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Avik Roy
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August 16, 2011 4:00 A.M.
The Eleventh Circuit Takes Aim at Obamacare
Judges Joel Dubina and Frank Hull deliver a rigorous repudiation of the mandate.
You’ve seen the headlines: The U.S. Court of Appeals for the Eleventh Circuit has upheld a lower-court ruling that Obamacare’s individual mandate — which requires all U.S. residents to purchase health insurance — is unconstitutional. The case in question, Florida v. Health and Human Services, is the most important of all the Obamacare constitutional challenges thus far, because the plaintiffs include the governors and attorneys general from 26 states.
In January, when lower-court judge Roger Vinson overturned the entirety of Obamacare in the same case, I wrote that Vinson’s ruling “could go down as an important landmark in the history of American liberty.” The new ruling is even more significant. The 207-page majority opinion of the Eleventh Circuit, penned by appointees of Bill Clinton and George H. W. Bush, is the most rigorous and complete repudiation of the mandate ever written. It stands in stark contrast to the blitheness of the 26-page lead opinion from the Sixth Circuit decision in June upholding the mandate. The Eleventh Circuit judges persuasively make the case that “the government’s position amounts to an argument that the mere fact of an individual’s existence [means that] Congress may regulate them at every point of their life.”
The Eleventh’s impressive opinion makes certain that the Supreme Court will take up the Obamacare challenges. But, most importantly, Judges Joel Dubina and Frank Hull have marshaled facts and arguments in their ruling that will be impossible for the High Court’s swing voters to ignore.
UPHOLDING THE REST OF OBAMACARE
Before we get to that, it is worth pointing out that the Eleventh reversed Vinson’s overturning of the law in its entirety. This is a regrettable and important defeat that came about in part because the plaintiffs’ advocates, Paul Clement and Michael Carvin, made a number of unforced errors in their defense of Vinson’s opinion.
The question comes down to the principle of severability. Can the individual mandate be overturned, but severed from the rest of the law, leaving the rest intact? Or is the individual mandate so essential to the entire scheme that if it is overturned, the law must be thrown out wholesale?
During oral argument, Judge Hull asked Clement and Carvin about this: Did the plaintiffs truly believe that every provision contained in the law would be adversely affected if the mandate were overturned? For example, was the individual mandate necessary for the takeover of the student-loan program contained in the Patient Protection and Affordable Care Act? Clement and Carvin argued, without credibility, that it was. The far stronger answer would have been Judge Vinson’s: that “although many of the remaining provisions . . . can most likely function independently of the individual mandate, there is nothing to indicate that they can do so in the manner intended by Congress,” because that would require judges to “try to infer Congress’s intent.”
Dubina and Hull point out in their ruling that “in the overwhelming majority of cases, the Supreme Court has opted to sever the constitutionally defective provision from the remainder of the statute.” Indeed, they note that in United States v. Morrison, a landmark Commerce Clause case from 2000, the Supreme Court invalidated a portion of the Violence Against Women Act, “even though the text of the two bills did not contain a severability clause” — that is, a clause specifying that offending provisions could be surgically removed.
Dubina and Hull are right that the remainder of Obamacare is “fully operative as a law” without the mandate; i.e., that the law can still function from a legal standpoint. But the Supreme Court has said that a provision is not severable if, without it, “it is evident that the Legislature would not have enacted those provisions which are within its power.”
The evidence that the individual mandate was the foundation of Obamacare is irrefutable. Indeed, the law’s advocates said so from the outset. Obamacare’s subsidized exchanges were designed to mitigate the mandate’s imposition of heavy insurance costs on lower-income Americans. The law’s insurance regulations will drive up the costs, and thereby decrease the incentives, for healthier individuals to buy insurance; they are thus viable only if accompanied by a mandate.
On this point, the Eleventh flinched. It refused to confront the evidence of the mandate’s centrality to the broader law, stating that “we are not persuaded that it is evident (as opposed to possible or reasonable) that Congress would not have enacted [mandate-driven insurance reforms] in the absence of the individual mandate.”
Its decision makes it highly likely that the Supreme Court will also stick only to considering the constitutionality of the individual mandate, while leaving the rest of the law intact. It is here that Judges Dubina and Hull did their finest work.
A SEVEN-PART OPINION
The Eleventh’s opinion is divided into seven parts: (1) an exploration of whether the plaintiffs had the standing to sue; (2) an excellent summary of the law’s contents; (3) support for the constitutionality of the law’s massive expansion of Medicaid; (4) a review of the Supreme Court’s inconsistent history with regard to the Commerce Clause; (5) a discussion of why the individual mandate goes beyond Congress’s powers under the Commerce Clause; (6) an explanation of why the mandate is not a tax, and therefore cannot be justified under Congress’s taxation power; and (7) the opinion about the mandate’s severability from the rest of the law, which I discussed above.
The rest of this article will focus on parts 4 and 5 of the opinion — Commerce Clause jurisprudence and the constitutionality of the mandate — as the rest of the ruling is fairly straightforward.
COMMERCE CLAUSE JURISPRUDENCE
Section 8 of Article I of the Constitution grants Congress the power “to regulate Commerce with foreign nations, and among the several States, and with the Indian tribes.” Since the New Deal era, the Supreme Court has allowed Congress to use this power to regulate commercial transactions of any kind, even highly localized ones, on the premise that commerce within a state has a “substantial effect” on commerce between states.
If you’ve kept up with the various Obamacare court rulings, or Commerce Clause rulings generally, you’ll be familiar with the litany of important but inconsistent Supreme Court opinions since the New Deal: Wickard v. Filburn (1942), in which Roscoe Filburn was ruled to have violated congressional wheat-production quotas by growing wheat on his own farm for his own consumption; Heart of Atlanta Motel v. United States (1964), in which a motel was required to serve black travelers because “discrimination by hotels and motels impedes travel”; United States v. Lopez (1995), the first ruling since the New Deal to place constraints on the Commerce Clause; United States v. Morrison (2000), the Violence against Women Act case discussed above; and Gonzales v. Raich (2005), in which the Court ruled that Angel Raich could not grow marijuana for her personal use because it might affect interstate commerce in marijuana.
Gonzales v. Raich is the case that liberals have been using most effectively to defend the individual mandate, given that it is a recent decision in which Anthony Kennedy joined the majority, with Antonin Scalia concurring. After all, if Congress can regulate the growth of marijuana for personal, non-commercial use, surely it can require people to buy health insurance?
Judges Dubina and Hull, therefore, spend a lot of time discussing this case — more than other judges have spent in anti-mandate rulings. They point out that the Supreme Court made a significant effort to distinguish the Raich case from the recent Lopez and Morrison rulings, in which the Supremes reinstituted restrictions on the Commerce Clause: The production of marijuana was much like Roscoe Filburn’s production of wheat, whereas the Lopez and Morrison cases involved non-economic activity: gun possession near schools, and violence against women.
UNPRECEDENTED ASSERTION OF POWER
The Eleventh then turns to one of the key arguments against the individual mandate: that it represents an unprecedented attempt by Congress to regulate economic inactivity, namely the decision to opt out of the insurance market. Here, Judges Dubina and Hull make a broader point: that whether or not opting out of the insurance market is economic activity, there can be no doubt that the individual mandate represents an unprecedented assertion of federal power.
“The Supreme Court,” they note, “has always described the commerce power as operating on already existing or ongoing activity,” citing multiple passages from Lopez and Raich. But “the Court has never expressly held that activity is a precondition for Congress’s ability to regulate commerce — perhaps, in part, because it has never been faced with the type of regulation at issue here. . . . What the Court has never done is interpret the Commerce Clause to allow Congress to dictate the financial decisions of Americans through an economic mandate.”
They note that in 1994, when an individual mandate was first considered by Congress, the Congressional Budget Office stated that a “mandate requiring all individuals to purchase health insurance would be an unprecedented form of federal action. . . . [Congress] has never required people to buy any good or service as a condition of lawful residence in the United States.”
Dubina and Hull then wield the knockout punch: “The fact that Congress has never before exercised this supposed authority is telling. . . . Few powers, if any, could be more attractive to Congress than compelling the purchase of certain products. Yet even if we focus on the modern era, when congressional power under the Commerce Clause has been at its height, Congress still has not asserted this authority. Even in the face of a Great Depression, a World War, a Cold War, recessions, oil shocks, inflation, and unemployment, Congress never sought to require the purchase of wheat or war bonds, force a higher savings rate or greater consumption of American goods, or require every American to purchase a more fuel efficient vehicle.”
They discuss problems that the government has had with flood disasters: Despite the fact that Washington has spent large sums of money on flood-disaster relief, “Congress did not require everyone who owns a house in a flood plain to purchase flood insurance. In fact Congress did not even require anyone who chooses to build a new house in a flood plain to buy insurance. Rather Congress created a series of incentives designed to encourage voluntary purchase of flood insurance. . . . Without an ‘individual mandate,’ the flood insurance program has largely been a failure.”
They then go on to point out that there are only four mandates applied to every citizen of the United States: “serving on juries, registering for the draft, filing tax returns, and responding to the census.” In particular, liberals have justified the individual mandate by arguing that, if Congress can require you to fight in a war, surely it can require you to buy health insurance. But Dubina and Hull point out that there is a significant difference between “directly interacting with the government” and “[entering] into a compulsory contract with a private company.” The draft survived many constitutional challenges, “primarily based on the long history of the draft both in the United States and [in] other nations,” and also the long-standing concept that the fundamental “obligation of the citizen [is] to render military service in case of need.”
The judges make another critical point: The law forces people to buy insurance now, because they might seek uncompensated care in the future. “Although health care consumption is pervasive, the plaintiffs correctly note that participation in the market for health care is far less inevitable than participation in markets for basic necessities like food or clothing.” The Supreme Court has “never had to address any temporal aspects of congressional regulation. However, the premise of the government’s position — that most people will, at some point in the future, consume health care — reveals that the individual mandate is even further removed from traditional exercises of Congress’s commerce power.”
THE MYTH OF COST-SHIFTING
Dubina and Hull then went on to do something that no prior court has done: They take the time to examine Democrats’ assertions that the individual mandate is necessary to solve the mythical “free-rider problem,” wherein the uninsured obtain free care through hospital emergency rooms, driving up costs for everyone else. Purists might argue that an appeals court should stick to findings of law, not fact, but Dubina and Hull have done Americans a great service by poking numerous large holes in the Democrats’ principal mandate rationale.
The judges make the key point, so rarely made, that many people who go without insurance do pay for their own health care. “Data show the uninsured paid on average 37% of their health costs out of pocket in 2007, and 46.01% in 2008, while third parties pay another 26% on their behalf.” Indeed, 39 percent of the uninsured have incomes above $50,000 a year; the median income level in 2000 was $41,214. “In this regard, the individual mandate’s attempt to reduce the number of uninsured and correct the cost-shifting problem is woefully overinclusive. The language of the mandate is not tied to those who do not pay for a portion of their health care (i.e., the cost-shifters). It is not even tied to those who consume health care. Rather, the language of the mandate is unlimited, and covers even those who do not enter the health care market at all.”
Indeed, the judges point out that Obamacare’s mandate exempts the people most likely to seek uncompensated care. Of the $43 billion a year in uncompensated care, 19 percent — $8.1 billion — is consumed by illegal aliens and other non-residents, who aren’t subject to the mandate. Another $15 billion, or 35 percent of the total, is consumed by low-income individuals who are either covered by the Medicaid expansion or exempted from the mandate because of their income level. People consuming $8.7 billion, or 20 percent, of uncompensated care are thought to be uninsured because of pre-existing conditions, which Obamacare is supposed to solve through its guaranteed-issue provision. Another $3.3 billion, or 8 percent, of uncompensated care is given to people who actually have insurance, but don’t pay their out-of-pocket costs.
For those counting at home, that adds up to $35.1 billion of the $43 billion in uncompensated care — 82 percent of the total — that goes to people who won’t be subject to the individual mandate, excluding overlaps. “To the extent the data show anything, the data demonstrate that the cost-shifters are largely persons who either (1) are exempted from the mandate, (2) are excepted from the mandate penalty [because of unaffordable premiums], or (3) are now covered by the Act’s Medicaid expansion.”
Dubina and Hull, for the first time in a court ruling, call the Obamacare bluff: “In reality, the primary persons regulated by the individual mandate are not cost-shifters but healthy individuals who forgo purchasing insurance. . . . Congress sought to mitigate its reforms’ regulatory costs on private insurers by compelling healthy Americans outside the insurance market to enter the private insurance market and buy the insurers’ products. This starkly evinces how the Act is forcing market entry by those outside the market.”
In addition, the mandate’s enforcement mechanisms are “toothless,” because Obamacare “waives all criminal penalties for noncompliance and prevents the IRS from using liens or levies to collect the penalty.” Is it really necessary therefore, they ask, for Congress to do such violence to the Constitution for such a weakly enforced provision?
The judges make another point that is so rarely made in these debates: that purchasing health insurance is not the same thing as purchasing health care. “The individual mandate does not regulate behavior at the point of consumption. Indeed, the language of the individual mandate does not truly regulate ‘how and when health care is paid for’ . . . It does not even require those who consume health care to pay for it with insurance when doing so. Instead, the language of the individual mandate in fact regulates a related, but different, subject matter: ‘when health insurance is purchased’ . . . If an individual’s participation in the health care market is uncertain, their participation in the insurance market is even more so.”
“In sum,” they conclude, “the individual mandate is breathtaking in its expansive scope. It regulates those who have not entered the health care market at all. It regulates those who have entered the health care market, but have not entered the insurance market (and have no intention of doing so). It is overinclusive in when it regulates: it conflates those who presently consume health care with those who will not consume health care for many years into the future. The government’s position amounts to an argument that the mere fact of an individual’s existence substantially affects interstate commerce, and therefore Congress may regulate them at every point of their life. This theory affords no limiting principles in which to confine Congress’s enumerated power.”
THE “HEALTH CARE IS SPECIAL” CANARD
Dubina and Hull do an excellent job of pointing out the constitutional irrelevance of the administration’s argument that the mandate is necessary because health care is somehow unique. (Or, to put it more precisely, that health care is uniquely unique.) Health care is unique, says the administration, because (1) everyone eventually consumes it; (2) our need for health care is unpredictable; (3) it’s expensive; (4) Congress requires hospital emergency rooms to treat everyone, regardless of ability to pay; (5) that requirement leads to cost-shifting.
As the judges rightly point out, who cares? “The first problem with the government’s proposed limiting factors is their lack of constitutional relevance. These five factual criteria comprising the government’s ‘uniqueness’ argument are not limiting principles rooted in any constitutional understanding of the commerce power.”
In addition, Dubina and Hull rightly point out that the uniqueness argument is factually false. “Virtually all forms of insurance entail decisions about timing and planning for unpredictable events with high associated 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.”
In addition, accepting the administration’s theory that health care is special means that “courts would sit in judgment over every economic mandate issued by Congress, determining whether the level of participation in the underlying market, the amount of cost-shifting, the unpredictability of need, or the strength of the moral imperative were enough to justify the mandate.”
IF CONGRESS CAN DO THIS, WHAT CAN’T IT DO?
Finally, we should discuss the judges’ reflections on the fundamental threat that the individual mandate poses to our constitutional order: If Congress can force us to buy a privately issued product, what can’t it do? Can’t it force us to buy broccoli, or even the New York Times? Notably, the judges don’t employ the rhetorical tactic of describing this “parade of horribles,” because the facts speak for themselves.
Dubina and Hull are blunt on this point. “At root, the [government] relies upon a convenient sleight of hand to deflect attention from the central issue in the case: what is the nature of the conduct being regulated by the individual mandate, and may Congress reach it?” The government goes out of its way to downplay the far-reaching implications of the mandate; hence the whole discussion about how health care is unique. “Accordingly, the government adroitly and narrowly re-defines the regulated activity as the uninsured’s health care consumption and attendant cost-shifting, or the timing and method of payment for such consumption.”
“Ultimately,” they write, “the government’s struggle to articulate cognizable, judicially administrable limiting principles only reiterates the conclusion we reach today: there are none. . . . This economic mandate represents a wholly novel and potentially unbounded assertion of congressional authority: the ability to compel Americans to purchase an expensive health insurance product they have elected not to buy, and to make them repurchase that insurance product every month for their entire lives. We have not found any generally applicable, judicially enforceable limiting principle that would permit us to uphold the mandate without obliterating the boundaries inherent in the system of enumerated congressional powers.”
CONCLUDING THOUGHTS
As you can see, the opinion from Dubina and Hull is a tour de force. The judges call out the administration’s dishonest conflation of health insurance with health care, and challenge the factual rationale for Obamacare’s unprecedented expansion of congressional power. Frank Hull, a Clinton appointee, has done for the anti-Obamacare cause what Jeffrey Sutton of the Sixth Circuit, a George W. Bush appointee, did for the law’s advocates.
But Sutton’s decisive opinion upholding the mandate naïvely accepted the argument that “health care is unique” because it involves “regulating how citizens pay for what they already receive.” Hull and Dubina demolish that sophistry. Sutton shares “the lingering intuition . . . that Congress should not be able to compel citizens to buy products they do not want,” but says that it’s up to the Supreme Court to resolve the mess of its own Commerce Clause jurisprudence. Thanks to the Eleventh Circuit, it will have to try to do just that.
In an ideal world, it wouldn’t be necessary for judges to become health-care wonks in order to overturn constitutional insults. But judges are human. Dubina and Hull’s work identifying the mandate’s flaws, from a policy standpoint, will help moderates on the Supreme Court repudiate the provision with a clear conscience. It’s hard not to be confident today that, come June 2012, justice will be done.
— Avik Roy is an equity research analyst at Monness, Crespi, Hardt & Co. in New York City. He blogs on health-care issues at The Apothecary.
