• Court Challenges to Health Care Reform Law
  • March 14, 2011
  • Law Firm: Ford Harrison LLP - Atlanta Office
  • Although numerous lawsuits have been filed challenging the 2010 health care reform law (the Patient Protection and Affordable Care Act) (PPACA), a federal trial court in Florida recently became the first federal court to strike down the entire law as unconstitutional. In Florida v. United States Department of Health and Human Services (N.D. Fla. Jan. 31, 2011), Judge Roger Vinson held that Congress exceeded the power granted to it under the Commerce Clause when it enacted the individual mandate provision of the PPACA. The court also held that the individual mandate cannot be severed from the other provisions of the Act, thus the entire law is unconstitutional.

    The Court's Decision

    The Act's individual mandate provision requires that, beginning in 2014, everyone (with certain limited exceptions) must purchase federally-approved health insurance or pay a monetary penalty. Congress relied on its Commerce Clause power in enacting this provision and the court found that the individual mandate was not a proper exercise of this power.

    The court held that the Commerce Clause only gives Congress the power to regulate "activity" that substantially affects interstate commerce. According to the court, it would be a "radical departure from existing case law to hold that Congress can regulate inactivity under the Commerce Clause." The court found that if Congress can compel an otherwise passive individual into a commercial transaction with a third party merely by asserting that compelling the actual transaction itself substantially affects interstate commerce "it is not hyperbolizing to suggest that Congress could do almost anything it wanted."

    The court also held that the failure to purchase insurance is not "activity"; instead, the individual mandate regulates inactivity. The court rejected the defendants' argument that because of the "uniqueness" of the health insurance industry individuals who do not purchase health insurance are not inactive. The court stated that "uniqueness is not an adequate limiting principle as every market problem is, at some level and in some respects, unique."

    The court also rejected the defendants' argument that the uninsured have made the "economic decision" to engage in market timing and try to finance their future medical needs out-of-pocket rather than through insurance, which is tantamount to "activity." The court found that this legal rationale "would essentially have unlimited application" because "there is quite literally no decision that, in the natural course of events, does not have an economic impact of some sort." The court held that permitting Congress to regulate the so-called economic decision not to purchase health insurance now in anticipation of future consumption is a "bridge too far," without "logical limitation" and far in excess of the existing legal boundaries established by Supreme Court precedent.

    The court also held that the individual mandate cannot be severed from the remaining statutory provisions, because although many of those provisions can function independently from the individual mandate, they would not constitute a law that would function the way Congress intended when it enacted the statute. Comparing the Act to a "finely crafted watch," the court held that when one essential piece (the individual mandate) is defective and must be removed, the Act cannot function as originally designed.

    Impact of the Decision

    This decision could complicate implementation of the PPACA in the 26 states that brought suit challenging the law. The court did not issue an injunction when it entered the declaratory judgment, based on the "long-standing presumption" that a declaratory judgment against federal officials is a de facto injunction. However, the Obama administration indicated that it intended to continue implementation of the law. Subsequently, on March 3, 2011, the court issued an order clarifying that it intended its prior declaratory judgment to have immediate injunction-like effect, which would prohibit the law from going forward while it is on appeal. In that same order, the court issued a stay of its decision, conditioned on the defendants filing an appeal within seven days of the order seeking expedited appellate review either in the federal appeals court or with the U.S. Supreme Court pursuant to that Court's rules.

    Expedited Appellate Review of Other PPACA Decisions Granted

    In Virginia ex rel. Cuccinelli v. Sebelius, the district court for the Eastern District of Virginia held that the individual mandate is unconstitutional but severed that provision from the remainder of the statute. The Fourth Circuit granted expedited review of both Cuccinelli and a decision from the Western District of Virginia, Liberty University Inc. v. Geithner, which upheld the constitutionality of the statute. Both of these cases are tentatively scheduled for oral argument in the Fourth Circuit between May 11 and May 13, 2011. Additionally, in Thomas More Law Center v. Obama, the Sixth Circuit Court of Appeals granted expedited review of an appeal from a decision of the Eastern District of Michigan upholding the individual mandate. The Sixth Circuit announced that it will hear oral argument sometime between May 30 and June 10.

    Supreme Court Review Sought

    In Cuccinelli, the Virginia Attorney General asked the U.S. Supreme Court to rule on the constitutionality of the Act prior to a ruling by a federal appeals court. Although the petition was filed in Cuccinelli v. Sebelius, the petition asked the Court to expand certiorari to include the decision in Florida after an appeal has been filed in that case. The Justice Department has stated that it opposes expedited Supreme Court review. While possible, is appears unlikely that the Supreme Court will agree to review the case before an appellate court issues an opinion.

    Bottom Line

    We will likely see more court challenges to the PPACA as well as Congressional efforts to amend the law. However, at this point employers should continue to comply with the provisions that are currently in effect and take the steps necessary to be ready to comply with those that take effect in the future. •