Key Part of Obamacare Unconstitutional – Eleventh Circuit Rules

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The Eleventh Circuit has issued its ruling in State of Florida v US Department of Health and Human Services.   It leaves much of health care reform intact, but has held one particular requirement – “the individual mandate”- unconstitutional.  The decision, while quite long, is well worth reading.  There were three issues.  The first was the extension of Medicaid.  The state plaintiffs were arguing that they were effectively being coerced.  The Court ruled they had plenty of time to adjust if they wanted to withdraw from Medicaid.  So the extension of Medicaid eligibility is constitutional.  The estimates are that the Medicaid extension will provide coverage to 9 million of the 50 million uninsured Americans by 2014 – 17 million by 2017.

Now the big argument is about the “individual mandate”.  The act requires thathealth insurance companies not use underwriting to avoid insuring people likely to have health problems or with pre-existing conditions.  This subjects the insurance companies to the problem of “adverse selection”.  Some people will wait until they are sick to buy health insurance.  Part of the solution was a part of the act that penalizes people who don’t buy health insurance.  The Court noted that the enforcement mechanism for the penalty made it relatively toothless:

An individual who fails to pay the penalty is not subject to criminal or additional civil penalties. The IRS’s authority to use liens or levies does not apply to the penalty.  No interest accrues on the penalty. The Act contains no enforcement mechanism. See id. All the IRS, practically speaking, can do is offset any tax refund owed to the uninsured taxpayer.

Nonetheless from a consitutuional persepective it breaks new ground.  Many of us tend to forget our system is one in which sovereignity is fragmented.  There is the federal government, fifty states, 565 Indian tribes, Puerto Rico, the Virgin Islands (I’m sure it’s even more complicated than that).  Congress can only make laws that fit within its enumerated powers.  The one that in modern times has been used to greatly expand the role of the federal government is regulating insterstate commerce.  That particular power has been stretched but the courts have put some limit on it specifically in the case of the Gun-Free School Zone Act of 1990 and a portion of the Violence Against Women Act.  This decision holds that the “individual mandate” would be another unacceptable stretch:

  Properly formulated, we perceive the question before us to be whether the federal government can issue a mandate that Americans purchase and maintain health insurance from a private company for the entirety of their lives.  These types of purchasing decisions are legion. Every day, Americans decide what products to buy, where to invest or save, and how to pay for future contingencies such as their retirement, their children’s education, and their health care. The government contends that embedded in the Commerce Clause is the power to override these ordinary decisions and redirect those funds to other purposes. Under this theory, because Americans have money to spend and must inevitably make decisions on where to spend it, the Commerce Clause gives Congress the power to direct and compel an individual’s spending in order to further its overarching regulatory goals, such as reducing the number of uninsureds and the amount of uncompensated health care.

……… we conclude that the individual mandate contained in the Act exceeds Congress’s enumerated commerce power. This conclusion is limited in scope. The power that Congress has wielded via the Commerce Clause for the life of this country remains undiminished. Congress may regulate commercial actors. It may forbid certain commercial activity. It may enact hundreds of new laws and federally-funded programs, as it has elected to do in this massive 975-page Act. But what Congress cannot do under the Commerce Clause is mandate that individuals enter into contracts with privateinsurance companies for the purchase of an expensive product from the time they are born until the time they die.

I think it is important to note that the Eleventh Circuit is not making a clarion call for individual liberty here.  States can, as Masschusetts does, penalize their citizens for not having health insurance.

The third part of the decision is severability.  The unconstitutionality of the individual mandate does not invalidate any other part of the act.  So we still have that excise tax on skin cancer machines that I told you how to beat.  Even the requirements placed on insurance companies will still go into effect.

I have to say that I am not much of a constitutional purist and I frankly don’t think there are really that many of them out there.  Activists and advocates use the Consitution like a drunk uses a lamppost, more for support than illumination.  Still I admire constitutional purists.  Listen to this:

The Sixth Circuit has ruled that the individual mandate is constitutional and the plaintiffs are appealing to the Supreme Court.  With the Eleventh Circuit ruling the other way, I guess we’ll be hearing from the Supremes on this one.

Here is a link to the full text. The decision is well worth reading.

You can follow me on twitter @peterreillycpa.