Federal Court Rules Health Care Insurance Mandate Unconstitutional

A federal district court has held that the health care reform legislation’s mandate that individuals obtain health insurance is unconstitutional (Virginia v. Sebelius, docket no. 3:10-CV-188 (E.D. Va. 12/13/10)). In so holding, however, the court severed that mandate from the rest of the health care reform legislation and refused to enjoin enforcement, pending appeal of the case.

The Patient Protection and Affordable Care Act (PL 111-148) enacted new IRC § 5000A, which requires U.S. citizens and legal residents to maintain minimum amounts of health insurance coverage, starting in 2014. Individuals who fail to maintain minimum essential coverage will be subject to a penalty. The Commonwealth of Virginia challenged the constitutionality of this provision in a suit against the Secretary of the Department of Health and Human Services.

Virginia argued that section 5000A exceeds Congress’ power under the Commerce and the General Welfare Clauses of the U.S. Constitution. Specifically, Virginia argued that:

1. The individual insurance mandate goes beyond the outer limits of the Commerce Clause in that it requires otherwise unwilling participants to purchase insurance from a private vendor, an economic activity “not historically subject to federal regulation under the Commerce Clause.”
2. The individual insurance mandate and associated penalty are not a legitimate exercise of congressional power to tax under the General Welfare Clause.

Virginia also argued in the alternative that section 5000A conflicts with the Virginia Health Care Freedom Act and therefore violates the Tenth Amendment.

The court, in its opinion, said the constitutional issues boil down to “the single question of whether or not Congress has the power to regulate—and tax—a citizen’s decision not to participate in interstate commerce.” It noted that, “No reported case from any federal appellate court has extended the Commerce Clause or Tax Clause to include the regulation of a person’s decision not to purchase a product, notwithstanding its effect on interstate commerce.”

The Department of Health and Human Services argued that the individual insurance mandate is “well within the traditional bounds of Congress’s Article I powers” and corrects systemic failures in the interstate health insurance market, which is within Congress’ power to regulate under the Commerce Clause. The Department also disputed Virginia’s contention that the individual insurance mandate compels individuals who do not wish to purchase insurance to participate in the health insurance market. Rather, the Department argued, at some point every individual will need some form of health care and, absent insurance, most will “shift the cost of that care to the rest of society.”

The court noted that, “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” and therefore held that the individual insurance mandate exceeded Congress’ Commerce Clause powers.

The court also held that the penalty is “in form and substance, a penalty as opposed to a tax.” As a penalty, it must be linked to an enumerated constitutional power (other than the General Welfare Clause). The court found the penalty to be linked to the Commerce Clause and, since the court had held that the individual insurance mandate exceeded Congress’ power under the Commerce Clause, it held that the penalty was unconstitutional as well.

The court refused to strike down the rest of the health care reform legislation, following the judicial standard that “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.’” Therefore, the court applied its holding only to the section of the law at issue.

The court also refused to enjoin implementation of section 5000A because it does not take effect until 2013 at the earliest, thus minimizing the likelihood of irreparable harm in the absence of an injunction and because the case will be appealed. As the court noted, “the final word will undoubtedly reside with a higher court.”

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