May 2012: Appellate Litigation Update: Supreme Court to Review Patient Protection and Affordable Care Act

by Quinn Emanuel Urquhart & Sullivan, LLP

May 2012: Appellate Litigation Update

Supreme Court to Review Patient Protection and Affordable Care Act: In one of the most important and closely watched cases in recent memory, the Supreme Court this Term will decide the constitutionality of the Patient Protection and Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119 (2010) (the “Act”). The Act is designed to achieve universal health-insurance coverage through a multi-step legislative strategy: it first restricts health insurers’ ability to drop insureds from their rolls or to deny coverage on grounds of a “pre-existing condition”—thus ameliorating an “adverse selection” problem that ordinarily pervades health insurance. But this solution creates a “free rider” problem: if a patient knows that he cannot be denied coverage, he is likely to wait until he is on the way to the hospital to buy insurance. To solve that problem, the Act requires every American to obtain health insurance or to pay a penalty under the tax code.

This latter requirement, the so-called “individual mandate,” has been the subject of a series of challenges. Three courts of appeals declined to consider the case’s merits, ruling instead that they lacked jurisdiction. Liberty Univ. v. Geithner, --- F.3d --- (4th Cir. Sept. 8, 2011); Virginia ex rel. Cuccinelli v. Sebelius, 656 F.3d 253 (4th Cir. 2011); Baldwin v. Sebelius, 654 F.3d 877 (9th Cir. 2011); New Jersey Physicians, Inc. v. President of the United States, 653 F.3d 234 (3d Cir. 2011).

Other courts have proceeded to consider the merits of the case. The Eleventh Circuit ruled that the individual mandate exceeded Congress’s lawmaking authority. Florida ex rel. Att’y Gen. v. U.S. Dep’t of Health and Human Servs., 648 F.3d 1235 (11th Cir. 2011). The court first concluded that Congress’s power to regulate the economy under the Commerce Clause did not extend to mandating that Americans buy health insurance. Such a requirement was an “unprecedented” “regulat[ion of] conduct [that] is defined by the absence of both commerce or even ‘the production, distribution, and consumption of commodities.’” Id. at 1288, 1293 (quoting Gonzalez v. Raich, 545 U.S. 1, 25 (2005)). In other words, failure to obtain insurance is not an economic activity, even though the aggregation of many such failures by individuals throughout the economy may have a substantial effect on interstate commerce by driving up insurance premiums and medical costs. Id. at 1292-93. The court thus held that the mandate is not a constitutionally authorized form of economic regulation. Id. at 1307. The court also held that neither the Necessary and Proper Clause nor the Taxing and Spending Clause could sustain the mandate.

By contrast, both the Sixth and District Columbia Circuits have issued prominent opinions upholding the Act. Seven-Sky v. Holder, 661 F.3d 1 (D.C. Cir. 2011); Thomas More Law Center v. Obama, 651 F.3d 529 (6th Cir. 2011). There is thus a well-developed conflict of authority among the federal courts of appeals.

The Supreme Court granted petitions for certiorari review of the Eleventh Circuit’s decision, and heard argument over the course of an unusually long three-day period in late March. In addition to the question of the individual mandate’s constitutionality, various other questions are presented:

     •    Whether lawsuits challenging the Act are barred by the Anti-Injunction Act, which strips
          the federal courts of jurisdiction to hear cases challenging a tax before the tax has been

     •    Whether the individual mandate is “severable” from the remainder of the Act such that
          invalidating the mandate would not require invalidating the Act’s other provisions.

     •    Whether the Act’s expansion of the Medicaid program violates the Constitution by
          coercing states into complying with provisions of the Act by threatening to withhold
          funding unless those conditions are met.

A host of amicus curiae briefs have been filed on all sides of the various issues. Quinn Emanuel has filed an amicus curiae brief in support of reversal of the Eleventh Circuit’s ruling on the individual mandate, on behalf of The California Endowment, a private foundation that works to expand access to affordable health care to Californians in underserved and low-income communities. The brief marshals empirical evidence concerning the cost of the “uncompensated care” that results from individuals who lack health insurance consuming services that they cannot afford but that hospitals are bound by law and medical ethics to provide. Those costs, amounting to some $43 billion annually, are ultimately spread across the whole of the population in the form of higher costs and increased insurance premiums. According to Endowment-funded research, full implementation of the Act will expand the pool of insured individuals in California alone by nearly two million by 2019, simultaneously spreading costs over a larger group (thereby reducing them for each individual insured) and reducing the quantity of uncompensated care. The result, according to one analysis, will be a reduction in insurance premiums by more than 20 percent for individuals and more than 10 percent for families. The brief relies on this data to establish a “tangible link” between the Act and interstate commerce, which would satisfy the test set forth in Justice Kennedy’s concurring opinion in the recent case of United States v. Comstock, 130 S. Ct. 1949 (2010).

A decision is expected by the end of June 2012.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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