Health Affairs

The US Supreme Court has agreed to rule on the constitutionality of the Affordable Care Act of 2010. On November 14, 2011, the high court granted review of a decision from the US Court of Appeals for the Eleventh Circuit in Atlanta, Georgia, that struck down the constitutionality of the individual mandate, which requires most people to have health insurance coverage or pay a penalty, but held that the rest of the Affordable Care Act could stand. Both the Obama administration and plaintiffs in the case had asked the Supreme Court to review the matter. The high court's decision is expected by the end of June 2012.

In addition to reviewing the Eleventh Circuit's decision against the mandate, the Supreme Court will consider three other related matters: whether the individual mandate, if found unconstitutional, can be severed from the remainder of the health care law; whether consideration of the mandate is premature based on a federal law that bars court challenges to any tax until the tax is actually collected; and whether Congress exceeded its constitutional authority and was "coercive" toward the states in expanding Medicaid to enroll many of the nation's uninsured people. This brief provides background on these issues.

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. Of the 30 lawsuits, 19 have been decided or dismissed, and nine of those were appealed to various US Courts of Appeals. The appellate courts have ruled on eight of those cases, with seven upholding the mandate or dismissing the challenge based on procedural considerations or plaintiffs' standing to sue. Only one ruling--from the Eleventh Circuit--held that the individual mandate was unconstitutional, although it also found that the rest of the law was valid. This one is the decision that the high court has agreed to review.

INDIVIDUAL INSURANCE MANDATE: Of the four specific issues that the high court will hear, the one that has attracted the most attention is the individual mandate. As of 2014, the Affordable Care Act will require that most US citizens, nationals, and legal aliens maintain "minimum essential health insurance coverage" or pay a penalty. (There will be some limited exemptions, including for individuals who can demonstrate that coverage is unaffordable for them, for those who are members of a Native American tribe, or who are religiously opposed to being insured.)

Insurance coverage may be obtained through the individual market, through an employer, or through a public program such as Medicare or Medicaid. Annual penalties for noncompliance will be phased in over several years, and will ultimately reach $695 for an adult, about $347 for a child, and up to $2,085 per family or 2.5 percent of family income, whichever is greater.

Plaintiffs have marshaled a variety of legal arguments to challenge the constitutionality of the individual mandate. They argue that, although the US Constitution grants Congress the authority to regulate economic activity that constitutes or that bears on interstate commerce, not buying individual health insurance is "inactivity." The mandate, in their view, compels individuals to engage in interstate commerce, an act Congress cannot constitutionally regulate. 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.

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.)

Thus, 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. Moreover, virtually everyone will need health care services at some point, including those without 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, a proactive decision that constitutes "activity."

Furthermore, 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.

Opponents of the individual mandate also challenge its constitutionality based on the enforcement mechanism, noting that the consequence of not complying with the mandate is a penalty, and therefore cannot be justified under Congress's power to tax and spend. Authors of the law assert that the penalty for noncompliance with the individual mandate is a tax.

SEVERABILITY: The term "severability" refers to whether the individual mandate is so fundamental to the design of the health care reform law that it cannot be separated from its other provisions. If the Supreme Court were to rule that it is not severable, then a ruling that the mandate is unconstitutional would also nullify the remainder of the Affordable Care Act.

The Eleventh Circuit ruled that the individual mandate can be severed from the rest of the law. Plaintiffs in the case disagree, and argue that the mandate is the lynchpin upon which the rest of the law depends. The Obama administration maintains that the entire law does not hinge on the mandate, but acknowledges that the mandate is "absolutely intertwined" with the law's guaranteed issue provision and the ban on excluding coverage because of preexisting conditions. The Supreme Court has appointed a lawyer to defend the Eleventh Circuit's position that the mandate is severable from all the rest of the Affordable Care Act.

APPLICATION OF THE ANTI-INJUNCTION ACT: The high court will also consider whether the lawsuit challenging the mandate should have been barred by the Anti-Injunction Act of 1867, a federal law that precludes courts from enjoining the collection of a tax until after a tax has been assessed. Because the penalty for failing to have health insurance does not take effect until April 2015, the argument goes, there is currently no penalty or tax for failing to have insurance and no one has yet been injured or penalized as a result.

The Supreme Court must decide this issue before it can proceed with the rest of the case, because if it rules that the Anti-Injunction Act does apply, most of the other challenges must be put off until 2015. The Fourth Circuit Court of Appeals in September ruled that the act does apply, as did a dissenting appellate judge on the District of Columbia Circuit Court in November. Although none of the parties involved in the Eleventh Circuit Court case believes that the Anti-Injunction Act applies, the administration had asked the Supreme Court to rule on the matter to put the question to rest.

expanding medicaid coverage: Taking up a question of law that could have far-reaching consequences, the high court said it would consider whether the Affordable Care Act's expansion of Medicaid coverage was unduly "coercive" toward states. Under the reform law, states must expand Medicaid coverage along the lines spelled out by Congress or forfeit all federal Medicaid funding. The expansion is designed to bring a large pool of previously uninsured Americans into Medicaid; the number has been variously estimated at between 8.5 million and 22.3 million. The 26 states that filed the Eleventh Circuit challenge argue that Congress exceeded its authority under the so-called spending clause of the Constitution by expanding the Medicaid eligibility and coverage thresholds. Medicaid is the single largest source of federal funding for most states.

That the high court agreed to consider the matter was surprising to many legal observers. No court has ever struck down a federal law on the grounds that it was coercive toward states, and both the Eleventh Circuit and the lower district court had rejected the argument. Nevertheless, if the high court finds that the Medicaid expansion was coercive and struck it down, millions more Americans would be uninsured, and many other major components of the reform law could be threatened.

What's more, a multitude of other programs that require actions by the states in exchange for federal support could also be challenged on similar grounds. Thus, a decision to embrace the "coercion" perspective could pose a far greater threat to the power of Congress to address national problems than a finding that the individual mandate was unconstitutional.

In announcing that it would review the Eleventh Circuit decision, the high court allocated five-and-a-half hours for oral arguments, significantly longer than the one hour typically allotted per case. In addition to the two hours for arguments concerning the individual mandate, it has allocated one hour each for the Anti-Injunction Act and Medicaid questions, and one-and-a-half hours on the issue of whether the mandate can be severed from the law should it be found to be unconstitutional. Although a date has not yet been scheduled for oral arguments, they are expected to occur in February or March 2012. A ruling is likely to be issued before the end of June 2012.

Whatever the court's decision, it will be a landmark ruling with enormous potential effects on health reform and even the forthcoming 2012 national elections.

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., "High Court To Review ACA's Minimum Coverage Requirement, Medicaid Expansion," Health Affairs Blog, November 14, 2011.

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.

Sheils, John F. and Randall Haught, "Without the Individual Mandate, the Affordable Care Act Would Still Cover 23 Million; Premiums Would Rise Less Than Prediced," Health Affairs 30, no. 11 (2011): 2177-85.

Sommers, Benjamin D., Katherine Swartz, and Arnold Epstein, "Policy Makers Should Prepare For Major Uncertainties in Medicaid Enrollment, Costs, and Needs For Physicians Under Health Reform," Health Affairs 30, no. 11 (2011): 2186-93.

Supreme Court of the United States, Order List: 565 US, November 14, 2011.

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

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, Updated 30, 2011.

Sign up for free policy briefs at:
www.healthaffairs.org/healthpolicybriefs