The Sixth Circuit U.S. Court of Appeals in Cincinnati recently considered an appeal challenging the constitutionality of the Patient Protection and Affordable Care Act (“PPACA”), the federal health care reform law passed in 2010. Specifically, the lawsuit challenged PPACA’s requirement that most Americans purchase or have qualifying health insurance coverage. Late last month, the Court of Appeals issued an opinion affirming the decision of the district and declaring the requirement constitutional.

According to many observers, one of the notable facets of the decision is that Circuit Judge Jeffrey Sutton, appointed by former President George W. Bush, joined the judgment declaring the requirement constitutional. Judge Sutton thus becomes the first judge who has ruled contrary to the position on PPACA generally taken by the political party of the appointing President.

District Court Opinion

The Court of Appeals reviewed an appeal from the district court’s determination that PPACA’s minimum coverage provision is constitutionally sound. Among the Act’s many changes to the national markets in health care delivery and health insurance, the minimum coverage provision requires all applicable individuals to maintain minimum essential health insurance coverage or to pay a penalty.

The plaintiffs sought a declaration that Congress lacked authority under the Constitution’s Commerce Clause to pass the minimum coverage provision, and alternatively sought a declaration that the penalty is an unconstitutional tax. The district court held that the minimum coverage provision falls within Congress’s authority under the Commerce Clause for two reasons: (1) the provision regulates economic decisions regarding how to pay for health care that have substantial effects on interstate commerce; and (2) the provision is essential to PPACA’s larger regulation of the interstate market for health insurance. Because the district court found the provision to be authorized by the Commerce Clause, it declined to address whether it is a permissible tax under the Constitution. The district court denied plaintiffs’ motion for a preliminary injunction, and they appealed to the Sixth Circuit.

Sixth Circuit Opinion

The Sixth Circuit’s opinion is divided into several parts. The decision provides a great deal of background on PPACA and the minimum coverage provision, and then considers whether the provision is authorized by the Commerce Clause of the Constitution in the context of this background. In the background discussion, the Court notes that PPACA’s requirement of minimum coverage takes effect in 2014 and requires every applicable individual to obtain minimum essential coverage for each month. In turn, PPACA directs the Department of Health and Human Services, in coordination with the Treasury Department, to define the required essential health benefits.

The Court set forth Congress’ various findings, noting that Congress found that without the minimum coverage provision other provisions in PPACA, in particular the bar denying coverage to individuals with preexisting conditions and the community rating requirement prohibiting the charging of higher rates to individuals based on their medical history, would increase the incentives for individuals to wait to purchase health insurance until they needed care. The Court explored the debate over whether the provision regulates activity in the market of health insurance or in the market of health care, and concludes that Congress was concerned that individuals maintain minimum coverage not as an end in itself but because of the economic implications on the broader health care market. Analyzing whether the regulation is proper, the Court explained that “[v]irtually everyone participates in the market for health care delivery, and they finance these services by either purchasing an insurance policy or by self-insuring.”

Thus, the Court concluded that the minimum coverage provision is a regulation on the activity of participating in the national market for health care delivery and specifically the activity of self-insuring for the cost of these services.

In his concurring opinion, Judge Sutton noted that federal law, the Emergency Medical Treatment and Active Labor Act (commonly known as “EMTALA”), and several state laws require hospitals to accept many patients without regard to their capacity to pay and that a culture of compassion leads hospitals and doctors to treat many others in the same way. Through EMTALA, the federal government subsidizes some of these costs. Hospitals and doctors internalize other costs, and they share others by raising prices. Judge Sutton went on to posture, if Congress has the power to regulate the national healthcare market, as all seem to agree, it is difficult to see why it lacks authority to regulate a unique feature of that market by requiring all to pay now in affordable premiums for what virtually none can pay later in the form of, say, $100,000 (or more) of medical bills prompted by a medical emergency. Accordingly, Judge Sutton reasoned that when Congress guarantees a benefit for all (by securing certain types of medical care) it may regulate that benefit by requiring Americans to pay for it.

Given the Court’s conclusion that the minimum coverage provision is a valid exercise of legislative power by Congress under the Commerce Clause, the Court declined to address whether the provision is authorized as a tax by the General Welfare Clause.

Bottom Line for Employers

This decision clearly is not the final decision regarding the validity of PPACA, and the constitutional validity of the act seems destined for review by the United States Supreme Court. There are several court cases considering challenges to PPACA, at least one of which has questioned the validity of the entire act. Despite these challenges, the regulatory agencies charged with implementing PPACA are moving ahead with implementing rules and regulations. Some of the provisions of PPACA are in effect now, and others become effective over a staggered period of time. Accordingly, employers are well advised to administer their heath care programs in full compliance with PPACA’s new requirements and to stay informed of government notices regarding implementation of these new requirements even while staying mindful of the continuing litigation.