Federal District Court Finds "Individual Mandate" Provision of Health Care Reform Law Unconstitutional
*By Patrick J. Hoban

On December 14, 2010, Judge Henry E. Hudson of the Federal District Court for the Eastern District of Virginia granted summary judgment to the Commonwealth of Virginia in an action against the U.S. Secretary of Health and Human Services (“HHS”).  In the lawsuit – Commonwealth of Virginia v. Sebelius (Case No.:  3:10CV188-HEH) – the Commonwealth’s central claim was that the Patient Protection and Affordable Care Act’s (“PPACA”) requirement that every U.S. citizen, with limited exceptions, maintain a minimum level of health insurance coverage after January 1, 2014 or pay a “fine” was unconstitutional. Specifically, the Commonwealth contended that the provision exceeded the power of the U.S. Congress under the Commerce and General Welfare clauses of the U.S. Constitution. Judge Hudson granted summary judgment for the Commonwealth after finding that Congress has no authority to regulate economic “inactivity” regardless of the reasons it has for such regulation. The Judge also held that, contrary to HHS’s arguments, the fines levied by the provision were not an exercise of Congress’s taxing authority but were a means to enforce a regulatory mechanism that exceeded congressional powers. Notably, the Judge determined that the unconstitutionality of the individual mandate did not render PPACA itself unconstitutional.

Yesterday’s ruling is the third from federal district courts on challenges to PPACA’s individual mandate provision since it was enacted on March 23, 2010. Two prior rulings upheld the constitutionality of the individual mandate. PPACA will prohibit insurers from denying health insurance coverage for preexisting conditions, mandate minimum benefits, and limit insurers ability to charge premiums based upon a covered individual’s medical conditions. HHS contends that the individual mandate is necessary to ensure that individuals cannot wait until they develop a medical condition to seek health insurance and that the provision will generate approximately $4 billion annually to offset other costs of the legislation.  Although HHS’s arguments prevailed in the two prior rulings, this decision was the first in a challenge to PPACA filed by a state. Another lawsuit filed by 20 states attorney generals raising claims similar to those decided in favor of the Commonwealth of Virginia yesterday is ongoing in a Florida district court.

HHS is expected to appeal yesterday’s decision and the U.S. Supreme Court is expected to render the ultimate decision as to the constitutionality of PPACA’s individual mandate provision. Additionally, the results of November’s congressional elections have increased the likelihood for changes to or a repeal of PPACA during the next Congress. Employers should keep abreast of these legal and political developments as part of their overall strategies to adjust their employee health insurance benefits to comply with PPACA.

*Patrick J. Hoban has tracked PPACA’s effect on employers since the legislation was introduced in 2009 and has advised employers on strategies for complying with its various employer-specific provisions. For more information about PPACA and its potential effect on your operations, please contact Pat (pjh@zrlaw.com) at 216.696.4441.

This newsletter is not intended as a substitute for professional legal advice and its receipt does not constitute an attorney-client relationship. If you have any questions concerning any of these articles or any other employment law issues, please contact Stephen S. Zashin at 216.696.4441.
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