Eleventh Circuit Court of Appeals Strikes Down PPACA’s Individual Mandate

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The U.S. Court of Appeals for the Eleventh Circuit has ruled 2 to 1 that the individual mandate provision in the Patient Protection and Affordable Care Act (PPACA) violates the Commerce Clause in the Constitution, but the court upheld the remaining provisions of the PPACA. The PPACA's individual mandate provision generally requires Americans to purchase minimum essential health insurance coverage or pay an annual penalty beginning in 2014. Initially, the trial court had struck down the entire law, but the appellate court found that, while the individual mandate provision exceeds Congress's commerce power, the provision is severable from the rest of the PPACA, and the entire law is not invalid simply because the mandate was struck down.

Affected Plans/Groups: This decision affects employer group health plans and legal residents of the United States.

Timing: The individual mandate is effective January 1, 2014. The U.S. Supreme Court is likely to decide the validity of the individual mandate issue before then.

Key Implications: This is the second appellate court decision regarding the PPACA and the individual mandate. In July, the Sixth Circuit ruled that the mandate was constitutional (i.e., valid under the Commerce Clause). The Sixth Circuit decision has been appealed to the Supreme Court, and another case in the Fourth Circuit is still pending. This most recent appellate court ruling creates a split in the circuit courts. With more litigation and possibly more division among the appellate courts, a Supreme Court review, providing a final judicial finding on the validity of the individual mandate, seems likely.

General Discussion and Observations: The Eleventh Circuit Court of Appeals found that the PPACA's individual mandate, which requires all individuals to purchase health insurance by 2014, is unconstitutional. It also upheld the constitutionality of the remaining provisions of the PPACA. The plaintiffs (led by the state of Florida and including 26 other states, two individuals and the National Federation of Independent Business) argued that the individual mandate and the provisions expanding Medicaid in the PPACA were unconstitutional. Plaintiffs further argued that the mandate was such an integral part of the PPACA that the entire law unconstitutional. Granting a summary judgment, the trial court ruled in favor of the plaintiffs on all three issues, but a three-judge panel of the Eleventh Circuit Court of Appeals, decided 2 to 1 that only the individual mandate is unconstitutional. The appellate court declared the individual mandate severable from the remainder of the PPACA. The appellate court said the lower court had placed too much weight on the fact that the PPACA lacks a severability clause. Instead, the appellate court found that the test was whether Congress would have enacted the statute in the absence of the individual mandate provision and determined that the PPACA would have passed without the individual mandate.

The Commerce Clause

Under the Commerce Clause of the Constitution, Congress has the authority to "regulate commerce among the states." The government argued that, under the Commerce Clause, Congress has the power to require most people to buy health insurance or face penalties. The appellate court disagreed, ruling that a failure to buy health insurance was not an act of interstate commerce, and therefore, individuals could not be mandated to buy such insurance.

In striking down the individual mandate provision, the appellate court found that it was an unprecedented expansion of Congressional Commerce Clause power and was overly broad because it required even healthy individuals, who are not using health care, to maintain private insurance and to do so for their entire lives. The court said that "what Congress cannot do under the Commerce Clause is mandate that individuals enter into contracts with private insurance companies for the purchase of an expensive product from the time they are born until the time they die." The court also stated that "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."

Tax Versus Penalty

The PPACA also amended the Internal Revenue Code to impose a sanction on individuals who do not comply with the individual mandate. The government argued that the individual mandate, in addition to being a valid exercise of Congress's power to regulate interstate commerce, was also a valid exercise of its power of taxation because it regulates, discourages or deters certain activities. However, the court found that the plain statutory language of the law, along with the legislative history, overwhelmingly established the individual mandate as a penalty and, therefore, not a valid exercise of Congress's power to tax.

What Next?

There are several other cases awaiting rulings on the validity of the PPACA's individual mandate. This Eleventh Circuit decision (striking down the individual mandate provision) conflicts with the Sixth Circuit decision (upholding the individual mandate provision). It appears likely that the Supreme Court will review the validity of the individual mandate before it becomes effective in 2014.