Obama's Health-Care Law Ruled Unconstitutional Over Insurance Requirement

The Obama administration’s health- care overhaul unconstitutionally requires Americans to maintain a minimum level of health insurance, a federal judge ruled, striking down the linchpin of the plan.

U.S. District Judge Henry Hudson in Richmond, Virginia, said yesterday that the mandate on individuals in President Barack Obama’s health-care legislation goes beyond Congress’s powers to regulate interstate commerce. Hudson severed the issue of the mandate, which is set to become effective in 2014, and didn’t address other provisions such as expanding Medicaid.

“At its core, this dispute is not simply about regulating the business of insurance -- or crafting a scheme of universal health insurance coverage -- it’s about an individual’s right to choose to participate,” wrote Hudson, who was appointed by President George W. Bush in 2002.

The ruling is the government’s first loss in a series of challenges to the law mounted in federal courts in Virginia, Michigan and Florida, where 20 states have joined an effort to have the statute thrown out. Constitutional scholars said unless Congress changes the law, its fate on appeal will probably be determined by the U.S. Supreme Court.

Virginia Attorney General Ken Cuccinelli, who brought the suit, said his office has spoken with lawyers from the Justice Department about asking the U.S. Supreme Court to take the case without a review by the federal appeals court in Richmond. Tracy Schmaler, a Justice Department spokeswoman, said she had no comment on Cuccinelli’s statement.

Appeal Likely

A senior Obama administration official said that an appeal of Hudson’s ruling was likely and also expressed confidence that the legislation would be upheld.

“This is only round one,” Cuccinelli said, during a news conference at his office in Richmond. “This lawsuit is not about health-care, it’s about liberty.”

In his 42-page opinion, Hudson said the “unchecked expansion” of congressional power represented by the insurance requirement “would invite unbridled exercise of federal police powers.” No Supreme Court decision has authorized Congress to “compel an individual to involuntarily enter the stream of commerce by purchasing a commodity in the private market,” he wrote.

To overcome that conclusion, the Obama administration ultimately may have to persuade at least one of the five Republican-appointed justices on a Supreme Court that in recent years has limited Congress’s power to regulate interstate commerce.

Photographer: Jay Paul/Bloomberg

The United States District Court for the Eastern District of Virginia in Richmond, Virginia. Close

The United States District Court for the Eastern District of Virginia in Richmond, Virginia.

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Photographer: Jay Paul/Bloomberg

The United States District Court for the Eastern District of Virginia in Richmond, Virginia.

Commerce Clause Cases

The court hasn’t directly considered a challenge to Congress’ power under the Constitution’s commerce clause since John Roberts became chief justice in 2005.

“There’s a lot of activity focused now on alternatives to the mandate,” said Dan Mendelson, chief executive officer of Avalere Health, a Washington-based consulting firm.

Hudson, who didn’t order the government to stop work on implementing the law during an appeal, limited his ruling to the mandatory insurance provision.

Peter Urbanowicz, a managing director at Alvarez & Marsal Healthcare Industry Group in Washington, said he read the decision to leave in place all of the law’s obligations on insurers for expanded coverage. If Hudson’s decision is upheld, insurance companies would be required to provide new benefits without expanding the pool of insureds, he said in an e-mail.

That would cause “skyrocketing costs” for insurers, said Robert Zirkelbach, a spokesman for the Washington lobby group, America’s Health Insurance Plans.

Health-Insurance Stocks

Health plans rose as much as 2.7 percent after the ruling was announced, and then fell back. The Standard & Poor’s Managed Health Index of six insurers climbed 0.3 percent in New York trading, led by a 1 percent increase for Aetna Inc. of Hartford, Connecticut. UnitedHealth Group Inc. of Minnetonka, Minnesota, the largest medical plan by sales, rose 0.6 percent.

White House spokesman Robert Gibbs said at a press briefing yesterday said that the administration still believes the legislation is constitutional.

“One hundred and fifteen miles away, a different judge in a different district rendered a different decision,” Gibbs said, referring to a Nov. 30 ruling by U.S. District Judge Norman Moon, in Lynchburg, Virginia, named by President Bill Clinton. That decision upheld the act in a lawsuit brought by the evangelical Liberty University and five individuals. U.S. District Judge George Caram Steeh in Michigan, another Clinton appointee, also sided with the government.

‘Will Be Upheld’

“Our belief is that when all the legal wrangling is done, this is something that will be upheld,” Gibbs said.

Justice Department lawyers in court papers called the mandatory insurance measure the cornerstone of the overhaul as it pushes younger and healthier people into the insurance pool. Through the individual mandate and expansions of Medicaid and employer-based coverage, the law is estimated to provide 32 million more people with coverage by 2019, according to the Congressional Budget Office.

The law bars insurers from denying coverage to people who are sick or imposing lifetime limits on costs. Without payments generated from the required policies, the health-insurance market would face extinction, the government argued. The mandate falls under Congress’s power to regulate interstate commerce as $43 billion in unpaid medical bills are absorbed by the market each year, U.S. lawyers said.

‘Simply Wait’

“If people aren’t compelled to buy insurance and the insurance carriers are compelled to offer it, then many will simply wait until they are sick,” said John Sullivan, an analyst at Leerink Swann & Co. in Boston. “You can’t just pull this part out of it.”

Virginia’s suit claimed Congress has only the power to tax, not to force participation in a market. Its case defended the Virginia Health Care Freedom Act, a state law barring compulsory purchase of health insurance by its citizens.

Florida, joined by 19 other states, filed a separate lawsuit challenging the law’s constitutionality and arguing it puts too big a burden on its budget by expanding state-run Medicaid programs. U.S. District Judge Roger Vinson in Pensacola, Florida, is slated to hear arguments Dec. 16 on motions by each side to decide the case in their favor.

In the Florida case, the states are backed by 63 members of the U.S. House of Representatives, mostly Republicans, in a court brief. Incoming House of Representatives Speaker John Boehner, an Ohio Republican, and 32 Republican U.S. senators separately submitted papers arguing the legislation represents an unconstitutional expansion of congressional legislative powers.

Expansion of Medicaid

Florida’s Attorney General Bill McCollum said he is hopeful Vinson will strike down the individual mandate and halt the expansion of Medicaid.

“The implementation of this law could add more than 1.9 million Floridians to the Medicaid program, a tremendous financial burden on our state at a time when our budget has no room for extra expenses,” he said in a statement.

A group of about 40 economics scholars, including Nobel laureates Eric Maskin, George Akerlof and Kenneth Arrow, filed their own brief, arguing in favor of the legislative package.

The Virginia and Florida cases are the most likely to reach the Supreme Court, according to health-care and constitutional lawyers.

Both have been “well briefed and well drafted,” Urbanowicz said.

The case is Commonwealth of Virginia v. Sebelius, 10-cv-00188, U.S. District Court, Eastern District of Virginia (Richmond).

To contact the reporters on this story: Tom Schoenberg in Richmond, Virginia, at tschoenberg@bloomberg.net; Margaret Cronin Fisk in Southfield, Michigan, at mcfisk@bloomberg.net.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.

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