Dec 15, 2010

Judge in Va. strikes down federal health care law...what does this mean?

Posted by: Peter Marathas

On Monday, December 13, a U.S. Federal judge ruled that a key provision in "Obamacare" is Unconstitutional.  What does it mean when a law is unconstitutional?  It means that the law is inconsistent with, unauthorized by, and not in accord with the principles of the Constitution of the United States.  So, in the case of  Commonwealth of Virginia ex rel. Kenneth Kuccinelli v. Kathleen Sebelius, U.S. circuit judge Henry Hudson declared that the individual mandates contained in the Patient Protection and Affordable Care Act (the "Act") are inconsistent with, unauthorized by, and not in accord with the principles of the Constitution.  In other words, Mr. Obama, Ms. Pelosi, Mr. Reid and their cohorts, in the judge's opinion, overstepped the authority of the federal government when they passed the Act.  To borrow from our current Vice President, "this is big freakin' deal."  Or is it?

Since Monday, the pundits have been out strutting like peackoks in force, as well they should be, talking about this ruling, their political leanings in full plume.  Depending on their political perspective, this is either a carefully considered opinion that undertakes to reign in the excesses of the federal government or a travesty of justice that is inconsistent with currently developed case law.  Blah. Blah. Blah.  Who's right?

Well, you will have to decide for yourself, but one thing you should know as an employer, is that this case in Virginia doesn't change one thing right now.  After the judge's ruling was released, I received countless e-mails from clients across the country, all asking the same thing:  what do we do now?  The answer:  nothing on the business front. 

On the personal front, not quite nothing.  As American citizens they should consider the arguments on this and make up their own minds about whether this law is consistent with the Constitution or inconsistent with it, and then act consistently in the next Presidential election, because more likely than not the make up of the U.S. Supreme Court in 2013 or beyond may well determine this issue--but more on that later.

First, the background, in this case:   Judge Henry Hudson agreed with Attorney General Ken Cuccinelli (and approximately 20 or more states attorneys general and governors who have filed a separate suit) that the Act is unconstitutional. The ruling focuses primarily on one aspect of the Act: the Individual Mandates set to become effective in 2014. In finding that the Act is unconstitutional, Judge Hudson takes the Obama Administration to task on whether "activity" equals "inactivity." The Obama Administration, and the Act's supporters, say "yes, activity equals inactivity." As such, Congress was well within its authority under the Commerce Clause of the U.S. Constitution in passing the Act, because a solid line of Commerce Clause cases have found that Congress can regulate activity by private citizens even when they are not engaged in any kind of Commerce, under the Commerce Clause.

Judge Hudson, however, draws a key distinction between activity and inactivity--one requires action, the other one does not. In ruling that the Act is unconstitutional, the Judge found the federal government's argument to be less than persuasive. If accepted, the Commerce Clause would have no limits, because any decision not to do something is then construed as a decision to do something.  The Judge demonstrated little patience for this type of twisted logic.  In a key part of his ruling, the Judge observed that "[t]he unchecked expansion of congressional power to the limits suggested by the [Individual Mandate] would invite unbridled exercise of federal police power. At its core, this dispute is not simply about regulating the business of insurance-or crafting a scheme of universal health insurance coverage-it's about an individual's right to choose to participate."

You see, the Federal Government is a government of limited powers.  If it ain't in the Constitution, Congress can not do it.  No where in the Constitution does it literally say that Congress may order private citizens to buy a product.  In fact, with only a few exceptions, no where in the Constitution is the Federal Government granted the authority to mandate private citizens to do anything.  Two come to mind:  conscription (the draft) and income taxes.  The former is clearly contained in the war powers provisions of the Constitution (Article I grants to Congress the right to "call a militia").  The latter is contained in a grant of power under the Sixteenth Amendment to the Constitution.  

Until the Obama-Pelosi-Reid Triumvirate no prior Congress had passed a law ordering citizens to "do something."  Ignore pundits who talk about seat belt and helmet laws to argue their case on this point.  They are clearly not  worth  listening to, since th o se laws  have always been passed at the state level. Why?  Because no prior Congress or Administration believed it had the right to order citizens to fasten a seat belt.  To do something.  Yet, this Congress and Administration, despite more than 200 years of intelligent people believing differently, believes that right is in the Constitution.

Where?  According to the US Attorney General, that power is in the Commerce Clause of the Constitution, which gives Congress the right to regulate interstate commerce.  Huh?  To understand this argument, you have to understand the "Wheat Case," a 1942 case in involving a farmer  and  the Secretary of Agriculture.  In that case, under the Agricultural Adjustment Act, the Secretary of Agriculture limited the amount of wheat a farmer can produce in order to control the interstate wheat market.   Farmer Roscoe Filburn grew more wheat than he was allotted ,  but kept the excess for personal use.  The federal government  told him  he cannot do this and the Supreme Court found that this was a valid exercise of the Commerce clause because of the impact that Filburn’s surplus will have, in the aggregate, on the interstate market for wheat. The Court stated, "the power to regulate commerce includes the power to regulate the prices at which commodities in that commerce are dealt in and practices affecting such prices" -- even if it is a completely private activity such as growing wheat to feed your own family.  In other words, because Form Filburn's activity in growing the wheat had a potential (although clearly laughable) impact on the interstate Commerce, he had fallen under the lawful jurisdiction of the U.S. Congress in growing wheat for his own consumption.

Now comes Attorney General Holder who argues that inactivity is the same as activity because in choosing not to buy insurance Americans are having an impact on Commerce.  Again, Judge Hudson isn't buying this Cheshire Cat argument.  For him, activity is activity and inactivity is, well, inactivity.  But in this, you should know, that the Attorney General is not alone in his belief.  Two federal judges, one in Michigan and one 160 miles away from Judge Hudson in Virginia, bought the Attorney General's argument and declared inactivity activity  and the Act Constitutional 

Did I mention that Judge Hudson is a Republican appointee to the bench and the two other judges were Democratic appoint ees ?  Well he is and they are.  So this is all shaping up to be pure politics in the court system, with another Republican appointed federal judge considering oral arguments in a similar case in Florida brought by over 20 governors and attorneys' general (of both parties).

So, why is this a big deal? For employers right now, it's not, because the Act is still in place.  Why might it become a big deal?  Because the Act was poorly drafted and does not include a "severability clause." Some argue that without a severability clause, the courts (and maybe the Supreme Court) will have to invalidate the whole Act as unconstitutional if any one part (like the individual mandates) is found to be unconstitutional. In addition, most people believe the individual mandates are critical to the Act's success, though the percentage of legal Americans without insurance today (less than 10%), seems to belie that argument.

Judge Hudson showed restraint in that he did not order the Federal Government to delay implementation of the Act pending review of the case, which was well within his authority. A future judge may not show such restraint. Ultimately, this case and the two dozen others that are in various stages right now won't mean a thing until and unless the Supreme Court ultimately decides whether we have passed Through The Looking Glass to a land where inactivity means activity.

Peter Marathas is a partner with Proskauer Rose LLP.  The views expressed are his own and do not reflect the views of his partners, Proskauer Rose or its clients.

Peter Marathas Bio and contact information: http://www.proskauer.com/professionals/peter-marathas/


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