Public Policy Analysis & Opinion

Is it a tax

Court challenge to health reform advances…maybe

By Kevin P. Hennosy

On Thursday, September 8, 2011,the United States Fourth Circuit Court of Appeals issued opinions in two legal actions that concern the continuing saga of the Patient Protection and Affordable Care Act (PPACA).

The appeals court decisions in Commonwealth of Virginia vs. Kathleen Sebelius and Liberty University vs. Geithner were both important to how the legal wrangling over the PPACA will move forward—and were at times colorful.

Birth by the Blues

The complaints brought to the courts concern the provision of the PPACA that requires Americans to "maintain" health insurance coverage—the individual mandate.

The idea of requiring Americans to purchase health insurance through a federal law was introduced to American politics by two Republican Senators—Orrin Hatch and David Durenberger—in 1993. From a policy standpoint, the concept of requiring Americans to purchase insurance sought to preserve the private sector insurance sector's role in health care financing.

In terms of politics, the proposal offered two sweeteners to the bitter pill of passing major legislation. Some of the persons proposing the individual mandate believed that offering the insurance sector trillions of dollars over the first few decades of a new system for health care financing might entice the insurance lobby's support for reform legislation. Other proponents took a more cynical tack: The individual mandate would imbed a poison pill in the legislation that would either kill the effort to achieve reform or destroy public support for a new system if reform legislation passed. Again, this was 1993.

In 2006, then-Massachusetts Governor Mitt Romney brokered a health insurance reform law that was acceptable to health insurers. The Act Providing Access to Affordable, Quality, Accountable, Health Care included an individual mandate provision. The provision received the support of the Governor's office and the Republican legislative leadership, following the suggestion of reports published by the BlueCross BlueShield Foundation. The Massachusetts law provides insurance coverage for anyone whose household income is less than 150% of the federal poverty level. In addition, the law subsidizes coverage for households with incomes less than 300% of the federal poverty level.

In the presidential campaign of 2008, then-candidate Barack Obama opposed the individual mandate option, but upon taking office and entering negotiations on a health care overhaul, the president embraced the proposal. Various news organizations have reported that the president reversed course in an effort to secure insurance sector support for the health care reform legislation as it moved through Congress from the House to the Senate. The assumption of support in return for adopting an industry proposal, which will use the force of law to funnel trillions of dollars into insurers' treasuries, proved to be naïve.

As noted, the individual mandate has always been laden with a certain amount of cynical realization of its power as a poison pill provision that destroys political support for legislation or undermines in implementation the spirit of a law.

The effect of the poison appeared quickly and remains pervasive. The individual mandate weakened support for the health care reform legislation from progressive and liberal supporters, who preferred a Medicare-style, single-payer program, or an employer mandate to provide health insurance.

On its face, the individual mandate sounds frightening to individuals who cannot afford insurance under the current system but fear that government will force them to purchase a policy.

To "maintain" adequate health insurance coverage will be much easier under the PPACA framework; however, people do not have a frame of reference to consider what conditions will be like under a law that is still several years away from implementation.

The truth is something less dramatic. The mandate does not apply to individuals who qualify for government social insurance programs and group insurance coverage. The act expands access to public programs through subsidies and establishes insurance market reforms that will expand availability and affordability for both group policies and individual policies.

The individual mandate has never demanded much support outside of the insurance lobby. The political power of the proposal to act as a poison pill has proved its most lasting legacy by undermining public support for the PPACA and providing a populist foundation for legal challenges to the entire law.

Case or controversy 

The Fourth District Court of Appeals vacated the judgment of the lower court in Virginia vs. Sebelius, which ruled that Congress acted beyond the jurisdiction defined by the Commerce Clause of the Constitution by adopting the individual mandate provision. The appeals court remanded the parties back to the district court with instructions to that court to "dismiss the case for lack of subject-matter jurisdiction."

In short, Virginia Attorney General Kenneth T. Cuccinelli presented "something" to the federal courts that did not even rise to the level of a "case or controversy" worthy of judicial review. Mr. Cuccinelli lacked the basic jurisdiction to bring a case before the federal courts.

The opinion explains, "Article III of the Constitution confers on the federal courts the power to resolve only 'cases' and 'controversies.'" Furthermore, that Article holds, "A federal court may not pronounce on 'questions of law arising outside' of 'cases and controversies.'"

In addition, the opinion offers a long series of cases where the courts have affirmed the constitutionality of the federal government discharging its jurisdiction over the public's national interest at the local level, while precluding the states from attempting to impede that federal action.

The legal smack-down that Mr. Cuccinelli suffered before the appeals court was dramatically dismissive, but it could have been worse. The judges could have taken a more activist approach by ignoring the "cases and controversies" tenet. The judges could have followed the Virginia Attorney General's lead. They could have ignored the Standing Doctrine and accepted the case, to make a point, which would have heaped further public humiliation on Mr. Cuccinelli.

The judges went easy on Mr. Cuccinelli by not inquiring whether his law degree was mailed to him in return for "proofs of purchase," nor did they ask him who took the Bar exam for him. The supremacy of federal law over state law—national interest superseding local interest—is a bedrock tenet of American jurisprudence.

Cuccinelli's folly

As noted in a footnote to the opinion, the Virginia Attorney General gave the court ample reason to believe that he was well aware of his spurious claim to jurisdiction, or standing, to bring the case. "At oral argument, Virginia appeared unconcerned about the prospect of such lawsuits, merely repeating the truism set forth in its brief that 'litigants frequently have standing to lose on the merits.' This argument fails. The Supreme Court has clearly disavowed such 'hypothetical jurisdiction' emphasizing that jurisdictional requirements are mandatory in all cases." (Emphasis included from the court's opinion.)

What attorney worth his or her salt brings an action in order to lose on the merits?

The commonwealth attorney's plea for "standing to lose on the merits" is reminiscent of the "Lost Cause" literary and philosophical movement, arising from a romantic view of the treasonous rebellion of 1861-1865, which seeks to create "nobility" around the traditional White Supremacist society of the old American South.

Mr. Cuccinelli's actions reflect the concept of a Neo-Confederate Movement in American politics. Unfettered by either history or legal precedent, the Neo-Confederates labor to "re-establish" a compact of sovereign states under the control of local commercial and social elites. The concept of the states' ability to nullify federal laws remains a basic tenet of the Neo-Confederate movement.

Mr. Cuccinelli came to federal court with an "excuse-for-a-case," which benefited neither from Jeffersonian democracy nor the strength of John Marshall's constitutional framework. Instead, Mr. Cuccinelli channeled the voice of John C. Calhoun, who invited the Civil War by repeating the big lie that states can constitutionally "nullify" federal laws that state officials do not like.

Today, commentators and even some conservative officeholders like to say that the Civil War settled the unconstitutionality of nullification, but in truth nullification never had a valid claim on constitutionality. Nullification is a Neo-Confederate myth.

Nevertheless, Mr. Cuccinelli challenged the provision of the federal PPACA, which requires all individuals to secure health insurance coverage on the grounds that the provision conflicted with a newly enacted state law which says that "[n]o resident of this Commonwealth…shall be required to obtain a policy of individual health insurance coverage."

Is it a tax?

On the same day that the appeals court issued its opinion, the three-judge panel laid down a decision in Liberty University vs. Geithner. Liberty University is a Virginia-based institution established by the late evangelist Jerry Falwell. The university claimed that as an employer, it was standing in the shoes of its employees before the court. The court did not buy it.

The opinion rejects the university's claim to standing: An employer, even as a purchaser of group insurance, is not subject to the individual mandate; therefore, the university is not possessed of a case or controversy.

The decision in Liberty University vs. Geithner did hold the door to the courthouse open just a crack, but in doing so it created a game-changing shift in the legal tests that courts should apply to the individual mandate.

A decision signed by two of the three judges cites the federal Anti-Injunction Act, which is a provision of the Judiciary Act of 1793. The Anti-Injunction Act forbids federal courts from considering challenges to tax liabilities before taxes have been paid. A third judge wrote a dissent, which acknowledged but pushed aside the tax issue as no barrier to ruling on the merits of the case—and opined that the individual mandate is constitutional.

Perhaps before this edition of Rough Notes is published, another challenge to the PPACA could be adjudicated by the Third Circuit Court of Appeals in Washington D.C. Legal observers generally view the Third Circuit as a conservative venue, and observers expect that opinion to be much more amenable to overruling the act than other districts.

When conflicting appeals court decisions arise from various federal court districts, the Supreme Court generally orders one or more of those cases up to its docket for review; however, internal politics on the Court could delay this action.

The application of tax law by the Fourth Circuit is important. First, it is a win for the Justice Department lawyers who used the tax argument in other court jurisdictions, without effect. Second, the application of tax-related jurisprudence to the PPACA ties the law to well-established social insurance programs, such as Social Security and Medicare.

Judicial review of the PPACA as a social insurance program will make it more difficult to rule the individual mandate unconstitutional short of a radical rejection of long-standing precedent. An opinion that overturned a tax tied to a social insurance program would be difficult to write in a way that did not overturn decades of legal precedent and damage Social Security and Medicare.

That is not to say that the Supreme Court's most conservative justices would not take this radical step, in direct opposition to their much-stated opposition to "activist judges" and reverence for established precedent. Justices Scalia, Thomas, Alito and Chief Justice Roberts proved quite willing to take that kind of radical step in the Citizens United case, which applied citizenship rights to corporations in opposition to a century of legal precedent.

These four arch-conservative justices acting together have the authority to grant an appeal to the Supreme Court, but it takes five justices to achieve a Court majority. It is unlikely that the radical conservative bloc would earn the vote of any of the Court's four center-left, or liberal, members: Justices Ginsburg, Breyer, Sotomayor and Kagan.

Between the Court's two well-defined blocs sits Justice Anthony Kennedy, who is generally viewed as bringing a center-right viewpoint to jurisprudence: the proverbial rock and a hard place. There is little in Justice Kennedy's history on the court that suggests his eagerness to be "the fifth vote" to undermine the tax-supported, social insurance programs, which form the social safety-net although he did provide the fifth vote in Citizens United.

Nevertheless, signing on to a decision that could undermine Medicare and Social Security in an election year could present more risk than any member of the Court may want to tempt.

If Chief Justice Roberts was not certain that he could count Justice Kennedy, and perhaps one other justice in favor of a vote against the constitutionality of tax support for social insurance programs, he may not support bringing a case up for review. In that instance, Justice Roberts or another member of the conservative bloc could use the standing arguments presented by the Fourth Circuit Court of Appeals in the Virginia case to deny a review until there is a precedent-setting decision on the merits.

The assumption is that if the individual mandate is ruled unconstitutional, then the entire law either will be struck down or need to be repealed—although the validity of both assumptions remain open to debate.

We shall see.