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Department of Health and Human Services v. Florida (11-398)

Oral argument: March 27, 2012

Appealed from: The United States Court of Appeals for the Eleventh Circuit (Aug. 12, 2011)

HEALTH CARE, PATIENT PROTECTION AND AFFORDABLE CARE ACT, MINIMUM COVERAGE PROVISION

The Patient Protection and Affordable Care Act’s (“Health Care Act”) minimum coverage provision requires that all eligible individuals purchase health care coverage. Beginning in 2014, any failure to purchase coverage will result in a fine. Respondents, two individual citizens, twenty-six states, and the National Federation of Independent Business, claim that the Health Care Act’s minimum coverage provision is unconstitutional as it deprives individuals of the freedom to purchase what they choose, going beyond Congress’s authority under the taxing powers and the Commerce Clause. Petitioner, the United States government, maintains that the minimum coverage provision is a valid way to regulate the rising health care costs that limit many individual’s access to necessary health care services.

Question presented

Beginning in 2014, the minimum coverage provision of the Patient Protection and Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119, amended by the Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152, 124 Stat. 1029, will require non-exempted individuals to maintain a minimum level of health insurance or pay a tax penalty. 26 U.S.C.A. 5000A. The question presented is:

1. Whether Congress had the power under Article I of the Constitution to enact the minimum coverage provision.

Petitioners also suggest that the Court direct the parties to address the following question:

2. Whether the suit brought by respondents to challenge the minimum coverage provision of the Patient Protection and Affordable Care Act is barred by the Anti-Injunction Act, 26 U.S.C. 7421(a).

IN ADDITION TO QUESTION 1 PRESENTED BY THE PETITION, THE PARTIES ARE DIRECTED TO BRIEF AND ARGUE THE FOLLOWING QUESTION: “WHETHER THE SUIT BROUGHT BY RESPONDENTS TO CHALLENGE THE MINIMUM COVERAGE PROVISIONS OF THE PATIENT PROTECTION AND AFFORDABLE CARE ACT IS BARRED BY THE ANTI-INJUNCTION ACT, 26 U.S.C. §7421(A).”

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Issue

Does Congress have the power to enact the minimum coverage provision under the Necessary and Proper Clause, Commerce Clause, or under Congress’s independent power to levy taxes?

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Facts

On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act (“Health Care Act”) into law. The Health Care Act contains a minimum coverage provision (“individual mandate”), which states that all eligible individuals must have the “minimal essential” level of health care coverage. See 26 U.S.C. § 5000A. Under this provision, individuals must purchase and maintain a minimum amount of health care coverage for themselves and their dependents. See id. § 5000A(a). Exemptions to the mandate are available for undocumented immigrants, incarcerated individuals, those unable to pay under certain requirements, or those with religious objections. See id. § 5000A(d)–(e). Beginning in 2014, those who fail to purchase coverage are required to pay a flat penalty fee, which will increase from 2014 to 2016, or a percentage of their income if it is higher than the penalty fee. See id. § 5000A(b)(1),(c). Employers who do not offer their employees health care coverage are subject to similar penalties. See 26 U.S.C. § 4980H.

Soon after President Obama signed the Health Care Act into law, Mary Brown and Kaj Ahlburg, the National Federation of Independent Business, and twenty-six states (collectively “NFIB”) filed suit in the U.S. District Court for the Northern District of Florida against the Department of Health and Human Services, Department of the Treasury, and Department of Labor (collectively “HHS”). See Florida v. Dep’t of Health & Human Servs., 780 F. Supp. 2d 1256, 1263. Among other things, NFIB challenged the Health Care Act’s individual mandate. See id. at 1265. The district court granted summary judgment to NFIB on issue of the individual mandate’s constitutionality, stating that that provision is not a valid use of Congress’s authority under the taxing powers or the Commerce Clause. See id. at 1306–07. The district court also held that the individual mandate could not be severed from the Health Care Act, and therefore the entire Health Care Act is unconstitutional. See id. On appeal, the United States Court of Appeals for the Eleventh Circuit reversed the grant of summary judgment, agreeing that the individual mandate was not permissible under Congress’s taxing power but maintaining that the individual mandate could be severed from the rest of the Act. See Florida v. Dep’t of Health & Human Servs., 648 F.3d 1235, 1328. Thus, according to the Eleventh Circuit, the Health Care Act’s constitutionality does not turn on the validity of the individual mandate. See id. The Supreme Court granted certiorari on November 14, 2011 to consider, among other questions, whether Congress has the power to enact the Health Care Act’s individual mandate. See Dep’t of Health & Human Servs. v. Florida, 132 S. Ct. 604 (2011).

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Discussion

Private Respondents, Mary Brown, Kaj Ahlburg, and the National Federation of Independent Business (collectively “NFIB”), and State Respondents, comprised of twenty-six states, argue that the Patient Protection and Affordable Care Act’s (“Health Care Act”) minimum coverage provision within the individual mandate is unconstitutional because it requires individuals to enter into financial contracts without considering individual needs. Petitioners, the Department of Health and Human Services, the Department of the Treasury, and the Department of Labor (collectively “HHS”), argue that the individual mandate is constitutional and necessary to an effective health care system, because without it, individuals would drive up health care costs by waiting to purchase coverage.

Fears of a Centralized Government

NFIB argues that the individual mandate deprives citizens of the freedom to choose their financial relationships and requires individuals to enter into financially disadvantageous contracts. See Brief for Private Respondents at 13, 61–62. According to the States, there is no difference between requiring individuals to purchase health care insurance and requiring individuals to purchase a car, because in both situations Congress could justify the requirement under the premise that individual decisions, when aggregated, affect interstate commerce. See Brief for State Respondents at 27–28. NFIB notes that compelling commerce in this way would create a centralized government, which could mandate the purchase of goods by characterizing the failure to buy as an “economic decision” that hurts the relevant market. See Brief for Private Respondents at 33–34. This problem is exacerbated, the States argue, because there is no clear boundary in determining what decisions have sufficient effects on interstate commerce to justify government regulation. See Brief for State Respondents at 29–30.

A number of health law professors argue that the individual mandate should not be scrutinized without considering health care’s unique place in society—it’s an expansive industry with which nearly every American interacts, but health care costs on the individual level are much less predictable than costs in comparable markets. See Brief of Amici Curiae 104 Health Law Professors in Support of Petitioners at 9, 14–15. Health care is also different, law professors note, due to the considerations for human life that trump an inability to afford the care. See id. at 11–13. Because the health care market is so different from any other market, the American Hospital Association (“AHA”) argues that Respondents’ “slippery slope” argument fails. See Brief of Amici Curiae American Hospital Association et al. in Support of Petitioners at 23. AHA states that the individual mandate does not force people to buy health care; rather, the mandate regulates the market so that individuals cannot use free health care services and require paying individuals to absorb the costs. See id. at 23–24.

Allocation of Costs

The States argue that the individual mandate imposes costs on all individuals by requiring everyone to purchase of health care insurance, regardless of need. See Brief for State Respondents at 25. NFIB contends that health care is not a unique “near-universal” business because many of those who are currently uninsured will not actually need health care services, but will have to pay annual insurance costs anyway. See Brief for Private Respondents at 54–55. The American Center for Law & Justice asserts that insurance costs are now being imposed on the entire population based only on the possibility that some individuals will obtain future health care services without insurance. See Brief of Amici Curiae American Center for Law & Justice, et al. at 21. Oklahoma argues that these health care concerns are better left to the judgment of the states, which are currently divided over the individual mandate’s necessity, because a state can more easily mold its laws to reflect its people’s will. See Brief of Amicus Curiae State of Oklahoma in Support of Respondents at 10–11.

HHS argues that the Health Care Act’s individual mandate is necessary to prevent individuals from driving up health care costs by waiting to purchase coverage until they need medical services. See Brief for Petitioners at 29. Congressional leaders assert that when uninsured individuals use health care services, which 94% of them do, those costs are shifted to the insured in the form of higher premium costs. See Brief of Amici Curiae Senate Majority Leader Harry Reid, et al. in Support of Petitioners at 21. Young Invincibles notes this problem is especially relevant for individuals ages eighteen to thirty-four, as almost 30% are uninsured due to high coverage costs. See Brief of Amicus Curiae Young Invincibles in Support of Petitioner at 10, 13. HHS contends the mandate also assists in lowering health care premiums for all by increasing insurer competition. See id. at 31. Several states argue that the problems of underinsured citizens and high health care costs plague every state, and that states cannot cure these problems on their own. See Brief of Amici Curiae States of Maryland, California, et al. in Support of Petitioners at 8, 11–12.

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Analysis

At issue is the minimum coverage provision within the individual mandate contained in the Patient Protection and Affordable Care Act (“Health Care Act”). The individual mandate provides that taxpayers who do not obtain the required health insurance coverage for themselves or their dependents are subject to a penalty for each year that the taxpayer fails to meet the requirement. See 26 U.S.C. 5000A. The Health Care Act also contains a guaranteed-issue provision, which prohibits the denial of insurance based on pre-existing medical conditions, and a community-rating provision, which stops insurers from charging increased premiums based on pre-existing medical conditions. See 42 U.S.C. § 300GG-1; 42 U.S.C. § 300GG-4.

Congressional Power Pursuant to the Necessary and Proper Clause and the Commerce Clause

The Department of Health and Human Services, the Department of the Treasury, and the Department of Labor (collectively “HHS”) argue that the individual mandate falls within Congress’s powers under the Necessary and Proper Clause. See Brief for Petitioners at 21. HHS contends that the Necessary and Proper Clause gives Congress the broad power to pass federal legislation in order to further a legitimate purpose. See id. at 22–23. HHS points out that the Health Care Act serves a legitimate purpose—to reform the health care market—and the individual mandate is crucial to the viability of the Act. See id. at 23–24. HHS argues that without this mandate, other key provisions of the Act, such as the guaranteed-issue and community-rating provisions, would fail. See id. at 24–25. HHS elaborates that the mandate provides the financing for the anti-discriminatory practices that the guarantee-issue and community-rating provisions seek to accomplish. See id. at 28–30. The individual mandate, HHS argues, prevents individuals from increasing insurance costs by waiting to purchase health insurance until a medical need arises, thereby exploiting the guarantee-issue and community-rating provisions. See id. at 29. Because the mandate is necessary for the success the Health Care Act’s other provisions, HHS asserts that it falls within the realm of Congress’s power pursuant to the Necessary and Proper Clause. See id. at 32. HHS also contends that the mandate fall under Congress’s power pursuant to the Commerce Clause because it regulates the purchase of healthcare, which is “commercial and economic in nature.” See id. at 33. HHS insists that this type of activity affects interstate commerce because it has financial implications for many other industries. See id. at 33–34. Congress has validly employed its commerce power to regulate this industry, HHS argues, by incentivizing uninsured citizens to purchase insurance and stop passing the costs onto those who are insured. See id.

Private Respondents, two individual citizens and the National Federation of Independent Business (collectively “NFIB”), contend that the Necessary and Proper Clause does not create Congressional power, but rather limits Congress to enacting legislation that is necessary to implement one of the specifically enumerated constitutional powers. See Brief for Private Respondents at 11–12. NFIB insists that the individual mandate cannot be upheld under the Necessary and Proper Clause because it exceeds Congress’s power by compelling individuals to subsidize the costs generated by the Health Care Act’s regulations. See id. at 43. NFIB points out that the individual mandate off-sets the high costs that the Health Care Act incurs by passing those costs onto healthy taxpayers, who then have to pay a premium exceeding their actuarial risk. See id. at 40–41. Moreover, NFIB contends that the Commerce Clause only gives Congress power to regulate economic activity that directly relates to a legitimate interstate goal; however, NFIB insists, the failure to obtain health insurance is not an economic activity. See id. at 21–23. NFIB argues that, under the Commerce Clause, Congress can only regulate noneconomic activity if it undermines the regulation of commerce, which, NFIB contends, the failure to purchase health care insurance does not. See id. at 25. Similarly, the States contend that the Commerce Clause gives Congress the power to regulate commerce, not the power to create commerce. See Brief for State Respondents at 15. The States assert that Congress does not have the power to compel taxpayers to engage in commerce by requiring the purchase of health insurance via the individual mandate. See id. at 15–17. State Respondents also contend that because individual mandate regulates individual financial decisions, not interstate commerce, Congress lacks the authority to mandate the purchase of health insurance. See id. at 26.

Congress’s Power to Collect Taxes

HHS maintains that the individual mandate also falls within Congress’s independent power to levy taxes. See Brief for Petitioners at 52; Art. I., § 8, Cl. 1. HHS contends that although the individual mandate’s language states that it imposes a “penalty” upon taxpayers who fail to obtain the required health insurance coverage, the penalty effectively functions as, and should be considered, a tax. See Brief for Petitioners at 52, 56. The mandate’s penalty provision, HHS argues, has the essential elements of tax law—it is part of the Internal Revenue Code and enforced by the IRS, it will raise substantial money, and the consequences are directed only towards those who fail to comply with the individual mandate. See id. at 52, 56–58. HHS asserts that if a taxpayer fails to meet the individual mandate’s requirements and falls subject to the penalty, the individual will be subject to tax consequences that are based on their household income and reported in their federal income tax return. See id. at 53, 57. HHS maintains that because the penalty can reasonably be interpreted as part of the tax laws, and this interpretation is not clearly against congressional intent and will uphold the mandate’s constitutionality, the mandate should be treated as a tax. See id. at 59. The mandate, HHS argues, is meant to be read in context with the associated penalty provision, as the mandate itself does not create an “independently enforceable legal obligation.” See id. at 60–61. HHS asserts that the proper reading is to view the mandate only as a “predicate” for the tax assessed by the penalty provision. See id. Ultimately, HHS argues, the mandate is constitutional under Congress’s power to levy taxes. See id.

NFIB insists that the individual mandate falls outside the realm of the Congress’s taxing power. See Brief for Private Respondents at 63. NFIB contends that the mandate and penalty are separate, and because the mandate is a requirement that cannot itself be construed as part of the tax law, the penalty arising from a failure to comply with the mandate cannot be upheld as a tax law. See id. at 63–64. NFIB points out that Congress intentionally structured the mandate’s penalty as a sanction. See id. at 64. The States elaborate that the way in which the mandate’s penalty operates meets the exact definition of a penalty—it punishes for violations of “a separate legal command,” the mandate. See Brief for State Respondents at 57. NFIB also poses another problem that characterizing the penalty as a tax would impose: what category the tax would fall under. See Brief for Private Respondents at 65–67. NFIB points out that even if the penalty were categorized as a direct tax or as non-direct tax, each designation would create its own constitutionality issues. See id. Because the penalty is more accurately considered a sanction, and characterizing it as a tax would lead to unconstitutional results, NFIB contends that Congress can not enact the individual mandate pursuant to its taxing power. See id. at 64–65. State Respondents contend that including the penalty as part of the tax code is not determinative of its nature. See Brief for State Respondents at 60–61. This is clear, State Respondents argue because other revenue-generating measures, including comparable civil penalties, have not been considered taxes because of their location in the tax code. See id.

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Conclusion

The Patient Protection and Affordable Care Act’s minimum coverage provision requires that all eligible individuals purchase health care insurance, and those who fail to obtain coverage must pay a penalty. Respondents, two individual citizens, twenty-six states, and the National Federation of Independent Business, assert that Congress does not have the power to enforce the individual mandate and that the mandate infringes on the freedom to refrain from certain business relationships. Petitioners, the Department of Health and Human Services, Department of the Treasury, and Department of Labor, maintain that the minimum coverage provision is constitutional and necessary to lower the costs of health care insurance, making it more accessible to many individuals, and to effectively regulate a problematic health care system.

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Authors

Prepared by: Jenny Liu and Lisa Schmidt

Edited by: Jacqueline Bendert

Additional Sources

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