Supreme Court Health Care Challenge: What You Need to Know

March 22, 2012 -- Two years ago Friday, President Obama signed what has been called the most significant legislative achievement of his administration, the Patient Protection and Affordable Care Act.

The president's signature was barely dry before opponents began challenging the law in federal courts across the country. The Supreme Court agreed to take up the case after the lower courts divided on a key provision.

So, for three days next week, the court will hear six hours of arguments against the law brought by 26 states, as well as a small-business group and four individuals.

Central to the issues before the court is the individual mandate, which requires almost every individual to buy health insurance by 2014 or pay a penalty. The justices will also consider whether the rest of the law can stand if the individual mandate is found to be unconstitutional, and whether the challenge to the mandate should even be heard now because it doesn't take effect until 2014. The court will also address the provision of the law that expands Medicaid coverage.

The government says that health care law was passed in part because in 2009, 50 million individuals lacked health insurance. Costs of the uninsured were spiraling out of control and were being shifted to other market players such as those who are insured, doctors and insurance companies. In addition, Individuals with pre-existing conditions were being denied coverage.

1. What does the law do?

The government says it reforms health care coverage by, in part, expanding Medicaid, enacting tax measures to prod employer-sponsored insurance, creating health insurance exchanges and enacting market reforms.

Beginning in 2014, the act will bar insurers from denying coverage to any person because of a pre-existing medical condition and from charging higher premiums because of a person's medical condition. A key part of the law is the minimum coverage provision, also known as the individual mandate, that requires most individuals to buy health insurance by 2014 or pay a penalty.

The government argues that Congress was well within its authority to pass the individual mandate under the Commerce Clause and the Necessary and Proper Clause of the Constitution.

"The minimum coverage provision is within Congress' power to enact not only because it is a necessary component of a broader scheme of interstate economic regulation," Solicitor General Donald B. Verrilli Jr. said, "but also because, within that scheme, the provision itself regulates economic conduct with a substantial effect on interstate commerce, namely the way in which individuals finance their participation in the health care market."

The government says the law is not about forcing someone to buy a product, but about financing payment for something that almost every individual will need sometime in his life.

As a secondary argument, the government says the mandate is justified under the taxing power. "It is fully integrated into the tax system, will raise substantial revenue and triggers only tax consequences for non-compliance," the government argues.

But opponents of the law say that Congress cannot force someone into a market place and require him or her to buy a product.

"The individual mandate rests on a claim of federal power that is both unprecedented and unbounded: the power to compel individuals to engage in commerce in order to more effectively to regulate commerce," Paul Clement, a lawyer for the states, argues in court papers.

If Congress can compel individuals into the market place, he says, there are no limits to its power. "Given the breadth of the modern conception of commerce, there is almost no decision that Congress could not label 'economic' and thereby compel under the federal government's theory."

Clement says the law is unconstitutional under the Commerce Clause as well as Congress's taxing power. He notes that supporters of the law knew that Congress lacked public support to enact a tax, so it came up with the unprecedented mandate instead.

Clement says there is a reason that the individual mandate is unprecedented: "The only explanation for the utter absence of comparable mandates is the utter absence of constitutional authority to enact them."

2. What happens to the rest of the law if the mandate is struck down?

Does that mean the rest of the law falls as well? The actual legislation is hundreds of pages long and includes provisions having little to do with the mandate.

The government hopes the court will never get to this question. Lawyers for the Obama administration say that if the mandate falls, two popular provisions would also fall, but the rest of the law should survive. The most popular part of the law that would fall is the "guaranteed issue" that, in part, requires health insurance companies to offer and renew coverage even if an individual has a pre-existing condition.

"As Congress' findings recognized, those provisions would create a serious adverse selection problem without a minimum coverage provision, producing higher costs and less insurance. They are therefore inseverable," the government argues.

But at a recent event hosted by Bloomberg Law and Scotusblog, Michael Carvin, a lawyer representing the National Federation of Independent Business and four individuals, said he entire law must fall if the mandate is struck down.

"Once you've ripped the heart and the lung out of the body, it doesn't matter that the fingers continue to actually move, " Carvin said. "What matters is if they can move in the way Congress intended."

The court has appointed a lawyer to argue a third position that was taken by the 11th Circuit Court of Appeals: Even if the mandate falls, every other provision of the law should still stand.

"Although the guaranteed issue and community rating provisions were meant to work together with the minimum coverage provision and likely will operate less ideally without the minimum coverage provision," H. Bartow Farr III, the counsel of record appointed by the court, argues, "it does not follow that Congress, confronted with that prospect, would prefer to return to the prior health insurance system, where large numbers of people, in need of insurance but with pre-existing illnesses or conditions were excluded from the market. "

To recap: If the individual mandate is struck down, the challengers of the law argue every other part of the law should fall. The government argues that only two popular provisions should fall and the Amicus counsel argues that every other provision should still be able to stand.

Paul Clement, the lawyer for the states, warned recently at an event at Georgetown University Law Center, "In all the excitement of the individual mandate, don't lose sight of this issue," referring to a part of the law that expands Medicaid.

No lower court has struck down the Medicaid expansion of the law, but the Supreme Court thought the issue was important enough to warrant an hour of oral argument.

Clement argues that Medicaid was established in 1965 as a cooperative federal-state partnership but the new law creates a "dramatic transformation" of that relationship. Beginning in 2014, states will be asked to cover all individuals younger than 65 with incomes up to 133 percent of the poverty level. Although the federal government will initially fund 100 percent of that expansion, by 2017, states will be responsible for 5 percent of those costs, with that number increasing to 10 percent by the end of the decade.

Congress made the new terms a condition of continued participation in Medicaid. Opponents say the government is forcing the states to participate because no state could reasonably expect to withdraw from the program. "The ACA threatens states with the loss of every penny of federal funding under the single largest grant-in-aid program in existence, literally billions of dollars each year, if they do not capitulate to Congress' steep new demands," Clement writes.

And he says the law provides no means, other than Medicaid, for the nation's neediest residents to obtain insurance and thereby comply with the mandate.

"Fear not," Clement writes with sarcasm, "Congress' failure to provide an alternative to Medicaid was a product of neither imprudence nor oversight. Congress did not provide an alternative because it understood that it had not given states any meaningful choice to opt out."

The government argues, however, that although Medicaid has expanded over the years, many low-income individuals have remained ineligible. So Congress addressed the crisis by extending Medicaid eligibility to certain individuals.

It argues that the federal government will bear nearly the entire cost of medical assistance for individuals made newly eligible and that the states' spending on Medicaid "will be offset by other savings the states will achieve as a result of the ACA's reforms."

The government says that from the outset, Congress specifically reserved the right to "alter, amend or repeal" any provision of the Medicaid Act and that states "remain free to opt out of Medicaid if they so choose."

The 11th Circuit Court of Appeals rejected the states' claim in part because states were warned from the beginning that Congress reserved the right to make changes to Medicaid, that the federal government will bear nearly all the costs associated with the expansion and that the states have the power to tax and raise revenue and, therefore, can create and fund programs of their own if they do not like Congress' terms.

3. Sleeper issue: Could the court rule that a challenge to the mandate is premature?

This is a sleeper issue that could punt any review of the individual mandate until after 2014 unless Congress acts. At issue is the Anti-Injunction Act (AIA), a federal law that bars a court challenge of a tax until it is assessed. In the case of the mandate, if the court ruled that the AIA applies, there could be no challenge until the individual mandate actually goes into effect after 2014.

One appellate court based in Richmond Virginia dismissed a challenge to the health care law under the AIA, reasoning that the penalty associated with the individual mandate functions like a tax and is subject to the AIA.

What's odd about this is that neither the government nor the challengers think the AIA should be in play. So while they have both filed briefs saying the health care challenge is not barred by the AIA, the court appointed a counsel, Robert A. Long Jr., to argue that the challenge is barred.

The government argues that while the mandate is justified under Congress' taxing power, the penalty associated with the mandate is not within the category of tax penalties that trigger the AIA.

"It suffices here to conclude that Congress does not intend every exercise of its taxing power to be deemed a 'tax' for any and all purposes under the Internal Revenue Code, including the AIA," the government says.

The states say they are beyond the reach of the AIA because they are not "persons" to whom the statute applies. And the National Federation of Business and four individuals challenging the law say their focus is on the mandate that they argue in court papers "cannot possibly be characterized as a 'tax.'"

But Long says the mandate and the penalty provision are "tightly linked." He rejects the government's argument that the penalty is not the kind of tax covered by the AIA. He says the word "tax" refers broadly to "any sum of money assessed on the person or property of a citizen by government."

Long says that Congress knows how to create exceptions to the Anti-Injunction Act and it did not do so in regard to the ACA.

"In short, if Congress decides that policy considerations justify pre-enforcement challenges to the constitutionality of the Affordable Care Act, it can enact legislation providing for immediate review," Long said. "Unless and until such legislation is enacted, pre-enforcement challenges are barred by the Anti-Injunction Act."