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Analyzing A Crucial Battle In The Legal War Over Health Reform



June 9th, 2011

For a lawyer, the argument of Florida v. the Department of Health and Human Services before a three judge panel of the Eleventh Circuit Federal Court of Appeals on Wednesday, June 8, was a beauty to behold.  (For a non-lawyer it was probably tedious, repetitive, and much too long).  Three active and very well-prepared judges spent two and a half hours grilling three very talented lawyers about intricacies of health policy and constitutional law, rarely allowing the lawyers time to finish a thought before interrupting with yet another question.

This is arguably the most important of the many Affordable Care Act (ACA) challenges currently pending in the courts.  The plaintiffs include over half of the states, as well as the National Federation of Independent Businesses (NFIB) and two individual plaintiffs.  It is one of only two cases in which a part of the ACA has been held unconstitutional (out of over thirty cases that have been filed), and it is the only case in which the lower court struck down the entire statute as unconstitutional. Thirty-six amicus briefs were submitted to the appellate court, including briefs filed by professional and provider organizations, members of Congress, states and state legislators (on both sides), Nobel Prize winning economists, law professors, disease and consumer organizations, and just about every conservative advocacy group in the country.

The attorneys. The importance of the case is underlined by the fact that the federal government was represented by Acting Solicitor General Neal Katyal, while the states were represented by Paul Clement, Solicitor General under the Bush administration, perhaps the first time two solicitors general have squared off against each other in a court of appeals argument.  (The NFIB was represented by a third well-known lawyer, Michael Carvin).

The judges. The panel was made up of Chief Judge Joel Fredrick Dubina, Judge Frank M. Hull, and Judge Stanley Marcus.  So far the district court cases have tended to break by the political party of the president who appointed the judge, with appointees of Democratic presidents upholding the law and appointees of Republican presidents striking it down.  For the record, Judge Dubina was appointed by President Bush and judges Hull and Marcus by President Clinton, but Marcus was appointed as a district court judge by President Reagan and is identified as a Republican.  None of the judges clearly tipped their hand in the argument, however, and each pressed all three lawyers equally hard.

The issues. The hearing focused on three of the issues in the case: the constitutionality of the ACA requirement that specified uninsured persons must purchase minimum health insurance coverage (the “minimum coverage requirement,” often called the individual mandate); the constitutionality of ACA provisions that would expand Medicaid to all Americans with incomes below 138 percent of the poverty level; and the question of whether the entire ACA must be struck down if court holds the minimum coverage requirement to be unconstitutional (the “severability” issue).

The court also briefly addressed the question of whether the plaintiffs had “standing” to challenge the law, but General Katyal conceded that the NFIB and individual plaintiffs had standing to challenge the minimum coverage requirement and that the states had standing to challenge the Medicaid expansion.  Thus, it mattered little (except as Clement later pointed out, for purposes of a remedy) whether the states had standing to challenge the coverage requirement or not.

How The ACA Works … And How The Attorneys And Judges Thought It Did

The argument focused much more than earlier arguments in the Fourth Circuit or Sixth Circuit on the nuts and bolts of the ACA.  Judge Hull in particular seemed to have struggled mightily to figure out how the whole Act fits together and complained that none of the many briefs filed in the case actually explained the structure of the ACA.  Unfortunately, she got a number of the details wrong, and even more unfortunately, General Katyal seemed even less conversant with the ACA than Judge Hull.

At one point, for example, Katyal more or less admitted that he did not know whether the ACA imposes any obligations on employee benefit plans.  In fact, many of the insurance reforms apply to employee plans, and although the essential benefits requirement does not, employers must provide plans with a 60 percent actuarial value or face penalties if their employees take up the premium tax credits.  The administration can only hope that by the time the case gets to the Supreme Court its lawyer will know the ACA as well as he knows constitutional law.

The court mentioned several times a requirement that small employers provide coverage for their employees, even though there is none in the ACA. In addition, the judges seemed to think that the enhanced federal match only applies to Medicaid recipients who earn more than 100 percent of poverty, even though in many states with low adult income eligibility limits many adults with incomes below 100 percent of poverty will be covered by Medicaid financed with the 100 percent match.

Finally, Judge Hull seemed to think that the minimum coverage requirement would only expand coverage marginally beyond other reforms, since the Medicaid expansions, premium tax credits, and expansion of dependent coverage up to age 26 would cover most of the uninsured.  She seemed not to realize that the minimum coverage requirement will apply to some (although far from all) persons eligible for Medicaid and premium tax credits, and will likely be a major force driving continued employee coverage.  (Mr. Clement, at least, understood that the minimum coverage requirement can apply to Medicaid recipients, although he seemed not to understand that it does not apply to Medicaid recipients whose income falls below the tax filing limit, which probably includes most current eligibles in most states.)

The Government’s Argument

General Katyal began the argument.  After a brief colloquy on jurisdictional issues, the court moved on to the question of severability.  This is an awkward question for the government, since the government argues on the one hand that the coverage requirement is “necessary and proper” to the entire comprehensive scheme of insurance regulation, but, on the other hand, does not want to lose the entire law if this single provision is struck down.  Katyal argued awkwardly that some provisions of the law, such as the guaranteed issue and community rating requirements are dependent on the minimum coverage requirement, while other requirements of the statute are not.  The same question was posed later to Mr. Clement and Mr. Carvin, who argued forcefully that the minimum coverage requirement is the pay-off to insurers for accepting all of the regulatory provisions of the statute, and thus the entire statue must be thrown out if it fails.  What no one seemed to realize is that 80 percent of the ACA has nothing to do with insurance reform, and there is no reason why provisions requiring employers to provide nursing mothers with a private place to express milk or extending black lung widow coverage should depend on the constitutionality of the minimum coverage requirement.

Having addressed these preliminary issues, the court cut to the chase.  There has never been another case in which Congress’s power to regulate commerce has been used to require an individual purchase a product in the private market, noted Judge Dubina and Judge Marcus.  If we uphold this, are there any limits?

General Katyal responded, arguing that health insurance is unique.  Virtually everyone needs health care sooner or later, including the uninsured.  Those who receive health care and cannot pay for it impose $43 billion in costs on insured Americans, $1000 a year for every American family.  The issue is not refusal to buy insurance, but refusal or inability to pay for health care.  The effect on interstate commerce of lack of insurance is real and substantial and Congress has the power to respond.

Moreover, Katyal argued, Congress was trying to address comprehensively the problem of the uninsured, and requiring healthy individuals to purchase insurance was necessary to expand coverage to the unhealthy.

Although the judges continued to press Katyal aggressively throughout his argument, at least judges Hull and Marcus seemed sympathetic to his basic argument.  Hull rejected out of hand the activity/inactivity distinction that Judge Vinson found persuasive, contending that the statute was really about regulating economic decisions.  Judge Marcus noted that the states had conceded that Congress could require hospitals to turn away people who needed care but lacked insurance, and observed that the question was not, therefore, whether Congress could penalize persons who lacked insurance, but rather about at what point in time the penalty could be imposed.

The hardest question posed to Katyal, to my mind, came from Judge Marcus, who asked whether Congress could require Americans, many of whom end up in nursing homes at public expense, to purchase long-term care insurance.  Katyal tried to distinguish the hypothetical because it does not raise an issue of cost-shifting to private parties, but it seems to me he should have simply accepted that Congress could do this, but that Congress would not.  In fact, the ACA CLASS Act provisions do address the issue of long-term care financing in part, but address it though a voluntary public rather than a mandatory private program.  Congress took this approach, however, for policy, not constitutional reasons.

Katyal’s argument ended with a brief discussion of whether the minimum coverage requirement could be justified under Congress’ taxation authority, an argument that has so far failed to convince a single court. Although Katyal continued to press Supreme Court authority holding that whether or not an exaction is a tax does not depend on what Congress calls it in the statute, he did not seem to have his audience with him.

The States’ Argument

Former Solicitor General Clement was up next.  He readily conceded that Congress had the power to address the problem of the 50 million uninsured and the $43 billion cost-shift, but not in the way it did.  Congress simply cannot compel persons to engage in commerce who choose not to.

This provoked two responses from the court.  First, Judge Marcus asked whether the states’ complaint was really about policy rather than about the Constitution — about how Congress did what it did rather than about whether it had the power to do it.  Clement argued that in fact the case was about constitutional limits, not policy, but General Katyal returned to this point in his reply, as binding precedent is clear that the courts must defer to Congress on questions of policy if constitutional violations are not at issue.

Second, Judge Marcus asked Clement whether the state’s complaint was really about liberty, about substantive due process under the Fifth Amendment or about reserved individual rights under the Tenth Amendment.  The due process issue had been raised below and rejected by Judge Vincent.  Although Clement said that the states were not pressing the due process claim, he readily agreed that the case was really about individual liberty, an argument pressed even more forcefully by Mr. Carvin when his turn arrived.

The court next turned to the states’ appeal of their challenge to the Medicaid expansion, a claim that had been rejected by Judge Vinson.  Normally the courts give Congress wide berth in defining the terms of a spending program, recognizing that the states do not have to participate in federal programs if they do not want to abide by the programs’ terms.  But the Supreme Court in a 1987 case had observed that the federal government might not be able to impose a condition on a spending program if the state was coerced rather than induced into accepting the program requirement.  Clement argued that Medicaid comprised such a substantial part of state budgets that states in reality have no choice as to whether or not to participate in the program, and that the Medicaid expansion, and the requirement of the ACA that states maintain their current programs until the expansions arrive, were thus unconstitutional.  Judge Dubina observed, as had Judge Vinson, that the appellate courts have not accepted coercion arguments, but Judge Marcus argued emphatically both to Clement and later to Katyal that the coercion issue is squarely raised by Supreme Court precedent and is a real issue in the ACA, although the 100 federal percent financing of the expansions for the first three years makes the provision look considerably less coercive.

Clement’s primary concern seemed to be that the minimum coverage requirement would drive into Medicaid individuals who are currently eligible for Medicaid but not enrolled, and that they would not be eligible for the 100 percent match.

The NFIB’s Argument

Carvin’s argument covered much the same ground as Clement’s.  He argued forcefully that health insurance is not unique and that uniqueness does not provide a principle for adjudicating constitutional cases.  He also contended that the law causes rather than solves a cost-shift problem—it shifts the cost of insuring the unhealthy onto healthy individuals and groups — indeed, to his clients.  He eagerly embraced the notion that the case was really about individual liberty, and indeed argued that the Tenth Amendment is at the heart of the case.  Like Clement, he claimed that the minimum coverage requirement could not be severed from the rest of the statute, and if it is stricken then the entire law must fall.

The Government’s Rebuttal

As the attorney representing the appellant, Katyal got the last word, continuing his effort to convince the court that Congress had the power to deal with the cost shift problem.  He also rejected Clement and Carvin’s argument that the case was really about liberty.

Katyal responded to the Medicaid coercion argument, which now Judge Dubina pressed as well as Judge Marcus.  Katyal noted that the Medicaid statue expressly reserves to Congress the power to amend the statute and gives HHS the authority to impose sanctions short of a total cut off of funds.  It seems to me that a better argument would have been that the states can hardly claim to be subject to unconstitutional coercion if they are simply asked to take on additional recipients who are already eligible for Medicaid under current law, which seemed to be Clement’s primary concern.

Katyal ended with what may be his most powerful argument: While the courts have the authority to determine whether a statute is constitutional or not, they cannot strike down a statute simply because they disagree with it as a matter of policy.  Courts that exceed their constitutional authority by rejecting legislation because they dislike a policy decision Congress has made are just as great a threat to our democracy as a Congress that adopts legislation that does not fall within its constitutional authority. Indeed, they are a greater threat, because the people can vote Congress out if they dislike the policies it crafts, but judges are appointed for life, a point Katyal wisely chose not to mention.

What Comes Next

The next court to consider the constitutionality question will be the District of Columbia Circuit in September, by which time we may well have decisions from some of the courts that have already heard their cases.

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