Virginia Ruling Obamacare Lawsuit

In a recent U.S. appeals court ruling in Virginia, President Barack Obama won a victory for his signature healthcare law but Republican critics are emboldened in their efforts to uproot the reforms.

The 4th U.S. Circuit Court of Appeals in Richmond ruled the state of Virginia did not have the right to sue to block the law. However it is important to note that the U.S. Circuit Court of Appeals had ruled on Virginia's standing alone and not on the constitutionality.  The US appeals court in Richmond, Virginia, that voided 2 conflicting lower-court decisions was silent on the power of Congress to require individuals to obtain insurance coverage or else pay a penalty.

With divergent court decisions over the 2010 healthcare reform law, political leaders, the health industry and the states will have a harder time predicting how the U.S. Supreme Court will rule when one of the lawsuits reaches its chamber next year.

The ruling is a win for the Obama administration, which has vigorously defended the individual mandate requiring Americans to buy health insurance.  Democrats who were hurt by the healthcare law in last year’s elections for Congress and state legislatures may find comfort in this ruling and more boldly resist  the moves by Republicans to chip away at the law.

Despite the ruling, the GOP hopefuls vying to become the party's presidential candidate in 2012 have turned up the rhetorical heat on the healthcare law and this decision could turn into a rallying cry against a costly and unnecessary government expansion and intrusion. It may galvanize the voters who believe states should have more independence from the federal government and are tired of the government intrusion in their lives.  Most of the patients I talk to do not support the idea of big government intruding in their healthcare decisions.  Medicare patients are tired of what “Part D” did to their prescription costs and are seeing their primary care doctors shying away from the Medicare program due to paltry reimbursement.

Who stands to benefit from this reform? 

The individual mandate provides the healthcare industry with a large and steady pool of insurance purchasers mostly the young and the healthy whose utilization of the system is low… thus filling the coffers of the insurance executives.

However, last month's ruling in Atlanta bolstered beliefs that the Supreme Court will throw out the individual mandate but keep the rest of the law intact. While the Virginia ruling may dampen the prospect of a compromise decision, it does not make it impossible. The Virginia judges were appointed by Democratic presidents -- and two of the three were assigned by Obama. The U.S. Supreme Court leans conservative, with the chief justice appointed by former President George W. Bush, a Republican.

In its challenge of the individual mandate, Virginia claimed it had been injured, which is a prerequisite for legal standing to sue, because the ACA conflicted with a state law declaring that said no resident shall be required to obtain health insurance. The state passed the law the same day President Barack Obama signed the ACA in 2010.

Hudson concurred with the state's argument about "sovereign injury," but the appeals court disagreed. Its opinion contended that the Virginia law "regulates nothing and provides for the administration of no state program" but only purports to immunize Virginians from federal law, which it cannot do.

"The Constitution itself withholds from Virginia the power to enforce [its law] against the federal government," the opinion declared. It described the law as a nonbinding declaration that "does not create any genuine conflict with the individual mandate" that would cast the state as a truly injured party with a standing to sue.

The court warned that if states were allowed to sue the federal government based on laws passed in opposition to federal law, they could challenge the Social Security program or how the Central Intelligence Agency reports its finances.

"If we were to adopt Virginia's standing theory, each state could become a roving constitutional watchdog of sorts; no issue, no matter how generalized or quintessentially political, would fall beyond a state's power to litigate in federal court," the court stated.   Allowing Challenge to ACA Penalty Could Threaten Nation's Tax System

In yesterday's other appellate decision, 2 of the 3 judges also cited technical grounds in striking down a decision by US District Court Judge Norman Moon in Lynchburg, Virginia, that upheld the individual mandate as constitutional. Their ruling opined on the federal government's power to tax.

Liberty University and several individual plaintiffs in the case claimed that the ACA penalty levied on individuals without insurance coverage amounted to an improper tax. They leveled the same charge against an ACA penalty on large employers whose otherwise uninsured employees buy coverage on their own with government help.

The Obama administration asked Moon to throw out the case because a tax law called the Anti-Injunction Act (AIA) bars lawsuits seeking to restrain the assessment or collection of a tax beforehand (taxes can be contested after they are paid). Moon rejected that argument and stated that the AIA does not apply to the ACA penalties.

Two of the 3 appellate judges took the opposite position and said that the ACA penalties did constitute taxes for AIA purposes, citing Supreme Court precedents. "No tax may be challenged in any pre-enforcement action," the majority opinion stated.

The opinion warned that exempting ACA penalties from the AIA could open the floodgate to preenforcement court challenges to income taxes that could "in the long run, wreak havoc on the [government's] ability to collect revenue."

Curiously, the Obama administration did a about-face at the appellate level and agreed with the plaintiffs that the AIA would not bar the lawsuit against the ACA. The majority opinion held that the government's "newly-minted position" contradicted its earlier interpretation of the AIA.

Harbir Makin, MD
Internal Medicine