The stated purpose of the Patient Protection & Affordable Care Act (PPACA) (now called the Affordable Care Act (ACA)), according to the United States Department of Health and Human Services, is to put in place “comprehensive health insurance reforms that will hold insurance companies more accountable, lower health care costs, guarantee more health care choices, and enhance the quality of health care for all Americans.”[3]

ACA contains many provisions aimed at achieving these purposes, one of which is the individual mandate, or minimum coverage provision. There are an estimated 30 to 35 million Americans who are uninsured at any given moment. The individual mandate provision requires every United States citizen, with limited exceptions, either to obtain “minimum essential coverage” for health care starting in 2014, or to pay a penalty to the federal government for failing to do so. The legislative intent of the individual mandate is at least twofold: (i) to increase the pool of insured individuals with an eye towards decreasing insurance costs (by increasing the risk pool); and (ii) to decrease the costs of health care, and health insurance nationwide, by reducing the number of individuals who use “free” or “uncompensated medical services,” including costly emergency room services, and thereby reduce the costs today absorbed by state governments, premium increases passed on to employers that sponsor group health plans, and individuals who act responsibly and purchase insurance.

Since President Obama signed ACA into law in March 2010, there have been reportedly approximately 20 lawsuits filed nationwide challenging ACA generally and the constitutionality of the individual mandate. As of May 2011, five of these lawsuits brought in two federal district courts in Virginia and one each in Florida, Michigan and Washington, D.C., have been decided. Of the five district courts, three (VA, MI and DC) held that the individual mandate was within Congress’ prescribed authority under the U.S. Constitution. The other two district courts (VA and FL) held that ACA’s individual mandate is unconstitutional and that Congress exceeded its constitutional authority in enacting the individual mandate. As noted below, the court in the Florida case declared all of ACA unconstitutional because of the Act’s failure to include a “severability clause.” All five district court decisions are final and appeals have been filed with the respective appellate courts in the Fourth, Sixth, Eleventh, and Federal Circuits. Oral arguments in those appeals have occurred or are scheduled to occur in the coming months.

The Obama Administration has defended the constitutionality of the individual mandate under the Commerce Clause and Necessary and Proper Clause of the U.S. Constitution. In the five decided cases to date, the major arguments have focused on whether the Commerce Clause provides sufficient authority under the U.S. Constitution for Congress to mandate that individuals buy health insurance in 2014. The government’s position is that Congress’ authority is well-established under a line of cases interpreting the Commerce Clause, beginning with the famous “Wheat Case” of 1942, which introduced the idea that a private citizen not engaged in interstate commerce nonetheless falls under the purview of the federal government when his “activity” could have an impact on federal commerce. See Wickard v. Filburn, 317 U.S. 111 (1942). The plaintiffs in all five cases argue that the “activity” established as a key element in the Wheat Case (and the subsequent Commerce Clause cases decided by the U.S. Supreme Court) is missing here, since what the government seeks to regulate is “inactivity” (i.e., the non-purchase of health insurance). All five of the decided cases have focused their analysis on this “activity equals inactivity” question.

District Court Decisions

ACA’s individual mandate was held to be constitutional in these following cases in the Eastern District of Michigan, the Western District of Virginia, and the District of Columbia:

     Thomas More Law Center v. Obama, 720 F. Supp.2d 882 (E.D. Mich. 2010): Two uninsured individuals, along with a national public interest law firm, brought suit against President Barack Obama, among others, seeking a declaration that Congress acted outside of its authority under the Commerce Clause and its power to tax and spend in passing the individual mandate. They asserted that requiring citizens to purchase health insurance constitutes a regulation of “economic inactivity” and the penalty associated with the regulation is an improper use of Congress’ power to tax and spend. Plaintiffs argued that expanding Congress’ Commerce Clause power to such a degree would give Congress the authority to “regulate every aspect of our lives, including our choice to refrain from acting.” The court denied plaintiffs’ motion for a preliminary injunction and dismissed plaintiffs’ claims, reasoning that there was a “rational basis to conclude that, in the aggregate, decisions to forego insurance coverage” by individuals would “drive up the cost of insurance” and have “clear and direct impacts on healthcare providers, taxpayers and the insured population who ultimately pay for the care provided to those who go without insurance.” Accordingly, the court concluded that the individual mandate addresses “economic decisions regarding health care service that everyone eventually, and inevitably, will need” and is a “reasonable means of effectuating Congress’s goal.” Having ruled that Congress has the power to pass the individual mandate under the Commerce Clause, the court declined to rule on the issue of whether the penalty associated with the mandate exceeded Congress’ power to tax and spend.

     Liberty University, Inc. v. Geithner, 753 F.Supp.2d 611 (W.D. Va. 2010):[4] An employer, state and local officials, and uninsured individuals brought suit against the Secretary of the Treasury, among others, seeking a declaration that ACA is unconstitutional because its individual mandate exceeds Congress’ power under the Commerce Clause. Consistent with the Thomas More Law Center decision, the court dismissed plaintiffs’ complaint, concluding that “the conduct regulated by the individual coverage provision . . . is economic in nature” and “how and when to pay for health care are activities that in the aggregate substantially affect the interstate health care market.”

     Mead v. Holder, -- F.Supp.2d --, 2011 WL 611139 (D.D.C. Feb. 22, 2011):[5] A group of federal taxpayers brought suit against the United States Attorney General and various government agencies alleging that the individual insurance mandate set forth in ACA is unconstitutional on its face. The government moved to dismiss the complaint. The court determined that Congress had a rational basis for its conclusion that an individual’s decision to purchase health insurance was economic in nature and that the aggregate of these individual decisions “substantially affects the national health insurance market.” Accordingly, the court determined that Congress acted within the bounds of its Commerce Clause authority when it enacted the individual mandate. In granting the government’s motion to dismiss, the court rejected plaintiffs’ arguments that Congress was regulating “inactivity,” reasoning that citizens are “inevitable participants in the health care market,’“ and, thus, choosing not to purchase health insurance does not equate to “inactivity” but is essentially “activity” enough to satisfy the Wheat Case rationale.

ACA’s individual mandate was held to be unconstitutional in these following cases in the Eastern District of Virginia and the Northern District of Florida, two cases brought on behalf of the majority of the states.

     Virginia v. Sebelius, 702 F. Supp.2d. 598 (E.D. Va. 2010): In this case, brought by Attorney General Ken Cuccinelli on behalf of the Commonwealth of Virginia against the Secretary of the Department of Health and Human Services, the plaintiff sought declaratory relief challenging the constitutionality of ACA’s individual mandate. The Secretary moved to dismiss the complaint. The court denied the motion to dismiss, concluding that “the Secretary has [not] demonstrated that the Complaint fails to state a cause of action” with respect to plaintiffs’ contention that Congress exceeded its authority under the Commerce Clause in passing the “Minimum Essential Coverage Provision.” The court noted plaintiffs’ argument that the mandate seeks to regulate “a virtual state of repose – or idleness – the converse of activity.” The court also held that if the individual mandate was determined to be unconstitutional, then the penalty associated with failing to purchase healthcare insurance under the mandate would also be unconstitutional.

     Florida v. United States Department of Health and Human Services, 716 F. Supp.2d 1120 (N.D. Fla. 2010); Florida ex rel. Bondi v. United States Department of Health and Human Services, -- F.Supp.2d --, 2011 WL 285683 (N.D. Fla. Jan. 31, 2011):[6] This case, brought by 22 states’ attorneys general and four governors, along with a number of private citizens, and a business federation, was filed against the Department of Health and Human Services and other government agencies and sought declaratory relief on the basis that the individual mandate was unconstitutional. In denying the government’s motion to dismiss the complaint, the court examined the previous Commerce Clause cases and placed ACA in the context of laws previously passed by Congress that were held to be constitutional under the Commerce Clause. The court noted that all prior Congresses before the 111th Congress (the Congress that passed ACA) recognized that the limitations placed on the federal government precluded their (the prior Congresses’) ability to require U.S. citizens to act in a certain manner. The court eschewed the government’s argument that “inactivity” equals “activity” and thus the individual mandate is constitutional under the Commerce Clause cases that started with the Wheat Case. Reciting a “parade of horribles” that would ensue if this line of reasoning were adopted, the court in Florida held, among other things, that the individual mandate is unconstitutional. In addition, the Florida court noted that ACA does not include a so-called “severability clause,” which provides that a finding that any part of the act is unconstitutional will not cause the entire act to be unconstitutional. As such, on January 31, 2011, the Florida court ruled on a motion for summary judgment that all of ACA is unconstitutional. Finally, Judge Roger Vinson, who presided over Florida, denied plaintiff’s claim for injunctive relief, observing that injunctive relief is unnecessary because of a “long-standing presumption ‘that officials of the Executive Branch will adhere to the law as declared by the court…[and as such] the declaratory judgment is the functional equivalent of an injunction.” Citing Committee On Judiciary of U.S. House of Representatives v. Miers, 542 F.3d 909, 911 (D.C. Cir. 2008); accord Sanchez-Espinoza v. Reagan, 770 F.2d 202, 208 n.8 (D.C. Cir. 1985).

It is interesting to note that in all five cases, the U.S. government questioned the standing of each of the plaintiffs to bring their suits, including the standing of the various states’ attorneys general and governors. Each of the district courts had previously ruled that the plaintiffs had standing to contest the constitutionality of the individual mandate and that the issue was ripe for adjudication.[7]

The Appeals

Appeals are currently pending and in different stages in all five cases. On February 8, 2011, the Attorney General of Virginia filed a petition with the U.S. Supreme Court in Virginia v. Sebelius requesting that the Court grant an expedited review of the district court’s decision, bypassing intermediate appellate review by the Court of Appeals for the Fourth Circuit. On April 24, 2011, the U.S. Supreme Court denied Virginia’s petition without providing an explanation for its denial. The parties in that case, as well as in Liberty University, completed briefing of the appeals before the Fourth Circuit and oral argument was conducted on May 10, 2011.[8]

Briefing is also complete in the Thomas More Law Center appeal before the Sixth Circuit Court of Appeals and in the Florida v. United States Department of Health and Human Services appeal before the Eleventh Circuit Court of Appeals. Oral arguments in those appeals will take place on June 1, 2011, and June 8, 2011, respectively.[9] Of note in the Florida case was the government’s request that Judge Vinson clarify whether he had issued an injunction. The judge offered very little by way of additional clarity, but ordered the government to act fast if it was going to appeal his decision. Florida v. United States Department of Health and Human Services, No. 10-CV-91 (N.D. Fla. Feb. 18, 2011) (Docket Entry No. 157).

Lastly, briefs are scheduled to be fully submitted by July 25, 2011, in the Mead v. Holder appeal before the United States Court of Appeals for the District of Columbia. As of the date of this article, oral argument has not yet been scheduled.

The issues before the various Courts of Appeals are, as expected, largely consistent. All of the appeals primarily address whether “inactivity” equals “activity” under the Wheat Case and its progeny, which is essentially the underlying question of whether Congress exceeded its authority under the Commerce Clause in enacting the individual mandate. Of course, all five of these cases included a number of different claims asserted by the plaintiffs and defenses urged by the federal government. In general, all of the courts considering the issue agreed that ACA is constitutionally sound with regard to its mandates on state governments and employers (with the notable exception of the Florida case, of course). Also, various arguments were developed on both sides of the “v” regarding the penalty assessed against individuals starting in 2014 who do not obtain adequate insurance. In the Florida case, for example, the government argued that the action was not justiciable because of the Tax Anti-Injunction Act, currently codified at 26 U.S.C. § 7421(a), which, with limited exceptions, provides that “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed.” In Florida, the government argued that the only relief available to individual taxpayers is suit after the payment of the tax, because of the Tax Anti-Injunction Act. Judge Vinson noted that ACA uses the term “penalty” and chastised Attorney General Holder when the latter attempted to argue that “penalty” and “tax” are interchangeable. All of these issues will be ripe for appeal.

Proskauer’s Perspective

Because ACA is, as Judge Vinson wrote in the Florida case, a “controversial and polarizing law,” and because it is concurrently being scrutinized by four different United States Courts of Appeals, it seems likely that the constitutionality of the individual mandate will ultimately be decided by the U.S. Supreme Court in its 2012 term. Supreme Court review would be avoided, it seems, only if all the circuit court rulings are consistent.

Rather than await the outcome of the judicial process, employers, individuals, and multiemployer welfare funds, among others, should make preparations to ensure compliance with all of the law’s provisions in advance of the various effective dates of the different provisions of ACA. It would not be prudent to wait and see if portions of the law are deemed unconstitutional (or are repealed). In addition, the 2010 mid-term elections saw the return of the conservatives to power, at least in the House of Representatives. While most informed observers agree that “total repeal and replace” is pure fantasy, there has already been bi-partisan agreement to revoke some of the more burdensome aspects of ACA (including the requirement that employers issue a Form 1099 to all vendors providing more than $600 worth of services in a tax year, and the “Employee Vouchers” that were set to begin in 2014, both of which have been repealed). We will continue to monitor the course of the appeals and expect that the Supreme Court may ultimately issue a ruling as to the individual mandate’s constitutionality.