Virginia is For Healthy, Non-Federally Funded Lovers
Earlier this month, Judge Henry Hudson of the United States District Court for the Eastern District of Virginia ruled that Congress lacks the authority to “require that every United States citizen [with limited exceptions] maintain a minimum level of health insurance coverage” or else face “a penalty included with the taxpayer’s annual return.” Virginia v. Sebelius, No. 3:10-cv-00188-HEH 1 (E.D. Va 2010). An extended summary of the decision and my own observations follow.
In challenging the law, Virginia (referred to in the opinion as “the Commonwealth”) advanced three arguments. The first was a Commerce Clause argument that the Article I power to regulate interstate commerce (along with recognized expansions of that power under the Necessary and Proper Clause) does not permit Congress to “requir[e] an otherwise unwilling individual to purchase a good or service from a private vendor,” and that “failure, or refusal…to elect to purchase health insurance is not economic activity historically subject to federal regulation under the Commerce Clause.” Id. at 3-4. The second was a taxation argument that Congress’ power to tax under the General Welfare Clause does not authorize what actually is “a penalty untethered to an enumerated power,” which “is mischaracterized as a tax.” Id. at 4. The third was a state autonomy argument that the Minimum Essential Coverage Provision (“the Provision”) directly conflicts with a Virginia health care law, is “an unlawful exercise of police power, encroaches on the sovereignty of the Commonwealth, and offends the Tenth Amendment to the U.S. Constitution.”
In evaluating the Commerce Clause argument, the court had previously noted that the Provision “appears to forge new ground and extends the Commerce Clause powers beyond its [sic] current high water mark.” Id. at 11. In defending the Provision as a permissible exercise of Congress’ authority to “regulate activities that substantially affect interstate commerce,” id. (citing Perez v. U.S., 402 U.S. 146, 150 (1971)), Secretary of Health and Human Services Kathleen Sebelius (“the Secretary”) argued that it was permissible under the aggregation theory supported by the Supreme Court’s most expansive Commerce Clause rulings, Wickard v. Filburn, 317 U.S. 111 (1942) and Gonzales v. Raich, 545 U.S. 1 (2005), Sebelius at 11-16.
The aggregation theory “is conceptually based on the hypothesis that the sum of individual decisions to participate or not in the health insurance market has a critical collective effect on interstate commerce. Congress may regulate even intrastate activities if they are within a class of activities that, in the aggregate, substantially affect interstate commerce.” Id. at 12. In Wickard, the Supreme Court upheld Congress’ authority to regulate personal cultivation and consumption of wheat because it reduced the amount commercially produced wheat in interstate commerce (that farmer Filburn would have had to purchase had he not produced his own supply), thus contributing to an aggregated substantial effect on interstate commerce. Raich applied similar reasoning to the (illegal, the Court seemed to ignore) market for marijuana. “When Congress decides that the total incidence of a practice poses a threat to a national market, it may regulate the entire class.” Raich, 545 U.S. at 17 (internal quotation marks omitted).
Along this line of reasoning, the Secretary, while “sidestep[ping] the independent freestanding constitutional basis for the Provision,” argued that the Provision is “a necessary measure to ensure the success of its larger reforms of the interstate health insurance market.” Sebelius at 12, n. 5.
In the Secretary’s view, the key elements of health care reform are coverage of those with preexisting conditions and prevention of discriminatory premiums on the basis of medical history. These features, the Secretary maintains, will have a material effect on the health insurance underwriting process, and inevitably, the cost of insurance coverage. Therefore, without full market participation, the financial foundation supporting the health care system will fail, in effect causing the entire health care regime to “implode.” Unless everyone is required by law to purchase health insurance, or pay a penalty, the revenue base will be insufficient to underwrite the costs of insuring individuals presently considered as high risk or uninsurable. Therefore, under the Secretary’s reasoning, since Congress has the power under the Commerce Clause to reform the interstate health insurance market, it also possesses, under the Necessary and Proper Clause, the power to make the regulation effective by enacting [the Provision].
Id. at 13; see also here.
In evaluating the Commerce Clause arguments, the court first observed the limitations of Congress’ power under the Necessary and Proper Clause. Authority exercised under the Necessary and Proper Clause must bear a rational relationship to a constitutionally enumerated power and cannot violate an independent constitutional prohibition. Sebelius at 17 (citing U.S. v. Comstock, 130 S.Ct. 1949, 1956-57 (2010)). In other words, legislation cannot be necessary and proper for being necessary and proper– it must be necessary and proper to carry out a power of Congress the Constitution specifically authorizes, here, the authority to regulate interstate commerce. The court here tracks Virginia’s Commerce Clause reasoning, which is grounded in the Court’s recent, more restrictive Commerce Clause decisions, U.S. v. Lopez, 514 U.S. 549 (1995) and U.S. v. Morrison, 529 U.S. 598 (2000), and is less concerned with the aggregation theory at play in Wickard and Raich. Recognizing that Wickard and Raich establish the “outer boundaries” of Congress’ Commerce Clause power, the court also noted the restrictive prescriptions of Lopez and Morrison that Commerce Clause authority is confined to activities truly economic in nature and with “a demonstrable effect on interstate commerce.” Sebelius at 21-22. For the Provision to be valid under this analysis, the decision to refuse to purchase health care insurance must be such an activity. Id. at 22. In reaching its holding, the court observed
Neither the Supreme Court nor any federal circuit court of appeals has extended Commerce Clause powers to compel an individual to involuntarily enter the stream of commerce by purchasing a commodity in the private market. In doing so, enactment of [the Provision] exceeds the Commerce Clause powers vested in Congress under Article I.
Id. at 24 (and dismissing the argument that the collective effect of an aggregate of such inactivity reaches a constitutional level). For the court, it followed from the fact that regulation of this decision is beyond the historical reach of the Commerce Clause that the Necessary and Proper Clause could not bootstrap it into Commerce Clause regulatory jurisdiction. Id. The Necessary and Proper clause “grants Congress broad authority to pass laws in furtherance of its constitutionally-enumerated [sic] powers. This authority may only be constitutionally deployed when tethered to a lawful exercise of an enumerated power….[I]t must be within the letter and spirit of the Constitution.” Id. (citations and quotation marks omitted) (citing Comstock, 130 S.Ct. at 1956-57; McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 421 (1819)). The court ruled that the Provision “is neither within the letter nor the spirit of the Constitution. Therefore, the Necessary and Proper Clause may not be employed to implement this affirmative duty to engage in private commerce.” Id.
The court also rejected the Provision on the second line of support– whether the “penalty” is an exercise of Congress’ power to “tax”– finding that “although purportedly grounded in the General Welfare Clause, the notion that the generation of revenue was a significant legislative objective is a transparent afterthought.” Id. at 32.
The legislative purpose underlying this provision was purely regulation of what Congress misperceived to be economic activity. The only revenue generated under the Provision is incidental to a citizen’s failure to obey the law by requiring the minimum level of insurance coverage. The resulting revenue is extraneous to any tax need. The use of the term “tax” appears to be a tactic to achieve enlarged regulatory license.
Id. at 32-33 (quotation marks and citation omitted). Although the Secretary took the position that the “penalty” was a tax before this court, the legislative history of the Affordable Care Act (“the ACA”) betrays inconsistency on this point. Indeed, the court pointed “unequivocal denials by the Executive and Legislative branches that the ACA was a tax.” Id. at 33. Contrary to the Secretary’s argument, the words tax and penalty “are not interchangeable…and if an exaction [is] clearly a penalty, it cannot be converted into a tax by the simple expedient of calling it such.” Id. at 35 (quoting U.S. v. La Franca, 282 U.S. 568, 572 (1931)). As a penalty, it must be connected to some other enumerated power besides the General Welfare Clause, and since the court already found that it was not a necessary and proper exercise of Congress’ Commerce Clause power, the court again rejected the Provision: “The absence of a constitutionally viable exercise of this enumerated power is fatal to the accompanying sanction for noncompliance.” Id. at 37.
The court did not discuss the third, state autonomy issue.
As a final matter, the court addressed the issue of severability– whether it can carve out and invalidate the Provision, while permitting the rest of the ACA to stand. (“Generally speaking, when confronting a constitutional flaw in a statute, we try to limit the solution to the problem, severing any problematic portions while leaving the remainder intact.” Id. at 38 (quotation marks omitted) (citing Free Enterprise Fund v. Public Co. Accounting Oversight Bd., 130 S.Ct. 3138, 3161 (2010)).) Interestingly but not surprisingly, Virginia and the Secretary swap positions on this issue. In the face of invalidation of the Provision, the Secretary argued for severability, while Virginia reminded the court of the Secretary’s frequent argument that the Provision is the “linchpin” of the ACA’s regulatory scheme. For a variety of reasons, including the complexity and broad and varied sweep of the ACA, the court endeavored to sever as narrowly as possible only the Provision and those other, “directly-dependent provisions” making specific reference to the Provision. Id. at 40.
When Judge Hudson released his decision earlier this month, a reader asked what it meant for the future of the ACA. Concern among supporters of the act was not surprising, especially given the nonspecific headlines of the day, but the scope of this ruling is, for the moment, quite limited. Federal district courts are trial-level courts, so his ruling is binding only on the parties to the case. On this point, Hudson specifically denied Virginia’s request to halt implementation of the Provision, relying instead on the strength of a declaratory judgment that the Provision is unconstitutional. Although some may see the thrust of Hudson’s ruling as bold, he is reasonable rather than brash throughout and strikes a note of humility in the end, recognizing the larger reality that the case “turns on atypical and uncharted applications of constitutional law interwoven with subtle political undercurrents. The outcome of this case has significant policy implications. And the final word will undoubtedly reside with a higher court….In this Court’s view, the award of declaratory judgment is sufficient to stay the hand of the Executive branch pending appellate review.” Id. at 40-41. Hudson’s first bite at the apple likely will have a meaningful influence on the subsequent review, as a matter of discourse and anchoring. He makes clear early on, however, that because of the posture of the case– cross-motions for summary judgment– “the dispute at hand is driven entirely by issues of law.” Id. at 2. While appellate courts usually defer to a trial judge’s interpretation of the facts as presented at trial, they generally review matters of law de novo (anew), giving no deference to the trial judge. The panel of the U.S. Court of Appeals for the Fourth Circuit will feel free to write on a clean slate when it reviews this case.
Virginia v. Sebelius received a lot of attention for its outcome, but four other federal district courts previously had rejected similar challenges, although their reasoning differed, making Sebelius something of an outlier. These trial-level decisions are but the first act of what is likely to be at least a three-act judicial play that eventually will reach the Supreme Court. The Court is likely to wait to rule until it is presented with multiple, conflicting rulings across the circuit courts of appeals, a process that could take months or years.
Although there may be a gap in the court’s opinion (the failure to expressly consider alternative constitutional bases for Congress’ authority to enact the Provision as part of the ACA), I find it, on the whole, to be persuasive and a reasonable application of precedent.
For further reading about this case, see here and here. For tangentially relevant information on this site, see here, here, and here. Thanks to the reader who directed my attention to Judge Hudson’s opinion. Please use the comment section, below, for your reactions and questions.