By Katherine Jett Hayes and Sara Rosenbaum

Background and Overview

Since the enactment of the Affordable Care Act (ACA), at least 27 lawsuits have been filed challenging the constitutionality of various provisions of the law. While nearly half of the lawsuits have been dismissed on procedural grounds, three district courts have found provisions challenged to be constitutional,^[1] and three have found them to be unconstitutional.^[2] Previous HealthReformGPS.org Implementation briefs/updates have discussed these lower court decisions. Following appeals of each of these rulings, the United States Courts of Appeals in the Fourth, Sixth, and Eleventh Circuits have now issued decisions as well. Most importantly, the appellate decisions continue to reflect a split in judicial opinion regarding the constitutionality of the Affordable Care Act’s individual mandate. Other important issues addressed by the appellate rulings concerned the constitutionality of the ACA Medicaid expansion and the question of whether the trial court in the Virginia cases (Liberty University v. Geithner and Commonwealth of Virginia v. Sebelius) had the authority to hear the cases at all.

Liberty University v. Geithner (4th Circuit)^[3]

The power of the federal courts to hear the case – Anti-Injunction Act: The Fourth Circuit concluded that the Anti-Injunction Act (AIA) bars the federal courts from ruling on the constitutionality of the individual mandate, because the legal challenge is essentially an effort to stop the imposition of a tax. Claims in federal court to enjoin tax collections are expressly prohibited by Congress, which has the power to set the jurisdiction ground rules for the lower federal courts. In a 2-1 decision written by Judge Diana Gribbon Motz, the court held that because the penalty that individuals who are subject to the mandate must pay, if they do not buy affordable coverage, amounts to a tax under the terms of the AIA, the federal courts are precluded from hearing pre-enforcement actions seeking to stop the assessment of a tax.^[4]

Judge Motz rejected arguments that the penalty enforcing the individual requirement is not a tax. Citing Supreme Court precedent, the majority ruled that even when the amount of revenue to be raised by a tax is negligible and the tax is merely secondary to the primary goal of the law, this does not change the character of the assessment. Citing several provisions of the Internal Revenue Code, the opinion concluded that for purposes of the assessment authority that the AIA protects, Congress made clear that penalties are taxes.^[5] The impact of the decision that the district court should not have heard the case to begin with was to vacate its ruling upholding the individual requirement as a lawful exercise of Congress’ Commerce Clause powers. Judge Wynn, who joined Judge Motz in finding that the lower court lacked the power to hear Liberty University’s case, also indicated that if he were to rule on the merits, he would uphold the constitutionality of both the ACA’s individual and employer requirements as reasonable exercises of Congress’s taxing powers as well as its power to regulate commerce.^[6]

In his dissent, Judge Davis concluded that the penalty was not a tax, and therefore that the federal court had jurisdiction to hear the case.^[7] At the same time, Judge Davis concluded that the individual mandate is a reasonable exercise of Congressional power under the Commerce Clause.^[8] However, because a majority of the Fourth Circuit found that the federal court had no power to hear the case to begin with, these conclusions about the ACA’s constitutionality, while of interest, have no legally binding effect.

Virginia v. Sebelius (4th Circuit)^[9]

The power of the federal courts to hear the case – Standing: In a second decision, the Fourth Circuit also overturned the district court’s decision striking down the individual mandate in a case brought by Virginia’s Attorney General. The Attorney General argued that the state had the authority, or “standing”, to bring the case because it could demonstrate a concrete legal injury, namely, the clash between the ACA and a Virginia law enacted contemporaneously with the ACA that guaranteed residents of Virginia freedom from a federal individual mandate to purchase insurance coverage. Virginia argued that the ACA affected its power to protect the rights of its citizens against unconstitutional federal laws.^[10]

Writing for a unanimous court, Judge Motz held that the Commonwealth of Virginia failed to meet the courts’ standards for establishing standing because it could establish no concrete injury, the essential prerequisite to standing.^[11] In essence, the court concluded, by passing a state law guaranteeing individual freedom from federal insurance mandates, the state simply had tried to use its own legislative process to manufacture a dispute in order to test the constitutionality of the law. The court held that in a federal system states have no legitimate legal interest in protecting their citizens from the reach of federal laws; Judge Motz wrote that that the “mere existence of a state law…does not license a state to mount a judicial challenge to any federal statute with which the state law assertedly conflicts.”^[12] Given the lack of standing, the court did not address the constitutionality of the individual requirement provisions of the ACA.

Thomas More Law Center v. Obama (6th Circuit) ^[13]

The power of the federal courts to hear the case – Anti-Injunction Act: Unlike the holding in the Fourth Circuit, the Sixth Circuit held that the enforcement mechanism for the individual requirement to maintain insurance coverage was not a tax, but a penalty. In reaching this conclusion, the court held that unlike other penalties that are explicitly classified as taxes under the Internal Revenue Code, the ACA penalty does not carry this express classification as a tax and thus is not a tax for purposes of federal court powers under the AIA.^[14] Thus, in the court’s view, the federal courts have the power to hear a challenge to the individual mandate.

Individual mandate: In a 2-1 decision, the Sixth Circuit upheld the lower court’s decision that the mandate is constitutional under Congress’ Commerce Clause powers as a law that regulates individual activities that substantially affect interstate commerce.^[15] In reaching this decision, Circuit Judges Boyce F. Martin, Jr. and Jeffrey Sutton concluded that the individual mandate is designed to address a type of individual conduct – the use of health care – that has a substantial effect on interstate commerce. Their opinions (Judge Sutton filed a separate concurrence elaborating his views) also concluded that the act of forgoing health insurance and self-insuring is itself a form of individual economic conduct, no less so than the act of purchasing health insurance.^[16] The judges concluded that in the aggregate, the practice of self-insuring substantially affects interstate commerce because state and federal laws, such as the Emergency Medical Treatment and Labor Act (EMTALA), require hospitals to provide services regardless of patients’ ability to pay for care, resulting in cost-shifting to those with health insurance when those who self-insure are unable to pay.^[17]

The court also concluded that even if on an individual basis the decision to forego insurance was merely non-economic intrastate activity and thus insufficient to be reached under the Commerce Clause, the mandate is in fact part of a larger scheme to regulate clearly economic activity, i.e., the insurance industry.^[18] As such, Congress could lawfully conclude that individual coverage is essential to the larger economic picture involving the overall structure and stability of the broader health insurance and health care markets.^[19]

The majority directly addressed one of the key claims brought by the plaintiffs: the lack of United States Supreme Court precedent for congressional regulation of what plaintiffs characterize as “inactivity,” i.e., the failure to purchase coverage. Expressly rejecting the notion that inactivity is not in and of itself a form of economic activity, the majority rejected the assertion that the Commerce Clause draws a distinction between activity and inactivity. Noting that nothing prohibits Congress from regulating inactivity, the court concluded that the unique aspects of the health care market make all individuals “active in this market.”^[20] Writing that “not every intrusive law is an unconstitutionally intrusive law,” Judge Sutton in his concurrence dealt at length with the question of activity versus inactivity, concluding that the uniqueness of the health care market overrides any notion of inactivity on the part of non-insurance purchasers^[21] and that plaintiffs failed to show that the individual mandate exceeds Commerce Clause power in all of its applications.^[22]

Dissenting Judge Graham concluded that the individual mandate exceeded Congress’ Commerce Clause powers because the conduct to be regulated amounted to forcing an individual into a market, a level of regulation that exceeds Congress’ powers.^[23]

Florida v. HHS (11th Circuit)

As in the Sixth Circuit, the Eleventh Circuit rejected the U.S.’s arguments that the plaintiff state and private challengers lacked standing to challenge the case or that the federal courts lacked the power to hear the case.

Medicaid Expansion: The court upheld the district court’s ruling that the ACA’s Medicaid expansion requirements for participating states did not exceed Congress’ Spending Clause authority under the Constitution.^[24] Rejecting the plaintiffs’ argument that the amendments were coercive and a “commandeering” of state Medicaid programs for a federal purpose, the court of appeals concluded that Congress has reserved the right to change the program and has done so over the years and that states have had lengthy notice (4 years)^[25] of the expansion and thus ample time to decide whether to remain in the program.^[26] The court also found states’ claims unwarranted given the high proportion of costs for the expansion population borne by the federal government.^[27]

Individual Mandate: The court upheld the district court’s striking down of the mandate as an unreasonable exercise of Congress’ Commerce Clause powers.^[28] In doing so, the court concluded that the individual requirement over-reaches because it covers even those who do not enter the health care market.^[29] The decision also rejected the argument that the decision to self-insure affects interstate commerce because of cost-shifting from the uninsured to the insured population. “At best, we can say that the uninsured may, at some point in the unforeseeable future, create a cost-shifting consequence.”^[30] In addition, the court concluded that the fact that insurance regulation typically is a state activity lends to the argument that the individual requirement is unconstitutional.^[31] The court also rejected the notion that even if individual conduct could not be reached directly under Congress’ Commerce Clause powers, the requirement to purchase insurance was, in keeping with leading Supreme Court decisions,^[32] “necessary and proper” to a broader regulatory scheme that fits squarely within the Commerce Clause (i.e., the regulation of the insurance industry). The Eleventh Circuit noted that because Congress can regulate insurers without such a mandate, the mandate in fact could not be necessary and proper to the law.^[33]

Taxation and Severability: Other issues of constitutional import arose in the case. The first is whether the individual requirement has the status of a tax and thereby reflects Congress’ taxing powers under the Constitution. The second is the question of whether unconstitutional provisions are severable from the rest of the law, thereby allowing the remainder of the ACA to survive. With respect to the question of taxation, the Eleventh Circuit upheld the district court’s decision that the penalty for failure to maintain health insurance coverage under the ACA is a penalty, not a tax. As a result, the individual requirement cannot rest on Congress’ taxing powers.^[34] In reaching this conclusion, the court cited the language in the law itself, which repeatedly refers to the “penalty” for failing maintain coverage,^[35] as well as to the law’s legislative history and its failure to refer to the penalty as a tax penalty in other sections of the law that explicitly deal with tax penalties.^[36]

On the issue of severability, the Eleventh Circuit rejected the lower court’s decision that the ACA in its entirety should be invalidated if the individual requirement was struck down.^[37] In reaching this conclusion the appellate court concluded that the insurance market reforms could continue to operate under law without an individual requirement to purchase coverage, while noting that the relevant question is whether Congress would have enacted the insurance market reforms without the individual requirement.^[38] In examining the individual requirement, the decision characterized it as “porous and toothless” given CBO estimates of high numbers of remaining uninsured and the absence of any real enforcement authority.^[39]