Federal Judge Strikes Down Individual Mandate Portion of Health Care Reform Package

A federal court judge in Virginia has ruled that Congress has overstepped its powers to regulate interstate commerce by requiring people to purchase health care insurance whether they want to or not - and impose penalties on those who refuse to buy insurance.

U.S. District Judge Henry Hudson in Richmond, Virginia, said today that the requirement in President Barack Obama’s health-care legislation goes beyond Congress’s powers to regulate interstate commerce. While severing the coverage mandate, Hudson didn’t address other provisions such as expanding Medicaid that are unrelated to it. He didn't order the government to stop work on putting the remainder of the law into effect.

Hudson found the minimum essential coverage provision of the act “exceeds the constitutional boundaries of congressional power.” Hudson was appointed by President George W. Bush in 2002.

The decision left intact other provisions of the law and only affects the part that requires most U.S. citizens to maintain minimum health coverage beginning in 2014.

The decision in Commonwealth of Virginia v. Sebelius can be found here.

The individual mandate is the penalty portion of the package to expand the pool of people paying into the insurance plan. As written, the mandate requires almost everyone to get insurance or face a fine - $95 in 2014, $325 in 2015 and $695 in 2016 (with a maximum of $2,250 for a family). There is an exemption for low-income people.

This portion could be struck down, the the remaining portions of the bill are unaffected - such as the expanded requirements that the insurers cover to age 26, preexisting conditions, etc. However, federal officials say that the revenue loss on this portion will affect the preexisting conditions clause.

The individual mandate takes effect 2014. The preexisting condition requirement went into effect for children under 19 who are to be on their parents insurance. Adults will have the preexisting condition requirement starting in 2014. You would expect to see a fiscal effect based on the changes already enacted from which one can objectively judge the financial scoring on the health care package.

Also expect this to be appealed to the US Supreme Court (it should go without saying). Other circuits will likely take a different tact, but in the end I think it will be upheld on Commerce Clause grounds because Congress does have the power to affect interstate commerce (Art 1, Sec 8) and Congress has previously imposed requirements on insurers nationally. It's an incremental change that is within Congressional power under the Constitution.

That doesn't mean that I agree with the personal mandate provisions, which essentially tax millions of people who have made the decision not to pay for insurance. Congress could disguise it under different terms, but the penalty provisions and enforcement are through the tax code. It represents a significant tax hike if these people opt not to buy insurance. It's a real hike in costs to these individuals in the wishful thinking of bending the cost curve for services by expanding the pool of health care consumers to include those in good health who do not normally seek health care.

Striking this portion down could potentially open up insurers to even higher costs since the unaffected portion of the health care act requires insurers to pick up patients with preexisting conditions.

One thing to keep in mind is that the federal government is counting on substantial noncompliance in order to balance the books on this - it takes billions in penalties imposed under the individual mandate in order to fund other aspects of the health care reform act, and that's shaky ground because you're hoping that millions of people choose to not pay for insurance and then take the tax penalty hit. CBO scoring (full scoring here - See Table 2 (penalties)) assumes that a percentage of the public is noncompliant and balances the HCR on that basis. It figures that $4 billion will be collected in each of 2017 through 2019 and is included in the full figure for penalties collected for the period studied by the CBO. It further assumes that 4 million will choose to pay the penalty rather than pay for the individual mandate.

This decision once again highlights the limits of relying on the CBO and its scoring. The CBO scoring is good at what it does - based on existing law at the time the study is undertaken with no additional changes during the time studied. It doesn't take into account legislative changes enacted thereafter or judicial rulings that can affect outcomes.

UPDATE:
Others weighing in on the ruling include the following: The Huffington Post, The Volokh Conspiracy, ThinkProgress, No More Mister Nice Blog, Crooks and Liars, Outside the Beltway, SCOTUSblog, Examiner, Althouse, Law Blog, Above the Law, Balloon Juice, Firedoglake, Little Green Footballs, and The Moderate Voice.