Eleventh Circuit Rules That PPACA's Individual Mandate Exceeds Federal Government's Authority, but Severable

16 August 2011 Publication

AHLA e-Alert

On August 12, 2011, the Eleventh Circuit Court of Appeals issued a decision in Florida v. U.S. Dep't of Health and Human Services, No. 11-11021 (11th Cir. Aug. 12, 2011). In its 304-page decision, the three-judge appeals panel held, in a two-to-one split decision, that the individual mandate provision of the Patient Protection and Affordable Care Act (PPACA) exceeds the federal government's enumerated powers, and is therefore unconstitutional. However, the majority opinion also ruled that the individual mandate could be severed from the remainder of PPACA.

In contrast, in its lower court ruling, the U.S. District Court for the Northern District of Florida previously held that both the individual mandate and the expansion of the Medicaid program were unconstitutional, and that the lack of a severability clause in PPACA required that the entire law be thrown out.

Individual Mandate

In holding that the individual mandate, which requires certain U.S. citizens to purchase health insurance, is unconstitutional, the majority focused on the mandate's unprecedented nature, writing "Never before has Congress sought to regulate commerce by compelling non-market participants to enter into commerce so that Congress may regulate them. The statutory language of the mandate is not tied to healthcare consumption—past, present, or in the future. Rather, the mandate is to buy insurance now and forever. The individual mandate does not wait for market entry." As such, the majority found that the individual mandate exceeded Congress' commerce clause powers.

The decision also dismissed the argument that the individual mandate was constitutional under the federal government's tax power. The federal government had attempted to argue that the placement of the mandate within the IRS Code and the fact that the "penalty" associated with failure to comply with the mandate was a tax, collected through tax payers' annual returns, was sufficient to characterize the mandate as a proper exercise under the tax and spending clause of the U.S. Constitution. In rejecting this argument, the decision noted the prevalent use of the word "penalty" throughout the individual mandate, the legislative history of the act, and that the mere placement of such a penalty in the tax code does not make the mandate any less of a penalty. Because the mandate was a penalty and not a tax, the eleventh circuit held that it could not be justified under tax and spending clause.

Medicaid Expansion

In addition to the individual mandate, the state plaintiffs had also argued, and the lower court agreed that the expansion of the Medicaid program was unduly coercive and unconstitutional. According to the eleventh circuit decision, due to PPACA's Medicaid expansion, an estimated nine million of the fifty million uninsured will be covered for healthcare by 2014 (sixteen million by 2016, and seventeen million by 2021).

In rejecting the lower court's decision, and upholding the constitutionality of the expansion of Medicaid under PPACA, the majority found that "the Medicaid-participating states have a real choice—not just in theory but in fact—to participate in [PPACA's] Medicaid expansion . . . Where an entity has a real choice, there can be no coercion."

Severability

Despite finding that the individual mandate was unconstitutional, the eleventh circuit rejected the lower court's conclusion that PPACA's lack of a severability clause was fatal to the entire law. While recognizing that the lack of such a clause was problematic, the majority decision focused on the U.S. Supreme Court's precedent of severing the constitutionally defective provision from the remainder of a statute in the "overwhelming majority of cases." The opinion also noted that it was not clear that the mandate was absolutely necessary for the legitimacy of the remainder PPACA. Specifically, the eleventh circuit decision states, "Just because the invalidation of the individual mandate may render these provisions less desirable, it does not ineluctably follow that Congress would find the two reforms so undesirable without the mandate as to prefer not enacting them at all."

Looking Ahead

The eleventh circuit's decision is the second in a series of U.S. circuit court cases across the country, and the first to find the individual mandate unconstitutional. In June, the sixth circuit court of appeals upheld the constitutionality of both the individual mandate specifically, and PPACA as a whole. Finally, the fourth circuit court of appeals, which has already heard oral arguments on the issues, is likely to announce its decision in the near future. However, the eleventh circuit case was by far the largest of the group, with twenty-six states signing on to challenge the constitutionality of PPACA. Looking ahead, the federal government may request that the eleventh circuit rehear the case en banc, or directly petition the Supreme Court for review. Regardless, most legal commentators expect the Supreme Court to take up these cases, on a consolidated basis, sometime during its next term.

Copyright 2011 American Health Lawyers Association, Washington, DC. Reprint permission granted.

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