Healthcare Reform Challenges-in Congress and the Courts

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William H. Maruca

By William H. Maruca, Esquire

The newly Republican-controlled House of Representatives voted 245-189 on January 19, 2011 to repeal the controversial 2010 healthcare reform law, the Patient Protection and Affordable Care Act (PPACA).  Two federal courts have held it unconstitutional, and three others have upheld it.  While no one seriously expects this vote to spell the end of what its opponents call “Obamacare,” the PPACA will remain a political football this year and into the next, and the judiciary, not the legislative branch, is more likely to have the final word.

Many provisions of the law are highly popular with voters: coverage of children under their parents’ plans to age 26; elimination of pre-existing condition coverage restrictions and lifetime caps; phase-out of the “doughnut hole” in Medicare drug coverage; and elimination of co-pays for certain preventative care, for starters.  Other provisions are highly unpopular, particularly the “individual mandate” requiring the uninsured to buy coverage; the financial penalties that kick in after 2013 on certain employers who do not provide basic coverage to their full time employees; and the expansion of Form 1099 tax reporting requirements, a provision that nobody likes but which was included as a way to help fund the bill’s price tag.  Some critics claim the law simply does too little to rein in runaway healthcare costs.

Here’s a look at the various challenges to the law, their possible outcomes, and their potential impact on healthcare in the U.S.

Legislative Challenges

The House’s repeal vote was more of a symbolic broadside than a realistic effort to derail PPACA.  With only three Democratic House members voting for repeal, the Democratic party continuing to control the Senate and no chance for a veto-proof 2/3 vote in both houses, the measure will primarily serve as means to reopen debate on the best way to address the health care system’s ills.  As expected, on February 2, the Senate voted against the House’s repeal bill along party lines, 47-51.

The GOP does not have the votes for a comprehensive  repeal, but they do control the appropriation process in the House, and it is likely that funding for components of the PPACA will be targeted by the law’s opponents during the budget debate.  This approach could spell gridlock – one proposal floated would require every bill that comes before the House appropriations committee to exclude any funding for implementing or enforcing the PPACA.

More likely is an effort to reform the reforms, under the banner of “repeal and replace.”  One such effort to address a major omission in PPACA, dubbed the Help Efficient, Accessible, Low-cost, Timely Healthcare (HEALTH) Act of 2011, was introduced on January 7, 2011 and has received the support of the American Medical Association and many specialty societies.  This bi-partisan tort reform bill, introduced by House members Phil Gingrey, M.D. (R-GA), David Scott (D-GA), and Lamar Smith (R-TX), is patterned after existing efforts in California and Texas.  Dr. Gingrey, who had been a practicing OB-GYN before entering politics, had sponsored this effort previously in 2007 and again in 2009, to no avail.  If enacted, the bill would cap non-economic damages such as pain and suffering at $250,000, limit punitive damages, and establish a national three-year statute of limitations for malpractice claims.

The constitutionality of the individual mandate will also be challenged in Congress at the same time it works its way through the courts. Beginning in 2014, most U.S. citizens and legal residents will be required to purchase health insurance or pay a penalty.  Commentators on both sides of the debate have acknowledged that it is unprecedented for the federal government to require citizens to purchase a product from private vendors.  The insurance industry contends that requiring younger, healthier people to participate in the insurance pool is the only way they can afford to meet PPACA’s insurance reform obligations such as covering individuals with pre-existing conditions and meeting medical loss ratio requirements.  If the individual mandate is repealed or invalidated, look for alternatives to support the insurance pool such as tax credits, surcharges on individuals who delay buying coverage and limiting enrollment windows to specific times.

As noted above, one change both sides of the aisle would support is scaling back the PPACA’s requirement that businesses report all payments of $600 or more in a year for goods or services to single providers on IRS Form 1099, a huge administrative burden.  The requirement was expected to identify, capture and tax payments to independent contractors that had been slipping past the IRS, and was predicted to raise $19 billion over the next ten years.  The Senate approved a measure to repeal the reporting requirement by a wide bipartisan margin of 81-17 on February 2, and a similar effort was passed by the House on March 4, but the two bills would need to be reconciled before they can be signed into law.  The two chambers have different approaches to replacing the anticipated revenue that would be collected as a result of the expanded 1099 requirements.

Also in the House’s crosshairs:

  • Reducing PPACA’s tax on health insurers that is set to take effect beginning in 2014;
  • Allowing purchase of health insurance across state lines, which could create more competition among carriers, but would limit the roles of the state insurance commissioners and state-level insurance requirements;
  • Scaling back the expansion of Medicaid coverage, which is reportedly threatening many state budgets.  Earlier this year the Arizona state legislature passed a bill requesting a federal waiver from these rules;
  • Eliminating the independent Medicare payment advisory board;
  • Repealing the Community Living Assistance Services and Support (CLASS) Act, the PPACA’s little-noticed, federally administered, consumer-financed long-term insurance plan that critics say is expected to run deep deficits.
  • Modifying or repealing the Sustainable Growth Rate (SGR) formula, i.e. the “doc fix”, which was most recently given another temporary patch to prevent a 25% Medicare physician fee cut from occurring on January 1.

Court Challenges

As of this writing, the judicial score is 3-2 in favor of the constitutionality of the PPACA, setting up appeals which are certain to reach the U.S. Supreme Court.

On January 31, 2011, Judge Roger Vinson of the U.S. District Court for the Northern District of Florida ruled that the individual mandate exceeded Congress’ authority, and invalidated the entire statute by determining that the mandate was not severable from PPACA   The suit, captioned Florida v. HHS, was joined by twenty-five state attorneys general and has been the most closely-watched battle over the reform legislation.

Judge Vinson held that the individual mandate impermissibly regulated “inactivity” and rejected the administration’s argument that the law regulated the “activity” of individuals choosing to finance inevitable health care purchases out-of-pocket instead of through insurance.  His opinion stated, “[T]he defendants’ argument that people without health insurance are actively engaged in interstate commerce based on the purported ‘unique’ feature of the much broader health care market is neither factually convincing nor legally supportable.”

The opinion rejected the states’ attack on the PPACA’s expansion of the Medicaid program.   The states had contended that the Act imposed unaffordable, coercive burdens on state budgets but that the states had no choice but to continue to participate in Medicaid.  Judge Vinson concluded that the states could not, as a matter of law, argue that participation in Medicaid was involuntary or that the federal government had the power to coerce the states into remaining in the program.

Finally, in what may prove the most controversial element of the decision, Judge Vinson held that the individual mandate is not severable from the remainder of the law.  He cited the defendants’ own description of the mandate as an ‘essential’ part of the Act at least fourteen times in their motion to dismiss.   Unlike most complex legislation, PPACA did not include a “severability” clause that preserves all remaining portions of the law if part of it is deemed invalid.   In its absence, Judge Vinson stated “The Act, like a defectively designed watch, needs to be redesigned and reconstructed by the watchmaker,” i.e., Congress, not the courts.

On March 3, Judge Vinson issued a ruling staying his decision striking down the law, and permitting states to continue with implementation efforts, conditioned on the Administration’s filing its notice of appeal within seven days, and its seeking expedited review on appeal in the Eleventh Circuit. The Administration filed its appeal on March 8.  This step could pave the way for a quicker route to the Supreme Court.

The case that had dominated the headlines in December was Virginia v. Sebelius, in which Judge Henry Hudson of the U.S. District Court for the Eastern District of Virginia ruled that the individual mandate exceeded Congress’ authority  under the Constitution’s Commerce Clause, the Necessary and Proper Clause, and the General Welfare Tax Clause.  He 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.”   He also agreed with the Commonwealth of Virginia’s characterization of the Act’s economic sanction for failing to purchase insurance as a “penalty,” rather than a tax.  The judge denied Virginia’s request for an injunction and noted:

“This case, however, turns on atypical and uncharted applications of constitutional law interwoven with subtle political undercurrents. The outcome of this case has significant public policy implications. And the final word will undoubtedly reside with a higher court.”

Judge Hudson’s decision is under appeal to the U.S. Court of Appeals for the Fourth Circuit.

Other federal courts in Virginia, Michigan and DC have found that the PPACA is constitutional. So far, all the decisions have followed the party lines of the Presidents who appointed the judges. The other Virginia case was decided by Judge Norman Moon, who wrote

The “fundamental need for health care and the necessity of paying for such services received” creates the market in health care services, of which nearly everyone is a participant. … Far from “inactivity,” by choosing to forgo insurance, Plaintiffs are making an economic decision to try to pay for health care services later, out of pocket, rather than now, through the purchase of insurance.

In the most recent of these cases, Mead v. Holder, Judge Gladys Kessler of the U.S. District Court of DC ruled in favor of the law by holding that the decision to forgo insurance is economic “activity”, but rejected the Administration’s alternative defense of the penalty for failure to purchase insurance as a permissible tax.  This argument is unlikely to prevail if the “activity” premise is ultimately rejected by the Supreme Court.

Thirteen separate lawsuits are pending which challenge the constitutionality of portions of the PPACA.  The AMA has established a blog to track the progress of these cases, which can be found at http://acalitigationblog.blogspot.com/.

Commenters agree that the buck will ultimately stop at the U.S. Supreme Court.  If the individual mandate is ultimately ruled unconstitutional, can the rest of the law survive? The law is unsettled whether the balance of the statute would remain intact, but notably, Judge Hudson’s opinion did not mention the severability issue at all.

One thing is clear – the signing of the PPACA last March, while a “big deal” (to paraphrase Vice President Biden), was only the beginning of the story.  There remains a fundamental disagreement among lawmakers and judges about the nature of the crisis, whether there is a crisis at all, and whether the PPACA is a valid and constitutional response.

This article originally appeared in the Allegheny County Medical Society Bulletin and is reprinted by permission.