As widely report in the media today, Judge Henry Hudson of the District Court for the Eastern District of Virginia issued his opinion in Commonwealth of Virginia ex rel. Kenneth T. Cuccinelli, II v. Kathleen Sebelius, Secretary of the Department of Health and Human Services and ruled that the "Minimum Essential Coverage Provision" (ie. Section 1501) of the Patient Protection and Affordable Care Act exceeds the constitutional boundaries of congressional power. In this case, the Commonwealth of Virginia, challenged the constitutionality of Section 1501 which requires that all U.S. citizens, with certain exceptions, maintain a minimum level of health insurance coverage for each month beginning in 2014. The failure to comply with Section 1501, results in a penalty reflected in the person's annual federal tax return.
Virginia sought declaratory and injunctive relief finding that the enactment of Section 1501 exceeded the power of Congress under the Commerce Clause and General Welfare Clause of the U.S. Constitution. In the alternative, Virginia argued that Section 1501 is in direct conflict with a certain Virginia statute, thereby implicating the 10th Amendment. The case came before the Court on motions for summary judgment.
The Court stated that Virginia's challenge includes the following three facets:
- That Section 1501 and the affiliated penalty for failure to purchase the insurance, are "beyond the outer limits of the Commerce Clause and associated Necessary and Proper Clause"
- That Section 1501 is not a "legitimate exercise of the congressional power of taxation under the General Welfare Clause" and mischaracterizes the penalty as a "tax"
- That Section 1501 is in direct conflict with the Virginia Health Care Freedom Act and thereby "encroaches on the sovereignty of the Commonwealth, and offends the Tenth Amendment to the U.S. Constitution."
The Court stated that the Secretary's assertion that the standard for facial challenges establishes a high hurdle and requires Virginia to demonstrate that the provision "cannot operate constitutional under any circumstance" is weak. The Court made the distinction that this lawsuit focuses not on the impact or effect of the enactment, but rather the authority of Congress to enact the legislation ie. the power to act ab initio.
The Court noted that Section 1501 "appears to forge new ground and extends the Commerce Clause powers beyond its current high water mark." The Court stated that the "accepted contours of Article I Commerce Clause power were restated by the Supreme Court" in its 1971 decision in Perez v. United States which "divided traditional Commerce Clause powers into three distinct strands" - ie. 1. that Congress can regulate the channels of interstate commerce, 2. that Congress can regulate and protect the instrumentalities of interstate commerce and persons and things in interstate commerce, and 3. that Congress has the power to regulate activities that substantially affect interstate commerce. The Court stated that this case appeared to only present the third category of Commerce Clause power - the power to regulate activities that substantially affect interstate commerce.
The Court concluded that "Congress lacked the power under the Commerce Clause, or associate Necessary and Proper Clause, to compel an individual to involuntarily engage in a private commercial transaction as contemplated by" Section 1501. The Court also held that the "absence of a constitutionally viable exercise of this enumerated power is fatal to the accompanying sanction for noncompliance," ie. the penalty for noncompliance. The Court noted that its review of the "pertinent constitutional case law has yield no reported decisions from any federal appellate courts extending the Commerce Clause or General Welfare Clause to encompass regulation of a person's decision not to purchase a product, notwithstanding its effect on interstate commerce or role in a global regulatory scheme."
The Court also rejected the argument that Section 1501 was a bona fide revenue raising measure enacted under the taxing power of Congress under the General Welfare Clause. The Court concluded that in enacting this provision, Congress did not intend to exercise it power of taxation under the General Welfare Clause and stated that the assertion of the objective to generate revenue was only a "transparent afterthought" and that the resulting revenue is "extraneous to any tax need." Instead, the Court found that the "legislative purpose underlying this provision was purely regulation of what Congress misperceived to be economic activity."
The Court cited the Supreme Court's decision in La Franca and further held that the "[t]he two words [tax vs. penalty] are not interchangeable.." and a that a penalty cannot be "converted into a tax by the simple expedient of calling it such." The Court noted that the provision specifically "referred to the exaction as a penalty" and that previous versions of the bill in Congress used the "toxic term 'tax'". The Court also found it significant that other sections specifically used the word "tax" instead of "penalty." The Court was also not persuaded by the argument that the provision's placement in the Internal Revenue Code as a "miscellaneous excise tax" held the level of significance argued by the Secretary.
The Court concludes that as Section 1501 "is in form and substance, a penalty as opposed to a tax, it must be linked to an enumerated power other than the General Welfare Clause. The Court found it clear "from the text of Section 1501 that the underlying regulatory scheme was conceived as an exercise of Commerce Clause powers" and that for the provision to survive constitutional challenge, it must serve to effectuate a valid exercise of an enumerated power - here the Commerce Clause."
The Court found that the invalid Section 1501 was severable from the balance of the enactment and rejected Virginia's argument to invalidate the entire enactment. The Court held to the "time-honored rule to severe with circumspection, servering 'problematic portions while leaving the remainder intact.'"
The Court also rejected Virginia request for injunctive relief and found that declaratory relief was adequate.
