Health Care Reform Blog : Health Care Law Reform : McDermott Will & Emery Law Firm

On February 7, 2011, Republican Governors sent a letter to Secretary of Health and Human Services (HHS), Kathleen Sebelius, emphasizing that the future of the Affordable Care Act (ACA) is uncertain and suggesting a short of list of “improvements” to ACA.   On January 31, 2011, a Florida court ruling in favor of twenty-six states found that ACA’s “individual mandate” (IM) and in turn the whole of ACA is unconstitutional.  The case will almost certainly reach and ultimately be decided by the U.S. Supreme Court. 

The Governors’ letter says that the States now “face the decision of whether to participate in [ACA] by operating state [insurance] exchanges, or to let the federal government take on that task,” even though the States cannot know at present whether ACA will be in force in 2014.  Although the IM does not take effect until 2014, the ACA requires states to establish insurance exchanges ready to operate January 1, 2014.  If a state does not set up its own insurance exchange, the Federal government must step in and set up an exchange in that state, which could occur in 2012 or earlier.  As a result, states cannot wait to see what happens with the litigation concerning the constitutional questions.  ACA provides that HHS can set up and operate an exchange in any state that “the Secretary determines on or before January 1, 2013” will not be able to meet the 2014 deadline for setting up its own exchange.

Although the Governors' express “grave concerns” about ACA and note their belief that it contains “constitutional infringements,” the letter nonetheless urges the following targeted ACA modifications:

• Provide states with complete flexibility on operating the exchange, most importantly the freedom to decide which licensed insurers are permitted to offer their products
• Waive the bill’s costly mandates and grant states the authority to choose benefit rules that meet the specific needs of their citizens.
• Waive the provisions that discriminate against consumer-driven health plans, such as health savings accounts.
• Provide blanket discretion to individual states if they chose to move non-disabled Medicaid beneficiaries into the exchanges for their insurance coverage without the need of further HHS approval.
• Deliver a comprehensive plan for verifying incomes and subsidy amounts for exchange participants that is not an unfunded mandate but rather fully funded by the federal government and is certified as workable by an independent auditor.
• Commission a new and objective assessment of how many people will end up in the exchanges and on Medicaid in every state as a result of the legislation (including those “offloaded” by employers), and at what potential cost to state governments. The study should be conducted by a neutral third-party research organization approved by the signatory states.

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On Monday, January 17, 2011, a U.S. District Court in Florida found the Patient Protection and Affordable Care Act (PPACA) to be unconstitutional, virtually assuring that the Supreme Court will resolve the question of PPACA’s constitutionality.  The opinion, written by Reagan appointee Judge Roger Vinson, states that the federal government does not have the constitutional authority to impose the “individual mandate” (IM) on citizens.  Vinson also concludes that the IM, found in Section 1501 of PPACA, is not severable from the rest of PPACA and that consequently PPACA is unconstitutional as a whole. 

On December 14, 2010, a federal judge in Virginia reached the same conclusion as the Florida federal court regarding the unconstitutionality of the IM. In that opinion, however, Judge Henry Hudson ruled that the IM was severable from PPACA’s other provisions, except for provisions which were “directly dependent” on the IM and which make specific reference to Section 1501 of PPACA.  Prior to the Virginia and Florida decisions striking down the IM, two other federal district court judges (a decision in Virginia and a decision in Michigan) had reached the opposite conclusion and determined that the federal government does, in fact, have the constitutional power to impose the IM.

The Florida opinion states that the case is “not really about the health care system at all,” but rather “principally about the federalist system” and the role of the federal government.  It is established that individual states generally have the authority to pass laws compelling people to purchase insurance (depending on state constitutional provisions), as is the case in Massachusetts. 

The federal government has a relatively short list of “enumerated powers” under the U.S. Constitution, many of which grant particularized authority under the Constitution for the federal government to enact laws in those specific areas (e.g. the power to coin money, establish an army and navy, establish a post office, or declare war).  As is the case with most federal laws, there is no specific, enumerated power authorizing Congress to enact the IM and so the authority for Congress to legitimately enact the IM only exists if the IM is deemed grounded in one of Congress’s broader constitutional powers, such as the power to tax and spend or to regulate interstate commerce.

All four federal courts that have issued an opinion to date have reached the conclusion that the IM is not a tax and therefore would not be constitutionally justified under the federal government’s taxation authority.  Both Judge Vinson in Florida and Judge Hudson in Virginia found that the IM could also not be justified under the commerce clause (i.e. the grant of authority to regulate interstate commerce). 

Noting that for the first century of the country’s history the commerce clause was “seldom invoked by Congress” as a basis for law-making authority, Judge Vinson writes that “everything changed in 1937” beginning with three significant new deal cases in which the Supreme Court took a more expansive view of the power granted to the federal government under the commerce clause.  Despite the generally expanded view of the commerce clause over the past 70 years, Vinson found that it would be “a radical departure from existing case law to hold that Congress can regulate inactivity [i.e. an individual’s decision to not purchase health insurance] under the commerce clause.”  In concluding that that the IM could not be severed from health reform as a whole, Judge Vinson noted that the IM is “indisputably necessary to [the health reform law’s] insurance market reforms, which are in turn, indisputably necessary to the purposes of the [health reform law].”

The Justice Department is expected to appeal the ruling.  Meanwhile, CMS and HHS will continue the process of promulgating regulations in keeping with the implementation timelines under PPACA.  Initial reaction from the states is mixed, with some states indicating they will proceed with implementation and other states indicating they plan to scale back or discontinue their implementation efforts.  Virginia’s Attorney General, Ken Cucinelli, issued a press release January 26, saying that at present “there is a great deal of uncertainty for states, individuals, and businesses” and expressing concern that “decisions are already being made and money is already being spent to comply with a law that may not be around two years from now.” 

In other court action, in late January, the Fourth Circuit Court of Appeals granted a motion to expedite a review of Judge Hudson’s decision and will likely schedule a hearing in May 2011, but Cuccinelli announced today, February 3, that Virginia will request that the Supreme Court take the case directly and skip the Circuit Court review entirely.  Cuccinelli said “we need this suit resolved as quickly as possible, for the good of our citizens and our economy.”  The issues of the constitutionality of the IM and whether or not the IM is severable from PPACA’s numerous other provisions will likely ultimately be settled by the Supreme Court. 

Meanwhile, on February 2,  the Senate defeated a procedural motion 47-51 on a Republican effort to repeal PPACA thus blocking Republican efforts led by Senate Minority Leader Mitch McConnell (R-KY) to repeal the health reform law.  It is clear that during the lead-up to the November 2012 elections, we will see continued efforts to thwart implementation of the health reform law. 

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