Health Reform Briefs: The Minimum-Coverage Requirement And Other Issues

Timothy Jost

Posted 1/07/12 on The Health Affairs Blog

©2011 Health Affairs by Project HOPE – The People-to-People Health Foundation, Inc.

As every reader knows, the Supreme Court has agreed to consider challenges that have been brought to the constitutionality of two provisions of the Affordable Care Act (ACA) by twenty-six states, the National Federation of Independent Businesses, and individual plaintiffs.  The Court has scheduled the case for five and a half hours of oral arguments in late March.  It will probably decide the case early in the summer.

In the meantime, the Supreme Court is accepting written arguments, called briefs, from the parties.  The Supreme Court has established a briefing schedule for the four issues it has agreed to hear: the constitutionality of the minimum coverage requirement of the ACA; the constitutionality of the ACA’s Medicaid expansion provisions; whether the Anti-injunction Act (AIA), which prohibits federal courts from enjoining the assessment or collection of a tax, precludes the Court from deciding the constitutionality of the minimum coverage requirement at this time; and whether additional provisions of the ACA must be struck down if the Court decides that the minimum coverage requirement is unconstitutional.  The Court has also appointed two independent lawyers to argue two positions that none of the parties are taking: that the AIA precludes the Court from considering the minimum coverage requirement until a penalty is actually assessed in 2015; and that the minimum coverage requirement can be held unconstitutional without striking any other provisions of the ACA.

In general, the briefing schedule allows each party and the two appointed attorneys to argue their position, those opposing this position to respond, and the original proponent to reply. It also allows amicus briefs to be filed in support of any brief seven days later, and there will be dozens of these.  The briefing schedule lasts through the middle of March. The first four briefs were due on January 6, including the brief of the United States on the merits of the minimum coverage requirement, the state and NFIB briefs on severability, and the appointed counsel’s brief on the application of the AIA.  This post will discuss the Justice Department’s brief on the merits at some length and briefly summarize the arguments of the other three briefs.

The United States Brief On The Minimum Coverage Requirement

The question addressed by the brief for the United States is whether Congress has the power under Article I, section 8, of the Constitution to pass the ACA minimum coverage requirement — a law requiring Americans who can afford health insurance and who are not otherwise insured to purchase insurance.  The brief argues that Congress properly adopted this provision under two of its enumerated powers, the power to regulate interstate commerce and the power to tax and spend for the general welfare.  These are arguments that the federal government has made before in the Florida case and in many others as they have wound their way up through the courts, but the arguments have been well honed and are particularly well thought-out and presented in this brief.

The brief begins by noting that health care is customarily paid for in the United States through public and private health insurance, which account for 85 percent of total health care spending.  Medicare covers elderly and disabled Americans, while Medicaid and CHIP cover certain categories of low-income Americans.  Together these programs make up 39 percent of health care spending.

Most Americans who are not covered by public programs are covered by employer-sponsored insurance. ESI, which covers 156 million Americans, is heavily tax-subsidized — to the tune of $242 billion in 2009 — and is our third largest government health care-financing program.  ESI has been long-regulated by the federal government—in particular by the Employee Retirement Income Security Act of 1974 (ERISA) and by the Health Insurance Portability and Accountability Act of 1996 (HIPAA).

The role of the minimum-coverage requirement in closing the coverage gap. But these programs have left “a significant and discrete gap” — Americans who are neither eligible for public programs nor covered through their employment.  These Americans are either covered through nongroup (individual) coverage or are uninsured.  Most of the uninsured lack coverage not because they believe it to be unnecessary, but because they cannot afford or have been denied coverage.  But they do consume health services.  The uninsured were hospitalized 2.1 million times in 2008, and the average hospital stay cost $22,200.  They failed to pay for 63 percent of this care, most of the cost of which was funded through government programs or passed on to insured Americans as “uncompensated care.”

The Affordable Care Act attempts to close this gap.  It does so by expanding Medicaid, reforming insurance markets to create competition and eliminate health status underwriting, and offering new premium tax credits and cost-reduction subsidies to lower-income Americans.  But Congress also “assigned adverse tax consequences to the alternative of self-insuring.”  Congress provided that “non-exempted federal income taxpayers who fail to maintain a minimum level of health insurance coverage for themselves or their dependents” will owe a tax penalty.

The minimum-coverage requirement is a key element of this “comprehensive regulatory scheme” insofar as it creates an incentive for Americans who can actually afford insurance to purchase it.  The brief notes that “insurance is by far the predominant method of paying for health care in this country,” as the market for health care “involves needs that cannot reasonably be anticipated or budgeted for.”   The minimum-coverage requirement falls within the power of Congress to regulate interstate commerce both because it is part of a broader scheme of regulation of health insurance markets and because, within this 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 uninsured externalize their health care costs; the ACA requires them to internalize those costs.  “This is classic economic regulation of economic conduct.”

The brief emphasizes the broad power that Congress historically has been granted under the Commerce and Necessary and Proper clauses and the limited scope of the courts in reviewing legislation adopted under these provisions.  “In the modern era . . . the Court has not once invalidated a provision adopted by Congress as part of a comprehensive scheme of national economic regulation.”

The minimum-coverage requirement is less draconian than an allowable alternative. The brief makes much of the finding of the Eleventh Circuit and concession of the plaintiffs that Congress could “require those who consume health care to pay for it with insurance when doing so.”  The brief notes that imposing a tax penalty on those who fail to buy insurance is less draconian than denying them health care when they need it.  Moreover, a requirement that individuals purchase of insurance at the point of consumption would ignore the reality of insurance markets, which is that at that point the consumer may well be uninsurable.  Moreover, it is the job of Congress, not of the courts, to decide the means best suited for achieving a task that the court recognized to be appropriate.

The brief rejects the notion, accepted by the Eleventh Circuit, that Congress cannot regulate the health insurance market in an attempt to remedy distortions in the market for health care.  It notes that these markets are really not separate—no one buys health insurance except as a means to financing health care.  Congress can also act to address potential problems preventively and does not have to wait until an uninsured person actually consumes uncompensated care to act.  Moreover, it makes no sense to attempt to separate the uninsured into “cost-shifters” and “non cost-shifters.”  The brief notes pointedly that one of the original plaintiffs in the Florida action, who claimed that she had made a rational choice to forego insurance, has subsequently gone bankrupt, leaving thousands of dollars in unpaid medical bills.

Addressing the argument that the minimum-coverage requirement impermissibly regulates inactivity. Finally, the brief addresses the activity-inactivity distinction that the plaintiffs have pushed so hard in the past.  The brief notes, as did Judge Silberman in the Seven-Sky case, that there is no textual basis in the Constitution for this distinction, an argument that may play well with the textualists on the Court. It also argues that the Court has consistently rejected conceptual distinctions like this and rather taken a practical approach to deciding when regulation is appropriate.  More importantly, however, the brief asserts that the minimum coverage requirement in fact does not regulate inactivity.   Rather, the uninsured are already actively participating in the market for health care; the minimum coverage requirement merely regulates the way in which the uninsured finance this care and the way in which they deal with the present risk of future loss, which is the very essence of insurance.  Finally, the brief notes that the argument that Congress cannot regulate “inactivity” is really a Due Process argument, not a Commerce Clause argument, and has no part in this case.

The taxing power of Congress provides authority for the minimum-coverage requirement. The brief concludes by arguing that the taxing power of Congress independently supports the constitutionality of the minimum coverage requirement.  The U.S. has yet to win on this argument in an ACA case, but Judge Wynn in his concurring opinion in the Liberty University case sided with the government on the tax argument and Judge Kavanaugh in his D.C. Circuit dissent conceded that only a “minor tweak” would make it clear that the minimum coverage penalty was in fact a tax.  The U.S. presses the argument vigorously here, noting that the minimum coverage requirement is enforced through the Tax Code as part of the income tax filing process and the penalty is based in part on household income.  The Supreme Court has in the past recognized that a tax does not cease to be a tax just because it serves a regulatory purpose and that the fact that a tax is called a penalty does not make it any less of a tax.

The Severability Briefs From The States And The NFIB

Both the states and the NFIB filed briefs arguing that if the minimum coverage requirement is found to be unconstitutional, the entire remainder of the ACA must go with it.  The Eleventh Circuit had held that the requirement is entirely severable from the remainder of the statute, while the federal government argues that the requirement is inextricably linked to the guaranteed issue and community rating provisions.

The states argue that the question of severability is ultimately one of legislative intent. Congress would never have adopted the guaranteed issue, community rating, and other “supply side” insurance market reforms without the “demand side” minimum coverage requirement.  Not only would Congress have not adopted the insurance reforms, the states argue, but it would not have adopted the remainder of the ACA either, much of which was part of the “original legislative bargain”  intended to offset the costs of expansion of coverage to the uninsured.  Without the “hub” of the minimum coverage requirement, the “remnants of the spokes” of the ACA cannot function as Congress intended, and must be rejected.

The NFIB argument is quite similar—the Court’s task in a severability inquiry is to discern the intent of Congress as to how the law should function, and the Court should not attempt to rewrite the law on its own.  The entire law was part of a “grand bargain,” and striking down the minimum coverage requirement while “retaining only the miscellaneous tag ends” of the statute Congress adopted would fundamentally change that bargain.

The Appointed Counsel’s Anti-Injunction Act Brief

Finally, the brief of appointed counsel Robert Long contends that the Anti-Injunction Act deprives the Court of jurisdiction to hear the case, as it applies to penalties as well as taxes and specifically applies to the minimum coverage requirement penalty, which is collected as a tax.

The next set of briefs will be the states’ brief on the Medicaid issue, due January 10, and amicus briefs supporting the United States on the minimum coverage requirement issue, due on January 13.

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