Florida Federal Court Rules against Legality of PPACA

A Florida district court ruling on Monday generated nationwide headlines by deeming the 2010 Patient Protection and Affordable Care Act (PPACA) unconstitutional. This most recent ruling has greatly increased the chances that the legitimacy of the new health care law will be examined by the U.S. Supreme Court.

"A year ago, it was a long shot," said Randy Barnett, a law professor at Georgetown University, of the law’s chances of winding up before the Supreme Court. "Now, it’s seen as a 5 to 4 case. And nobody’s exactly sure which way the 5 to 4 will come down."¹

On Monday, U.S. District Judge Roger Vinson of the Northern District of Florida, Pensacola Division, ruled that PPACA violated the Commerce Clause by forcing individuals to purchase insurance. In addition, Judge Vinson’s ruling has the broadest legal impact to date because he determined that the entire federal law must be struck down since a “severability” clause was not included in the language. Without such a provision, if one part of the law is struck down, the rest of PPACA cannot be implemented. This part of the ruling in particular sent shock waves throughout the country yesterday. The Obama administration plans to appeal this part of the ruling.

However, Judge Vinson ruled in favor of the Obama administration when he failed to order an injunction (i.e., a “cease and desist” order) on the implementation of the new law, reasoning that since the “individual mandate” provision in question will not go into effect until 2014, the plaintiffs could not prove immediate harm. He also ruled against the plaintiffs on a second motion asserting that PPACA forces states to participate in an expansion of Medicaid since it is a voluntary program, and a state could always withdraw from the Medicaid program.

A copy of the court decision can be downloaded here.

As a result, the new ruling will not have an immediate impact on how the new law and the accompanying regulations are being implemented this year. However, this opinion will provide a strong impetus for the Republicans in the U.S. Senate who are already demanding that the Democrats allow an up or down vote on the bill that the House approved to repeal the PPACA last week.

Background
The Florida case was filed just minutes after the federal legislation was signed by President Obama on March 23, 2010. The plaintiffs are attorney generals and governors from 26 states², two private citizens and the National Federation of Independent Business (“NFIB”) (collectively referred to as the “plaintiffs”). The defendants are the United States Department of Health and Human Services, the Department of Treasury, the Department of Labor and their secretaries (collectively referred to as the “defendants”).

The 78-page ruling on Monday addressed several legal issues regarding the defendants’ motion for summary judgment. Judge Vinson at the beginning of his opinion wrote:

"The Framers believed that limiting federal power, and allowing the 'residual' power to remain in the hands of the states (and of the people), would help 'ensure protection of our fundamental liberties' and 'reduce the risk of tyranny and abuse……' As Chief Justice Marshall aptly predicted nearly 200 years ago, while everyone may agree that the federal government is one of enumerated powers, 'the question respecting the extent of the powers actually granted, is perpetually arising, and will probably continue to arise, so long as our system shall exist.' This case presents such a question."³

Vinson’s decision focuses on two aspects of the case. First, the plaintiffs’ claim that the individual mandate, which requires everyone (with a few minor exceptions) to buy health insurance or pay a penalty, violated the Commerce Clause in the Constitution and is therefore illegal. And secondly, PPACA usurps state autonomy by forcing states to expand its respective Medicaid programs to cover individuals under the age of 65 with incomes up to 133% of the federal poverty level, along with the requirement that states are responsible for the actual provision of health services thereunder.

Individual Mandate
The Florida District Court is the fourth court in recent months to rule on the legality of PPACA. These rulings have produced mixed results. With Judge Vinson’s decision, there are two rulings asserting the individual mandate does not violate the Constitution, and two decisions saying that the mandate does.⁴

Judge Vinson reminds us that the Commerce Clause is only 16-words-long. He elaborates that Congress shall have the power: “To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.”⁵ However over the years, many courts have interpreted and perhaps expanded the original intent of this provision. Judge Vinson notes that:

"[W]e have identified three broad categories of activity that Congress may regulate under its commerce power. First, Congress may regulate the use of the channels of interstate commerce. Second, Congress is empowered to regulate and protect the instrumentalities of interstate commerce, or persons or things in interstate commerce, even though the threat may come only from intrastate activities. Finally, Congress’ commerce authority includes the power to regulate those activities having a substantial relation to interstate commerce, i.e., those activities that substantially affect interstate commerce."⁶

He adds, “The defendants' argument that people without health insurance are actively engaged in interstate commerce based on the purported 'unique' features of the much broader health care market is neither factually convincing nor legally supportable.”⁷

In addition to rejecting the defendants' arguments that the individual mandate falls within Interstate Commerce and therefore is a legitimate exercise of power under the Commerce Clause, the judge also said that PPACA does not fall under the “Necessary & Proper” Clause. He wrote:

"The Necessary and Proper Clause cannot be utilized to 'pass laws for the accomplishment of objects' that are not within Congress' enumerated powers. As the previous analysis of the defendants' Commerce Clause argument reveals, the individual mandate is neither within the letter nor the spirit of the Constitution. To uphold that provision via application of the Necessary and Proper Clause would authorize Congress to reach and regulate far beyond the currently established 'outer limits' of the Commerce Clause and effectively remove all limits on federal power."⁸

After an exhaustive and comprehensive review of court cases addressing the Commerce clause, Judge Vinson stated:

"I must reluctantly conclude that Congress exceeded the bounds of its authority in passing the Act with the individual mandate. That is not to say, of course, that Congress is without power to address the problems and inequities in our health care system…..Because the individual mandate is unconstitutional and not severable, the entire Act must be declared void. This has been a difficult decision to reach, and I am aware that it will have indeterminable implications. At a time when there is virtually unanimous agreement that health care reform is needed in this country, it is hard to invalidate and strike down a statute titled 'The Patient Protection and Affordable Care Act.' "⁹

State Medicaid Claim
On the second claim, Judge Vinson writes “state plaintiffs object to the fundamental and 'massive' changes in the nature and scope of the Medicaid program that the Act will bring about.” Among other assertions, the plaintiffs claim PPACA violates the “Spending Clause” by significantly expanding the Medicaid program to such a degree that the states cannot afford the newly-imposed costs and burdens.¹⁰

On this issue, Judge Vinson ruled in favor of the defendants and dismissed this claim since participation in the Medicaid program by the states would remain voluntary, so the plaintiff's "coercion theory" argument did not hold up.

Severability Clause
The impact of the recent Florida ruling is much broader in scope than that of the Virginia case, due to the lack of a “severability clause” embedded in PPACA. In the Virginia case, presiding Judge Henry E. Hudson simply ruled that only the PPACA’s “individual mandate” was unconstitutional. However, in his ruling, Florida’s Judge Vinson wrote:

"First, the Act does not contain a 'severability clause,' which is commonly included in legislation to provide that if any part or provision is held invalid, then the rest of the statute will not be affected. Although it is true that the absence of such a clause, in and of itself, does not raise a presumption against severability… The lack of a severability clause in this case is significant because one had been included in an earlier version of the Act, but it was removed in the bill that subsequently became law."¹¹

Ruling Impact
This ruling in Florida, which strikes down the individual mandate to purchase health insurance as a violation of the Commerce Clause, is significant for several reasons:

• This is the largest lawsuit that has been filed to date with 26 states joining as plaintiffs to the legal action.
• This lawsuit backs the ruling in December by Judge Hudson of the U.S. District Court for the Eastern District, who also ruled PPACA unconstitutional, which evens out the court decisions “2 to 2.”
• This ruling raises serious questions about whether the Obama administration can continue to move forward with a blind eye to the legality of one of PPACA’s fundamental provisions, the individual mandate.
• If this ruling is upheld on appeal, many of the major provisions of PPACA will need to be redesigned or removed altogether. If the Supreme Court affirms Judge Vinson’s decision, the entire Act will be void. If President Obama wants to retain any of the PPACA provisions, Congress will have to pass new legislation, which may be difficult considering the hit Democrats took in the 2010 election.

In addition to re-affirming that the plaintiffs had standing to sue the federal government, Judge Vinson pointed out that several states have passed legislation contesting the power of the federal government, including Idaho, Virginia and Utah. For example, a new Utah proclamation was adopted stating PPACA will infringe on states’ powers and the rights of citizens to provide for their own health care by “requiring a person to enroll in a third-party payment system” and “imposing fines on a person who chooses to pay directly for health care rather than use a third party payer.”¹² Similar to the Virginia law that Judge Hudson addressed in his recent court decision¹³, there appears to be growing momentum in many states to oppose PPACA’s individual mandate.

Now, the Florida-based lawsuit moves into more mixed ideological territory. The case will go to the 11th Circuit Court of Appeals in a fashion similar to the other three court cases, where those lawsuits are being appealed in different circuit courts. To date, all court decisions have been decided by party lines. Until a court appointed judge breaks ranks with his or her party, none of the appellate decisions will be surprising.

Notwithstanding Judge Vinson’s ruling, the Obama Administration remains steadfast in moving forward with its implementation timeline. Most states also are moving forward in the development of key aspects of the health care reform legislation, including the creation of health care exchanges. One commentator noted that even so-called “conservative” states are responding to the PPACA’s short-term requirements as a defensive measure to avoid a federal takeover.

Whether through legal proceedings or legislative modifications, it will certainly be interesting to see what parts of PPACA end up standing and what components will be modified.

As more information becomes available, BenefitMall is committed to keeping you up-to-date in a timely manner. Visit www.BenefitMall.com to view past Legislative Alerts in the “Newsroom” section. Or, you may visit www.HealthcareExchange.com for blog posts, polls, surveys and numerous resources. If you have any questions, please contact your local BenefitMall Sales Team and they will be happy to assist you. Thank you for taking the time to read through this important notification.

The views expressed in this legislative alert do not necessarily reflect the official policy, position, or opinions of BenefitMall. This update is provided for informational purposes. Please consult with a licensed accountant or attorney regarding any legal and tax matters discussed herein.

1. See http://www.politico.com/news/stories/0111/48563.html .
2. The states are Alabama, Alaska, Arizona, Colorado, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Louisiana, Maine, Michigan, Mississippi, Nebraska, Nevada, North Dakota, Ohio, Pennsylvania, South Carolina, South Dakota, Texas, Utah, Washington, Wisconsin, and Wyoming.
3. State of Florida et al. v U.S. Department of Health and Human Services et. al. (Case no. 3:10-cv-91-RM/EMT)(hereinafter referred to as “Court Decision”), see pages 3-4.
4. Judge Vinsion writes: “For this claim, the plaintiffs contend that the individual mandate exceeds Congress’ power under the Commerce Clause. To date, three district courts have ruled on this issue on the merits. Two have held that the individual mandate is a proper exercise of the commerce power [Liberty Univ., Inc. v. Geithner, -- - F. Supp. 2d ---, 2010 WL 4860299 (W.D. Va. Nov. 30, 2010); Thomas More Law Center v. Obama, 720 F. Supp. 2d 882 (E.D. Mich. 2010)], while the other court held that it violates the Commerce Clause. Virginia v. Sebelius, 728 F. Supp. 2d 768 (E.D. Va. 2010).”
5. Court Decision, see page 21.
6. Court Decision, see page 19.
7. Court Decision, see page 51-52.
8. Court Decision, see page 62.
9. Court Decision, see page 77.
10. Court Decision, see page 6.
11. Court Decision, see page 67.
12. Court Decision, see page 17.
13. In addition to the allegations about the unconstitutionality of the PPACA’s individual mandate , Virginia also adopted its own statute, the Virginia Health Care Freedom Act, that protects its citizenry from being forced to purchase health coverage against their will. See http://www.healthcareexchange.com/blog/bernard-difiore/legal-challenges-ppaca-gaining-steam and http://www.healthcareexchange.com/blog/bernard-difiore/va-federal-district-courts-disagree-constitutionality-ppaca%E2%80%99s-individual-mandat.