Editor’s Note: Below, William Sage analyzes Friday’s federal appellate court decision regarding the Affordable Care Act. See Timothy Jost’s earlier post for more on this decision.

On August 12, a divided three-judge panel of the US Court of Appeals for the Eleventh Circuit ruled in State of Florida v. Sibelius that the individual mandate contained in the Affordable Care Act is not authorized by the Commerce Clause of the Constitution. This clause gives Congress the power to regulate commerce “among the several states.”  The mandate thereby becomes unenforceable in Alabama, Florida, and Georgia. (The fact that 26 states joined two individuals and the National Federation of Independent Business as plaintiffs in the case does not expand its formal geographic reach.)

Another federal appeals court, the Sixth Circuit, previously upheld the Act.  Although two more appeals courts have cases pending, the split increases the likelihood that the Supreme Court will issue a definitive ruling next year.  Also favoring prompt hearing by the Supreme Court is that the Eleventh Circuit’s decision narrows and sharpens the issues it must resolve.

Two judges (Chief Judge Dubina, appointed by the first President Bush, and Judge Hull, a Clinton appointee) jointly wrote the 200-page majority opinion.  Joint authorship is uncommon; one judge typically writes text that is endorsed by others, or else the judges write separately.  Judge Marcus (also a Clinton appointee) wrote another 100 pages in partial dissent, arguing in favor of the individual mandate’s constitutionality.

The two pieces of writing differ mainly in tone and fluidity.  The longer majority opinion is carefully reasoned in each section, but less linear as a whole, perhaps reflecting its shared provenance.  It struggles visibly to reach its conclusion that the mandate exceeds Congress’s enumerated powers under the Commerce Clause.  Its objections do not seem political or ideological, but neither do they seem completely analytical.  Something about the mandate simply sticks in the craw of the two judges, and they refuse to swallow it.

This is apparent in how the majority frames the legal issue: “Properly formulated, we perceive the question before us to be 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.” (p. 112)  While trying to digest the mandate’s relationship to commerce, the majority judges become queasy about things with less obvious constitutional meaning.  These include the cradle-to-grave character of insurance under the Act (a major virtue to the Act’s supporters), the Act’s reliance on corporate America as the mainstay of coverage (a political decision, but a popular one), and the redistribution of wealth implicit in requiring currently healthy persons to join an insurance pool that will also be open to currently ill persons on similar terms (a well-known implication of insurance economics).

The dissent seems calmer and more logical.  It addresses several legal arguments, some of which are more important than others.  But it stays focused throughout on a single point it regards as dispositive: health insurance is an integral part of interstate commerce involving health care, and therefore Congress could reasonably decide to regulate health commerce using an individual insurance mandate.

Both opinions contain detailed factual findings.  The majority opinion provides a particularly readable and thorough summary of the Affordable Care Act.  Both opinions cite and discuss the same statistics about the health care system (all drawn from briefs filed in the case), and interpret them similarly.

Dwindling Controversies

Three issues before the court generated consensus among the panel of three judges.  Combined with the earlier Sixth Circuit decision, the Eleventh Circuit’s view of these issues makes it less likely that the Supreme Court will rule otherwise on them.

First, the plaintiffs unsuccessfully challenged the Affordable Care Act’s dramatic expansion of Medicaid to individuals earning up to 133 percent of the federal poverty level as coercing states to alter their programs in violation of the Tenth Amendment.  The Eleventh Circuit held that these new federal conditions on receipt of Medicaid funds still allowed states to choose whether or not to participate, and therefore were constitutional.

Second, the Obama administration again lost its argument that the mandate is constitutional as a tax because the Act uses the federal income tax system to enforce it.  The Eleventh Circuit held that Congress purposely used the word “penalty” to describe assessments on individuals for lacking insurance, and precluded the IRS from using the same tools to collect them as it would for taxes.

Third, the majority only invalidated the mandate, and upheld the rest of the Act.  In doing so, it ruled that Congress intended other provisions, even guaranteed issue of health insurance and prohibitions on medical underwriting, to take effect even if the mandate did not.  Moreover, it reached this conclusion notwithstanding the lack of an explicit severability clause in the statute.  This many have been a strategic decision by the majority – if the mandate were truly indispensible, it might be considered “essential to a broader regulatory scheme” and therefore permitted by Commerce Clause precedents.  But it strongly suggests that wholesale revisions to the Act, if they happen, will come from Congress and not the courts.

Divisions and Disagreements

After the Eleventh Circuit’s opinion, it is even clearer that the Commerce Clause is the battleground on which the Affordable Care Act will stand or fall.  As in a game of chess, however, background moves by the players may have greater long-term significance than the visible clash of powerful pieces on the board.

The majority opinion frames the inquiry around the compulsory purchase of health insurance by individuals who have no current interest in buying it but who may at some later time use health care services.  Although it eschews a bright line between regulating “activity” and “inactivity,” the majority concludes that allowing sweeping federal regulation because of the possibility of future commerce would give Congress a constitutional blank check inconsistent with enumerated powers.  The dissent calls this approach “wooden, formalistic, and myopic” because “[b]oth the congressional intent to link the two and the empirical relation between the purchase of health insurance and the consumption of health care services are clear.”(pp. 226-27)  Accordingly, it regards “prophylactic regulation” as easily within Congress’s powers.

The dissent gets the better of the argument (though not more votes) in terms of both legal logic and health policy.  Judge Marcus points out that the plaintiffs concede that penalties for non-compliance with the insurance mandate may be assessed if and when individuals subsequently access health care services.  If health insurance and health care services are unrelated streams of commerce for constitutional purpose, as the majority asserts, this is logically inconsistent because those individuals, although seeking care, are still remaining inactive in the market for insurance.

As a health policy matter, the majority regards the insurance mandate as mainly about redistributing resources.  It views reducing “cost-shifting” when uninsured individuals eventually seek care but do not pay for it in full as the Act’s principal justification for adopting the mandate.  Accordingly, it makes much of the fact that the people often responsible for imposing costs on others, such as the poor and undocumented immigrants, will be either covered by the Medicaid expansion or excluded from the Act’s insurance provisions.  Similarly, it observes that the people whose insurance premiums are most financially attractive to the new system are healthy individuals who may seek no care for extended periods.

The dissent focuses on the mandate’s role in preventing adverse selection in insurance markets as they form and operate.  It grasps that the assistance the Act provides to the presently ill at the expense of the presently healthy is transitional, and that the long-term benefit of the mandate is to reduce the exposure of all individuals to health-related financial catastrophe.  Judge Marcus writes: “no individual can opt out of the health care services market, and thus virtually everyone will consume health care services. Individual participation in the health care services market is properly, therefore, a question of when and how individuals will consume and pay for such services, not whether they will consume them.” (p. 272)

As persuasive as these arguments seem, they did not carry the day with the Eleventh Circuit.  Why this happened involves constitutionally meaningful issues that form the fabric of the majority’s position, and that are also likely to be considered by the Supreme Court when it rules on the Act.

The most important is liberty.  The majority is deeply concerned that the mandate reflects a desire by the national government to use an expansive definition of its commerce power to “require” rather than “encourage or discourage” specific conduct by ordinary citizens.  Recognizing what it calls this “inchoate” concern, the dissent notes that “providing the subtext to much of the majority’s opinion … is the deeply rooted fear that the federal government is infringing upon the individual’s right to be left alone — a fear that is intertwined with a visceral aversion to the government’s making us do something we do not want to do (in this case, buy a product we do not wish to purchase).” (p. 281)

Citing Bond v. United States (2011) as its rallying cry against the mandate, the majority asserts that “Federalism secures the freedom of the individual.”  The Supreme Court’s analysis in that case was actually more temperate: “By denying any one government complete jurisdiction over all the concerns of public life, federalism protects the liberty of the individual from arbitrary power.”  Nonetheless, the Eleventh Circuit plaintiffs and the majority judges create the impression that the federal mandate is uniquely intrusive, even though state governments could unquestionably require individuals to purchase health insurance without offending the US Constitution.

Political sausage-making is a second important subtext.  The Affordable Care Act is landmark health reform legislation intended to solve a century-old, seemingly intractable problem.  The Act is rife with political constraints and compromises, including ambiguities in federal-state relations, special-interest subsidies and exceptions, and substantial reliance on private choices and private spending instead of tax-financed public benefits.  It could hardly be otherwise, considering the basic Catch-22 of US health reform, in which a collective social commitment to reducing health care costs is unlikely to emerge unless everyone shares coverage, but expanding coverage is fiscally risky unless something can be done about costs.

Politics, however, sits uneasily with the majority of the Eleventh Circuit panel, and not only in the undercurrent of hostility toward private insurance companies that flows through the opinion.  Near the end of its exposition, the majority opinion turns to Clinton v. New York, a 1998 case in which the Supreme Court ruled that Congress may not award the president the right to veto specific items in budget legislation.  That case can be summed up as holding that political dysfunction cannot justify unconstitutional remedies, however effective those measures might be.  The majority sees the Act’s Commerce Clause justification through a similar lens, in that political reality precluded clearly constitutional means to expand coverage, such as raising taxes and providing insurance through the government, which saddled the courts with the task of judging the permissibility of second-best approaches.

Probably for this reason, the majority and dissenting opinions disagree strongly on the constitutional implications of the Act’s “unique” and “unprecedented” features, notably the mandate.  Defending the Act, the Obama administration offered “limiting principles” to demonstrate that a health insurance mandate would not lead the nation down a slippery slope.  The dissent agrees with these, but the majority opinion disparages them as merely “limiting circumstances” with no independent legal significance.  The dissent regards the mandate as indisputably part of a “larger regulatory scheme” to enhance the efficiency and fairness of commerce involving health.  The majority replies that using the mandate to increase the likelihood of the Act achieving its goals is merely a “political” advantage.  The majority worries about the capacity of federal courts to keep the executive and legislative branches in check each time they assert the necessity of pushing the interpretive envelope of the Commerce Clause, while the dissent considers fact-specific judicial reviews of Commerce Clause cases to be routine.

Insurance Reform and Health Care Reform

The Eleventh Circuit opinions address many critical questions regarding the Affordable Care Act’s constitutionality.  Like the judges in the other challenges to the Act that have generated rulings, however, the Eleventh Circuit does not discuss two aspects of the Act that have both constitutional and health policy importance.

Both the majority and dissenting opinions clearly identify the Act’s component parts, but never get past the insurance issues in closest proximity to the individual mandate.  Titles I and II of the Act solve for all practical purposes the twin problems of uninsurability and unaffordability of coverage that plague US health insurance.  Affordability is addressed by employer subsidies and the Medicaid expansion, insurability by underwriting reforms coupled with the mandate.  The courts seem to have these titles well in hand, but they represent one-third of health reform at most.

Another third, contained mainly in Title III, begins the much harder process of upping the efficiency of health care delivery – which represents the lion’s share of “commerce” potentially regulated by the Act.  Unfortunately, neither the majority opinion nor the dissent perceives a connection between the Act’s insurance reforms and its goal of delivery system improvement.  Judge Marcus, for example, considers cost-shifting and lack of access to insurance the national problems addressed by the Act.  He does not recognize that high and rising health care costs often reflect arbitrary prices and wasteful practices that undercut value, or that insurers in a voluntary market have competed to avoid risk rather than to improve the efficiency of care.  Had he followed this reasoning, he could have substantially bolstered his case for the mandate as a critical component of regulating commerce in health care.

The last third of health reform is the critical challenge of making individuals and communities healthier, a goal primarily reflected in Title IV.  Courts reviewing the Affordable Care Act have yet to consider the role of population health in any detail.  Yet the Eleventh Circuit opinion is likely to increase the constitutional controversy associated with health promotion by government, as may any eventual ruling by the Supreme Court.

The impermissibility of the federal government assuming a general “police power” over citizens is a fundamental tenet of Commerce Clause jurisprudence that distinguishes the limited scope of federal authority from the plenary authority of state government.  Protection of health and safety lies at the heart of state police power and is axiomatic both to the majority (e.g., its discussion of health care as a traditional area of state regulation) and the dissent (e.g., its rejection of a hypothetical federal obligation to exercise).  In light of recent First Amendment decisions by the Supreme Court overturning state laws that reduce the freedom of corporations to market their products, such as Sorrell v. IMS Health, intense legal scrutiny of federal enactments that resemble state police powers may make it even harder for health care reform to promote healthy behavior.