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OFFICE OF THE ATTORNEY GENERAL
JIM HOOD ATTORNEY GENERAL
CIVIL LITIGATION DNISION
Attorney General Jim Hood
Healthcare Reform Research Team
Constitutionality of Healthcare Reform Legislation
Per your request, we have completed our review of the constitutional challenges raised by the Florida district court litigation, Florida v. US Dep 't of Health & Human Servs., Case No.3: 1 O~ cv-00091-RV-EMT, against the newly enacted Patient Protection and Affordable Care Act, H.R. 3590 ("the Act"). The following is our analysis of the issues presented in the case. In short, our review leads us to the conclusion that the claims asserted by the Attorneys General in the Florida action are without merit under existing United States Supreme Court case law.
The United States Supreme Court has broadly interpreted the Commerce Clause in Article I, Section 8 of the United States Constitution. "As interstate commerce has become ubiquitous, activities once considered purely local have come to have effects on the national economy, and have accordingly come within the scope of Congress' commerce power." New Yorkv. United States, 505 U.S. 144, 158 (1992). Included within Congress's commerce authority is ''the power to regulate those activities having a substantial relation to interstate commerce, ... those activities that substantially affect interstate commerce." United States v. Lopez, 514 U.S. 549, 558-59 (1995) (internal citations omitted). "The commerce power is not confined in its exercise to the regulation of commerce among the states. It extends to those activities intrastate which so affect interstate commerce, or the exertion of the power of Congress over it, as to make regulation of them appropriate means to the attainment of a legitimate end, the effective execution of the granted power to regulate interstate commerce." Wickard v. Filburn, 317 U.S. 111, 124 (1942). Toward that end, the Supreme Court has sanctioned Congress's exertion of its commerce power to such an extent as
to allow regulation of the production and consumption of homegrown wheat, Wickard, supra, and to prohibit the use of marijuana for medicinal purposes even if homegrown and consumed personally, Gonzales v. Raich, 545 U.S. 1 (2005). "Congress can regulate purely intrastate activity that is not itself' commercial,' in that it is not produced for sale, if it concludes that failure to regulate that class of activity would undercut the regulation of the interstate market in that commodity." Gonzales, 545 U.S. at 18 (citing Wickard, supra). In other words, despite the individual nature of the production or consumption, if the impact on interstate commerce of the individual combined with others similarly situated would have a substantial effect on interstate commerce, then Congress may exercise its commerce power to regulate the activity, despite the de minimus nature of the individual instances. Id. at 17-18. The only questions are whether Congress has a rational basis for finding that the regulated activity affected commerce, and whether the means it selected are reasonable and appropriate. Heart of Atlanta Motel, Inc. v. United States, 379 U.S. 241,258 (1964).
Only two recent Supreme Court cases have come down on the side of striking a federal regulation as outside of Congress ' s commerce power - Lopez, supra, and United States v .. Morrison, 529 U.S. 598 (2002). Both of those cases, however, involved criminal law addressing purely noneconomic activity. The Court in Lopez struck a federal statute mandating a gun-free zone around public schools because it was "a criminal statute that by its terms has nothing to do with 'commerce' or any sort of economic enterprise, however broadly one might defme those tenns." Lopez, 514 U. S. at 561. Similarly, applying its decision in Lopez, the Court in Morrison invalidated a provision in the Violence Against W omen Act that created civil liability for gender-based violent crimes, because of the criminal and wholly non-economic nature of the regulated activity. Morrison, 529 U.S. at 610-13.
Unlike Lopez and Morrison, the regulated activity in the Act is not of a criminal nature. The Supreme Court has recognized that insurance is interstate commerce subject to Congressional regulation. United States v. South-Eastern Underwriters Ass 'n, 322 U.S. 533 (1944) (superseded by statute). The Act contains detailed Congressional findings of the commercial, economic nature of the regulated activity, findings that will be afforded great deference by courts addressing challenges to the Act. Given the extremely broad scope of Congress's commerce power under existing case law from the last sixty years, it is unlikely that a court would fmd the Act with its regulated activity of health care and health insurance to be beyond that authority.
The Florida Complaint argues that the Act regulates inactivity (an individual's decision not to purchase health insurance) which by nature cannot be commerce or have a substantial effect on commerce. To the contrary, the failure to purchase health insurance is an economic activity because by nature such individual budget decisions impact consumption which taken in the aggregate affect interstate commerce, as addressed in Wickard, Lopez, and Raich, supra. Uninsured persons instead must use over-the-counter medicines or resort to emergency medical services, which are clearly economic activity, the combined effect of which impacts interstate commerce. Again, the only questions are whether Congress has a rational basis for finding that the regulated activity affected commerce, and whether the means it selected are reasonable and appropriate; no distinction between activity versus inactivity or participation versus non-participation has been drawn by the Supreme
Court. See Heart of Atlanta Motel, 379 U.S. at 258-59 (racial discrimination by motels affected interstate commerce, allowing federal governmental regulation).
In addition, the states challenging the Act complain of its unprecedented requirement that all citizens purchase healthcare coverage or be subject to sanction. However, no such differentiation exists in current law. Moreover, the Second Militia Act of 1792, during George Washington's first term as President, required Americans to purchase a gun, ammunition, gunpowder and a knapsack to be prepared for military service. As a result, it is not without precedent that the Act requires citizens to make a purchase.
Tenth Amendment/Spending Authority
The Attorneys General in the Florida litigation also challenge the Act as infringing on the sovereignty of the states by compelling them to assume additional costs, requiring them to establish health insurance exchanges, and commandeering them as agents of the federal government's regulatory scheme. The conclusion that the Act is a proper exercise of Congress's authority under the Commerce Clause also resolves the io- Amendment challenge, because "[i]f a power is delegated to Congress in the Constitution, the Tenth Amendment expressly disclaims any reservation of that power to the States." New York v. United States, 505 U.S. 144, 156 (1992). Only if one of the limitations on Article I power were violated by the Act would the province of state sovereignty be invaded. "Congress may not simply 'commandeer the legislative processes of the States by directly compelling them to enact and enforce a federal regulatory program." Id. at 161 (quoting Hodelv. Vir. Surface Mining & Reclamation Ass'n, Inc., 452 U.S. 264, 288 (1981)). In other words, Congress may not "employ state governments as regulatory agencies." Id. at 163. However, to our knowledge, nothing in the Act requires states to enact a particular law or to enforce the Act itself. The Act provides that states may either set up an exchange by 20 14 or the Department of Health and Human Services will establish one for them should any states fail to do so. While Congress may not direct the states to regulate in a particular manner, it may motivate them to do so with incentives or may present the states with a choice between regulating an activity based on federal standards or allowing preemption of state law by federal regulation without infringing on state sovereignty. ld. at 166-68. Also, a state may opt out of Medicaid to avoid the Act's requirements. The United States Supreme Court has uniformly held that the federal government can tie acceptance of federal funds to such conditions. Id. at 167; South Dakota v. Dole, 483 U.S. 203, 206-07 (1987) (upholding statute conditioning receipt of federal highway funds on adoption of minimum drinking age). Exercise of this spending power is limited only by the requirements that the expenditure be in furtherance of the general welfare (of which Congress's judgment is given substantial deference), that the condition placed on acceptance of funds be unambiguous, and that the condition be related to the federal interest in the particular project at issue. Dole, 483 U.S. at 207-08; see Helveringv. Davis, 301 U.S. 619,640-41 (1937) (recognizing Congress's discretion to determine what is in the interest of the general welfare in upholding the Social Security Act's scheme to finance old-age benefit through taxation). These requirements are met by the Act here.
The Act imposes a penalty on non-exempt individuals who fail to maintain qualifying healthcare coverage. The lawsuit filed in the Florida district court challenges this penalty on the basis that it violates Article I, Sections 2 and 9 of the United States Constitution. Those provisions require that any capitation or other direct tax imposed by the federal government must be apportioned among the states in proportion to census population. A capitation is a poll tax or tax per capita, a "fixed tax levied on each person within ajurisdiction." Black's Law Dictionary (8th ed. 2004). By definition a capitation is a tax imposed on individuals unrelated to their activities, "without regard to property, profession, or any other circumstance." Hylton v. United States, 3 U.S. 171, 175 (1796). A direct tax is "[a] tax that is imposed on property, as distinguished from a tax on a right or privilege. A direct tax is presumed to be borne by the person upon whom it is assessed, and not 'passed on' to some other person. Ad valorem and property taxes are directtaxes." Black's Law Dictionary (8th ed. 2004).
Ifbroadly interpreted, then, any tax imposed by the federal government on individuals or on property (other than income taxes, sanctioned by the Sixteenth Amendment), would have to be apportioned. However, the Supreme Court has uniformly construed the term "direct tax" very narrowly, dating back to its earliest cases, to include only taxes on real or personal property, or capitation taxes by the express terms of the Constitution. See, e.g., Hylton, 3 U.S. at 175 (holding that a tax on carriages was an indirect tax, because it was a tax on consumption of a commodity; speculating that definition of "direct tax" would include only a capitation or tax on land); Springer v. United States, 102 U.S. 586, 602 (1882) (and cases cited therein) (income tax is not a direct tax; direct taxes contemplated by the Constitution are capitation taxes or taxes on land or real property); Bromley v. McCaughn, 280 U.S. 124 (1929) (and cases cited therein) (a tax imposed on a property owner merely because he is an owner is a direct tax, but a tax on a particular use of property or exercise of power over property is an excise tax and not a direct tax). The stand-out exception where the Court found a tax other than a capitation or tax on property to be a direct tax was the opinion in Pollock v. Farmers' Loan & Trust Co., 158 U.S. 601 (1895), in which the Court struck a tax on income derived from real or personal property as a direct tax in violation of the Constitution because it was not apportioned. Of course, that opinion was overturned in 1913, upon passage of the Sixteenth Amendment (granting Congress authority to impose a federal income tax without apportionment among the states).
The penalty imposed by the Act for failure to maintain qualifying healthcare coverage is not a capitation, because it is not a fixed tax levied on individuals without regard to property, profession, or other circumstance. Nor is it a direct tax, as construed by the United States Supreme Court, because it is not a tax on ownership of real or personal property. As a result, the penalty is not in violation of Article I, Sections 2 and 9 of the United States Constitution.
To the extent that the Florida Complaint challenges the individual mandate penalty as a punitive tax, outside of Congress's authority to tax and spend for the general welfare, this notion is simply unfounded. The penalty maybe should be called by another name, because it is an incentive to purchase health insurance, not a criminal punishment, see Dep 't of Revenue v. Kurth Ranch, 511 U.S. 767, 779 (1994) (tax conditioned on commission of a crime ), or a violation of the Bill of Rights, see Marchetti v. United States, 390 U.S. 39,44 (1968) (law requiring registration by individuals accepting wagers and payment of occupational tax violated 5th Amendment privilege against selfincrimination). The Supreme Court has otherwise refused to invalidate taxes on grounds that they have a regulatory effect. See, e.g., United States v. Kahriger, 345 U.S. 22, 30-32 (1953) (overruled on other grounds by Marchetti, 390U.S. at41-42); UnitedStatesv. Sanchez, 340 U.S. 42, 44 (1950); Sonzinsky v. United States, 300 U.S. 506,513-14 (1937). The assessment against individuals who decline to purchase health insurance has a legitimate revenue-raising function and is within Congress's authority to tax and spend for the general welfare.
ccc [T]he gist of the question of standing' is whether petitioners have 'such a personal stake in the outcome of the controversy as to assure that concrete adverseness which sharpens the presentation of issues upon which the court so largely depends for illumination. ,,, Massachusetts v. Envtl. Prot. Agency, 549 U.S. 497, 516 (quoting Baker v. Carr, 369 U.S. 186,204 (1962)). "[AJ litigant must demonstrate that it has suffered a concrete and particularized injury that is either actual or imminent, that the injury is fairly traceable to the defendant, and that it is likely that a favorable decision will redress that injury." Id. at 517 (citingLujanv. Defenders of Wildlife, 504 U.S. 555, 562 (1992)).
The states in the Florida action have not alleged a concrete, particularized injury to the states themselves, particularly as to the individual mandate provision of the Act. Instead, this action falls into the category of abstract questions of political power and sovereignty because the powers of the states are not actually invaded since the Act "imposes no obligation but simply extends an option which the state is free to accept or reject." Massachusetts v. Mellon, 262 U.S. 447, 480-85 (1923). Where, as here, Congress has not afforded a procedural right to the states to challenge federal agency action, see id., and the state itself has not suffered a particularized injury or asserted a special position and interest, id. at 518, then it may act in its capacity as quasi-sovereign to protect its citizens-here to purportedly shield them from the individual mandate. See A (fred L. Snapp & Son, Inc. v. Puerto Rico ex rel. Barez, 458 U.S. 592, 601, 607 (1982) (identifying two general categories of quasi-sovereign interests sufficient to invoke parens patriae standing-a state's interest in the physical and economic well-being of its residents in general and a state's "interest in not being discriminatorily denied its rightful status within the federal system"). However, a state may not institute judicial proceedings as parens patriae to protect its citizens against federal regulation. Mellon, 262 U.S. at 485-86. "While the state, under some circumstances, may sue in that capacity for the protection of its citizens ... , it is no part of its duty or power to enforce their rights in respect
of their relations with the federal government. In that field it is the United States, and not the state, which represents them as parens patriae, when such representation becomes appropriate; and to the former, and not to the latter, they must look for such protective measures as flow from that status." Id. (internal citation omitted). As a result, the states lack standing to sue on behalf of their citizens to halt implementation of the Act.
"The basic rationale of the ripeness doctrine 'is to prevent the courts, through avoidance of premature adjudication, from entangling themselves in abstract disagreements over administrative policies, and also to protect the agencies fromjudicial interference until an administrative decision has been formalized and its effects felt in a concrete way by the challenging parties. '" Pacific Gas & Elec. Co.v. State Energy Resources Conservation & Dev. Comm 'n, 461 U.S. 190,200-01 (1983) (quotingAbbott Laboratoriesv. Gardner, 387U.S. 136,148-49 (1967)). "[Tjhe question of ripeness turns on 'the fitness of the issues for judicial decision' and 'the hardship to the parties ofwithholding court consideration.'" Id. at201 (quotingAbbott Laboratories, 387U.S. at 149). Given the effective date in 2014 ofthe challenged provisions of the Act, and the very vocal threat of repeal or revision in the interim, it might be argued that the Florida case is not ripe for review. However, the plaintiff states will likely argue that they must take action now to establish healthcare exchanges if they wish to comply with the Act in that regard. Depending on the time necessary for the states to set up insurance exchanges, then, a delay in resolution of the issues raised in the lawsuit would arguably cause undue hardship to the states challenging the Act. Without more factual information on this issue, it is unclear whether the court would reject an argument that the states' challenge to the Act is unripe, particularly given the speculative nature of repeal or legislative revision. See New York, 505 U.S. at 175 (citing Pacific Gas, supra; Reg'l Rail Reorganization Act Cases, 419 U.S. 201,144- 45 (1974)).
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