustainable and affordable for the mass of people if coverage is spread widely and both the sick and healthy have it.

In the absence of the mandate, the authors wrote, other provisions in the act--such as the "guaranteed issue" provision requiring insurance to be sold to everybody, regardless of health condition--would increase the incentives for individuals to "wait to purchase health insurance until they needed care." As a result, the insurance market would not be viable. (See the Health Policy Brief published June 13, 2011, for more information on insurance plans and preexisting conditions.)

Because they also anticipated lawsuits on constitutional grounds, the authors of the Affordable Care Act asserted that the purchase of health care insurance is an inherently interstate economic transaction, and thus subject to regulation by Congress under the Constitution's commerce clause. (This clause gives Congress the power "to regulate Commerce... among the several States.")

To buttress the assertion that health insurance constituted interstate commerce, the authors of the Affordable Care Act noted that spending on health insurance and health care constituted 17.6 percent of the US gross domestic product in 2009.

In addition, lawmakers noted that the Supreme Court had ruled in US v. South-Eastern Underwriters Association (1944) that insurance is manifestly part of interstate commerce, which means that Congress can enforce the individual mandate under its constitutional authority to do what is "necessary and proper" to carry out a federal law.

PLAINTIFFS ARGUMENTS: The first lawsuit challenging the Patient Protection and Affordable Care Act was filed on March 23, 2010, the day the health care reform bill was signed into law. (Several technical amendments and other changes were enacted a week later in the Health Care and Education Reconciliation Act of 2010. The two measures together are called the Affordable Care Act.)

Plaintiffs have marshaled a variety of legal arguments to challenge various aspects of the Affordable Care Act. The preponderance of plaintiffs' arguments focus on the constitutionality of the individual mandate and related issues, as follows:

  • Congress can regulate economic activity that constitutes or that bears on interstate commerce, but not buying individual health insurance is "inactivity," which cannot be regulated by Congress. Therefore, the act of not buying health insurance is beyond the reach of the commerce clause, and Congress cannot assert that it has power to enact the mandate under this provision of the Constitution.

  • In enacting the mandate, Congress in effect has taken the unconstitutional step of compelling individuals to engage in interstate commerce. If the mandate is upheld, some plaintiffs contend, the federal government would have wide authority to require individuals to engage in activities of its choosing, such as joining a health club or eating only healthy foods.

  • The consequence of not complying with the mandate is a penalty and not a tax, and therefore cannot be justified under Congress's power to tax and spend.

The constitutionality of the law is also challenged on other grounds. For example, the Tenth Amendment to the Constitution declares that powers not granted to the federal government nor prohibited to the states by the Constitution are reserved, respectively, to the states or the people.

On these grounds, some plaintiffs have contended, the Affordable Care Act's requirements on employers to contribute to health coverage for their workers unduly interfere with a state's sovereignty. What's more, they argue, the law's requirement to expand Medicaid amounts to an unconstitutional exercise of Congress's spending power because states will be coerced into accepting the expansion against their will.

DEFENDANTS' ARGUMENTS: The core arguments made by the Obama administration in its defense of the law echo the rationale put forward in the law itself. They are as follows:

  • The decision to purchase or not purchase health insurance has effects on the overall national health care market--in other words, on interstate commerce--and as such constitutes economic activity that Congress may regulate.

  • Virtually everyone will need health care services at some point, including those without health insurance. Thus, everyone participates in the market for health care delivery, and they finance these services by either purchasing an insurance policy or by self-insuring. So rather than constituting "inactivity," the decision not to buy health insurance is actually a proactive decision to self-insure and constitutes "activity." Through the practice of self-insuring, individuals make an assessment of their own risk and the extent to which they must set aside funds or arrange their affairs to compensate for probable future health care needs.

  • Congress had a rational basis for concluding that leaving those individuals who self-insure for the cost of health care outside of federal control would undercut its overlying economic regulatory scheme. Without the minimum coverage provision, other aspects of the law would increase existing incentives for individuals to delay purchasing health insurance until they needed care, making the health insurance market unworkable.

  • The penalty for noncompliance with the individual mandate is a tax.

APPELLATE RULINGS IN SUPPORT OF MANDATE: Most appeals court decisions to date have upheld the constitutionality of the entire law or of the individual mandate provision, or dismissed challenges based on standing or jurisdictional grounds.

On September 8, 2011, the Fourth Circuit Court of Appeals ruled on two cases. In one case, the panel ruled against the plaintiffs on jurisdictional grounds, although two of the three judges indicated they would have upheld the health care law on different grounds. In the other case, the appeals court overturned a federal District Court decision that the mandate was unconstitutional. That lower court had agreed with the lead plaintiff, Virginia Attorney General Ken Cuccinelli, a Republican, who argued that the individual mandate conflicted with a Virginia state law that shielded residents from having to obtain health insurance. Plaintiffs for both cases have petitioned the Supreme Court to review the rulings.

On June 29, 2011, the Sixth Circuit Court of Appeals upheld a lower court's decision that the law was constitutional. The majority decision stated that the mandate was in conformance with the commerce clause because it regulates economic activity expected to have a substantial effect on interstate commerce, and because the choice not to take up health insurance could be defined as an activity to be regulated.

APPELLATE COURT RULING AGAINST THE MANDATE: The Eleventh Circuit Court of Appeals in Atlanta, in its ruling on August 12, 2011, took a sharply different tack from the other federal appeals courts that have ruled to date. In a case brought by the attorneys general of 26 states led by Florida, the National Federation of Independent Businesses, and two individuals, a three-judge panel upheld a ruling by Senior US District Court Judge Roger Vinson of Pensacola, Florida, a Republican appointee, that the individual mandate was unconstitutional. But the panel rejected his conclusion that the entire health care law was invalid, striking down only the individual mandate. It also rejected the plaintiffs' claim that the Affordable Care Act's Medicaid expansions were unconstitutional. Similar to the Sixth Circuit, the panel was split, 2-1, but not along party lines. The two judges who said the law was unconstitutional were appointed by presidents of different political parties.

ADDITIONAL APPELLATE CASES: In addition to these cases, three other appeals courts have upheld lower-court dismissals based on standing. Another case is proceeding in the District of Columbia Circuit Court; oral arguments in this one, Seven-Sky v. Holder, were presented on September 23, 2011. Yet another case, Kinder v. Geithner, was heard in the Eighth Circuit in St. Louis, Missouri, on October 20, 2011. Decisions are pending in those two cases.

What's next?

The immediate question is whether the Supreme Court will agree to rule on the constitutionality of the individual mandate provision and the entire health care reform law and, if so, when.

Typically, the high court decides by late January of each year the cases that it will hear and rule on by the following summer, which, in this case, will be before the national elections. The court also may decide to defer its review until all federal appeals courts have ruled on suits involving the Affordable Care Act, or it may wait until after the elections to issue a ruling.

One issue is whether or not a majority of Supreme Court justices might believe that hearing the case now, before the individual mandate takes effect, is premature. The Fourth Circuit Court of Appeals ruled that because the individual mandate will not take effect until 2014, there is currently no penalty or tax for failing to have insurance and no one has been injured or penalized as a result.

It is also unknown whether the Supreme Court will limit any potential ruling to the individual mandate alone--so-called severability--or will address the constitutionality of the broader health care reform law. As mentioned, the Eleventh Circuit Court of Appeals in Atlanta ruled that the individual mandate section was unconstitutional, but that the rest of the health care law was valid.

Clearly, if the high court were to rule that either the individual mandate or the entire law were unconstitutional, the effects on implementation of major provisions of the Affordable Care Act would be enormous.

Resources

Bara, Vaida, "Scoreboard: Tracking Health Law Court Challenges," Kaiser Health News, updated June 29, 2011.

Cauchi, Richard, "State Legislation and Actions Challenging Certain Health Reforms, 2011," National Conference of State Legislatures, June 29, 2011.

Hall, Mark A., "Health Care Reform--What Went Wrong on the Way to the Courthouse," New England Journal of Medicine 364 (2011): 295-7.

Joondeph, Bradley W., "Federalism and Health Care Reform: Understanding the States' Challenges to the Patient Protection and Affordable Care Act," Publius April 28 (2011): 1-24.

Jost, Timothy S., "Pro and Con: State Lawsuits Won't Succeed in Overturning the Individual Mandate," Health Affairs 29, no. 6 (2010): 1225-8.

Jost, Timothy S., "The Affordable Care Act Supreme Court Petitions: Issues and Implications," Health Affairs Blog, September 29, 2011.

Shapiro, Ilya, "Pro and Con: State Suits Against Health Reform are Well-Grounded in Law--and Pose Serious Challenges," Health Affairs 29, no. 6 (2010): 1229-33.

US Court of Appeals for the Eleventh Circuit, State of Florida v. US Department of Health and Human Services, Nos. 11-11021 and 11-11067, August 12, 2011.

US Court of Appeals for the Fourth Circuit, Commonwealth of Virginia v. Sebelius, No. 11-1057, September 8, 2011.

US Court of Appeals for the Fourth Circuit, Liberty University v. Geithner, No. 10-2347, September 8, 2011.

US Court of Appeals for the Sixth Circuit, Thomas More Law Center v. Obama, No. 10-2388, June 29, 2011.

Supreme Court of the United States, US Department of Health and Human Services, et al., Petitioners v. State of Florida, et al., Petition for a Writ of Certiorari, September 28, 2011.

US Department of Justice, "Defending the Affordable Care Act," June 29, 2011.

About Health Policy Briefs

Written by:
T.R. Goldman
(Goldman is a veteran legal affairs writer and editor in Washington, DC.)

Editorial review by
Mark A. Hall
Professor of Law and Public Health
Wake Forest University
School of Law

Timothy S. Jost
Professor of Law
Washington and Lee University
School of Law

Ted Agres
Senior Editor for Special Content
Health Affairs

Anne Schwartz
Deputy Editor
Health Affairs

Susan Dentzer
Editor-in-Chief
Health Affairs

Health Policy Briefs are produced under a partnership of Health Affairs and the Robert Wood Johnson Foundation.

Cite as:
"Health Policy Brief: Legal Challenges to Health Reform," Health Affairs, October 31, 2011.

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