Fourth Circuit Says ACA Employer Mandate Valid, Insurance Regulation Within Commerce

Bloomberg Law for HR Professionals is a complete, one-stop resource, continuously updated, providing HR professionals with fast answers to a wide range of domestic and international human resources...

By Mary Anne Pazanowski  


The U.S. Court of Appeals for the Fourth Circuit July 11 declared the Affordable Care Act's employer mandate a valid exercise of Congress's power to regulate commerce under the commerce clause of the U.S. Constitution (Liberty Univ. Inc. v. Lew, 4th Cir., No. 10-2347, 7/11/13).

The mandate is “simply an example of Congress's longstanding authority to regulate employee compensation offered and paid for by employers in interstate commerce,” the court held in an opinion co-authored by Judges Diana Gribbon Motz, James A. Wynn, and Andre M. Davis.

The ruling comes in a case filed by Liberty University Inc. and two individual plaintiffs that challenged both the individual and employer mandates.

The employer mandate requires employers with more than 50 full-time employees to provide health care coverage to employees and their dependents. If an employer fails to do so, or fails to offer coverage that meets the mandate's affordability requirements, it would be required to make an “assessable payment” collected by the Treasury Department in the same manner as a tax.

The Obama administration recently announced it will delay implementation of the employer mandate until 2015 (64 BTM 217, 7/9/13).

In contrast to the individual mandate at issue in NFIB v. Sebelius, 132 S. Ct. 2566, 53 EBC 1513 (2012), the employer mandate did “not seek to create commerce in order to regulate it,” the court found. Rather, “all employers are, by their very nature, engaged in economic activity.” To the extent the employer mandate requires employers to do something, it does not compel them to take part in interstate commerce, the court said.

The U.S. Supreme Court, in NFIB, upheld the individual mandate on the ground that it was a valid exercise of Congress's power under the taxing and spending clause. Five justices, however, found that it did not survive the commerce clause challenge.

Not a Surprising Decision

Timothy S. Jost, a professor specializing in health law issues at Washington and Lee University Law School in Lexington, Va., told BNA July 11 that the decision was “completely unsurprising.”

“Had the court thrown out the employer mandate, it would have had to overrule eight decades of Supreme Court jurisprudence interpreting the Commerce Clause,” Jost said. He pointed out that the Supreme Court in NFIB, although finding that Congress could not require individuals to engage in commerce, “never questioned the ability of Congress to regulate employee benefits.”

Stuart Gerson, a former acting U.S. attorney general who is now an attorney with Epstein Becker Green in Washington, D.C., told BNA July 11 that “there is considerable force to the Fourth Circuit's view that health insurance decisions affect employment, which itself is a matter of interstate commerce.”

He predicted that, if the case returns to the Supreme Court--as seems likely based on a July 11 press release from the university's attorneys--there would be four solid votes to uphold the Fourth Circuit's ruling. But, Gerson said, “it is difficult to predict how the chief justice and the other four conservative justices come out on this point.” He added, though, that “one must at least recognize that there is a difference between an individual's decision not to engage in commerce and the clear commercial activity in which Liberty indisputably engages.”

Of course, Gerson said, if the conservatives on the high court vote to uphold Liberty's challenge to the employer mandate, Chief Justice John G. Roberts “could again perform the legerdemain and create a fifth vote for affirmance by holding that the employer mandate is supportable under the tax power as was the individual mandate in NFIB. The Fourth Circuit's alternative reasoning allows for this result.”

Liberty Counsel, which represents the university, said in its press release that it would petition the Supreme Court to review the Fourth Circuit's decision. Lead attorney Mathew D. Staver, in Maitland, Fla., said. “I am glad the court reached the merits on the employer mandate, even though the court got it wrong, because this clears the way for the case to now go to the Supreme Court.”

A spokesman for the Department of Justice did not respond to BNA's request for comment.

Procedural Issues

The first time the case was before the Fourth Circuit it was on review from a decision by the U.S. District Court for the Western District of Virginia, which had dismissed Liberty's complaint. The appeals court in 2011 held that it did not have subject matter jurisdiction to resolve the dispute. The court said the plaintiffs presented a pre-enforcement challenge to a tax, which was barred by the tax anti-injunction act (AIA), 26 U.S.C. § 7421(a).

The Supreme Court, in NFIB, held that the AIA did not apply here. On a petition from Liberty, the high court in November 2012 agreed that the Fourth Circuit should be given a shot at the merits, granted the Christian university's petition for a writ of certiorari, and remanded the case to the appeals court.

The AIA issue came up once again, but this time it was dismissed quickly by the Fourth Circuit. If Congress did not intend the individual mandate to be treated as a tax for purposes of the AIA, then it clearly did not intend for the employer mandate to be so treated, the court said. Further, it noted, treating the employer mandate as a tax would lead to “an anomalous result,” as a person subject to the individual mandate could bring a pre-enforcement challenge, while an employer subject to the employer mandate could only bring a post-enforcement lawsuit.

Gerson told BNA the resolution of this issue was “clearly correct as to employers in light of the” NFIB decision. He also said he believes the Fourth Circuit was right in holding that Liberty had standing to challenge the employer mandate. It was a large employer, with over 3,000 employees, and “there are many cases … that hold that increased compliance costs and current planning for future contingencies are sufficient to establish an injury in fact necessary to empower a party to bring a valid case or controversy as required by Article III,” he said.

Commerce Clause Analysis

The Fourth Circuit determined that the employer mandate stood “on quite a different footing from the individual mandate” with respect to Congress's commerce clause authority. “It has long been settled,” the court said, “that Congress may impose conditions on terms of employment that substantially affect interstate commerce.”

The employer mandate clearly regulates a term of employment--compensation--that substantially affects interstate commerce, the court said. It found that health insurance provided as part of an employee's compensation package is “a significant part of the national economy.” Additionally, the employer mandate regulates an activity--employee compensation--that substantially affects workers' interstate mobility, the court said. It noted that workers often consider the scope of insurance coverage when deciding when to accept a job offer.

The appeals court concluded that “[r]equiring employers to offer their employees a certain level of compensation through health insurance coverage is akin to requiring employers to pay their workers a minimum wage.”

The Fourth Circuit elected not to consider the plaintiffs' late-added challenge to the ACA's preventive services mandate for women.



The decision is at _Lew_Docket_No_1002347_4th_Cir _Dec_/3






Request Bloomberg Law for HR Professionals