Florida, et al Vs. Department of Health and Human Services

Bill Finerfrock, Vice-President, Health Policy
Capitol Associates

The Supreme Court of the United States (SCOTUS) has completed hearing oral arguments over the lawsuit (Florida, et al Vs. Department of Health and Human Services) brought by 26 states and the National Federation of Independent Business (NFIB) challenging the constitutionality of the Patient Protection and Affordable Care Act (ACA). For more than six hours, the Court listened and questioned the attorneys representing the plaintiffs and the government on issues involving whether the individual mandate and the Medicaid expansion provisions included in the ACA constituted an unreasonable expansion of the federal government’s authority over individual and state activities.

The oral arguments are available for download. If you would like to listen to the deliberations, go to:
http://www.supremecourt.gov/oral_arguments/argument_audio.aspx and click on any of the four sessions (titled either Department of Health and Human Services Vs. Florida or National Federation of Independent Businesses Vs. Sebelius or Florida Vs. Department of Health and Human Services).

There were four issues the Court considered over the three days of deliberations. The Court scheduled 4 oral arguments with each session dedicated to one of the issues.

They are:

1. Is a lawsuit challenging the individual mandate even permissible at this time because the “penalty” for failure to show evidence of having health insurance is a “tax” under federal law?

If the penalty tied to the individual mandate is a tax then a lawsuit challenging that tax (and therefore the mandate) is premature. Legislation enacted in the 1800s called the Anti-Injunction Act (AIA), prohibits federal lawsuits challenging a tax until such time as the tax actually takes effect. This is sometimes referred to as the “tax and challenge” principle. If the AIA applies in this situation, then a case challenging the individual mandate tax could not be heard until such time as the tax actually takes effect – in 2014. For various reasons, neither the government, nor the plaintiffs wanted to argue that the AIA applied in this case so the Court hired an independent lawyer to argue the legal merits for application of the AIA.

Although proponents and opponents have referred to the penalty as a tax in speeches and various public pronouncements, the Justices must determine whether as a matter of law, the penalty is truly a tax. Simply calling something a tax, no matter how often nor how loudly one proclaims it, does not, as a matter of law, make it a tax. The general consensus is that the Court will rule that the penalty for failure to purchase insurance is not a tax and therefore the AIA does NOT apply.

2. Is the individual mandate constitutional?

The government argued that enactment of the individual mandate is clearly within the authority of the federal government under the Commerce Clause of the Constitution which gives the federal government the authority to regulate markets in order to have a smoothly operating economy. The government further argued that because everyone will, at some point in their lives, have to engage in the healthcare market, the ACA is an appropriate set of policies dealing with market engagement which is permissible under the Commerce Clause.

Opponents of the government’s position argued that the individual mandate is an excessive reach by the federal government. They maintain that while the federal government can, under the Commerce Clause, regulate market activity that individuals freely engage in, the ACA’s individual mandate would, for the first time, allow the federal government to force people to engage in a particular type of commerce (i.e., buy health insurance). Opponents argued that this is a new application of the Commerce Clause and if it is allowed to stand would open a door allowing the federal government to write laws and regulations mandating individuals engage in an unlimited series of activities the government deemed “for the greater good of the people.”

Going into the proceedings the general consensus was that based upon prior rulings there were four Justices (aka, “the conservatives”) who were predisposed to conclude that the individual mandate was unconstitutional, and four Justices (aka, “the liberals”) who, based upon prior rulings or general philosophy would be predisposed to conclude that the individual mandate was constitutional. The four “conservative” Justices are Chief Justice Roberts, Justice Scalia, Justice Alito and Justice Thomas. The four “liberal” Justices are Justice Breyer, Justice Ginsberg, Justice Kagan and Justice Sotomayor. The Justice that appears to be the “swing” vote is Justice Kennedy.

Court watchers spent considerable time attempting to analyze the questions each Justice posed and discern from the questions which way he or she was leaning. It should be noted that Justice Thomas rarely asks questions during the oral argument phase of this process. In keeping with that tradition, he asked no questions during any of the oral arguments in this case.

The general consensus of those who cover the Court for a living appears to be that the conservative Justices asked questions that reinforced the belief that they are inclined to rule the individual mandate is unconstitutional and the liberal justices asked questions that reinforced the belief that they are inclined to rule the individual mandate is constitutional. Justice Kennedy appeared to ask tougher, more penetrating questions of the Solicitor General (the government’s lawyer) that could lead one to conclude he, too, is skeptical of the constitutionality of the individual mandate.

3. Is the Medicaid expansion an unreasonable encroachment by the federal government on state autonomy?

The Medicaid program is a joint program funded by federal and state dollars and operates using both federal and state policies.

One of the ways the ACA succeeds in ensuring a higher percentage of the American people will have health insurance after 2014 is through a dramatic expansion of Medicaid eligibility. Although the ACA stipulates that the cost of newly covered individuals will be fully borne by the federal government in the early years (drops to 90% of the cost after 2020), states maintain that this places too heavy of a burden on their state budgets and simply goes too far. In effect, the states are arguing that they are being “coerced” into expanding Medicaid eligibility because if they fail to adopt the expansion, the federal government can pull all federal funds for Medicaid and leave the entire cost of the Medicaid program as the state’s responsibility. Such a move would bankrupt the state leaving them no option but to accept the government’s generous offer.

The federal government argued that the states really have nothing to complain about because the cost of expanding Medicaid coverage will be fully borne by the federal government and even when the states are going to have to kick in money, it will be only a fraction of the cost and still far less than what the states pay to provide Medicaid coverage for other recipients. Even still, the government argued, the states can always voluntarily opt out of the Medicaid program.

In similar cases in the past, the SCOTUS has generally deferred to the federal government when states have argued that federal dollars linked to state actions place too great a burden on the states. The most commonly cited case has to do with the federal government conditioning a percentage of federal highway dollars to state enactment of laws raising the drinking age from 18 to 21. In that case, the SCOTUS ruled that the federal government was within its rights to make such conditions. However, in many of those same cases, the Court has also suggested that there was a limit to how far the federal government could go in linking federal dollars to enactment of states laws, but SCOTUS has never articulated just what that limit might be.

In this case, the states are arguing that now is the time to set that limit. They maintain that if there ever was a case of the government going too far, this is it. However even some of the “conservative” Justices suggested that the states have been contributory to this situation by continuing to accept the federal government’s money. Listening to the deliberations, it almost sounded like a drug counselor admonishing drug addict to take responsibility for their actions and stop blaming the drug dealer for being addicts.

Based upon the questions, it would not be surprising to see SCOTUS rule in favor of the federal government on this point.

4. The final issue considered by the SCOTUS had to do with the issue of severability.

Typically when Congress enacts legislation that will result in a constitutional challenge, the law will include language referred to as a “severability clause”. The severability clause effectively tells the Court that if the constitutionality of one provision of the law is ruled unconstitutional, that ruling only applies to that provision. In other words, it is “severed” from the rest of the law and the remainder of the law can stand. However, for various reasons when Congress enacted the ACA, it did not include a severability clause. Therefore, it is up to the Court to decide whether a determination on the constitutionality of one provision results in the invalidation of the entire law, a portion of the law, or only that provision under review.

Because there are three options, each option was argued before the Court. The states argued that if the mandate is ruled unconstitutional, the entire law had to be brought down. The federal government argued that if the mandate is ruled unconstitutional, only the guaranteed issue provision and the community rating provision had to be brought down. Finally, the Court, as with the AIA issue, retained independent outside counsel to argue that the individual mandate was a stand-alone provision and a determination that it is unconstitutional had no effect on the rest of the law.

Unlike the other issues before the Court which largely revolve around interpretations of the law and the constitutionality of the law, the severability discussion centers more on the practical effect of the Court’s ruling. “What would happen if…” is the central question the Court must consider.

There appeared to be general acknowledgement by the Justices that a ruling by the Court that the mandate is unconstitutional would have a profound impact on the insurance market. Both the plaintiffs and the government also agree on this point. It is therefore hard to imagine that the Court would declare the mandate unconstitutional without also declaring the insurance provisions mentioned above null and void as well.

The only question left then, appears to be whether the remainder of the ACA – the other 1,500 pages dealing with public health, Medicare payment reforms, administrative simplification enforcement, etc. are in any way affected by the individual mandate question. Some Justices appeared to argue that the mandate was the “heart” of the ACA and removal of the heart would result in the death of the bill so the entire law should be invalidated if the mandate is deemed unconstitutional. Others appeared to argue that the provisions of the ACA that were unrelated to the mandate could stand even if the mandate was deemed unconstitutional.

Finally, there did not seem to be much support for the notion that the mandate was a completely stand-alone provision that could be individually stricken and have no impact on the remainder of the statute. The conclusion here seems to be that should the Court rule that the individual mandate is unconstitutional, some portion of the law would have to be invalidated. It is just a question of how much.

Where to from Here?

The Supreme Court is not obligated to render its decision within a stated time-frame. However, the consensus among those who follow the Court seems to be that the Court would like to announce its decision well in advance of the November elections, most likely in June.

The deliberations of the Justices now go into the secret part of this process. The Justices will talk amongst themselves, meet as a group and begin to formulate the Court’s opinion. The Chief Justice is the convener of the private conferences amongst the Justices and presides over these meetings. Individual Justices will craft draft opinions and share those amongst his/her colleagues.

At some point, the Chief Justice, after listening to the opinions of his colleagues, will call for a vote to see where things stand. Justices will state in the conference where they stand and equally important, why the have reached the conclusion they have on the issue. If the Chief Justice’s position is in the majority, he will choose the Justice who will be asked to write the majority opinion. If the Chief Justice is not in the majority, then the decision on who will write the opinion goes to the most senior Justice in the majority.

Choosing who writes the opinion may appear to be a ministerial function but it is, in reality, a very important function. Supreme Court opinions are not important simply because of the outcome of the decision. The logic or legal arguments used to justify that outcome are extremely important in terms of establishing or continuing Court precedents. Two Justices may come to the same conclusion in terms of their vote, but have very different reasons for reaching that conclusion.

The Chief Justice, when siding with the majority vote, will get to decide which rationale becomes the underpinning for the majority’s decision. This alone can have a significant impact on future Courts and the decisions they make. It is not unprecedented for a Chief Justice to switch his vote to the side of the majority simply in order to preserve his ability to decide who writes the opinion of the Court.

Some are suggesting that this decision by the Supreme Court could be one of the most important philosophical decisions the Court has made in the last 50 years. The long-term consequences of the Court’s decision may not be known for several years but it’s going to be interesting to see how the Court rules and how the public reacts to that ruling.

More to follow in the months ahead!

Best regards,
Kirk Reinitz, CPA
President & CEO