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Thoughts on Florida Case Ruling

When I went to law school in the 60’s and later when I tried several constitutional law cases in the 70’s and early 80’s, Judge Vinson’s recent decision would have been unthinkable. I have a very hard time imagining the United States Constitution has changed much in the last forty years, but “judicial activism” has definitely shifted from the left to right side of the political aisle.[i]

I will try to give a little historic and legal background for those who find it worth thinking about this decision in context. Judge Vinson held that the Affordable Care Act (ACA), specifically the individual mandate, violated the Commerce Clause of the United States Constitution. The Commerce Clause[ii] authorizes Congress to regulate interstate commerce; the purpose of the founders was to eliminate state differences so that one state could not advantage the growers/manufacturers/merchants of its state and disadvantage those located in the others. Judge Vinson’s decision acknowledged that the health care industry and health insurance are interstate commerce, and Congress has extensively regulated it for many years under both Republican and Democratic Presidents and under both Democratic and Republican Congresses.[iii] Judge Vinson additionally acknowledged the long line of Supreme Court cases holding that the Commerce Clause is extremely far reaching – even to an individual growing wheat (or marijuana) at home for personal consumption only.[iv]

Judge Vinson’s decision focused on one section in the 2,000 page bill – the individual mandate[v] or individual responsibility section, which requires individuals to enroll in some form of coverage. While this is a very important provision in a comprehensive reform, it is not the essential linchpin of the legislation as portrayed by many, including both plaintiff and defense counsel as well as the judge.[vi] His decision found that a choice to be uninsured (a decision he characterized as economic inactivity) is not interstate commerce and thus not subject to federal regulation under the Commerce Clause.

As you know, the ACA covers every US citizen and every legal permanent resident for basic health services (hospitals, doctors and prescription drugs).[vii] Depending on their individual circumstances, individuals can choose to be covered through private employment-based coverage, through private individual coverage, through the Exchange, through grandfathered coverage, through public coverage such as Medicaid (Medi-Cal in California), or through Medicare or Veteran’s benefits.[viii] The ACA subsidizes coverage for private insurance through the tax code, based on an individual’s income.[ix] It guarantees that each individual has basic coverage – i.e. one cannot be denied for a pre-existing condition.[x] The ACA also refocuses/redirects the health system towards wellness, timely access to care and prevention,[xi] and health reform largely pays for itself with system savings and taxes.[xii] The revenues generated by this particular individual responsibility provision account for less than 4% of total ACA financing.[xiii]

Under the new system enacted by ACA, individuals have a personal responsibility to enroll in some form of coverage – this can be either public or private, depending on an individual’s economic circumstances. This responsibility is enforced by a small fee, starting at $95 a year in the first year and increasing to $695 per year when the ACA is fully implemented in 2016.[xiv] There are exemptions for an individual’s financial hardship or for religious beliefs,[xv] and individuals can choose the level of coverage they prefer – ranging from 60% of expected medical costs to 100%.[xvi] Those with any financial hardship can elect catastrophic and prevention coverage.[xvii]

Why would Congress have wanted individuals to have a “personal responsibility” to enroll in some form of coverage?[xviii] 1) Uninsured individuals have delayed access to care; receive much less care and die prematurely; have increased preventable illness; and/or experience job loss, lower productivity and higher incidence of missed work and school days causing substantial economic loss.[xix] 2) Uninsured individuals experience a rash of medical bankruptcies, causing financial distress to their families and the care provider institutions.[xx] 3) Uninsured individuals account for a substantial volume of uncompensated care (bad debt and charity care) which increases costs of private insurance, accounts for a substantial amount of public tax funding for their fellow citizens, and has closed the doors of vital health services in communities throughout the nation.[xxi] And 4) individuals who wait to buy insurance until they need it to pay for an important illness or serious accident produce “adverse selection” – i.e. significant adverse financial impacts on everyone else who buys their coverage in a timely fashion.[xxii]

How big is this impact? Medical care for a severe illness like cancer or a disabling accident can often exceed one million dollars. Individuals are susceptible to these risks throughout their lifetimes, and the risks are not theirs alone, but also jeopardize their spouses and children. What person can predict with absolute certainty the future physical, mental, developmental and economic health of themselves, their children and spouses? Without the individual mandate, an individual who is uninsured shifts those costs to taxpayers, to family members and to those with private insurance.[xxiii] With over 50 million uninsured nationally and with over 20% of Californians uninsured, the economic losses of uninsurance to our state and the nation are extremely large.

Should Judge Vinson’s ruling be upheld in the Supreme Court, – a result that most but not all respected legal scholars from the left and right agree is highly unlikely – Congress is not without power to devise an alternative remedy to individual responsibility.[xxiv] For example, Congress can use its taxing authority, its ability to impose mandates on employers, or its ability to regulate insurance.[xxv] How might that work? 1) Taxes.[xxvi] Congress could tax everyone to provide coverage for everyone – a universal single payor system like Canada or Medicare. Or it could tax the uninsured to pay for part or all of the costs of their health coverage. 2) Employer mandates.[xxvii] Congress could mandate that every employer offer coverage to their employees and their families. It could mandate that employers’ contributions for unemployment insurance be increased to pay for health insurance of laid-off workers and their families. 3) Insurance regulation.[xxviii] Congress or CMS could specify that individuals who purchase coverage in a timely fashion receive a discount on their premiums reflective of the health savings generated by continuous care, and individuals who delay enrolling until they are sick or injured pay a premium supplement for the added costs incurred from their delayed enrollment that they would otherwise shift to the rest of society. As recently reported, the individual responsibility provision of the ACA is the most effective and productive of these approaches – i.e. it enrolls the most individuals at the lowest system cost.[xxix]

What is the history of the Commerce Clause in the Supreme Court? Early on, it was invoked by Chief Justice Marshall and the Federalists in support of the national government’s ability to regulate interstate commerce in the seminal case of McCullough v. Maryland and its progeny.[xxx] A century later, the Commerce Clause was regularly invoked by the Supreme Court to invalidate progressive legislation during the historical period from President Theodore Roosevelt through President Franklin Roosevelt.[xxxi] The court eventually abandoned this form of judicial activism during the Great Depression and recognized Congress’ broad constitutional ability to regulate commerce for the betterment of the American people.[xxxii] These Supreme Court decisions are long-standing, and involve economic transactions far less consequential than those at issue in this case — for example, an individual growing wheat on his own farm to feed only his own family.[xxxiii]

Judge Vinson relied on two recent Supreme Court decisions to support his invalidation of the ACA. The first involved a Congressional prohibition against carrying firearms on and around the premises of a school.[xxxiv] The second involved making domestic violence against women a federal crime.[xxxv] Neither case involved commercial transactions, but rather the type of criminal conduct, which traditionally has been the responsibility of the states.  More recently, the Supreme Court upheld the traditionally broad reach of the federal government’s Commerce Clause jurisdiction over two California plaintiffs growing marijuana on their own property for their own medical treatment.[xxxvi] The Supreme Court’s reasoning was as follows:

Cases decided during that “new era,” which now spans more than a century, have identified three general categories of regulation in which Congress is authorized to engage under its commerce power. First, Congress can regulate the channels of interstate commerce. Perez v. United States, 402 U.S. 146, 150 (1971). Second, Congress has authority to regulate and protect the instrumentalities of interstate commerce, and persons or things in interstate commerce. Ibid. Third, Congress has the power to regulate activities that substantially affect interstate commerce. Ibid.; NLRB v. Jones & Laughlin Steel Corp., 301 U.S. 1, 37 (1937). Only the third category is implicated in the case at hand.   Our case law firmly establishes Congress’ power to regulate purely local activities that are part of an economic “class of activities” that have a substantial effect on interstate commerce. See, e.g., Perez, 402 U.S., at 151; Wickard v. Filburn, 317 U.S. 111, 128—129 (1942). As we stated in Wickard, “even if appellee’s activity be local and though it may not be regarded as commerce, it may still, whatever its nature, be reached by Congress if it exerts a substantial economic effect on interstate commerce.” Id., at 125. We have never required Congress to legislate with scientific exactitude. When Congress decides that the “ ‘total incidence’ ” of a practice poses a threat to a national market, it may regulate the entire class. See Perez, 402 U.S., at 154—155 (quoting Westfall v. United States, 274 U.S. 256, 259 (1927) (“[W]hen it is necessary in order to prevent an evil to make the law embrace more than the precise thing to be prevented it may do so”). In this vein, we have reiterated that when “ ‘a general regulatory statute bears a substantial relation to commerce, the de minimis character of individual instances arising under that statute is of no consequence.’

Judge Kessler’s decision in Mead v. Holder makes a number of compelling points in applying the Supreme Court’s reasoning to her decision upholding the individual responsibility clause; three that I found particularly persuasive are as follows:

As previous Commerce Clause cases have all involved physical activity, as opposed to mental activity, i.e. decision-making, there is little judicial guidance on whether the latter falls within Congress’s power. See Thomas More Law Ctr., 720 F.Supp.2d at893 (describing the “activity/inactivity distinction” as an issue of first impression). However, this Court finds the distinction, which Plaintiffs rely on heavily, to be of little significance. It is pure semantics to argue that an individual who makes a choice to forgo health insurance is not “acting,” especially given the serious economic and health-related consequences to every individual of that choice. Making a choice is an affirmative action, whether one decides to do something or not do something. They are two sides of the same coin. To pretend otherwise is to ignore reality.

Next, the Court must determine whether Congress had a rational basis for concluding that such decisions, when considered in the aggregate, substantially affect the national health insurance market. The findings on this subject could not be clearer: the great majority of the millions of Americans who remain uninsured consume medical services they cannot pay for, often resulting in personal bankruptcy. In fact, the ACA’s findings state that “62% of all personal bankruptcies are caused in part by medical expenses.” ACA § 1501(a)(2)(G), as amended by § 10106. Of even greater significance to the national economy is the fact that these uninsured individuals are, in fact, shifting the uncompensated costs of those services–which totaled $43 billion in 2008—on to other health care market participants, as well as federal and state governments and American taxpayers. See ACA §§ 1501(a)(2)(F), (G), as amended by § 10106; Thomas More Law Ctr., 720 F.Supp.2d at 894.

This Court agrees with the two other district courts, which have ruled that the individuals subject to § 1501’s mandate provision are either present or future participants in the national health care market. See Liberty Univ., 2010 WL 4860299, at *15 (“Nearly everyone will require health care services at some point in their lifetimes, and it is not always possible to predict when one will be afflicted by illness or injury and require care.”); Thomas More Law Ctr., 720 F.Supp.2d at 894 (“The health care market is unlike other markets. No one can guarantee his or her health, or ensure that he or she will never participate in the health care market . . . . The plaintiffs have not opted out of the health care services market because, as living, breathing beings . . . they cannot opt out of this market.”)

It seems to me that Judge Kessler’s views are far more likely to prevail when this case finally reaches the United State Supreme Court, but much will depend on judicial perception. The plaintiffs who are challenging the ACA in these cases construct an imaginary uninsured person who never sees doctors, is unwilling (as opposed to unable) to pay health insurance premiums, and always pays cash for medical services. The real uninsured are people who cannot afford coverage, cannot afford to pay provider’s charges for care, and regularly suffer denials and delays in seeking urgently needed care until finally resorting to hospital emergency rooms. Those real uninsured who are sick and in poor health are quarantined by insurers due to pre-existing conditions. The ACA is a huge step forward in that it helps the real uninsured with both affordability and availability of their coverage.

 


[i] Mead v. Holder, Case no. 10-950 (GK) (DC. DC, 2/22/11), Liberty University v. Geithner, — F. Supp. 2nd – (Va. WD, 11/30/10) and Thomas More Law Center v. Obama 720 F. Supp. 2nd 882 (Mich. ED, 2010) uphold the ACA. Virginia v. Sebelius 728 F. Supp 2nd, 768 (Va. ED, 2010) upheld the ACA while declaring the individual mandate section in violation of the Commerce Clause. Florida v. HHS finds the individual mandate section in violation of the Commerce Clause and invalidates all other sections of the ACA because the individual mandate is in Judge Vinson’s view integral to the entire act.

[ii] Article 1, Section 8 of the US Constitution provides “The Congress shall have Power: To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States; To borrow money on the credit of the United States; To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes … And To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.”

[iii] Florida v. HHS

[iv] Ibid.

[v] ACA §1501

[vi] See Buettgens, Garrett and Holahan, Why the Individual Mandate Matters (Urban Institute, 12/20/10) at http://www.urban.org/publications/412280.html The authors find that with the individual responsibility section, over half the uninsured are covered, without the mandate, only 20% are covered. With the mandate, uncompensated care is reduced by $42 billion annually, without individual responsibility, uncompensated care is reduced by only $14.7 billion. In short, ACA is far more effective with individual responsibility than without it. My own back of the envelope calculations are that ACA with or without the mandate offers more affordable coverage to about 80% of California’s uninsured, and the mandate largely impacts the take-up rate – the higher the subsidy, the higher the take-up rate, the less need for a mandate.

[vii] ACA §1302

[viii] ACA §1501

[ix] ACA §1401

[x] ACA §1201

[xi] ACA, Title IV

[xii] CBO Letter of February 18, 2011 to Speaker John Boehner. www.cbo.gov/doc.cfm?index+12069

The bill produces a $210 billion net decrease in the federal deficit between 2012 and 2021. The cost savings in Medicare, Medicaid and other government programs save the federal government $682 billion over the next decade and the revenues from the increased taxes are $733 billion over the next decade.

[xiii] The CBO projected revenues from the individual mandate are about $27 billion (less than 4% of all revenues under ACA) over the next decade. CBO Letter to John Boehner.

[xiv] An individual pays the higher of the flat dollar tax penalty or a percent of their income (1% in 2015, 2% in 2015 and 2.5% in 2015 and thereafter. The flat dollar penalty applies per uninsured individual in the family with a cap at 300% of the applicable amount; the penalty for uninsured children is half the applicable penalty for an uninsured adult. There is an overall cap, so that the penalty does not exceed the cost of bronze coverage (i.e. 60% of expected medical expenses).

[xv] ACA §1501

[xvi] ACA §1302

[xvii] Ibid.

[xviii] Congress had the option to choose among socialized medicine (i.e. the British system where the government owns the hospitals and employs the doctors), single payor (i.e. the Canadian system or the US Medicare system where the delivery system is private, but the payor system is public), employment based (i.e. the German system where private coverage is mostly through an employers), and individual responsibility (i.e. the Swiss and Dutch systems where individuals are required to enroll in private coverage and the state financially helps those for whom affordability or financial hardship is problematic).

Congress decided to build on the existing programs: keep Medicare for seniors, employment based for most insured workers, Medicaid for the poor, and then it created a new system the Exchange with refundable tax credits to purchase private individual insurance for individuals and small employers. The individual mandate is the glue which holds together all the existing American systems with their very disparate rules and federal and state tax subsidies, and it is reinforced by an intricate set of rules (e.g. no refundable tax credits in the Exchange for workers who are offered affordable coverage on the job) designed to keep existing programs, such as employment based coverage, from eroding and ending up as additional costs to the Exchange.

Critics of the ACA reforms from the left (calling for a single payor) and the right (calling for cutting government spending and repealing the ACA) should keep in mind that each of these current coverage options is heavily tax subsidized. For example, private employment based coverage (generally considered private) has a federal tax subsidy that is roughly equal to Medicare (typically considered public).

[xix] Congress found this economic loss to be $207 billion annually. ACA §1501

[xx] ACA §1501

[xxi] ACA §1501

[xxii] ACA §1501

[xxiii] Congress found that $43 billion in annual uncompensated care costs ($1,000 per insured family per year) were shifted to the insured by those without insurance. ACA §1501.

[xxiv] Harvard Law Professor Charles Fried, who was Solicitor General for President Ronald Reagan, described the constitutionality of the individual mandate as a “no brainer” in his February 2, 2011 testimony before the Senate Judiciary Committee, citing the earliest Commerce Clause rulings of Chief Justice John Marshall in McCullough v. Maryland and Gibbons v. Ogden. He said that since the Supreme Court’s 1944 ruling in US v. Southeastern Underwriter’s Assn., it has been clear that insurance is commerce and subject to federal regulation.

Harvard Law Professor Laurence Tribe’s opinion piece “On Health Care, Justice Will Prevail” in the New York Times (February 7, 2011) analyzed the written opinions of the nine Supreme Court justices and concluded that only Justice Thomas is likely to uphold the plaintiff’s constitutional challenges to the ACA because he believes the long line of Commerce Clause cases since Schechter Poultry were wrongly decided.

Professor Randy Barnett of Georgetown Law School distinguishes this long line of cases, by classifying the decision to be uninsured as “inactivity”. His argument is that Congress cannot compel activity. While this ignores the aggregate adverse impacts of “inactivity” by the so-called free riders, two federal District Court Judges have found this distinction compelling.

[xxv] The penalty should also be viewed as an individual’s emergency insurance contribution since the Exchange, its subsidies, the Medicaid expansion and the insurance reforms of guaranteed issue and renewal will be available at any time to the individual who declines ACA’s coverage opportunities. The practical difficulty is that any change to the ACA will need to go through the same arduous political process of finding a majority in the House, a super majority in the Senate and the requisite Presidential and political leadership that has stymied every federal health reform effort to cover all Americans for the last century. The same obstacles make repeal of the ACA problematic for its opponents.

[xxvi] Professors Barnett, Tribe and Fried and all five federal district court judges who have decided cases to date agree that if the “penalty” in the ACA had been labeled a tax, rather than a penalty, it would pass constitutional muster. However, the judges agree that Congress studiously avoided the “tax” word in crafting ACA §1501 and therefore it should not be construed as a tax. Yet §1501 of ACA is §5000A of the Internal Revenue Code, and it looks, acts and is collected exactly like a very small tax.

[xxvii] Every effort to cover all Americans, except for the tax-based single payor system, uses a financing combination of government responsibility, employer responsibility and individual responsibility. The health reform debates in the ‘80s and ‘90s centered and foundered on the extent of increased employer responsibility. The ACA by contrast has a small (0.6%) projected overall decrease in employer health spending. The projections are that “insuring” employers would see a small decrease in their premiums and insuring employers with tax credits (small and low wage) would receive a large decrease in their share of premiums; small employers would see an 8% reduction in premiums due to the Exchange and the tax credits. See Garrett and Buettgens, Employer Sponsored Insurance under Reform: Reports of its Demise are Premature (Urban Institute, February 1, 2011) at www.urban.org/health_policy/url.cfm?ID=412295. Uninsuring employers (medium and large) will cumulatively pay $82 billion in penalties over the next decade if their employees use refundable tax credits in the Exchange; this increase primarily comes from mid-sized employers who do not currently offer coverage (Ibid. and CBO Letter of February 18, 2011 to Speaker John Boehner). In the absence of an individual responsibility component of reform, future health reform efforts will need to include higher burdens on employers or higher taxes or both.

[xxviii] See Frakt and Outterson, “After the Deluge: Health Reform Without an Individual Mandate (Feb. 24, 2011) at www.kaiserhealthnews.org/Columnists/Frakt-Outterson.aspx for an excellent summary of potential Congressional, state and CMS responses to a decision overturning the constitutionality of individual responsibility.

[xxix] Gruber, Health Reform without the Individual Mandate (Center for American Progress, February 2011) at www.healthreform.org/scan/2011/february/center-for-american-progress-memo-looks-at-health-reform-without-the-individual-mandate.aspx

[xxx] McCullough is the seminal case establishing the paramount authority of the federal government (as opposed to states) in matters of commerce, and it was essential to establishing the authority of the new federal government. It set the early standards for the Supreme Court’s review of broad federal authority in the economic sphere.

As a side note, a lawyer/journalist blogging for Forbes describes the 1798 Act for Relief and of Sick and Disabled Seaman that established a government system of maritime hospitals, supported by a 1% tax on seaman’s wages. See Rick Ungar, Congress Passes Socialized Medicine and Mandates Health Insurance in 1798 http://forbes.com/rickungar/2011/01/17

[xxxi] See e.g. Schechter Poultry v. US 295 US 495 (1935) where the Supreme Court struck down federal regulations of employee hours and wages.

[xxxii] See NLRB v. Jones and McLaughlin Steel 301 US 1 (1937)

[xxxiii] Wickard v. Filburn 317 US 111 (1942)

[xxxiv] US v. Lopez 514 US 548 (1995)

[xxxv] US v. Morrison 529 US 598 (2000)

[xxxvi] Gonzalez v. Raich 545 US 1 (2005)

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