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A Year-End Affordable Care Act Litigation Round-Up



December 31st, 2012
by Timothy Jost

Undoubtedly the biggest health reform news of 2012 was the June 28 decision of the United States Supreme Court narrowly upholding the Affordable Care Act’s individual responsibility provision as a constitutional exercise of Congress’ power to tax. The Court also held that Congress lacked authority under the spending clause to require the states to extend Medicaid coverage to all adult citizens with incomes under 138 percent of the federal poverty level, although it upheld the Medicaid expansion as an option.

The Supreme Court decision brought to a close most of the approximately thirty cases that had been filed challenging the individual responsibility provision and other provisions of the ACA.  Some of these cases, however, have died a lingering death.  On December 19, 2912, a federal court in Arizona dismissed the final remaining claims in Coons v. Geithner, a case brought by, among others, Senator Jeff Flake.  The court held that the ACA preempted Arizona’s Health Care Freedom Act and did not violate any rights of the plaintiffs to medical autonomy or informational privacy.

Another case has flickered back to life.  As reported earlier, the Supreme Court on November 26, 2012, vacated its earlier order denying review of a challenge brought by Liberty University to the ACA and sent the case back to the Fourth Circuit Court of Appeals for further consideration.  The Fourth Circuit’s earlier decision against Liberty University was set aside by the Supreme Court strictly based on that court’s conclusions as to jurisdiction, and the only outstanding issue in the Supreme Court appeal — the constitutionality of the employer responsibility provision — has no chance of succeeding given the well-settled power of Congress to legislate concerning employee benefits.  Liberty University is likely, however, to also press religious liberty challenges to the ACA that it raised in its original complaint, and these challenges may require further consideration.

The Legal Fight Over Contraception Coverage

As litigation challenging the ACA’s individual responsibility provision has drawn to a close, however, a new surge of litigation has been building challenging another provision of the ACA — the preventive services mandate.  Over forty cases have been filed by individuals and organizations that believe that contraception is sinful challenging an HHS rule requiring health insurers and group health plans to cover contraceptive services.  I have written about this litigation in earlier posts on Health Affairs Blog and in a recent column in the New England Journal of Medicine.

In brief, the ACA requires group health plans and insurers to cover preventive services, including women’s health services as identified by the Health Resources and Services Administration.  Based on recommendations from the Institute of Medicine, HRSA identified contraceptive services as a women’s preventive service that must be covered by insurers and group health plan for plan years beginning after August 1, 2012.  For many employers and insurers with plan years that renew on January 1 of each year, the requirement goes into effect on January 1, 2013.

HHS exempted from this requirement churches and similar religious entities, which it calls “religious employers.”  It did not, however, totally exempt other religious organizations, such as universities, hospitals, and charities, but rather delayed the effective date of the law with respect to such organizations until the first plan year following August 1, 2013, committing itself to work out a compromise solution in the interim.   Secular, for-profit businesses, moreover, are subject to the requirement regardless of the religious beliefs of their owners.

A taxonomy of the contraception cases.  The strategy of those challenging the mandate seems to have been to file a large number of cases in courts across the country, thus making likely a split in decisions that would have to be resolved eventually by the Supreme Court.  The cases challenging the contraceptive mandate, however, are not all the same, but rather fall into three categories.  First, there are cases brought by Catholic institutions not covered by the religious employer safe harbor, such as Catholic hospitals and universities.  These cases object to all contraceptive coverage, based on the Catholic belief that the use of contraceptives is a “grave sin.”

Second are cases brought by Protestant institutions that do not necessarily object to all contraceptives, but do object to covering “morning after” contraceptives, which they regard as abortifacients.  Third are cases brought by secular businesses owned by individuals who have religious objections to covering contraceptives (or abortifacients) for their employees.

It is important to understand what is at issue here.  The question is whether the employers who are bringing these cases have to comply with the preventive services mandate, which applies to insurers and group health plans.  The challenges do not at this point involve either the ACA’s individual or employer mandates, which do not go into effect until January of 2014.  Once these provisions of the ACA are in effect, however, individual health insurance and small-group health plans must cover the “essential heath benefits,” which under the proposed rules must include required preventive services including presumably contraceptives (although under the proposed EHB rules, plans are not required to cover pharmaceutical abortifacients).  Once the individual and employer mandates are in effect, therefore, individuals who are subject to the individual mandate and small groups with between 50 and 100 employees (which are considered large groups for the employer mandate but small groups for the EHB coverage requirement, at least beginning in 2016) may need to purchase insurance that covers contraceptives.

It is also important to understand the law that is at issue in these cases.  Although these cases rely in part on the First Amendment’s free exercise clause, they are based primarily on the Religious Freedom Restoration Act (RFRA), a federal law that prohibits the federal government from substantially burdening the free exercise of religion unless it establishes that a requirement “is in furtherance of a compelling governmental interest” and “is the least restrictive means of furthering” that interest. Under Supreme Court precedent, the First Amendment does not protect employers from having to comply with a “neutral law of general applicability,” including, presumably, the preventive services mandate.

The results.  About a dozen federal District Courts have now made decisions in these cases, with more decisions arriving every few days as the year ends. In addition, four Circuit Courts of Appeals — the D.C., Seventh, Eighth, and Tenth Circuits — have entered decisions temporarily staying or refusing to stay enforcement of the rule, while one decision denying interim relief has been made by a single Supreme Court Justice, Justice Sotomayor.

To date, virtually all of the decisions have been on jurisdictional and procedural grounds rather than final decisions on the merits (including Justice Sotomayor’s opinion, which turns specifically on the very limited jurisdiction of the Supreme Court to issue injunctions in pending cases).  In particular, decisions in cases brought by religious organizations have addressed the question of whether a decision on the merits would be premature, which divides in turn into the questions of whether the plaintiffs are already suffering actual injury from the contraception policy (standing) and whether the policy is clearly enough formed that a challenge is timely (ripeness).

Other decisions, those involving secular employers, have turned on the question of whether the court should issue a temporary order barring the enforcement of the regulation pending the final decision by the court of the case on the merits and the standards that must be met for granting temporary relief.  These decisions do not in fact decide the legal question posed by the case, although they do address the question of whether the plaintiff is likely to succeed on the merits.

Religious-institution cases.  All but one of the courts that have decided cases brought by religious institutions have dismissed the cases as premature while the enforcement moratorium is still pending and HHS is trying to work out a compromise solution.  In the only appellate court decision on this issue, the District of Columbia federal Court of Appeals held that a challenge brought by a religious institution was not yet timely and that it would hold the case in abeyance for the time being.  Its decision was based on the government’s promise that it would come up with a proposed accommodation of the plaintiffs in the first quarter of 2013 and have a final resolution in place by the end of the moratorium.  The court said it would hold the government to this promise.  This is likely to be the approach taken by most courts to this question for now, although any resolution reached by the government that is not acceptable to the religious institutions is likely to face further challenges.

Secular-employer cases.  Cases brought by secular employers are on a different footing, since these employers are not protected by the moratorium and are thus already, or soon to be, subject to the mandate.  Decisions in these cases have focused on three questions.  The first is whether a secular, for profit, corporations can have religious beliefs, or more narrowly, whether they are “persons” protected by RFRA.   Corporations have not historically enjoyed the protection of personal constitutional rights, such as the Fifth Amendment right to freedom from self-incrimination, but the Supreme Court’s recent Citizens United opinion, holding that corporations enjoy First Amendment freedom of speech protection, suggests that perhaps corporations enjoy other personal rights as well.

A recent Seventh Circuit decision holds that, in any event, the religious beliefs of the owners of privately held corporations are protected and thus it is not necessary to resolve the question of the beliefs of the corporation itself.  In fact, however, the health plans subject to the mandate are offered by the corporations, not by their owners, and corporations are legal entities that exist independent of their owners for most purposes.  Presumably, if a fine were levied on a corporation for failing to offer preventive services coverage, the courts would not hold that the owners of the corporation were personally liable for the fine.

A second question is whether the mandate “substantially burdens” religious exercise.  Here the courts have divided sharply.  Some courts find that the burden of paying for contraceptive services which are regarded as sinful is obvious.  Other courts have found that the law does not require business owners to use contraceptives, or even to approve of them, but rather only to permit their employees to decide whether or not to use contraceptive services based on their own needs and beliefs.  Health benefits are a form of compensation, and it is not the prerogative of business owners to decide how their employees use their compensation.

Courts that conclude that the mandate substantially burdens religious exercise must decide whether the government has a compelling interest in enacting the mandate and whether the mandate is the “least restrictive” means to furthering that interest.  The government contends that it has a compelling interest in protecting the health of women and in ensuring gender equality, as the cost of contraceptives are normally born by women.   The plaintiffs note that the mandate is subject to many exceptions—it does not apply to grandfathered plans or to religious employers—and thus cannot represent a compelling interest.  The federal government, on the other hand, argues that its effort to accommodate a number of conflicting interests in implementing the mandate does not denigrate its importance.

These cases involve fundamental and difficult questions of how religious beliefs are accommodated in our society under the rule of law.  As noted above, the Supreme Court has decided that the constitutional right to free exercise of religion does not excuse individuals or businesses from complying with “neutral laws of general applicability.”  But Congress, in adopting RFRA, imposed a stricter standard, which the courts must apply.  The plethora of American religions hold a wide variety of sincere beliefs with respect to health care, with some rejecting modern health care entirely, others certain procedures, such as blood transfusions.  But business owners could also claim to hold religious beliefs simply to avoid legal requirements.  And the courts simply cannot evaluate the sincerity of claimed religious beliefs.   Thus granting relief to Catholic business owners who sincerely reject contraception opens the door to all other employers who may have objections to other federal laws governing their employee health plans, or indeed regulating their businesses generally.

Another issue is the extent to which an employer should have an absolute right to dictate the health care services to which its employees have access.  An employee working for a religious employer presumably is on notice that the employer subscribes to certain religious beliefs.  Presumably the 13,000 employees in Hobby Lobby’s 500 stores do not all subscribe to the religious beliefs of its owners, however, and it is not clear that they should be bound by those beliefs.  These are, again, difficult questions that the Supreme Court will in all likelihood ultimately need to sort out.

As a footnote, a federal district court in Missouri on December 21, 2012, decided a related question in a lawsuit brought by a group of insurers, enjoining temporarily the enforcement of a Missouri statute that requires insurers to exclude “coverage for contraceptives if the provision of such contraceptives is contrary to the moral, ethical, or religious beliefs or tenets of such person or entity exempted.”  The court held that the state law was in conflict with the ACA and thus preempted by the federal law.  Twenty-eight states currently require insurers to cover contraceptives, although many contain religious exemptions.   Given the pattern of state resistance to the ACA that we have seen, state laws exempting insurers and employers from the federal contraceptive mandate may also become common, although they are likely to, like the Missouri law, be found unenforceable.

The contraception cases do not pose an existential threat to the ACA.  Even if the Supreme Court eventually holds that the requirement cannot be applied to some employers and individuals, the provision is easily severed from the rest of the ACA and it is inconceivable that any court would hold that the entire ACA must fall if contraceptive mandate is limited.  The final legal challenge discussed in this post, however, poses a much more serious threat to the ACA.

The Dispute Over Premium Tax Credits For Participants In Federally Facilitated Exchanges

Pruitt v. Sebelius is a case that was initially filed by the Attorney General of Oklahoma challenging the individual mandate.  The Supreme Court’s decision upholding the mandate mooted the case, but Pruitt moved to amend his complaint to raise a completely different issue:  the legality of federally facilitated exchanges issuing advance premium tax credits and cost-sharing reduction payments.  The ACA provides that advance premium tax credits are available only through the exchanges.  It asks the states to establish exchanges, but provides that the federal government can establish exchanges in any state that fails to do so.

The section of the ACA that establishes premium tax credits, however, defines eligibility for tax credits in terms of enrollment in a plan “established by the state under section 1311” of the ACA.  The CATO Institute, a libertarian advocacy organization, has argued that this provision bars federally facilitated exchanges from issuing premium tax credits, and this argument has found some traction among state officials that oppose the ACA.

Whether the ACA provision does this or not is a matter of statutory construction.  The IRS in drafting its advance premium tax credit rules considered other provisions of the ACA, as well as the structure and legislative history of the law, and concluded that state exchanges established by the federal government can issue premium tax credits.  General Pruitt challenges this conclusion.  If federally facilitated exchanges cannot issue premium tax credits, however, employers in states that refuse to establish state exchanges will not be subject to the employer mandate, because employers can only be taxed for failing to provide coverage (or affordable or adequate coverage) to their employees if an employee receives a premium tax credit. Of course, since federally facilitated exchanges are likely to exist in two-thirds of the states in 2014, including Oklahoma, millions more Americans, including nearly 400,000 Oklahomans, will remain uninsured if the IRS rule is invalidated.

General Pruitt seems not to be troubled with the prospect of hundreds of thousands of Oklahomans remaining uninsured.  Rather he argues that Oklahoma does not intend to establish a state exchange, and thus Oklahoma employers, including the state itself, will not be subject to the mandate if the federally facilitated exchange in Oklahoma cannot issue premium tax credits.  Several employers from Texas has sought permission to intervene in the case, also challenging the applicability of the employer mandate since Texas also does not intend to establish a state exchange.  The United States has moved to dismiss the case on jurisdictional grounds.

As the Fourth Circuit held in the Virginia challenge to the ACA, based on long-standing Supreme Court precedent, states cannot sue to challenge the constitutionality of a federal law on behalf of their citizens.  Moreover, the penalty imposed on employers by the ACA is clearly a tax, and thus the Tax Anti-Injunction Act (which the Supreme Court held in last summer’s ACA challenge does not apply to the individual mandate) clearly does apply to employers.  Employers cannot challenge the regulation, therefore, until penalties are actually assessed against them.  Under the proposed employer-responsibility regulations recently published by the IRS, penalties will not be assessed against employers until 2015 for non-compliance with the mandate.  Employer challenge to the law will have to wait until then.  In any event, some court at some point will have jurisdiction over this question, which will then have to be decided.

In sum, ACA litigation is continuing unabated into 2013.  As Congress negotiates the federal budget, it should perhaps consider an increase in the Department of Justice budget to cover the high costs that this litigation is imposing on federal taxpayers.

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