The big health care story of 2011: Will we get to keep health care reform?

By Professor Brietta Clark

Certainly the biggest health care story of 2010 was the passage of health care reform--the Patient Protection and Affordable Care Act (the "Care Act"). This reform was considered an historic feat--numerous presidents and legislators have tried and failed to overhaul the private health care system to guarantee universal access. While the Care Act likely will not achieve universal access, it is certainly the closest we've come and the most dramatic step toward this goal since creation of the Medicare and Medicaid programs in the 1960s.

So what could top that in 2011? Nothing. Health care reform will still be the No. 1 health care story of the year, except this time the question is: Will we get to keep it?

The president's signature on the Care Act was hardly dry before people began attacking the new legislation. The two most high-profile attacks are coming from Republicans in Congress, emboldened by their recent gains in the House, and constitutional challenges to the law in federal courts. While Republican threats to repeal the Care Act makes for great political theater, there is a pretty strong consensus that such a repeal would never make it to President Obama's desk. The constitutional challenges pose a more credible threat to reform because they present a novel question about the federal government's power to require citizens to purchase private goods. However, the long history of federal government regulation in the area of health care spending and insurance means that challengers will have an uphill battle in the courts as well.

A number of lawsuits have been filed challenging the reform law by states and private individuals. These suits attack the three most important parts of the Care Act that expand health care access: (1) the expansion of Medicaid to cover all adults who fall below a certain income by 2014 (existing law only mandates coverage for children, pregnant women and people with disabilities); (2) creation and regulation of state health care exchanges (the mechanism to ensure that consumers can buy insurance plans that comply with benefits, affordability, and nondiscrimination protections); and (3) the individual mandate (which requires the purchase of insurance that satisfies minimum requirements).

Several recent decisions give us important insight into the critical questions that must be answered in order to determine the fate of the Care Act.

Medicaid expansion and state health exchanges

So far, not much attention is being paid to challenges to the Medicaid expansion and creation and regulation of state health exchanges. One reason could be that these issues are not as prominent as the individual mandate - in fact only a few suits challenge the health exchanges or Medicaid or both. It could also be because the federal government's role in establishing Medicaid eligibility and creating other conditions for receiving health care financing is not new, and such regulation has long been considered a consitutional exercise of the federal government's spending power. Indeed, in a blog post, Legal Challenges to Medicaid Expansion Likely to Fail, I predicted that such claims were not viable and would be dismissed quickly.

In South Dakota v. Dole, the Supreme Court made clear that the federal government has a right to create conditions on federal spending where such conditions are for the general welfare, are clear and unambiguous, bear a relationship to the program, and do not require states to engage in activities that would be unconstitutional. And plaintiffs challenging the Medicaid expansion and state health exchanges do not assert that any of these factors are missing. Rather, the plaintiffs claim that the Medicaid and health exchange provisions are coercive and allow the federal government to commandeer the states to carry out a federal program in violation of the Tenth Amendment. With respect to the health exchanges, plaintiffs also argue that the new federal law displaces traditional state authority to regulate insurance.

The problem for plaintiffs is that coercion arguments are almost impossible to win. First, the Medicaid program and the requirements with respect to state-run exchanges are clearly voluntary for states. States do not have to choose to participate in either one. While all states have chosen to participate in Medicaid because of the generous federal matching funds provided, some states are opting-out of the Care Act by not creating state health exchanges and simply leaving it to the federal government. Second, constitutional challenges to federal spending conditions on the grounds of coercion have been repeatedly rejected, and the Ninth Circuit has rejected such a challenge to the Medicaid program specifically. Coercion may be available as a claim in theory, but practically courts have given us no idea of what coercion looks like in the case of a voluntary spending program.

Despite this historical and legal precedent, one court seems to be taking this coercion argument seriously, at least in the Medicaid challenge. In Florida v. U.S. Department of Health and Human Services, a federal district court refused to dismiss the coercion challenges to the Medicaid expansion even though it was willing to dismiss a similar challenge to the state health exchanges. Although the court seemed to leave this door open for the plaintiffs, I would definitely not read the decision as evidencing support for this claim for a couple of reasons.

First, the court acknowledged how difficult such a claim would be to win. It said that "if the coercion theory stands at all, it stands on extremely wobbly legs" and that "the current status of the law provides very little support" for plaintiffs' argument. Second, the court's willingness to leave the door open was based on the states' claims that Medicaid expansion put them in an untenable position: "They either accept the sweeping changes to Medicaid (which they contend will explode their state budgets), or they withdraw from the system entirely (which they allege could leave millions of their poorest and neediest citizens without any medical coverage)." However, as I discuss in greater detail in my blog posts State Reactions to Medicaid Reform the federal government is generously financing most of this expansion for the first few years, and provides considerable opportunity for waivers to many Medicaid requirements. I am confident that a more developed factual record about the federal oversight of state compliance with Medicaid conditions will reveal an administration that is extremely flexible and even hands-off, not coercive. Moreover, amicus briefs have been pouring in from almost every corner of the health care system in support of the federal government on this question.

The individual mandate

The individual mandate is the most controversial provision in the Care Act, and the subject of every legal challenge filed so far. The federal government asserts that the mandate is a valid exercise of its power to regulate interstate commerce, and the Supreme Court has consistently upheld the federal government's right to regulate even local activity if it substantially affects interstate commerce or is an integral part of a broader regulatory scheme that permissibly regulates interstate commerce. The federal mandate presents a novel and important question of law, however, about whether the commerce clause is broad enough to allow the federal government to require citizens to purchase private goods. So far there is a split among the courts on this constitutional question.

On Monday, a federal court in the Eastern District of Virginia (Virginia v. Sebelius) found the mandate unconstitutional, and two other courts--the Florida court mentioned above and a federal district court in Ohio (U.S. Citizens Ass'n v. Sebelius)--refused to dismiss legal challenges to the individual mandate on this ground. The courts said that "to survive a constitutional challenge the subject matter must be economic in nature ... and involve activity," and they embraced plaintiffs' characterization of the subject being regulated as "inactivity." They framed the issue as whether the commerce clause allows the federal government to regulate "inactivity" by forcing citizens to purchase insurance merely as a condition of their existence. Framed this way, a mandate to purchase insurance seems like a radical extension of the commerce clause power that is inconsistent with legal precedent.

Two other courts--a Michigan district court (Thomas More Law Center v. Obama) and a court in the Western District of Virginia (Liberty University v. Geithner)--have taken the opposite position and dismissed plaintiffs' constitutional challenges to the mandate. In upholding the mandate, the Michigan and Virginia courts highlighted the fact that the Supreme Court has interpreted the interstate commerce power very broadly and accords Congress great discretion in this area. Second, they found that the government made a strong case for the fact that health care coverage (or lack of it) substantially affects interstate commerce, and that a mandate is essential for the overall regulatory scheme created in the Care Act. Finally, the court rejected the plaintiffs' characterization of the failure to purchase insurance as "inactivity." The courts agreed that the health care market is a unique market and that people cannot opt out of this market; although health care needs are unpredictable, everyone will likely need health care at some point and everyone is legally entitled to emergency care regardless of ability to pay. A decision to not to purchase insurance is activity--it is an economic decision to pay out-of-pocket that has terrible implications for health care providers, financers, government, and other patients.

Plaintiffs have raised other legal arguments to challenge the mandate. For example, almost every lawsuit has alleged that the mandate violates the Free Exercise Clause of the First Amendment, and the Equal Protection and Due Process Clauses of the Fifth Amendment. However none of these claims have gained traction so far. Plaintiffs have also challenged the government's claim that the tax penalty for the mandate is a valid exercise of its taxing power under the General Welfare Clause of Article I. Despite the fact that the penalty is assessed as a tax, courts have largely rejected the government's taxing power justification. Instead the courts agree with plaintiffs that this assessment is more accurately characterized as a regulatory "penalty," whose constitutionality turns on whether the individual mandate is valid under the Commerce Clause.

The bottom line is that the viability of the Care Act will turn on the constitutionality of the individual mandate, and this will depend on how courts define the scope of the federal power under the commerce clause. The decisions issued so far are being appealed, and everyone predicts that this issue will ultimately end up in the Supreme Court. This will be the burning health care question wending its way through the courts in 2011.