U.S. Supreme Court Considers Constitutional Challenges to Health Reform

“Scarcely any political question arises in the United States that is not resolved, sooner or later, into a judicial question.”

--Alexis de Tocqueville, Democracy in America (1835).

In lawsuits brought by 26 state attorneys general, two private citizens, and the National Federation of Independent Business, the U.S.  Supreme Court heard arguments in late March over three constitutional questions raised by President Obama’s Patient Protection and Affordable Care Act (PPACA):

• Does the Commerce Clause of the Constitution authorise Congress to enact PPACA’s “individual mandate” — the requirement that individuals purchase health insurance?
• If the Court determines that the individual mandate exceeds Congress’ Commerce Clause authority, should all of PPACA be invalidated or may the individual mandate and related provisions be “severed” and the rest of PPACA kept in force?
• Does PPACA’s extension of Medicaid violate states’ Tenth Amendment rights by threatening states with loss of all Medicaid funding if they fail to expand the program?

The constitutionality of PPACA has been debated since the law was passed in March 2010.   Early drafts of the legislation imposed a tax on individuals who failed to purchase health insurance, based on Congress’ broad authority under Article I, section 8 of the Constitution to “lay and collect taxes.”  Because sufficient votes could not be obtained for this approach, Congress dropped the tax and enforced the individual mandate with a “penalty,” relying upon its authority to “regulate Commerce among the several states.” 

Attorneys in the Congressional Research Service advised Congress before PPACA passage that the Commerce Clause was questionable constitutional authority for the individual mandate:  “Whether such a requirement would be constitutional under the Commerce Clause is perhaps the most challenging question posed by such a proposal, as it is a novel issue whether Congress may use this clause to require an individual to purchase a good or a service.”

Even before PPACA became law, several states passed laws declaring the individual mandate unconstitutional and seeking to exempt their residents from it;

Is the Penalty for Violating the Individual Mandate Really a Tax?

Congress deliberately chose not to structure the individual mandate penalty as a tax, even though that would have provided a solid constitutional method of enforcing the individual mandate.  Lawyers for the Obama administration continue to argue that “the penalty is really a tax,” but to date all courts to consider the issue have rejected this argument.  Based on the Supreme Court’s questions during oral argument, the Supreme Court appears unlikely to find that the PPACA penalty can be upheld as within Congress’ power to levy taxes.

Does the Commerce Clause Authorise Congress to Require Individuals to Buy Health Insurance?

Proponents argue that the individual mandate is essential to regulation of healthcare, that Congress can surely regulate healthcare, and that the decision to forego health insurance is an economic activity that impacts interstate commerce by shifting costs to others.  Except for arguing that health care is “unique,” the Obama administration has been unable to give the Court a limiting principle for this potentially broad expansion of Congressional authority.   

Opponents to the individual mandates argue that the non-purchase of insurance is not “commerce,” the mandate does not regulate commerce, and acceptance of the administration’s would permit Congress to “bootstrap” virtually any legislation as impacting commerce.

If the Individual Mandate Is Unconstitutional, Can It Be Severed from PPACA, or Is All of PPACA Void?

If the Supreme Court strikes down the individual mandate, the Court must decide where to draw the line between the parts of PPACA that must fall with the individual mandate, and the parts that can be severed and stand independently. 

The administration has argued that the individual mandate is absolutely necessary for PPACA’s insurance market reforms to work as intended.  The federal government concedes that “guaranteed issue” and “community rating” portions of PPACA should be invalidated if the individual mandate is found unconstitutional, but argues that other portions of PPACA are unrelated to the individual mandate and should survive.

Opponents argue that Congress deliberately removed a severability clause from an early version of PPACA, that the individual mandate is the very heart of PPACA, and that PPACA’s complexity and sweeping reordering of health care mitigate against picking the parts of PPACA that should survive.   Better to strike down all of PPACA and let Congress rewrite the law, say the 26 states.

Does PPACA Violate the Constitution by Threatening Loss of Medicaid Funding for States that Fail to Expand Medicaid?

Many were surprised that the Supreme Court took up this question and devoted extensive time to argument on the issue.   Opponents argue that Congress abuses its spending power authority by threatening a cut off of all Medicaid funds in light of the size of the current Medicaid program and the great expansion of that program under PPACA.    

What are the Odds the Supreme Court will uphold PPACA?

One week before the PPACA arguments, the conservative Supreme Court majority (Chief Justice Roberts, and Justices, Kennedy, Thomas, Alito, and Scalia) held that Congress exceeded its authority by authorising awards of damages against the states for violations of the Family Medical Leave Act.  Justice Kennedy wrote the majority opinion, emphasising the importance of protecting “a State’s fiscal integrity from federal intrusion.” The case indicates the Justices’ thinking on issues of federalism and congressional authority that underlie the constitutional challenges to PPACA. 

Based on their reaction to the oral arguments over PPACA and decisions in other cases, the liberal justices on the Court (Ginsberg, Breyer, Kagan, and Sotomeyor) have an expansive view of Congressional authority under Commerce Clause and will likely support the constitutionality of PPACA.

It is a very close question, but this writer believes that the a majority of the Court (Chief Justice Roberts and Justices Scalia, Alito, Thomas and Kennedy) will find that Congress lacks authority to impose the individual mandate under the Commerce Clause.   Chief Justice Roberts and Justice Kennedy are seriously considering the administration’s argument that health care is “unique,” but ultimately this argument will fail to persuade them.   

If the individual mandate is found to be unconstitutional, I believe the same five Justices will refuse to sever the individual mandate and will strike down all of PPACA.   The majority will conclude that it is better to have Congress reconsider this legislation and pass a new act, than have the Supreme Court try to determine which parts of PPACA are unavoidably linked to the individual mandate.   If the majority invalidates all of PPACA, the Court will not have to decide whether PPACA violates the Constitution by coercing states to expand Medicaid.   

When Will the Supreme Court Resolve All This?

The Supreme Court will rule in June.   Until then, all 50 states, employers, insurers, and health care providers must devote extensive time and resources to meet PPACA’s complex rules and deadlines, notwithstanding doubts as to whether the individual mandate – or PPACA itself – is constitutional.  We will have answers to these questions soon.  In all likelihood, it will be yet another 5-4 decision. 

Mr. McElligott handles employee benefits, executive compensation, and labor relations matters for employers and fiduciaries.   He is a Fellow of the College of Labor and Employment Attorneys, and is listed in Chambers USA, Best Lawyers in America, and SuperLawyers under both Employee Benefits and Labor and Employment.   He is a member of the Employee Benefits Committees of the ABA Sections of Labor and Employment Law and Taxation, a member of the US Chamber of Commerce Employee Benefits Committee, former President of the Federal Bar Association, Richmond Chapter, and former president of the Central Virginia Employee Benefits Council.   Mr. McElligott received his law degree, cum laude, from Harvard Law School.

James P. McElligott, Jr. can be contacted on +1 804 775 4329 or alternatively by emailing jmcelligott@mcguirewoods.com