MyHealthGuide, www.myhealthguide.com

Source: Todd Leeuwenburgh, Thompson Publishing

Mr. Leeuwenburgh’s preface: The case against Individual Mandate proceeds in Florida, but not in Michigan. The Florida court refused to kill the question of whether the individual mandate (to get health coverage or pay a penalty) might have exceeded Congress’ power to regulate trade under the Commerce Clause. But in Michigan, a federal judge ruling on the merits of the case, refused to block health reform’s individual mandate. Both courts heard government arguments that the Commerce Clause allows Congress to prohibit economic “non-activity” — that is, the failure to maintain health insurance, and to penalize those who fail to maintain such insurance.

The U.S. District Court for the Northern District of Florida on Oct. 14 decided that parts of a lawsuit challenging the health-care overhaul law can move forward, in State of Florida v. U.S. Department of Health and Human Services, 2010 WL 4010119 (N.D. Fla.). Among other things, the court allowed argument to continue on the points of whether the individual mandate might have exceeded Congress’ power to regulate trade under the Commerce Clause.

District Judge Roger Vinson rejected the Obama administration’s motion to dismiss the challenge for lack of subject matter jurisdiction and plaintiff lack of standing.

On the other hand, Vinson dismissed four arguments that would have shielded business from health reform mandates, including motions that would have prevented the federal government from forcing the states to set up insurance exchanges.

Court Holds Feds May Preempt States in Regulating Industry

The U.S. District Court for the Northern District of Florida in State of Florida v. U.S. Department of Health and Human Services dismissed the counts two (that the individual mandate and penalty violate substantive due process), five (that the health benefit exchanges constitute coercing and commandeering the states), and six (that the employer mandate interferes with state sovereignty as large employers and in the performance of government functions.

It refused to dismiss counts one (that the individual mandate and penalty exceed Congress’s authority under the Commerce Clause) and four (that the Act coerces and commandeers the states regarding Medicaid by altering and expanding the program), and said the case will continue for those counts.

A Penalty Is a Penalty; a Tax a Tax

The states disputed reform’s “individual mandate,” which requires all citizens to obtain federally approved health insurance or pay a penalty.

They contended that the individual mandate was unconstitutional because:

(1) the mandate and the penalty exceed Congress’s authority under the Commerce Clause; and

(2) the penalty for not having coverage is an unlawful tax.

They also sued to enjoin reform’s expansion of Medicaid, benefit exchanges and employer mandate to provide employees with prescribed minimum coverage. In its motion to dismiss, HHS contended that the state challenge to the individual mandate was barred because Congress has independent authority to create the individual mandate under its taxing and spending authority under the Anti-Injunction Act.

The tax anti-injunction act says no court can hear a case trying to prevent the federal government from collecting or assessing taxes. After the federal government’s invocation of this, the issue became whether the mandate provisions would assess a penalty or a “true tax.”

Judge Vinson shot that argument down, stating emphatically that

(1) Congress in the build-up to passage referred to the penalty as a tax in earlier bills, but in the final law called it a penalty — which is significant because other “taxes” are imposed in other sections of the law;

(2) Congress did not state that it was acting under its taxing authority. Instead it based the act on its power under the Commerce Clause, which gives Congress the power to regulate trade;

(3) the penalty has no revenue-generating purpose; and

(4) the penalty is not to be enforced like a tax.

Congress’ portrayal — prior to passage — of the individual mandate penalty as part of its right to regulate trade precluded HHS from later arguing that the penalty is unassailable under Congressional rights of taxation, the court held.

The court refused to allow government attorneys to call a “tax” what Congressional law drafters had called a “penalty.”

Those two exactions [penalty and tax], as previously noted, are not interchangeable. And, now that it has passed into law on that basis, government attorneys have come into this court and argued that it was a tax after all. … In other words, the members of Congress would have reaped a political advantage by calling and treating it as a penalty while the Act was being debated … and then reap a legal advantage by calling it a tax in court once it passed into law.

Standing and Ripeness

HHS also had argued that the states lacked standing to challenge the individual mandate and that the alleged problems with the individual mandate were not ripe for resolution because that mandate will not take effect until 2014.

The businesspeople plaintiffs said they had standing because the individual mandate would divert business resources from salaries and business investments, deprive individuals who want to insure themselves of that right and force individuals to buy insurance they neither want nor think they need.

The court held that the plaintiffs established a realistic danger of harm coming from the mandate.

[T]o challenge the individual mandate, the individual plaintiffs need not show that their anticipated injury is absolutely certain to occur despite the “vagaries” of life; they need merely establish “a realistic danger of sustaining a direct injury as a result of the statute’s operation or enforcement.”

HHS had argued that because the reform mandates will not take effect until 2014, that those claims are unripe because no injury can occur before that time. HHS also said the harm alleged by the plaintiffs was not inevitable and that it was too early to talk about damages because their effective date was too far in the future. But the court rejected those arguments, pointing to court rulings from U.S. courts in Virginia and Michigan that held that it was not premature to rule before the provisions take effect (see box below).

The fact that the individual mandate and employer mandate do not go into effect until 2014 does not mean that they will not be felt in the immediate or very near future. To be sure, responsible individuals, businesses, and states will have to start making plans now or very shortly to comply with the Act’s various mandates.

Judges Weigh in on Constitutionality of Health Reform

In Florida v. U.S. Department of Health and Human Services, the U.S. District Court for the Northern District of Florida allowed argument to continue on whether the individual mandate might have exceeded Congress’ power to regulate trade under the Commerce Clause of the U.S. Constitution.

The case was brought by 16 state Attorneys General, four state Governors, two private citizens and the National Federation of Independent Business (NFIB). It was filed in March 2010, soon after the two laws enacting health reform (Pub. L. 111-148 and Pub. L. 111-152) passed. State plaintiffs included Alabama, Alaska, Arizona, Colorado, Florida, Georgia, Idaho, Indiana, Louisiana, Michigan, Mississippi, Nebraska, Nevada, North and South Dakota, Pennsylvania, South Carolina, Texas, Utah and Washington.

The ruling comes two months after the federal court for the Eastern District of Virginia issued a similar ruling in Virginia v. Sebelius, 2010 WL 2991385 (E.D. Va., Aug. 2, 2010). That case was brought by Virginia Attorney General Ken Cuccinelli.

And it comes one week after a federal judge in Michigan came to an opposite conclusion about the Commerce Clause, holding that it may allow Congress to prohibit economic “non-activity,” including the failure to maintain health insurance. In Thomas More Law Center et al, v. Obama, 10-CV-11156 (E.D. Mich., Oct. 7, 2010), that court held the act was not an unauthorized expansion of the Commerce Clause.

Failure to State a Claim…

The states in their capacity as employers objected to the employer mandate, which requires them to offer and automatically enroll state employees in federally approved insurance plans or face penalties. The new benefit would impose expensive and ever increasing requirements on the states in violation of the Constitution and concepts of state sovereignty.

The court would not side with the states and employers on this point, holding that the state sovereignty argument fails because the mandate impacts other employers — public and private — in exactly the same way. He compared the employer mandate to minimum wage laws which withstood similar state challenges.

I see no persuasive reason why healthcare benefits—which are generally viewed as a condition of employment and part of an employee’s compensation package — should be treated differently than other aspects of compensation and conditions of employment that the Supreme Court has already held Congress may regulate and mandate against the states (such as wages, hours, overtime pay, etc).

Accordingly, Vinson dismissed the count having to do with interference with state sovereignty.

Court Defends Insurance Exchanges

The plaintiffs had alleged that reform’s requirement that states establish insurance exchanges or the federal government would do it for them was unconstitutional “coercion and commandeering.” Vinson dismissed this count as well, saying “a wealth of precedent attests to congressional authority to displace or pre-empt state laws regulating private activity affecting interstate commerce when these laws conflict with federal law,” under the Supremacy Clause of the Constitution.

Individual Mandate Merits Further Discussion

The plaintiffs had alleged that the individual mandate may have exceeded Congress’ power under various constitutional grounds, including the Commerce Clause (to regulate economic activity — or in this case, economic inactivity), and might be unconstitutional for that reason. Vinson would agree with that and let that charge advance, saying that “the power that the individual mandate seeks to harness is simply without prior precedent.”

He did however note that, “of course, to say that something is ‘novel’ and ‘unprecedented’ does not necessarily mean that it is ‘unconstitutional’ and ‘improper.’ There may be a first time for anything.”

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This entry was posted by Adam V. Russo on Monday, October 25th, 2010 at 8:40 am and is filed under Florida, Health Care Legislation, Medicaid, Michigan. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.