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In First Appellate Decision, A Significant Victory For The Affordable Care Act



June 30th, 2011
by Timothy Jost

On June 29, 2011, the Sixth Circuit federal court of appeals held that Congress has the power under the Constitution to adopt the minimum coverage requirement of the Affordable Care Act.

The decision in Thomas More Law Center v. Obama is very significant for several reasons.  First, it is the first ruling by a federal appeals court on the constitutionality of the ACA. So far three district courts have upheld the minimum coverage requirement (including the trial court in this case), two have struck it down.  But this is the first appellate level court to weigh in.

Second, the decision contains three thoughtful, well-reasoned opinions, two upholding the law and one that would have struck it down.  The opinions thoroughly explore the arguments of both sides as well as ruling precedent.

Third, Judge Jeffrey Sutton, who concurred in the decision, is the first judge appointed by a Republican president (Bush II) to uphold the law on the merits.  Much has been made over the past year that judges who have upheld the law have been Democratic appointees and judges who have struck it down have been appointed by Republicans.  This decision breaks that pattern (although Judge Boyce Martin, who upheld the requirement, was a Democratic appointee and Judge James Graham, who dissented, was a Republican appointee).  The decision demonstrates that law, and not just politics, is at stake here.

Finally, Judge Sutton, who joined in the majority decision, is a prominent and well-respected conservative jurist who clerked for Justice Scalia and has actively and successfully argued against the extension of federal authority before the Supreme Court.  Indeed, he wrote a brief challenging Congressional authority in one of the two cases in recent memory in which the Supreme Court has held that Congress had exceeded its authority under the Commerce Clause.  Thus his support for the constitutionality of the law is doubly impressive.

Judge Martin, a Carter appointee, wrote the decision for the court finding that the court had jurisdiction to decide the case and holding that the minimum coverage requirement was a permissible exercise of Congress’ authority to regulate interstate commerce.  Judge Sutton joined in these conclusions, although his ruling as to the constitutionality of the statute under the Commerce Clause was more limited.  He also held that Congress had not exercised its authority to raise taxes in enacting the minimum coverage requirement, and thus it could not be upheld on this basis (an issue Judge Martin did not reach).  Finally Judge Graham dissented, contending that the statute is not constitutional.

Procedural issues. After a brief discussion of the framework of the Affordable Care Act to provide a context for the decision, Judge Martin disposed of several procedural issues.  First he held that the individual plaintiffs in the case had alleged sufficient injury to have “standing” to bring the case, and that it was “ripe” for adjudication.  Although the Justice Department early on contested the standing of various plaintiffs to bring ACA cases (and won on this issue in several courts), it has now largely abandoned this argument.  Indeed, it only really was raised in this case because, right before the case was argued, one of the plaintiffs admitted having in fact purchased insurance, contradicting her stated refusal to do so.

Judge Martin also rejected a defense that had been pressed early in the litigation by Justice — that the Anti-Injunction Act, which forbids courts from enjoining the collection of a tax, prohibited the court from enjoining the imposition of the penalty provided by the ACA for failing to purchase health insurance.  Both other judges joined in these parts of the opinion.

Judge Martin Redefines The Commerce Clause Debate

Judge Martin then addressed the most controversial issue before the court—whether the minimum coverage requirement was a constitutional exercise of Congress’ Commerce Power.  Judge Martin’s opinion begins with a very important recognition: Any duly enacted congressional enactment begins with a presumption of constitutionality, and it is not the role of any court to pass on the wisdom of choices made by Congress.  A law can only be struck down by a court if it finds that Congress has in fact exceeded its constitutional powers.

Judge Martin turned, therefore, to the Commerce Clause jurisprudence of the Supreme Court.  Those who have followed the ACA cases are quite familiar with this body of law by now.  In sum, since the 1940s the Supreme Court has interpreted the Commerce Clause very broadly to permit the regulation of economic activity that affects interstate commerce.  In two cases in 1995 and 2000, the Court held that Congress had exceeded its authority by regulating non-economic activity insufficiently related to interstate commerce, but in 2005 the Court returned again to a very broad reading of the Commerce Clause.  The question, therefore, is where the regulated conduct falls on the spectrum represented by these cases.

This question turns on what exactly Congress was trying to regulate.  Here Judge Martin (largely joined by Judge Sutton) redefines the terms of the debate.   The minimum coverage requirement, he asserts, is regulation of “the activity of participating in the national market for health care delivery, and specifically the activity of self-insurance.”  Until now, opponents of the minimum coverage requirement have argued that the provision regulates inactivity: nonparticipation in the market for insurance.  But Judge Martin concluded that what is involved in not inactivity, but rather a particular kind of activity: self-insurance.  Judge Martin contends that the minimum coverage requirement is constitutional because Congress rationally concluded that self-insurance has substantial effects on interstate commerce, and that the provision was essential to Congress’ “larger economic scheme reforming the interstate market in health care and health insurance.”

Judge Martin contends that nearly every individual in the United States consumes health care, and thus must decide whether to purchase insurance or to self-insure.  Self-insuring is no less an economic activity than purchasing insurance.  Self-insuring results, however, in a substantial cost-shift when those who choose to self-insure cannot in fact cover the cost of their care.  For 2008, $43 billion dollars worth of care was passed on by those who chose to self-insure to others.  Thus self-insuring has a substantial impact on interstate commerce.

Moreover, Congress can properly regulate self-insurance because of the effect it has on the regulation of health care delivery and insurance.   Congress can clearly regulate these markets and has done so in the ACA by requiring guaranteed issue and community rating and banning pre-existing conditions clauses.  But Congress rationally concluded that these reforms would not work unless self-insurance was also regulated.  Finally, Judge Martin concludes that, even if self-insurance could be characterized as inactivity, nothing in Supreme Court jurisprudence prohibits regulation of inactivity or justifies giving any significance to this label.  The minimum coverage requirement is thus constitutional.

Judge Sutton’s More Limited Opinion

Judge Sutton’s opinion is somewhat more limited than that of Judge Martin, and thus under principles of legal reasoning represents the true binding holding of the case.  Judge Sutton begins by setting out the arguments of the plaintiffs and of the federal government.  He then proceeds to address an argument that Judge Martin had chosen not to: whether the minimum coverage requirement could be justified as an exercise of Congress’ power to tax and spend for the general welfare.

Another loss for the government on the taxation power argument. The government had argued that the minimum coverage requirement was in fact enforced through a tax, and that Congress could impose such a tax under its taxation power.  The government has so far lost on this argument in every court in which it has been raised, and this was not to be an exception.  Judge Sutton addresses the argument at some length, however, perhaps because, as he admits, “if the legislature had used taxes in this part of the Affordable Care Act, the Act likely would be constitutional.”

Judge Sutton relies in part on the argument accepted by other courts that Congress called the exaction a penalty and not a tax, and Congress knows the difference. (When was the last time a candidate for elective office promised not to raise “penalties”? Sutton asks.)  But he goes further, examining at length the distinction between taxes and penalties and concluding that this was clearly a penalty.  Because Judge Graham joined in this section of Judge Sutton’s opinion, it represents the opinion of the court, another loss for the government on this issue.

Judge Sutton’s Commerce Clause analysis. Judge Sutton then moved on to the Commerce Clause argument, the real heart of the case.  Sutton provides his own history of Commerce Clause jurisprudence, noting that the Supreme Court has often proposed principles for limiting the reach of the Commerce power, but has also repeatedly abandoned these limiting principles.  He asks, however, whether the plaintiffs have finally discovered the true limits of the Commerce Clause: Congress cannot regulate inaction, requiring individuals to enter the stream of commerce who have not decided to do so.

Recognizing that “the courts of appeals are . . . utterly non-final in this case,” Judge Sutton rejects this limitation on the power of Congress.  Here he turns to what is for him the central feature of the case.  It is, as Judge Martin noted, a challenge to the ACA on its face, not as applied, and facial challenges are disfavored under principles of judicial restraint because they run the risk of broad constitutional decisions striking down laws that might be permissible as applied in some situations.

Recognizing this, Judge Sutton asks, does the minimum coverage requirement, at least in some contexts, regulate conduct that substantially affects commerce?  And second, is there something about the novelty of the requirement that nonetheless warrants striking it down?

Sutton finds the first question easier.  Delivery of health care, paying for health care, and health insurance all affect interstate commerce.  Here Sutton joins Martin in recognizing that what Congress is really regulating is self-insurance (or risk retention).  Individuals who choose not to purchase health insurance either save up for it or consume it and pass the cost on to others, but either approach affects interstate commerce, and Congress can regulate it.  Indeed, Judge Sutton recognizes that Congress is here regulating “quintessentially economic” conduct.

But, the plaintiffs claim, Congress can only regulate commerce, not create it, and here Congress attempts to force individuals to engage in commerce who choose not to.  This is unprecedented, and “legislative novelty typically is not a constitutional virtue.”  But novelty of a particular provision does not free the lower courts from following the precedents laid down by the Supreme Court, and, Sutton concludes, those precedents do not support an action/inaction distinction as a fundamental limit on the Commerce Power.

The test the Supreme Court has laid down is an economic/noneconomic test, and this case passes that test.  Moreover, Sutton notes, the action/inaction dichotomy is difficult to apply.  “No one is inactive when deciding how to pay for health care, as self-insurance and private insurance are two forms of action for addressing the same risk.”  Applying the action/inaction distinction, could Congress require people who are already insured to maintain insurance?  Could it regulate the purchase of insurance of individuals who live in states that already have a state insurance mandate (such as Massachusetts)?  Congress requires hospitals to provide care regardless of ability to pay.  Surely Congress can ensure that individuals will have the resources to pay for that care when they need it.  Perhaps some day an individual who has sufficient wealth to pay for any health care needs could bring an “as applied” case to challenge the law as to him or herself, but that does not justify a current facial challenge.

Finally Sutton comes to the “broccoli” point.  Can Congress force individuals to buy any product at its whim?  Perhaps not, but in any event, Congress can at least apply the minimum coverage requirement in at least some settings, for example to those who already have insurance or live in states that require it.  The law can be challenged again as applied in particular contexts (a possibility Judge Martin acknowledges but discounts in a footnote), but it is not invalid on its face.

Judge Graham’s Dissent

Judge Graham disagrees.  Judge Graham’s opinion lays out the argument we may well see prevailing in other courts of appeal, perhaps even in the Supreme Court.  The minimum coverage requirement is not directed at regulating health care, but rather health insurance.  It is law that forces individuals to enter a market they have chosen not to participate in.  If Congress can compel this, there is no limit to its power.  The power of Congress is in fact limited (otherwise the Tenth Amendment reserving to the states and to the people powers not granted to the federal government is meaningless), and it is the duty of the courts to find and enforce those limits.

“Here, Congress’s exercise of power intrudes on both the States ant the people,” and the “hard work” of the courts is to push back, Judge Graham writes.  This is a project that has been pursued by Judge Graham’s pantheon of judges, “Chief Justice Rehnquist and Justices O’Connor, Scalia, Kennedy and Thomas,” (whose concurring and dissenting opinions Judge Graham liberally quotes), and must continue, lest ultimately “no human activity would escape federal power.”  But this time, at least, this project faltered.

We should hear from the Eleventh and Fourth Circuits this summer, and perhaps next year from the ultimate arbiter, the Supreme Court, but for today the ACA has survived to press on.

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1 Trackback for “In First Appellate Decision, A Significant Victory For The Affordable Care Act”

  1. Health Care Reform Survives the First Appeal
    July 1st, 2011 at 10:27 am

2 Responses to “In First Appellate Decision, A Significant Victory For The Affordable Care Act”

  1. Frank Lebowitz Says:

    Can Mr. Jost possibly be any more LEFT leaning? 1.5+T in DEFICIT and 14+T in DEBT , dollar is collapsing, country is falling apart and you want to implement a socialist take over of our health care system? PPACA does nothing but increase the size of government and increase all insurance costs. WE NEED REFORM, bu this is OPPOSITE OF WHAT we need. Take your socialism elsewhere please.

  2. Christopher Conover Says:

    For every individual who is uninsured, the U.S. SAVES money relative to the amount these individuals would be subsidized had they elected to obtain employer-provided health coverage.

    Moreover, the burden imposed by such individuals is less than the economic burden imposed on society by those who live sedentary lifestyles. Details here: http://healthreformreport.com/2011/06/the-individual-mandate-isnt-about-saving-money.php

    Therefore, according to the logic of this opinion, choosing to live a sedentary lifestyle is an economic activity affecting interstate commerce and may be regulated by Congress. If Congress elected to require individuals to run 30 minutes a day, that would be constitutionally permissible. I’m no constitutional scholar, but I would be stunned if the strict constructionists on the Supreme Court found this logic compelling.

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