Employee Benefits Compliance

Appeals Court Upholds Health Care Reform Law’s Individual Mandate

The Sixth Circuit Court of Appeals upheld the district court’s decision that the “individual mandate” (minimum coverage) provision of the Patient Protection and Affordable Care Act (ACA or HCR law) is constitutional because it is “a valid exercise of Congress’s authority under the Commerce Clause” (Article I, Section 8, Clause 3 of the US Constitution). This June 29th, 2011 decision was the first Appeals Court decision on the constitutionality of the HCR law. Two other Appeals Court opinions are expected soon. This case was an appeal from Thomas More Law Center v Barack Obama. Click here to read the full decision.


The ACA made numerous changes to the delivery of health care and health insurance in the United States. One of these changes is the minimum coverage provision (Internal Revenue Code § 5000A), which requires all applicable individuals to maintain minimum essential health insurance coverage or to pay a penalty, as of 2014.

In the district Court case from which this appeal was made, the judge upheld the constitutionality of the minimum coverage provision under the Commerce Clause for two principal reasons:
1– the provision regulates economic decisions regarding how to pay for health care that have substantial effects on the interstate health care market; and
2– the provision is essential to the Act’s larger regulation of the interstate market for health insurance.

The Court also gave deference to Congress’s conclusion that the minimum coverage provision “is essential to creating effective health insurance markets in which improved health insurance products that are guaranteed issue and do not exclude coverage of pre-existing conditions can be sold.”

Summary of the Appeals Court’s Decision

The Appeals Court affirmed the decision of the District Court, holding that the minimum coverage provision was constitutional under the Commerce Clause for two independent reasons:
1–“ the provision regulates economic activity that Congress had a rational basis to believe has substantial effects on interstate commerce.”
2–“ Congress had a rational basis to believe that the provision was essential to its larger economic scheme reforming the interstate markets in health care and health insurance.”

Regulation of Economic Activity that Substantially Affects Interstate Commerce

Plaintiffs in this case (and other cases challenging the HCR Act and the individual mandate) argued that the minimum coverage provision is “an unconstitutional exercise of congressional authority” under the Commerce Clause because it is regulating economic “inactivity” (i.e., not purchasing health insurance), and the Commerce Clause only allows Congress to regulate economic activity that substantially affects commerce among the states.

The Court completely disagreed with that assertion, for two reasons. First, the Court said that the “activity” being regulated is “the activity of participating in the national market for health care delivery,” and this activity can be either purchasing insurance or self-insuring for the cost of health care that each person will ultimately need at some point in his or her life. There is no “inactivity” of not purchasing insurance. (The court notes that it uses the term “self-insurance” for ease of discussion, but it realizes that this is actually a misnomer because no insurance is involved.) Second, the Court points out that even if one characterizes self-insuring as the “inactivity” of not purchasing health insurance, neither the Commerce Clause nor the Supreme Court has “acknowledged a constitutional distinction between activity and inactivity” and the Supreme Court has not directly addressed whether Congress can use its Commerce Clause power to regulate economic inactivity.

The court cites numerous sources to support its first (and major) point above—its determination that Congress had a rational basis to believe that the practice of self-funding for the cost of health care, in the aggregate, substantially affects interstate commerce. According to US Census Bureau findings, “an estimated 18.8% of the non-elderly US population (about 50 million people) had no form of health insurance for 2009. Data from the Centers for Disease Control show that more than 80% of adults nationwide visited a health care professional one or more times in 2009. “The vast majority of individuals are active in the health care delivery market because of two unique characteristics of this market,” says the court: “1) virtually everyone requires health care services at some unpredictable point; and 2) individuals receive health care services regardless of ability to pay.” Federal law (the Emergency Medical Treatment and Active Labor Act, 42 USC section 1395dd) and state laws, as well as many institutions’ charitable missions, require institutions to provide health care services regardless of a patient’s ability to pay.

According to a study by Families USA, “the uninsured cannot avoid the need for health care, and they consume over $100 billion in health care services annually.” The Court also cites Congressional findings that the aggregate cost of providing uncompensated care to the uninsured in 2008 was $43 billion (42 USC section 18091(a)(2)(F).” and that the cost of uncompensated care is passed on from providers “to private insurers, which pass on the cost to families” (citing the Families USA data). This cost-shifting inflates the premiums that families must pay for health insurance by on average over $1,000 a year.

The Minimum Coverage Provision is an Essential Part of a Broader Economic Regulatory Scheme

The Court says that “even if self-insuring for the cost of health care were not an economic activity with a substantial effect on interstate commerce, Congress could still regulate the practice” if Congress “rationally believes that in the aggregate, the failure to do so would undermine the effectiveness of the overlying regulatory scheme.” The Court says plaintiffs agree that Congress does have the power under the Commerce Clause to regulate the interstate markets in health care delivery and health insurance.

Congress rationally believed that without the minimum coverage provision, other parts of the overall health insurance regulatory scheme (the ACA) would not work. For example, without the minimum coverage provision, the guaranteed issue and community rating provisions would increase existing incentives for individuals to delay purchasing health insurance until they need health care. The Court notes that Congress did review information from seven states that enacted such reforms without also requiring a minimum coverage provision, and also from Massachusetts that did enact a minimum coverage provision as well as the other reforms.

The Court cites several other substantive areas in which it has upheld federal laws on non-economic intrastate activity that Congress rationally believed were necessary to effectively implement its overall economic regulatory scheme: upholding laws prohibiting intrastate possession of child pornography and intrastate transfer of firearms that are part of broader economic regulatory schemes. It also notes that other courts have applied this rationale in upholding laws requiring sex offender registration.

Decisions Expected Soon in Other HCR Cases on Appeal

Two other Appeals Courts also heard arguments in May and June from other district court cases challenging the constitutionality of the Health Care Reform law. These decisions are expected soon. Most experts believe that at least one of these other Appeals Courts will hold the HCR law unconstitutional, resulting in a split among the circuits. This would no doubt result in an appeal to the U.S. Supreme Court for a final ruling on the constitutionality of the Health Care Reform law. Many experts predict the U.S. Supreme Court decision would be a 5-4 decision, but there is disagreement as to whether the majority would rule the Health Care Reform law constitutional or unconstitutional.

The other cases on appeal are:

1– Fourth Circuit, heard oral argument May 10th in two cases, Commonwealth of VA v Sebelius (VA Dist crt 12/31/10), in which the district court held the individual mandate unconstitutional but severable from the rest of the HCR law, and Liberty University v. U.S., in which the district court upheld the HCR law.
2– Eleventh Circuit, heard oral arguments June 8 in State of Florida v US Dept of HHS (FL Dist crt, 1/31/11), in which the district court invalidated the individual mandate and the entire HCR law.
D.C. Circuit Court of Appeals is scheduled to hear oral arguments on September 23 in Margaret Peggy Lee Mead, et al., v. Eric H. Holder, Jr., et al., in which the district court upheld the individual mandate in the HCR law.

Relevant Sections of the US Constitution

The Commerce Clause (Article I, Section 8, Clause 3)
“The Congress shall have Power To regulate Commerce with foreign Nations, and among the several States, and with the Indian tribes”

The Necessary and Proper Clause (the final clause of Article I, section 8)
It is often cited in conjunction with the Commerce Clause. It says that the Commerce Clause power, and all of the other enumerated powers, may be implemented by the power:
“To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.”

The General Welfare clause (Article I, Section 8, Clause 1)
“The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States”