August 17 2011

The Individual Mandate Ruling - Round II

Hadley Heath

This is the second blog in a short series on ObamaCare's most recent loss in appeals court.  Here's a link to Round I, if you're interested.

Arguably the most important, most interesting part of the 11th Circuit Court of Appeal's ruling on ObamaCare is part 5 of their ruling, the application of the Commerce Clause to the question of the individual mandate's Constitutionality.

Before this case went to the 11th Circuit, it was in the Northern District of Florida.  In January, Judge Roger Vinson reasoned through the Commerce Clause challenge with four questions:

  1. Is "activity" a prerequisite for government intervention/regulation of commerce?
  2. Is the failure to buy health insurance an "activity"?
  3. Is the health care market "unique" in this respect?
  4. Is forgoing health insurance an "economic decision" (that is, solely a decision about how and when to pay for inevitably-consumed health services)?

The appeals court considered these questions as well. (And went into a lot of other stuff, but I promised this would be Cliffnotes style!)

The Court's short answer to question #1 is found on page 108 of the ruling, "...the Supreme Court has always described the commerce power as operating on already existing or ongoing activity." And page 109, "As our extensive discussion of the Supreme Court's precedent reveals, Commerce Clause cases run the gamut of possible regulation. But the diverse fact patterns of Wickard, South-Eastern Underwriters, Heart of Atlanta Motel, Lopez, Morrison, and Raich share at least one commonality: they all involved attempts by Congress to regulate preexisting, freely chosen classes of activities."  So... yes, it would seem that activity is a prerequisite for government regulation of commerce.  The Court also noted that, while we could draw this conclusion from precedent, the Supreme Court has never explicitly stated that "activity" is a prerequisite, so this distinction alone is not enough to inform their ultimate ruling. 

While the Court strayed from defining the purchase of health insurance (question #2) in terms such as "economic activity" or "noneconomic activity" or "inactivity," the ruling does say this on page 135: "Because an individual's decision to forego purchasing a product is so incongruent with the ‘activities' previously reached by Congress's commerce power, the government attempts to limit the individual mandate's far-reaching implications."  In fact, the government doesn't even like to talk about the "failure to buy" insurance.  They like to call it "cost-shifting" or "consumption" of health care services - that is, when those uninsured people inevitably seek medical care (see the answer to question #4 below).

Furthermore, the Court wrote (on page 167) that: "Never before has Congress sought to regulate commerce by compelling non-market participants to enter into commerce so that Congress may regulate them."  To the majority, this distinction is important and makes this mandate something entirely different from other Commerce Clause decisions such as Wickard.

The Court made very clear their response to the federal government's "uniqueness" claim (question #3).  From page 132:

These five factual criteria comprising the government's "uniqueness" argument are not limiting principles rooted in any constitutional understanding of the commerce power. Rather, they are ad hoc factors that-fortuitously-happen to apply to the health insurance and health care industries. They speak more to the complexity of the problem being regulated than the regulated decision's relation to interstate commerce. They are not limiting principles, but limiting circumstances.

And from page 133:

However, virtually all forms of insurance entail decisions about timing and planning for unpredictable events with high associated costs-insurance protecting against loss of life, disability from employment, business interruption, theft, flood, tornado, and other natural disasters, long-term nursing care requirements, and burial costs. Under the government's proposed limiting principles, there is no reason why Congress could not similarly compel Americans to insure against any number of unforeseeable but serious risks. High costs and cost-shifting in premiums are simply not limited to hospital care, but occur when individuals are disabled, cannot work, experience an accident, need nursing care, die, and myriad other insurance-related contingencies.

The Court went into detail explaining that, while an "individual mandate" requiring all residents of flood plains to purchase flood insurance would be a tempting policy (and would reduce the money spent on disaster relief), Congress has avoided that kind of mandate and instead has tried to "encourage" the purchase of flood insurance. (This has been largely unsuccessful, perhaps due to another similarity between floods and sickness - in the U.S., the government can be counted on for disaster relief and emergency rooms can be counted on for health care, regardless of a person's insurance status).

Finally, question #4 relates to the federal government's argument that, because everyone will consume health care at some point in their lives, the decision to buy or not to buy health insurance is simply an economic decision about how and when to pay for those inevitably-consumed services.  This is where the 11th Circuit really tears the government apart. 

While the Court does not use the term "economic decision" as much as Vinson did (or other judges who have ruled in similar ObamaCare cases, like Judge Steeh in Michigan), it did explore the cost-shifting problem in great detail (pages 137-146), and echoed Vinson's concern that, if this kind of "no-purchase" decision were to become subject to federal regulation, then Americans would make few decisions beyond the reach of government power. 

I think ultimately it was the majority's dissatisfaction with the federal government's failure to define meaningful limits to their post-mandate powers that drove them to rule the mandate unconstitutional.  The Commerce Clause may grant Congress plenary powers in regulation, but in this case Congress went too far.

In Round III of this short blog series, I'll discuss the Court's ruling on the individual mandate as a tax (or as a not-tax!) and the question of severability.  If you aren't asleep by now, tune in for that tomorrow.

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