United States: US Supreme Court To Hear Arguments Regarding The Constitutionality Of The Affordable Care Act

Last Updated: March 29 2012
Article by Bruce Merlin Fried, Bill McCollum, Mark W. Weller and Michael E. Zolandz

On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act (Pub. L. No. 111-148). One week later, the Health Care and Education Reconciliation Act of 2010 (Pub. L. No. 111-152) was enacted. Together, these two laws comprise the president's signature domestic policy accomplishment, commonly referred to as the Affordable Care Act. Throughout the federal health care reform debate, immediately upon its enactment, and in the two years since, the political firestorm has not subsided. While the Obama Administration has been implementing the law and Democrats have used all means available to promote its popular and beneficial provisions, Republicans have been unanimous in their opposition, attacks, and aggressive oversight over the law and its implementation. In the states, implementation progress varies substantially, as many states await the outcome of the legal challenges to the law. For three days next week, the public's attention once again will return to federal health care reform. The United States Supreme Court (the "Court") will hear an unprecedented six hours of oral argument to determine the constitutionality of the Affordable Care Act. Twenty six states brought suit against the Department of Health and Human Services ("HHS") challenging the constitutionality of the law.

The outcome of the Court's deliberations, expected in June, will have a profound impact on the future of health care reform, the political makeup of the federal government, and every business sector in the US economy. The following reviews the issues the Court will examine next week and discusses the main arguments made by the Obama Administration, the states, and court-appointed counsel, where applicable.

Anti-Injunction Act

The Anti-Injunction Act prevents a taxpayer from challenging a tax in court before the taxpayer has been assessed the tax. The individual mandate becomes effective in 2014 and penalty payments will not be collected by the Internal Revenue Service until 2015. Interestingly, both the Obama Administration and the states agree that the Anti-Injunction Act does not preclude the Court's consideration of the case, albeit on varying grounds. The states argue that their challenge is to the requirement to obtain health insurance coverage (the "minimum coverage provision" or "individual mandate"), not the tax itself for non-compliance. (Note: The states also make procedural arguments against application of the Anti-Injunction Act, which the Administration rejects.) The Administration argues that the minimum coverage provision is a constitutional exercise of Congress's taxing power and that the penalty for failure to maintain minimum coverage is a "penalty" and not a "tax." Because the states and the Administration agree on the non-applicability of the Anti-Injunction Act and the Court wishes to examine this procedural issue carefully, the Court appointed counsel to argue for the application of the Anti-Injunction Act. The Court-appointed counsel argues that the Court does not have jurisdiction because the individual mandate penalty operates as a tax (i.e., it is assessed and collected in the same manner as an assessable penalty under the Internal Revenue Code). Thus, because the penalty essentially is a tax, the challenge to its constitutionality is not ripe and the Court must throw out the case.

Courts often seek to avoid ruling on controversial issues if a procedural obstacle is available. The constitutionality of the Affordable Care Act necessarily will be one of the most controversial decisions in recent jurisprudence should the Court rule on the merits of the case. Applying the Anti-Injunction Act to prevent consideration of the legality of the mandate would allow the Court to avoid ruling on an issue for which a substantial percentage of the population and political leaders will chastise the Court. By pushing off consideration of the individual mandate until 2015 when the penalties are assessed and collected, the Court would enable the political process (e.g., elections, possible change of power, continued implementation) to unfold and potentially modify the challenged provisions by law, thus, settling the debate without the Court's involvement.

Individual Mandate

The Affordable Care Act will require most US citizens to obtain acceptable health insurance coverage (i.e., "minimum essential coverage"), effective January 1, 2014. Without detailing various exceptions to this requirement (e.g., religious objections, unavailability of affordable coverage), the mandate is enforced via penalties on individuals who fail to demonstrate that they have obtained and maintained minimum essential coverage throughout a given year.

The states contend that the individual mandate exceeds Congress's power to regulate interstate commerce. The states argue that the Affordable Care Act compels private citizens to engage in commerce by purchasing health insurance regardless of their desire or need to do so. This compulsion would be the first instance the federal government required citizens to purchase a product. The Administration, however, argues that all citizens engage in the health insurance marketplace at some point in their lives and that being uninsured substantially affects commerce because those with insurance have to pay the bills incurred by the uninsured. Additionally, the minimum coverage requirement is a critical part of a comprehensive regulatory scheme to regulate health insurance, expand coverage, and enhance its affordability. The Administration specifically points to the guaranteed issue and community rating insurance reforms and notes that, in isolation, these two reforms would lead to spiraling health care costs and reduced coverage. Passage of the Affordable Care Act, with the individual mandate, was a Necessary and Proper exercise of Congress's authority to regulate commerce.

Severability

Laws often contain a severability clause that protects the broader law in the instance where certain provisions are declared unconstitutional or invalid. However, the Affordable Care Act does not contain a severability clause. If the individual mandate is declared unconstitutional, the Court must then determine whether the entire law is unconstitutional, whether certain parts of the law are not severable from the individual mandate (and thus must fall with the mandate), or whether the individual mandate is severable from all other provisions of the Affordable Care Act. The US Court of Appeals for the 11th Circuit held that the individual mandate could be severed from the rest of the Affordable Care Act.

The Administration argues that the guaranteed issue and community rating provisions should be eliminated if the individual mandate is declared unconstitutional. The Administration believes that these two reforms, absent a mandate to purchase insurance, would lead to substantial health insurance cost increases and reduced coverage because individuals would wait until they needed health insurance before purchasing it. The states argue that the entire Affordable Care Act should be declared invalid if the individual mandate is deemed unconstitutional. The states argument rests on the premise that Congress would not have passed the Affordable Care Act without the individual mandate.

As with the Anti-Injunction Act issue, the Court appointed counsel to argue that the individual mandate is severable from the rest of the law (defending the 11th Circuit's holding). Under this argument, severability is presumed unless it is evident that Congress would not have enacted the law independently of the invalidated component. Thus, the question here is whether Congress would have enacted the Affordable Care Act absent the individual mandate. The Court-appointed counsel notes that the evidence is lacking that Congress would have enacted the Affordable Care Act without a mandate. The other provisions of the law, including subsidies to purchase coverage and limited enrollment periods, would entice individuals to obtain health insurance coverage even absent the individual mandate. Because severability is presumed by the courts, the lack of clear evidence that Congress would not have enacted the Affordable Care Act without an individual mandate is enough to hold that the remainder of the law should remain valid if the individual mandate is held unconstitutional.

Medicaid Expansion

Beginning January 1, 2014, states must provide Medicaid coverage to individuals and families below 138% of the federal poverty level (this includes a 5% income disregard required by the Affordable Care Act). The federal government will cover 100% of the added cost from 2014 through 2016. States will be required to cover 5% of the cost starting in 2017, transitioning to 10% in 2020 and beyond. No lower courts held that the Medicaid expansion was unconstitutional, however, the Supreme Court agreed to hear this issue.

The states argue that the mandatory Medicaid expansion, estimated to provide coverage for 16-17 million people, is unconstitutionally coercive. If states do not agree to expand coverage, they would lose all federal matching payments under Medicaid, resulting in billions of dollars of lost funds. Thus, the only legitimate "option" for states is to agree to the expansion and the federal funds that flow with it. The Administration counters that the Affordable Care Act requires the federal government to finance the vast majority of the added costs of the Medicaid expansion. Legal precedent has consistently held that Congress's spending power includes the power to fix the terms on which funds will be disbursed to the states.

Conclusion

The following represents the Court's schedule for oral argument:

  • On Monday, March 26, the Court will hear 90 minutes of oral argument regarding the applicability of the Anti-Injunction Act (this includes 30 minutes added by the Court in February).
  • On Tuesday, March 27, the Court will hear two hours of oral argument regarding the minimum coverage provision (i.e., the individual mandate).
  • On Wednesday, March 28, the Court will hear oral argument regarding two issues: (1) severability of the individual mandate from the rest of the Affordable Care Act (90 minutes); and (2) the mandatory Medicaid expansion (one hour).

Immediately upon passage of the Affordable Care Act two years ago, dozens of lawsuits were filed across the country by states, business groups, universities, and individuals. Interested stakeholders filed hundreds of briefs in support of one side or the other. As these cases made their way through the judicial system with various outcomes, it became clear that the challenge from over half the states in the US was the likely lawsuit to serve as the primary vehicle for the US Supreme Court's decision. As noted above, the outcome of the Court's decision will have a profound impact on the future and substance of health care reform and could directly impact the political makeup of Congress and the White House in 2013 and beyond. The SNR Denton team of experts will be following the Court's deliberations closely and is prepared to assist clients throughout the judicial and political process, regardless of the ultimate outcome.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Bruce Merlin Fried
 
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