A number of legal challenges to the health care reform law have been filed in federal court since the law was passed in March 2010. Nearly all of the lawsuits have been based on constitutional grounds. Four U.S. Courts of Appeals - the 4th, 6th, 11th and D.C. Circuits - have ruled on the health care reform law. Two of the courts have upheld the law, one has not and one has ruled that the plaintiff did not have standing to bring a challenge.

The U.S. Supreme Court will review the health care reform law in March 2012. This development is significant to the fate of the health care reform law because the Supreme Court will ultimately decide whether or not the law is constitutional. It is expected that the Supreme Court will issue its decision by June 2012, which would be just over four months from the 2012 presidential election.

LEGAL CHALLENGES TO THE HEALTH CARE REFORM LAW

Individual Mandate

The main legal controversy surrounding the health care reform law has been whether Congress had the authority under the Constitution’s Commerce Clause to pass the health care reform law’s individual mandate. The Commerce Clause gives Congress the power to regulate multi-state, economic activity.

Beginning in 2014, the individual mandate generally requires individuals to purchase health insurance or pay a penalty. Opponents of the health care reform law argue that the Commerce Clause does not give Congress the power to regulate economic inactivity (that is, the decision not to purchase health insurance). Proponents of the law point to the health care costs associated with the uninsured to demonstrate the economic effect of not purchasing health coverage.

Medicaid Expansion

The Supreme Court will also hear a challenge to the health care reform law’s expansion of Medicaid. This expansion could affect employers that maintain retiree health plans. However, this portion of the case is not expected to have the same impact as a ruling on the constitutionality of the individual mandate. 

Procedural Issues

Despite the significant attention focused on the Court and its potential ruling, a question remains as to whether the Court will even review the merits of the lawsuit. An 1867 law, the Tax Anti-Injunction Act, could put a procedural roadblock in the way of a resolution. This law states that a tax must be effective before a lawsuit can challenge it. This law could affect the health care reform case because the penalty associated with the individual mandate is a tax. If the Court finds that the Tax Anti-Injunction Act applies to this situation, a ruling could be delayed until 2015 or later.  

LOWER COURT RULINGS

The lower court rulings, to date, are split. Some courts have upheld the law as constitutional, while others have concluded that a portion of the law, or the entire law, is unconstitutional.  

For example, in January 2011, a federal district court in Florida ruled that Congress does not have the authority to require individuals to buy insurance. The Florida district court went further than others that have reviewed the law, holding that the individual mandate cannot be separated from the rest of the law and therefore the entire statute is invalid. The Florida court issued a stay of its decision while the case proceeds through the appeals process.

At the U.S. Circuit Court level, the courts have decided as follows: 

• In June 2011, the 6th Circuit became the first Court of Appeals to rule on the constitutionality of the health care reform law. The court held that it was constitutional for Congress to pass a law requiring individuals to purchase health insurance or pay a penalty. 
• In August 2011, the 11th Circuit ruled that it was unconstitutional for Congress to pass the health care reform law’s individual mandate. In making this decision, the 11th Circuit upheld the Florida district court’s decision. However, the Court of Appeals overturned Florida’s decision to invalidate the entire law, instead striking only the individual mandate. The Court of Appeals stated that Congress has broad power to deal with the problems of the uninsured, "but what Congress cannot do...is mandate that individuals enter into contracts with private insurance companies for the purchase of an expensive product from the time they are born until the time they die." 
• In September 2011, the 4th Circuit overturned a Virginia court and dismissed challenges to the health care reform law’s constitutionality based on procedural grounds, finding that the plaintiffs, including the state of Virginia, did not have standing to sue. 
• In November 2011, the D.C. Circuit also upheld the constitutionality of health care reform’s individual mandate. The opinion stated that the fact that Congress has never before issued an individual mandate requiring the purchase of something “seems to us a political judgment rather than recognition of constitutional limitations.”

The Supreme Court will hear arguments on the health care reform law March 26-28, 2012. The justices have decided to hear six hours of oral argument on the law’s constitutionality and related issues. This is an extraordinary amount of time for oral argument – most modern court cases only receive one hour of oral argument – and is indicative of the importance of the health care reform law challenges.

POSSIBLE OUTCOMES

It is difficult to predict how the Supreme Court will rule on the health care reform law. However, it is possible to identify some possible outcomes of the Supreme Court’s review:

• Decline to Review the Law. The Court might decide that the challenge is premature, based on the fact that no individual has yet been required to purchase insurance or pay a penalty. This would simply delay what are likely inevitable further challenges to the law. However, until a future challenge is ripe for review, implementation of the health care reform law would continue as currently required. 
• Uphold the Entire Law. The Court could agree with the 6th and D.C. Circuits and rule that Congress acted within its constitutional authority when enacting the individual mandate. If so, the implementation of the law would continue as scheduled. However, this ruling would leave the door open for Congress to attempt to change the law. 
• Strike Down the Entire Law. The individual mandate is a key component of the health care reform law. If the Court determines that the individual mandate is unconstitutional, it could also find that the rest of the law cannot stand without it. Health care policy experts have suggested that, without the individual mandate, health care reform’s other insurance market reforms would be difficult to implement. This approach would likely affect popular provisions of the law that are already effective. 
• Strike Down Only the Individual Mandate. Despite these concerns, it is possible that the Court could strike down only the individual mandate, leaving the remainder of the law intact. If the individual mandate is ruled invalid and health insurers are still required to comply with other rules like the guaranteed issue, preexisting condition exclusion and underwriting restrictions, it is speculated that health insurance costs would skyrocket because people would tend to buy coverage only when they actually need it.
• Strike Down the Individual Mandate and Related Provisions. Because of the potential impact on the health insurance market, the Court could strike down provisions related to the individual mandate if it finds they cannot be separated. This would avoid potential drastic effects on premiums, but would also interfere with increasing the number of covered individuals, which was a main purpose of the law. 

Prescott Pailet Benefits will continue to monitor the status of the health care reform law and will provide updated information as it becomes available.