Healthcare Business News

Appeals court sides with White House on reform

By Joe Carlson
Posted: September 8, 2011 - 5:30 pm ET

(Story updated at 5:40 p.m. ET.)

In two opinions released at the same time, the 4th U.S. Circuit Court of Appeals in Richmond, Va., on Thursday handed President Barack Obama significant victories in the ongoing legal battle over the year-old Patient Protection and Affordable Care Act.

The appeals judges ruled that neither Liberty University, a Christian school in Virginia, nor the state of Virginia had standing to challenge the law that enacted one of the president's signature domestic initiatives. The appeals court remanded both cases back to the trial courts with orders to dismiss for lack of subject matter jurisdiction.

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Both rulings turn on a legalistic point, finding that neither entity that sued to strike down the reform law was technically injured by it, and therefore lacked standing to bring a challenge.

“Virginia lacks the sovereign authority to nullify federal law,” the federal judges wrote in the state's case. Neither ruling addressed the more substantive issues of whether the individual insurance mandate or the law as a whole is constitutional.

In Virginia v. Sebelius, state Attorney General Kenneth Cuccinelli had argued that the state was injured because the reform law conflicted with a state law—the Virginia Health Care Freedom Act, enacted one day after the ACA—that banned any compulsory health insurance requirement on its citizens.

The appeals court rejected that legal tactic, calling the Virginia law a “smokescreen for Virginia's attempted vindication of its citizens' interest” and said an unenforceable state law would not change the fact that the federal individual mandate applies only to individuals, not states or businesses.

“The only apparent function of the VHCFA is to declare Virginia's opposition to a federal insurance mandate,” the opinion says. “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.”

Cuccinelli lamented not only the substance of the ruling, but its lack of comment on the larger questions presented in the case.

“Our disappointment not only stems from the fact that the court ruled against us, but also that the court did not even reach the merits on the key question of Virginia's lawsuit—whether Congress has a power never before recognized in American history: the power to force one citizen to purchase a good or service from another citizen,” Cuccinelli said in a written statement.

Sen. Tom Harkin (D-IA), chairman of the Senate Committee on Health, Education, Labor and Pensions, said rulings were "thoughtful" responses to baseless litigation. “I am pleased, though not particularly surprised" by the decisions, Harkin said in an emailed statement. "The court recognized the suit filed by Virginia's attorney general for what it was: meritless and motivated by politics, rather than the legal merits."

Tax aspect key

In the parallel ruling in the case of Liberty University v. Geithner, the court used a more abstruse legal reasoning to arrive at essentially the same result as in Virginia's lawsuit.

Liberty University had claimed in its lawsuit that Congress was illegally using taxes to enforce the individual mandate, because in 2014 an estimated 34 million Americans without health insurance will pay penalties through their federal income tax filings. While both the university and the Obama administration have since argued that this collective $4 billion penalty is not a “tax,” a majority of the court disagreed.

The question of whether the penalty was a tax is critical, the appeals majority ruled, because the 1973 Anti Injunction Act (AIA) forbids any court from considering a challenge to a tax before the levy has been paid. The judges ruled that the AIA has been interpreted to hold a wide definition of the word “tax” to include penalties because one of its purposes was to prevent courts from interfering with the collection of taxes.

Therefore, the university's litigation was barred because it amounted as an illegal pre-emptive challenge to a tax. The judges soundly rejected claims that Congress had not intended the individual mandate penalty as a tax under the AIA.

“It is simply irrelevant what the 2010 Congress would have thought about the AIA,” the judges wrote. “All that matters is whether the 2010 Congress imposed a tax. If it did, then the AIA bars pre-enforcement challenges to that tax.”

In ruling the penalty a tax, the court remanded the case back to the trial court with an order to toss out the complaint because the court lacks jurisdiction to hear the complaint under the AIA.

Supreme Court looms

The Virginia rulings become the third and fourth major appeals decisions on the ACA. Last month, 26 states won a critical victory in their fight against the law when the 11th U.S. Circuit Court of Appeals in Atlanta struck down as unconstitutional the law's requirement that individuals purchase private health insurance. The ruling out of Atlanta followed the 6th U.S. Circuit Court of Appeals in Cincinnati, which upheld its constitutionality.

Experts say the Atlanta and the Cincinnati decisions created the classic split in the circuit courts that the U.S. Supreme Court looks for in deciding which cases it will take up for oral arguments.

The Cincinnati ruling has already been appealed to the high court, which has not yet decided whether it will take up the case. If the Supreme Court took the case in its upcoming session, observers say it could elevate the national discussion about health reform in 2012, when the president faces re-election.

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