ACA Rulings Mum on Mandate, but Not Other Federal Powers

September 09, 2011

September 9, 2011 — The US appeals court in Richmond, Virginia, that voided 2 conflicting lower-court decisions yesterday on the healthcare reform law was silent on the power of Congress to require individuals to obtain insurance coverage or else pay a penalty.

However, the 2 appellate decisions did address other prerogatives of government, especially the federal government. The appeals court reaffirmed that a state cannot pass a law to nullify a federal law, and that federal taxes cannot be challenged in court before they are collected. Otherwise, chaos could ensue, the court warned.

The US Court of Appeals for the Fourth District in Richmond vacated a ruling by US District Court Judge Henry Hudson, also in Richmond, that struck down the individual mandate of the Affordable Care Act (ACA) as unconstitutional because it "would invite unbridled exercise of federal police powers." The 3-judge appellate panel said the plaintiff in the case — the state of Virginia — had no legal standing to contest the law.

In its challenge of the individual mandate, Virginia claimed it had been injured, which is a prerequisite for legal standing to sue, because the ACA conflicted with a state law declaring that said no resident shall be required to obtain health insurance. The state passed the law the same day President Barack Obama signed the ACA in 2010.

Hudson concurred with the state's argument about "sovereign injury," but the appeals court disagreed. Its opinion contended that the Virginia law "regulates nothing and provides for the administration of no state program" but only purports to immunize Virginians from federal law, which it cannot do.

"The Constitution itself withholds from Virginia the power to enforce [its law] against the federal government," the opinion declared. It described the law as a nonbinding declaration that "does not create any genuine conflict with the individual mandate" that would cast the state as a truly injured party with a standing to sue.

The court warned that if states were allowed to sue the federal government based on laws passed in opposition to federal law, they could challenge the Social Security program or how the Central Intelligence Agency reports its finances.

"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," the court stated.

Allowing Challenge to ACA Penalty Could Threaten Nation's Tax System

In yesterday's other appellate decision, 2 of the 3 judges also cited technical grounds in striking down a decision by US District Court Judge Norman Moon in Lynchburg, Virginia, that upheld the individual mandate as constitutional. Their ruling opined on the federal government's power to tax.

Liberty University and several individual plaintiffs in the case claimed that the ACA penalty levied on individuals without insurance coverage amounted to an improper tax. They leveled the same charge against an ACA penalty on large employers whose otherwise uninsured employees buy coverage on their own with government help.

The Obama administration asked Moon to throw out the case because a tax law called the Anti-Injunction Act (AIA) bars lawsuits seeking to restrain the assessment or collection of a tax beforehand (taxes can be contested after they are paid). Moon rejected that argument and stated that the AIA does not apply to the ACA penalties.

Two of the 3 appellate judges took the opposite position and said that the ACA penalties did constitute taxes for AIA purposes, citing Supreme Court precedents. "No tax may be challenged in any pre-enforcement action," the majority opinion stated.

The opinion warned that exempting ACA penalties from the AIA could open the floodgate to preenforcement court challenges to income taxes that could "in the long run, wreak havoc on the [government's] ability to collect revenue."

Curiously, the Obama administration did an about-face at the appellate level and agreed with the plaintiffs that the AIA would not bar the lawsuit against the ACA. The majority opinion held that the government's "newly-minted position" contradicted its earlier interpretation of the AIA.

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