The Escalating Battle Over Health Care Legislation

Written by Robert G. Brody on February 8, 2011

As seen in the January 31, 2011 Connecticut Law Tribune

President Obama signed the Patient Protection and Affordable Care Act (PPACA) into law last March.  Almost as soon as he put his pen down, challenges were filed.  The challengers make two main arguments: 1) PPACA’s individual mandate is outside the scope of Congress’ power under the Commerce Clause because it regulates “inactivity;” 2) the charge imposed on an individual for failing to buy health insurance is not a tax (and therefore constitutional) but rather a penalty (and therefore unconstitutional). 

The one thing on which all sides of the health care debate can agree is that the U.S. Supreme Court will eventually decide on the law’s constitutionality. 

So far decisions in these cases seem to be divided along political ideological lines.  Two federal district judges held the individual mandate constitutional – Judge Norman K. Moon of the Western District of Virginia and Judge George Caram Steeth of the Eastern District of Michigan.  Those judges were appointed by President Bill Clinton.

Judge Henry E. Hudson of the Eastern District of Virginia, who found the individual mandate unconstitutional, was appointed by President George W. Bush.  There are a number of other similar cases pending around the country.  While everyone expects the issue to be decided by the Supreme Court, it could take over a year before the Court gets the case. 

Activity v. Inactivity

The first key issue decided in all three cases was whether requiring someone to buy health insurance is the regulation of “activity” or “inactivity.”  The Commerce Clause gives Congress the power to regulate “activity” affecting interstate commerce, but does not give it the power to regulate “inactivity.” 

The health reform act’s individual mandate requires everyone purchase health insurance or pay a fee.  Challengers argue the decision not to purchase health insurance is inactivity and does not affect interstate commerce.  The Federal government argues it is an active decision, because the individual is choosing to pay out of pocket for any medical expenses.  The government also argues this choice affects interstate commerce, thereby giving Congress the power to regulate it.

The courts cited two Supreme Court cases, Wickard v. Filburn and Gonzales v. Raich, in which the Supreme Court dealt with activity that was personal, but had a substantial impact on interstate commerce.  In Wickard, a farmer wanted to grow wheat for his own personal consumption.  The Court disagreed and found the farmer’s decision affected the government’s price stabilization scheme for wheat, thereby affecting interstate commerce, and so the Government had the power to force the farmer to sell his wheat to others. 

In Raich, the Court found that although people were growing marijuana for personal consumption, there was a large market for the product, and therefore the government’s regulation of the personal marijuana use was an essential part of their national regulatory scheme regarding marijuana. 

Judge Moon and Judge Steeth found these two cases applicable to PPACA, concluding that while a person’s decision not to choose health insurance is a personal one, it substantially affects interstate commerce.  By choosing not to buy health insurance, a person shifts the cost of health insurance to others, thereby affecting the overall cost of insurance to those who purchased insurance.  The judges point out that this cost shifting problem is unique to the health care market.  It is impossible for a person to guarantee he/she will never enter the health care system.  It is likely the person will require emergency care or other health care services at least once during their lifetime.  At that point, they will either pay out of pocket, or be unable to pay, thereby passing the cost on to taxpayers.  Congress insists the individual mandate is essential to the total health care scheme to regulate the activity of buying health insurance, and is a reasonable way to solve the cost-shifting issue.

Judge Hudson distinguished these cases by noting that in Wickard and Raich, growers made a conscious decision to grow the wheat and marijuana for consumption, which is different than a person’s decision not to act.  Judge Hudson believes if Congress’ current definition of activity were applied, it would basically allow regulation of everything.  He, therefore, found Congress exceeded its power in creating this legislation. 

On the other hand, Judge Steeth found Congress has the right to regulate economic decisions, not just economic activity.  Both he and Judge Moon held the individual mandate to be a valid exercise of Congress’ power under the Commerce Clause. 

Penalty Or Tax?

Also in contention was the part of the individual mandate which requires those who do not purchase health insurance to pay a predetermined sum of money to the federal government.  In the actual legislation, this monetary assessment is called a “penalty.”  However, the government points out that the provision is included in the tax code and is actually a tax, and that Congress has the power to impose it under the Taxing Clause of the Constitution.  Opponents argue this is a penalty upon individuals, and as such is outside the scope of Congress’ power. 

The decisions finding the tax constitutional reason that since Congress had the power to regulate this activity through the Commerce Clause, it also had the power to tax it.  Judge Hudson found the opposite, concluding this penalty is only instituted when the person chooses not to purchase something in the private economy.

He argues Congress was not trying to raise revenue for the general welfare, noting that in this section of the legislation, Congress specifically used the word “penalty,” whereas it used the word “tax” in other sections, showing it made this distinction on purpose. 

Republican Attacks

The PPACA provisions found unconstitutional do not take effect until 2014.  Consequently there will be ample time for the Supreme Court to review these conflicting decisions.

Should the law be found constitutional Congress would have to redraft health care reform to provide for a government plan, similar to Medicare, something fought for by Democrats.  It would be strange indeed if the Republicans were to win this battle but end up with a design even less palatable to their philosophy.

However, PPACA also faces challenges in the legislative arena.  Last November’s election changed the political landscape and some Republicans said they would do everything possible to repeal PPACA.  In fact, on Jan. 3, Republicans introduced a bill called “Repealing the Job-Killing Health Care Law Act.”  While they lack the needed majority for repeal, their new majority status in the House of Representatives allows them to make the bill mostly ineffective.  Many Republicans say they will not pass the appropriations bills needed to fully fund PPACA’s mandates. 

But even if the Republicans defunded the bill, there are still parts of PPACA that would remain.  Provisions such as prohibiting insurance companies from denying coverage based on a pre-existing condition, and requiring insurance companies to cover dependents until age 26 are two examples. 

Employers Can Prepare

The pending issue involves solely the individual mandate under federal law; the provisions requiring employers to provide health insurance or pay a penalty were not found unconstitutional.  Until this issue is finally resolved, employers should utilize two strategies.  First, employers should talk to their attorneys and benefits administrators to prepare for the PPACA provisions that will come into effect over the next few years. 

Second, employers should remain apprised of developments in the area so they are aware of both changes to the law and new interpretations of the existing law.  In this regard, be aware the Department of Health and Human Services continues to issue regulations regarding whether or not employer sponsored health plans are grandfathered, and thereby exempt from certain PPACA requirements. 

In addition, the Department of Labor has several FAQs on this subject aimed at helping employers decipher the mandates of this new law.  Through these steps you will be on the cutting edge of the ever evolving interpretation of PPACA.

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About the Authors

Robert G. Brody is the founding member of Brody and Associates, LLC. He has been quoted and published in national publications and appears as a guest T.V. commentator on contemporary Labor and Employment issues. Learn More