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Appellate Court: Individual Mandate Falls But Rest Of Affordable Care Act Survives



August 15th, 2011

Editor’s Note: Below, Tim Jost analyzes Friday’s appellate decision regarding the Affordable Care Act. See Bill Sage’s post for more Health Affairs Blog coverage of this decision and its significance.

One August 12, 2011, in a case brought by 26 states and various private parties, the Eleventh Circuit Federal Court of Appeals handed down the first federal appellate court ruling holding a part of the Patient Protection and Affordable Care Act (ACA) to be unconstitutional.  This is one of four appellate court rulings to date addressing challenges to the ACA.

As discussed in an earlier Health Affairs Blog post, the Sixth Circuit upheld the law in its entirety in a June 29 decision.  The Third Circuit earlier upheld a lower court ruling that a group of physicians were not injured by the ACA and thus could not challenge its constitutionality, while the Ninth Circuit also denied standing to another group of plaintiffs in a less noted opinion that came down on the same day as the Eleventh Circuit opinion discussed here.

A ruling from the Fourth Circuit in two lower court cases, one of which upheld the ACA and one of which struck down the ACA’s minimum coverage requirement, is expected momentarily.  Oral arguments in another ACA challenge will be heard by the District of Columbia Circuit in September, and many other cases are pending in the district courts.  In the end, the constitutionality of the minimum essential coverage requirement (also called the individual mandate) will be decided by the Supreme Court.  Depending on the strategy of the litigants and the eagerness of the Court to decide the question, that could happen as early as 2012 or as late as 2013.

The Eleventh Circuit’s opinion in Florida v. The Department of Health and Human Services is book length, 304 pages.  Much of the opinion, including an appendix at the end, is dedicated to describing in some detail the entire ACA, its operative insurance regulations, and how it all fits together.  Judge Hull had complained at the oral argument that none of the parties had described how the ACA works in their briefs, and she has remedied this deficiency.  The court’s description of the statute is fair, accurate, and reasonably comprehensive.  If a reader is looking for a quick overview of the ACA to hand out in class this fall, you could do worse than to simply hand out copies of these parts of the opinion.

A Defeat For The Minimum Coverage Requirement, But A Victory For The Rest Of The ACA

The headlines are that the decision is a defeat for the ACA.   In fact, the majority opinion, written by Judge Hull and Judge Dubina jointly (an unusual move), finds the minimum coverage requirement to be unconstitutional.  In an important sense, however, the decision is also a victory for the ACA.  Judge Vinson in his district court decision had held that the requirement could not be “severed” from the rest of the ACA and that the entire ACA was thus unconstitutional.  Judge Hull and Dubina found that the minimum coverage requirement could be severed and thus held that the entire remainder of the ACA, (including insurance reform provisions that the government had argued could not be severed from the requirement) is constitutional. The majority opinion also rejects an argument that the states had pressed vigorously at oral argument, that the ACA’s Medicaid expansions are unconstitutional.

Finally, the majority opinion is refuted point by point in a lengthy and well-reasoned dissent by Judge Marcus, whose opinion now joins the opinions of two judges in the Sixth Circuit decision upholding the ACA. (Curiously, the majority nowhere acknowledges the fact that a sister-circuit has already upheld the law, although the dissent refers to Judge Sutton’s Sixth Circuit concurrence).    If the Fourth Circuit upholds the law, as expected, the government will enter the Supreme Court fray well-armed with panoply of favorable appellate judge opinions.

The Courts Appear To Be Moving Beyond Partisan Politics

Much has been made of the political nature of the judicial rulings in the ACA cases. There was a perfect correlation in the district courts between a positive or negative decision on constitutionality and the political party of the president who had appointed the judge.

This correlation broke down with the Sixth Circuit decision, in which a Bush appointee — Judge Sutton — upheld the law.  It breaks down further in the Eleventh Circuit opinion.  Judge Dubina, who sided against the law, was appointed by Bush Sr. (and has a daughter who is a Republican member of Congress who has voted for repeal).  But Judge Hull, who also signed the majority opinion, was appointed by Clinton.  And although Judge Marcus, who dissented and would have held the law to be constitutional, was appointed by Clinton to the court of appeals, he had been appointed to the district court by Reagan, was appointed by Clinton as a compromise appointment, and is thought to be a Republican.  The courts (unlike Congress) seem to be rising above partisan politics, as they should.

The majority opinion is nearly 200 pages long.  After a brief introduction, it proceeds to a lengthy (44 page) description of insurance markets and of the insurance reforms found in the ACA (supplemented with an additional appendix that describes all ten titles of the Act).  The Court then proceeds to dismiss quickly standing challenges.  The government had conceded that at least one plaintiff had standing and that is all that is necessary for the court to have jurisdiction to decide the case.  The court explicitly did not address the difficult question, however, of whether the state plaintiffs had standing, an issue that might become important if and when a remedy must be found.

A Rejection Of A Challenge To The ACA’s Medicaid Expansion

The court also disposes relatively easily of the states’ claim that the Medicaid expansion provisions of the ACA (under which the Medicaid program is expanded to cover all adults with incomes at or below 138 percent of the federal poverty level) are unconstitutional.   It is generally admitted that when the federal government offers funding to the states, it has broad authority to impose conditions on the receipt of that funding.  The primary argument of the states, however, was that the Medicaid expansion violates a doctrine that Supreme Court opinions suggest may exist that if the federal government “coerces” a state to participate in a grant funding program, the program may be unconstitutional.

The states had argued that they have become so dependent on federal Medicaid funding that any change in the program that would increase their obligations under a threat of removing all Medicaid funding would be unconstitutionally coercive.  The court rejects this argument, noting that if the coercion doctrine in fact exists, it does not apply here for five reasons.

First, the Medicaid statute itself warns the states that it can be amended.  Second, the federal government funds the Medicaid expansions.  Third, states have four years’ notice to decide whether they will participate or not.  Fourth, the states can always create and fund their own programs if they do not want to participate in Medicaid.  Finally, the Medicaid statute does not in fact require HHS to cut off all funding to the states if they refuse to participate in the Medicaid expansion.

A finding that the Medicaid expansion was unconstitutional would have dealt a very serious blow to the ACA, and the Eleventh Circuit seemed to take this issue seriously during oral argument.  With no court having found this provision to be unconstitutional, it is unlikely the Supreme Court will consider it, focusing the entire attention of that Court on the minimum coverage requirement.

Both the majority and the dissent focus most of their verbiage (187 pages in total) on the question of whether the minimum coverage requirement is an appropriate exercise of the authority granted Congress by the Constitution to regulate commerce “among the several states,” supplemented by the Necessary and Proper clause, which authorizes Congress to “to make all Laws which shall be necessary and proper for carrying into Execution” its other delegated powers.  I will not attempt to resolve this question myself, but will rather describe the approach of the majority and dissent.  I refer readers to sophisticated discussions of this question by true experts in the area here and here.

The Majority Opinion

The minimum coverage requirement is not permissible under the Commerce Clause. The majority begins with a lengthy and sophisticated discussion of the Supreme Court’s major Commerce Clause decisions over the past six decades.  Although the Supreme Court recognized a dramatic expansion of the Commerce power during the 1940s, reaffirmed in a 2005 decision, twice in 1994 and 2000 it recognized that the Commerce power was not unlimited and struck down attempts by Congress to regulate non-economic, criminal, behavior.  The majority describes these, and related cases, in detail.

The majority next sets out the “first principles” that it will follow in making its decision:
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  • The judiciary must enforce the Constitution’s limits on the power of Congress;
  • The power of Congress to regulate commerce is broad and sweeping;
  • The courts must take a flexible approach to evaluating congressional action under the Commerce clause;
  • Judicial interpretations of the Commerce Clause must accommodate the Constitution’s federalist structure, preserving the distinction between what is state and what is national;
  • The Commerce Clause does not give Congress plenary police powers; and
  • The ultimate goal of limits to national power is to protect individual liberty.

The court proceeds to reject (as the Supreme Court has repeatedly) any formalistic categories as conclusive for evaluating Commerce Clause cases.  The court purports to reject specifically the “action/inaction” distinction argued by the plaintiffs (“Congress can only regulate activity, not inactivity”) although the distinction seems to creep back in later in the opinion. The court also frames the question it will finally address, “whether the federal government can issue a mandate that Americans purchase and maintain health insurance from a private company for the entirety of their lives.”

The answer to this question, the majority concludes, is no.  The court offers three reasons for this conclusion.  First, the individual mandate is unprecedented:

It regulates those who have not entered the health care market at all. It regulates those who have entered the health care market, but have not entered the insurance market (and have no intention of doing so). It is overinclusive in when it regulates: it conflates those who presently consume health care with those who will not consume health care for many years into the future. The government’s position amounts to an argument that the mere fact of an individual’s existence substantially affects interstate commerce, and therefore Congress may regulate them at every point of their life. This theory affords no limiting principles in which to confine Congress’s enumerated power.

Second, the majority asserts that if it upholds the minimum coverage mandate as a valid exercise of the authority of Congress to regulate commerce, it can perceive no limits to that power, and that none are offered by the government.  The court recognizes that Congress claimed in its statutory findings that the market for health insurance is unique, but rejects the constitutional significance of the distinctions Congress offered or their workability for deciding future cases.

The court specifically rejects the argument that the minimum coverage requirement is necessary to deter cost-shifting, noting that most of those individuals whose conduct results in cost-shifting are not covered by the requirement, and in any event, the law seems to address not current cost-shifting, but potential cost-shifting in the unforeseeable future.  The court recognizes that it must defer to Congress is deciding whether a law regulates commerce if there is a “rational basis” for doing so, but seems to apply a much more searching level of review.

Third, the court concludes that regulation of insurance is a traditional state concern, and that it must, therefore, exercise particular caution in evaluating attempts by Congress to regulate in this area.  However meritorious the other arguments of the court may be, this one is silly.  The Supreme Court held that the federal government can regulate health insurance in the 1940s and Congress has passed many laws governing health insurance since, including ERISA which regulates employer-sponsored insurance covering the vast majority of Americans.

The opinion also fails to note that in its 2007 partial birth abortion decision the Supreme Court decided that Congress could regulate medical practice under the Commerce Clause.  If Congress can regulate what goes on between a doctor and patient in a doctor’s office, it can surely regulate health insurance.

The Necessary and Proper Clause does not authorize the minimum coverage requirement.  Next, the majority disposes of the Necessary and Proper Clause argument, rejecting the government’s contention that the minimum coverage requirement is an “essential part of a larger regulation of economic activity,” specifically comprehensively reforming the regulation of health insurance.  The court questions whether the “essential part of regulation” doctrine exists, but concludes that in any event “an individual’s decision not to purchase health insurance and the concomitant absence of a commercial transaction … in no way ‘burdens’ or ‘obstructs’ Congress’s ability to enforce its regulation of the insurance industry.”

The taxing power does not authorize the minimum coverage requirement. The majority next disposes of the argument that the minimum coverage requirement can be upheld as a valid exercise of Congress’ power to tax.  The ACA calls the fine that must be paid for not having coverage a penalty, and therefore it is a penalty and cannot be justified as a tax. Every court that has considered this argument has now rejected it, and it is very unlikely that the Supreme Court will reconsider it.  It is reasonably clear that if Congress would pass a simple amendment changing the word “penalty” every time it appears in the provision to “tax,” the minimum coverage requirement could be upheld.  Congress, of course, will not do so.

The rest of the ACA can survive without the minimum coverage requirement. Finally, the court holds that, although the minimum coverage requirement is unconstitutional, the remainder of the statute stands without it.  Even the insurance regulatory provisions that the government had claimed will not work without it — the guaranteed issue requirement and ban on coverage exclusions for pre-existing conditions — can function without the requirement.  Indeed, the court genuinely seems to believe that the minimum coverage requirement is superfluous to the operation of the statute.

The ACA stands in its entirety; only the minimum coverage requirement must be stricken.  The states will undoubtedly appeal the severability ruling to the Supreme Court, but unless some other court disagrees, this ruling seems likely to stand.  This means that the states should proceed with implementation of all of the rest of the ACA and not count on the courts to bail them out.

The Dissent

The dissent takes on the majority point by point.  It criticizes the majority for not taking seriously the deference Congress is owed in determining the scope of its own authority; the necessity of the minimum coverage requirement to address national problems attributable to cost-shifting and market failures in insurance markets; the scope of existing federal regulation of health insurance and health care; the true unique character of the markets for health care and health insurance; the irrelevance of “overinclusiveness” to evaluating the requirement given that Congress need not “legislate with scientific exactitude;” the irrelevance of the unprecedented nature of the regulation (“Every new proposal is in some way unprecedented before it is tried.”); and the validity of the law as an exercise of the Necessary and Proper clause.

In particular, the dissent takes issue with the “blinkered approach” of the majority with respect to timing of health care purchases.  It is true, the dissent admits, that not everyone subject to the mandate needs care that they cannot afford right at the moment, but eventually almost all of them will, and Congress can regulate prophylactically to insure that payment will be available when a need is incurred.  The dissent contends that there remain limiting principles that the minimum coverage requirement meets — laws enacted under the Commerce power must regulate economic behavior that have a substantial effect on interstate commerce.  This law does.

The dissent concludes with a refutation of the position that Fifth Amendment Substantive Due Process Clause or the Tenth Amendment, which reserves to the states and the people authority not delegated to Congress, might limit the power of Congress to impose the minimum coverage requirement.  The majority criticizes the dissent for raising these issues, which it claims are not before the court.  The most basic challenge argued against the minimum coverage requirement, as the majority acknowledges from time to time, is the claim that the requirement infringes individual liberty.  The dissent seems to believe that it important that this issue be addressed before the case reaches the Supreme Court.

Stay Tuned

In sum, a mixed result for the ACA, deflating claims that the entire statute is unconstitutional and thus can be ignored, but ensuring that the issue will get to the Supreme Court and providing the Court with a plausible, if not wholly persuasive, approach to finding the minimum coverage requirement unconstitutional.  Stay tuned for the Fourth Circuit to weigh in shortly, tipping the scales one way or the other with respect to appellate court opinions.

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1 Trackback for “Appellate Court: Individual Mandate Falls But Rest Of Affordable Care Act Survives”

  1. What Does the 11th Circuit Decision Mean for the Individual Mandate? | National Physicians Alliance
    September 15th, 2011 at 3:35 pm

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