This is the twenty-second issue in our series of alerts for employers on selected topics in health care reform. (Click here to access our general summary of health care reform and other issues in this series). This series of Health Care Reform Management Alerts is designed to provide an in-depth analysis of certain aspects of health care reform and how it will impact your employer-sponsored plans. This supplements our February 4, 2011 One Minute Memo, which addressed the constitutionality of the Patient Protection and Affordable Care Act (PPACA).

In February we reported on a federal district court case from Florida, where the judge ruled that the individual mandate in PPACA (the requirement that individuals obtain health insurance or be subject to a penalty) is unconstitutional. The Florida court said that the Constitution's Commerce Clause does not authorize a mandate regulating a passive individual's failure to engage in commerce. And, because that clause was inextricably bound to the other provisions of PPACA, the judge struck down all of PPACA. An earlier Virginia court had also found the individual mandate provision unconstitutional, but had not extended that analysis to the entire statute.

However, two courts have ruled the other way, upholding the statute's constitutionality. One of these cases from Michigan has made its way up to the Sixth Circuit Court of Appeals. And, on June 29, that court upheld the individual mandate in Thomas More Law Center v. Obama. This decision is also noteworthy because for the first time, a George W. Bush republican appointee?Judge Jeffrey Sutton?has voted to uphold the constitutionality of PPACA, joining Judge Martin in the three judge panel.

The Individual Mandate Under the Commerce Clause

The Sixth Circuit Court of Appeals was unconvinced that the individual mandate exceeds Congress's authority under the Commerce Clause. Unlike the Florida court, the court did not see the uninsured's effects on interstate commerce as attenuated, as nearly everyone needs health care some time in their lives and many aspects of the health care market (e.g., medical supplies, drugs, and equipment) are directly linked to interstate commerce. The court stated that Congress had a rational basis to believe that the decisions and actions of the uninsured affect interstate commerce because the costs of providing uncompensated care to the uninsured are shifted to the government and insured individuals through higher premiums (finding the cost in 2008 of providing uncompensated care was $43 billion).

The Activity/Inactivity Debate

The Sixth Circuit Court of Appeals also was unconvinced that the Commerce Clause applies only to activity (not inactivity). It did not find support for this distinction in the text of the Commerce Clause itself, nor in the decisions of the Supreme Court. Even if a Constitutional bar prohibited Congress from regulating inactivity, the court said, the minimum coverage provision regulates individuals who, as a group, are active in the health care market. The "activity" exists because, as noted above, nearly everyone requires health care services at some unpredictable point, and can receive such services regardless of ability to pay.

Updated Scorecard

Up until now, the decisions on PPACA have occurred at the first level in the federal court system, the District Court. The Thomas More decision is the first to occur at the second level, the Court of Appeals. More decisions at the Court of Appeals level are certain to follow, as the earlier District Court decisions make their way through the appeal process. If Court of Appeals decisions in other circuits conflict with the Sixth Circuit's decision, many expect that there will eventually be a Supreme Court hearing on the constitutionality of the individual mandate and PPACA.