Healthcare Debate.jpgAs the first anniversary of the Patient Protection and Affordable Care Act approaches (it was signed into law March 23, 2010), 5 district courts across the nation have addressed the constitutionality of this controversial piece of legislation (U.S. District Court, Northern District of Florida (PDF)U.S. District Court, Eastern District of Michigan (PDF); U.S. District Court, District of New Jersey (PDF)U.S. District Court, Eastern District of Virginia (PDF); and U.S. District Court, Western District of Virginia (PDF)).  The score is 3-2 in the federal government’s favor, but all 5 cases are on appeal.  The principal issue in these cases is the constitutionality of the Act’s “individual mandate,” which requires most individuals to purchase health insurance beginning in 2014 or face a penalty of up to $2,085 per year.  

Does Congress Have Authority Under the Commerce Clause to Penalize Individuals for Not Having Health Insurance?

This is the question for the Courts of Appeals.  The Justice Department says YES, because the Commerce Clause gives Congress the authority “to regulate commerce . . . among the several States.”  This authority has been interpreted broadly over the years, and there is a consensus that the Commerce Clause allows Congress to regulate economic activities that substantially affect interstate commerce, even if the activities take place entirely within a single state. 

District Courts Split on Whether Being Uninsured Is An “Activity” or “Inactivity”

The district courts disagree as to whether being uninsured is an “activity” under the Commerce Clause, or merely “inactivity.”  For the “inactivity” argument, the reasoning is that being uninsured is the result of not buying insurance, which is a failure to act, and therefore, falls outside Congress’s Commerce Clause power.  Opponents of the act use the “inactivity” argument to show the Act is unconstitutional.  However, the 3 district courts that ruled in the federal government’s favor reached the opposite conclusion.  In their view, everyone will need medical care eventually, and therefore, failing to have health insurance is the product of a decision to pay for future medical treatment out of pocket instead of through insurance.  Those courts ruled that making that decision is an “activity” which affects interstate commerce. 

But, What About State Sovereignty?

As the Commerce Clause “activity versus inactivity” issue wends its way through the federal Courts of Appeals on its way to the United States Supreme Court, a colleague of mine, Tom Christina (shareholder in Ogletree Deakins’ Greenville, South Carolina office) explained to me that there are additional constitutional issues, beyond just the “individual mandate,” that courts should be considering:

  • Tom’s argument involves whether the Act offers States a meaningful choice about whether to establish “American Health Insurance Exchanges,” which will be the marketplaces for coverage being in 2014.  Section 1311 of the Act provides that each state “shall” establish such an Exchange, but Section 1322 of the Act allows the Department of Health and Human Services (HHS) to establish an Exchange in a state if the state fails or refuses to do so, or if it is not moving forward quickly enough.  By tracing through hundreds of pages of the Act, Tom noticed that there is an important difference between Exchanges established by the states under Section 1311 and those established by HHS under Section 1322.  Under the Act, a tax credit becomes available beginning in 2014 to help taxpayers pay for coverage, but the amount of the credit is zero unless the taxpayer buys insurance coverage from a Section 1311 Exchange.  Thus, taxpayers in states that failed or refused to establish an Exchange are punished by being ineligible for a federal tax credit available to voters in states that established Exchanges. 

Hadley Health of the Independent Women’s Forum blogged about the above alternative argument that State plaintiffs could make to go beyond the “individual mandate” question.  She noted that Tom developed this “sovereignty-based” argument at a presentation at the American Enterprise Institute in December 2010.  Hadley wrote

No external entity is allowed to influence a state’s political process.  And the federal government is external of the state.  The health reform law provides income tax credits to individuals in exchanges established by states, but not to individuals in exchanges established by the federal government (in non-electing states).  How will voters react to this, if understood correctly?  The choice of their state to establish or not to establish an exchange will impact the tax credits that citizens receive. 

The sovereignty of states is undermined, because the adoption of this law is hardly “voluntary.”  States have been put in a bad position, and I hope that the discussion of these health care exchanges will resurface in another case.

Tom’s experience as a former Associate Deputy Attorney General during the Reagan Administration enabled him to immediately recognize the potential federalism concerns raised by a statutory program that brings outside pressure to bear on a state’s decision to establish Exchanges.  Based on the different treatment of taxpayers in cooperating states compared with taxpayers in non-cooperating states, Tom advanced an argument for the unconstitutionality of the Act based on federal interference with state legislative and executive processes.

For those who are interested in the details of Tom’s argument, his PowerPoint Slides (PDF) lay out the statutory provisions in issue and U.S. Supreme Court cases involving federal-state relations that the states could rely on.  You also can see or hear the AEI presentation at AEI’s website (Tom’s portion of the panel discussion begins approximately 56 minutes into the program).