Key Provision of Healthcare Reform Law Held Unconstitutional

A federal judge in Virginia just ruled that the “individual mandate” – the cornerstone of the healthcare reform law supported by President Obama – is unconstitutional. The individual mandate is by far the most important part of the Patient Protection and Affordable Care Act (PPACA – the official name of the healthcare reform law). Without it, there’s simply no way the other important provisions can work. As different provisions of the law go into effect over the next few years, the individual mandate is meant to be the final capstone.

It requires that almost everyone in the country who is not covered by some form of public insurance (Medicare, Medicaid, the VA, etc.) must obtain health insurance, either through their employer or by purchasing it for themselves, or pay an annual financial penalty. The government will partially subsidize the premiums for private insurance for those who cannot afford it.

The law also has provisions that will prohibit health insurance companies from denying coverage to people based on pre-existing conditions, and from dropping customers, under almost any circumstances. It also includes other reforms, such as banning annual spending caps.

Obviously, complying with these requirements will be very, very expensive. But it just so happens that a large percentage of America’s 30 million (give or take) uninsured are young, healthy individuals who simply choose to go without health insurance. It happens that this demographic is very cheap to insure, so covering them tends to be extremely profitable for insurance companies. When insurance companies take on millions of these highly profitable customers, the cost of insuring the traditionally “uninsurable” (people with pre-existing conditions, mostly) should be offset.

So, what does this ruling mean for healthcare reform? Well, if it is eventually upheld by the Supreme Court, healthcare reform (in its current incarnation) is effectively dead. Whether that’s a good or bad outcome, I leave up to the reader.

In the short term, however, none of us will see any practical difference, because the provision that the court ruled against isn’t scheduled to go into effect until 2014. Furthermore, this was just one federal trial judge (two others have actually upheld the law, in separate lawsuits challenging it). This ruling won’t mean much until the 4^th Circuit Court of Appeals hears the case, after which it’s nearly certain to go to the Supreme Court, which will have the final say.

So, what are the chances that the Supreme Court will sustain this ruling? It’s hard to tell.

The plaintiffs are arguing that Congress lacks the constitutional authority to require individual Americans to buy health insurance. Now, regardless of one’s opinion on the wisdom of this type of healthcare reform, you can make a non-frivolous argument that it exceeds the constitutional scope of the federal government’s power, and there are plenty of good arguments that it does not.

Under the Constitution, the federal government’s powers are limited. Basically, if the power to do something isn’t explicitly granted to the federal government in the Constitution, the federal government can’t do it. However, some of these grants of power are extremely broad and vague, so there’s a lot of disagreement over exactly how far some of these grants of power go.

One of the most expansive federal powers laid out in the constitution is the power to regulate interstate commerce. During this nation’s first 150 years or so, the Supreme Court was pretty clear that “interstate commerce” (and the federal government’s power to regulate it) was limited to the most literal interpretation of the term: the sale and transport of goods and services across state lines.

However, during the Great Depression, Congress, along with the Roosevelt administration, began to implement some extremely ambitious programs, which involved unprecedented expansions of federal power. At first, the Supreme Court shot down a large number of these programs in close 5-4 decisions. But a sudden apparent shift in Justice Owen Roberts’ judicial philosophy led to the Court creating precedents which greatly expanded the federal government’s power under the Commerce Clause.

Now, the general rule is that the federal government can regulate any economic activities which, in the aggregate, have an effect on interstate commerce. Using this rule, the Supreme Court has ruled that the federal government can prohibit a person from growing wheat on his own property for personal use, because if such activity were widespread, it would have an aggregate effect on the nationwide price of wheat, and therefore an effect on interstate commerce.

There’s no question that the millions of uninsured have a significant effect on the national economy: hospitals are required by law to treat and stabilize all patients who come in with an emergency condition, without regard to their insurance status ability to pay. Hospitals incur serious expense in meeting this obligation, which they pass on to patients with the ability to pay out-of-pocket, or to insurance companies.

Furthermore, the uninsured strain public health resources such as Medicare, Medicaid, and the Children’s Health Insurance Program, affecting state and federal budgets.

It’s crystal clear that going without health insurance affects healthcare costs for everyone else, and therefore affects the national economy and interstate commerce. The problem, however, is that there’s no precedent supporting the idea that not doing something (in this case, not purchasing health insurance) is an “activity” that can be regulated by Congress. Of course, there doesn’t seem to be much, if any, precedent refuting that notion, either.

We’re truly headed into uncharted constitutional territory with this one. While one’s opinion on the constitutionality of the PPACA will largely depend on their policy preference, we can all agree that, whatever the final result, it’s going to be a pivotal moment in our legal history, and it’ll be an interesting ride getting there.