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Eleventh Circuit Holds Individual Health Insurance Mandate Unconstitutional, Sets Stage for Supreme Court Review

Wednesday, August 31, 2011
Jason M. Brocks | Bloomberg Law Florida v. U.S. Dep't of Health and Human Services, Nos. 11-11021 & 11-11067, 2011 BL 210461 (11th Cir. Aug. 12, 2011) In August, the Eleventh Circuit found that the “individual mandate” of the Patient Protection and Affordable Care Act, Pub. L. 111-148, 124 Stat. 119 (2010), as amended by the Health Care and Education Reconciliation Act, Pub. L. 111-152, 124 Stat. 1029 (2010) (the Affordable Care Act or the Act), is unconstitutional. Although that aspect of the ruling is significant, the opinion is also notable because in it the court upheld the Act’s expansion of Medicaid and concluded that all provisions of the Act except the provision requiring individuals to purchase health insurance could remain effective. The Eleventh Circuit’s decision is the first from an appellate court to find that the mandatory insurance requirement in the Act is unconstitutional. Another appellate court, the Sixth Circuit, upheld the law in Thomas More Law Center v. Obama, 2011 BL 170453 (6th Cir. June 29, 2011). See Betsy Goldman, "Sixth Circuit Upholds Health Care Overhaul as Constitutional," Bloomberg Law Reports, July 14, 2011. Additional challenges to the individual mandate are pending in the Fourth Circuit. See Commonwealth of Virginia v. Sebelius, No. 11-1057 (4th Cir. Jan. 20, 2011); Liberty University, Inc. v. Geithner, No. 10-2347 (4th Cir. Dec. 3, 2010). Other suits have been filed, including Coons v. Geithner, No. 2:10-CV-01714 (D. Ariz. Aug. 12, 2010), which argues that Congress lacked the constitutional authority to create the Independent Payment Advisory Board (IPAB) created by the Act to oversee efforts to control Medicare costs.

Immediate Challenge to the Act

Upon the passage of the Act in 2010, the State of Florida and 25 other states filed a suit challenging the constitutionality of various provisions of the Act. In particular, the suit focused on the individual mandate and the mandatory changes to the Medicaid program. The government considers the mandate to be necessary because, without it, people would wait until they were sick to purchase health insurance, making it financially untenable for health insurers to cover their insureds. Significantly, section 2704 of the Act prohibits insurers from denying coverage to any individual starting in 2014 due to a pre-existing condition. The Medicaid expansion increases the number of Americans with health insurance coverage by extending eligibility for Medicaid to all groups of people under age 65 with income up to 133 percent of the federal poverty level. The U.S. District Court for the Northern District of Florida held that the individual mandate was an unconstitutional expansion of Congress’s powers under the Commerce Clause. The district court found that the Medicaid claims could not succeed and granted summary judgment to the government on those claims. For a summary of the District Court’s decision, see “District Court Declares Patient Protection and Affordable Care Act Unconstitutional,” Bloomberg Law Reports, February 16, 2011.

Five Components

The Eleventh Circuit began its opinion with a review of the Congressional intent behind the Act. The court considered data relied on by Congress, and presented new data of its own. For the purposes of its opinion, the court divided the Act into “five components”: insurance industry reforms, health insurance exchanges, the individual mandate, employer penalties, and the Act’s expansion of the Medicaid program. Florida v. HHS at 4. Although the court addressed the Act’s five components, it only discussed in detail the constitutionality of the Act’s Medicaid expansion and the individual mandate. The court also considered whether the individual mandate was severable from the Act.

Coercion Doctrine Applied to Medicaid Expansion

The challenge to the constitutionality of new Medicaid requirements was founded mostly on the argument that the “coercion doctrine” prevented Congress from “commandeering state legislators and executive officials to perform the federal government's work.” Id. at 62. According to the court, although the Spending Clause gives broad powers to Congress and the federal government to make federal funds contingent on certain activities by a state, the powers are not unlimited. In particular, the “coercion doctrine” limits what Congress can ask the states to do in return for federal funds. The court applied the coercion doctrine to the Medicaid expansion provisions. For five reasons, the court concluded that the Medicaid expansion was not “unduly coercive.” Id. at 64. First, the states participating in the Medicaid program knew, and the Medicaid Law made explicitly clear, that the program’s requirements could be changed by Congress. Second, the Act strictly limited the amount of money that states were required to spend on the Medicaid expansion. Third, the Act gave states until 2014 to decide whether to adopt the Medicaid expansion or face sanctions for noncompliance. Fourth, states’ participation in Medicaid is voluntary because they have the power to create and fund their own programs. Fifth, and finally, it is not “a foregone conclusion” that the states that refuse to expand their Medicaid programs will lose all of their Medicaid revenue from the federal government. The court wrote that the states “have a real choice . . . to participate” and “[w]here an entity has a real choice, there can be no coercion.” Id. at 67. As a result, according to the court, Congress did not exceed its powers under the Spending Clause when it enacted the Medicaid expansion provisions of the Act.

Individual Mandate is an Unconstitutional Expansion of Congress’s Powers

The court next considered the constitutionality of the individual mandate. Interestingly, the unconstitutionality of the individual mandate was hardly addressed while the Act was being negotiated in the Senate and House of Representatives. See Editors, “Health-Care Case Is a Good Moment for Judicial Restraint,” Bloomberg View, Aug. 17, 2011. Furthermore, as a legal strategy to pursue plaintiffs’ policy goals, challenging the individual mandate could have unintended consequences. For example, if the individual mandate is declared unconstitutional, but severable from the rest of the law, then states may be left with financially unstable insurance companies that are unable to cover their insureds because they might be faced with a pool of insureds skewed towards sicker individuals. In that case, states could ultimately be faced with the costs associated with covering many of the uninsured through Medicaid. In the alternative, if the mandate is found to be constitutional, the plaintiffs may set precedent for expanded Congressional powers under the Commerce Clause. In the court’s view, the individual mandate was an unconstitutional expansion of Congress’s powers under the Commerce Clause, and not acceptable under the Necessary and Proper Clause. While acknowledging that the Supreme Court has given the Commerce Clause an “expansive interpretation” since the New Deal era, the court also noted that the Supreme Court has continued to foresee “outer limits” on Congress’s power to regulate commerce. Florida at 76, 69. In finding that the commerce power did not authorize Congress to enact the individual mandate, the court focused on the lack of precedent to support Congressional “economic mandates,” such as (in the court’s view) the individual mandate. Id. at 114. Perhaps because of the lack of precedential judicial opinions on the matter, the court relied in part on analysis by the Congressional Budget Office (CBO) and the Congressional Research Service (CRS) of the constitutional issues raised by an individual mandate. Id. at 116, 167. Notably, the CBO study was written in 1994, well before the Affordable Care Act was conceived, and the CRS study was written in 2009, as a contribution to Congressional proposals to include an individual mandate in the Act. The court applied existing Commerce Clause jurisprudence to the individual mandate and found that to allow the mandate to survive would solidify the use of a “but-for causal chain” in analyzing Congress’s powers under the Commerce Clause, and expand Congress’s commerce power to one of “unlimited scope.” Id. at 126, 124. The court wrote that the government did not present any “limiting principles” (the uniqueness of health care and health insurance, for example) sufficient to prevent Congress from “regulat[ing] anything,” if the court were to approve the individual mandate. Id. at 131. After reviewing Congressional findings, the court discussed the fact that insurance regulation is an area of traditional state concern. According to the court, “the fact that Congress has enacted this insurance mandate in an area of traditional state concern is a factor that strengthens the inference of a constitutional violation.” Id. at 157. The court also concluded that the individual mandate is not justified under the tax power because it operates as a regulatory penalty and not a tax. The court affirmed the district court’s determination that the individual mandate is unconstitutional. Unlike the district court, however, the court held that the individual mandate was severable from the rest of the Act. The court upheld the district court’s conclusion that the Medicaid expansion was not unduly coercive. The court’s decision, being in conflict with the Sixth Circuit’s finding that the individual mandate was constitutional, made it much more likely that the Supreme Court will have the final say on the constitutionality of the provision. Disclaimer This document and any discussions set forth herein are for informational purposes only, and should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Review or use of the document and any discussions does not create an attorney-client relationship with the author or publisher. To the extent that this document may contain suggested provisions, they will require modification to suit a particular transaction, jurisdiction or situation. Please consult with an attorney with the appropriate level of experience if you have any questions. 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