Wednesday’s Arguments: What the Justices Said

The U.S. Supreme Court yesterday entertained final oral arguments in the case that will determine the fate of the landmark federal health care reform law, considering two questions regarding how much of the statute will survive if the court strikes the individual mandate (NFIB v. Sebelius , U.S., No. 11-393, oral argument 3/28/12; Florida v. HHS , U.S., No. 11-400, oral argument 3/28/12).

In the morning session, the high court heard from attorneys on whether, if the individual mandate is declared unconstitutional, it should be decoupled from the remainder of the Patient Protection and Affordable Care Act, so that the remainder of the law can take effect as planned. In the afternoon, the justices heard arguments on the validity of another PPACA provision that requires the states to expand their Medicaid rolls.

In both sessions, the justices seemed to break down along political lines, with Justices Ruth Bader Ginsburg, Stephen G. Breyer, Sonia M. Sotomayor, and Elena Kagan appearing to favor arguments for severability and against finding the Medicaid provision unduly coercive, while Justices Antonin Scalia and Samuel A. Alito Jr. appeared to be set against severability and the Medicaid provision. Chief Justice John G. Roberts Jr. and Justice Anthony M. Kennedy were harder to read, but appeared to be siding with Scalia and Alito. Justice Clarence Thomas did not ask any questions.

Depends on Mandate

The resolution of both issues argued on the final day depends to an extent on the outcome of the main issue in the case: whether the individual mandate, which would require virtually all U.S. citizens to purchase health insurance or pay a penalty, is constitutional.

The parties challenging the mandate, 26 states and a group of private plaintiffs consisting of the National Federation of Independent Business and several individuals, March 27 argued that Congress exceeded its enumerated constitutional powers in adopting the mandate. The government, in opposition, said three constitutional clauses–the commerce clause, the necessary and proper clause, and the taxing and spending clause–all conferred authority on Congress to require citizens to buy health insurance (59 HCDR, 3/28/12).

Assuming the high court agrees with the challengers, it will have to reach the next issue–the severability question. The U.S. Court of Appeals for the Eleventh Circuit, from which the case came, held the mandate unconstitutional, but said it was the only provision that need be stricken from the larger law (157 HCDR, 8/15/11)(20 HLR 1243, 8/18/11).

The Eleventh Circuit also held valid PPACA’s Medicaid expansion provision, which requires states to expand Medicaid eligibility requirements or risk losing all federal Medicaid funds. If the Supreme Court holds the individual mandate valid, or says the individual mandate is valid but severable, then it also will have to decide the Medicaid issue.

Can PPACA Stand Without Mandate?

The states’ attorney, Paul D. Clement, of Bancroft PLLC in Washington, stated categorically that PPACA cannot stand without the individual mandate. The mandate is “essential” to the two purposes of the act–to provide for patient protection and access to affordable care.

Sotomayor immediately challenged Clement, saying that his position that the individual mandate was the “heart” of the law may or may not be true. Other states have implemented guaranteed issue and community rating provisions without a mandate, she said, referring to PPACA provisions that prohibit insurers from denying coverage to people with pre-existing conditions and require insurers to charge those people no more for their policies than is charged to other people within the community.

Sotomayor also asked, “Why not leave it to Congress to fix?”

Clement replied that Congress had the examples of those states and still concluded that the individual mandate was needed to make the guaranteed issue and community provisions work. It was Congress, not him, that declared the individual mandate “essential” to the law, Clement insisted.

In response to the justice’s second question, Clement asked one of his own: “What task do you want to give Congress?” In other words, he said, does the court want Congress to rewrite the entire statute or simply patch up what remains once the individual mandate is gone? The latter, he later said, could leave Congress floundering for years, as it has with other laws that have been stricken only in part.

Scalia interjected that Congress cannot necessarily be trusted to fix the law–there is such a thing as “legislative inertia,” he said.

Clement agreed, asking the court to consider the best solution in light of that reality.

Standard to Be Applied

Scalia quizzed Clement on the standard the court must apply when deciding severability questions. Is the question for the court, whether Congress would have enacted the law without the controversial provision or whether, in the absence of that provision, the law could work as Congress intended, he asked.

In PPACA in particular, Scalia said, many provisions paved the way for the legislation’s passage–whether through courting votes or through a sense that they were essential to the statutory goals. He raised the so-called Cornhusker kickback as an example, in which a deal was made with Sen. Ben Nelson (D) of Nebraska during consideration of the bill to win his vote for PPACA.

“It can’t be right to say” that if the court strikes the Cornhusker kickback, the entire statute is invalid, he said.

Putting the argument more simply, Kagan asked: “Would Congress prefer half a loaf to none?”

“There are situations where half a loaf is worse,” Clement replied.

Kagan asserted that the Supreme Court has never held that the test for severability is whether a statute would operate as Congress intended without the disputed provision. Later, Sotomayor said no statute could ever operate as Congress intended if it were missing a piece.

Kennedy, too, pressed Clement to identify the correct standard. Is a provision not severable if Congress would not have passed the law without it, or is it not severable if the law would not work as Congress intended absent the provision, he asked.

Clement insisted that the court has used both standards in the past. But “what test should we apply,” Kennedy asked. Clement responded that the court should use an objective, textually based approach under which it would have to find against severability.

Lots of Unrelated Provisions

Ginsburg pointed out to Clement that there are “so many things in this act that are perfectly OK” and unrelated to the individual mandate. Why make Congress redo all those provisions, she asked.

It is “a choice between a wrecking operation and a salvage job,” she said.

Clement said he believed there was a strong case for invalidating numerous PPACA provisions, but in any event, striking the mandate would leave the remainder of the statute “a hollow shell.”

Breyer also noted that PPACA contains numerous provisions unrelated to the individual mandate, such as provisions required employers to set aside rooms for breastfeeding mothers. “What do you suggest we do,” he asked Clement. Should the court spend a year reading the 2,700-page law and determining which provisions survive and which do not?

Roberts asked Clement for a fall-back argument. Clement insisted, however, that it might be better to give Congress “a clean slate” upon which to work.

Half a Loaf

Deputy Solicitor General Edwin S. Kneedler, arguing for the government, began by insisting that there is no need for the court to reach the severability question because the individual mandate is constitutional. In the event the court holds otherwise, however, he told the justices the act is partially severable. If the individual mandate falls, then the guaranteed issue and community rating provisions must fall with it, he said.

Ginsburg asked Kneedler if the court was the proper party to decide that–or whether it really was an issue for Congress to determine what provisions could work without the individual mandate. Congress should decide as to most provisions, Kneedler said.

But Scalia asked: “Isn’t it unrealistic to send it back to Congress?” Many PPACA provisions already are in effect, he noted. Congress would have to reconcile a PPACA without the individual mandate with those other provisions regardless of whether the court strikes the whole law, he said.

Kneedler asserted that the doctrine of judicial restraint should preclude the court from overreaching in this instance. Kennedy, however, argued that it might be a greater violation of the doctrine of judicial restraint for the court to strike only the individual mandate. After all, if only the individual mandate falls, then the rest of the provisions remain, putting pressure on insurers to provide services for which they may not receive compensation, he said.

That could be “a more extreme use of judicial power” than refusing to sever the mandate, Kennedy said.

Scalia later asked Kneedler whether he really expected the court to go through the law line-by-line to pick and choose constitutional provisions. That would be “totally unrealistic,” he said.

Kneedler said that would not be necessary, as there was a “sharp dividing line” in PPACA between the individual mandate, the guaranteed issue, and the community rating provisions–on the one hand–and the remainder of the statute on the other. Roberts pressed him to identify that line.

Economic Considerations

Alito asked Kneedler to address the economic implications of striking the individual mandate. What would happen to the insurance industry if it were required to abide by the remaining PPACA provisions, but was not being subsidized by the individual mandate, he asked.

Kneedler responded that the economics of the issue should not concern the court, but Kennedy also insisted it was a legitimate consideration. If the individual mandate falls, one can assume there will be no money to help insurers cover the costs for individuals with pre-existing conditions, yet they still will be obligated to offer policies to those individuals, he said. “Is it the court’s function to say Congress would have intended” such a result?

Again, Kennedy said, “isn’t that a greater example of judicial activism” than simply striking the entire law?

Later in the argument, Scalia returned to the position that upholding the statute without the mandate might “bankrupt” the insurance industry. Alito asked Kneedler to identify the difference between the “unrelated” provisions and those that will cost insurers millions of dollars over the years.

Kneedler suggested that the court look at the statute Congress enacted rather than “a financial balance sheet.”

Precedential Support?

Scalia asked Kneedler if he knew of any case in which the court struck the core of a statute while leaving the remainder intact. Kneedler referred to United States v. Booker, 543 U.S. 220 (2006), in which the court struck down a provision of the U.S. sentencing statute. Scalia replied that he did not believe the section stricken in that case was the “heart” of the sentencing statute.

Breyer asserted at this point that it has not been uncommon for the court to refuse to strike all the provisions of a large statute.

Complete Severability

Because none of the parties argued in favor of complete severability, the Supreme Court in November appointed H. Bartow Farr III, of Farr & Taranto in Washington, to argue that point. Farr began by asserting that the government’s position was an example of “throwing out the good with the bad.” Even if the individual mandate falls, he said, the guaranteed issue and community rating provisions still will advance Congress’s goals in enacting PPACA.

Ginsburg said the point had been made that the cost of insurance coverage likely will not be affordable without the mandate and, therefore, one of the act’s major goals will not be met. Farr responded that one must look at whom the price would affect. The price of obtaining insurance through a health insurance exchange, for example, should remain lower than obtaining insurance individually.

Kagan asked whether health insurance exchanges still would work to lower overall premium costs if younger, healthier people felt no need to participate. Farr said they would. The principle of “adverse selection” put forth in the government’s brief is a “misconception,” he said. And, in any case, other PPACA sections, including those providing for more federal support of programs, lessen the impact of adverse selection.

‘Essential’ Means ‘Useful’

Farr also took issue with the idea that the individual mandate is “essential” to PPACA’s operation. In the context of the commerce clause, he said, “essential” means “useful.” Congress really found that the act would work better with the individual mandate; it did not find that the act would not work at all without it, he said.

Scalia called that a “very imaginative” argument and asked to see a dictionary.

Farr said that was the whole point–when determining whether a law could be justified under the commerce clause, Congress does not use the common meaning of essential, but instead looks at what provisions will be useful to carrying out its intent.

Sotomayor said Farr was ignoring Congress’s findings. The argument that the individual mandate was not “essential” was post hoc, she said. Farr pointed out, though, that the Congressional Budget Office reported, prior to passage of PPACA, that there would be no “death spiral” without the individual mandate.

Kennedy asked Farr whether he was saying that the mandate served an “insignificant role.” He replied, “it doesn’t sound right when you say it that way.”

Real Question

The real question in deciding severability, however, is whether Congress would want to go back to a pre-PPACA scheme, Farr said. “Please bring in Congress,” he urged the justices.

Scalia appeared to see no merit in that. Once the heart of the statute is taken out, the statute is gone, he insisted. Taking the statute back to Congress would put lawmakers in the position of having to decide where the money to fund other provisions would come from, he said. That is “a gross distortion of the democratic process,” he said.

Later, Breyer said, “I would say, stay out of politics–that’s for Congress, not us.”

Medicaid Expansion Provision

In the afternoon, the court turned its attention to the validity of PPACA’s Medicaid expansion provision. According to the states, this provision is unconstitutional because it coerces the states to expand their Medicaid rolls or risk losing all their federal Medicaid funds.

No court, including that most sympathetic to the challengers’ stance, the U.S. District Court for the Northern District of Florida (20 HLR 169, 2/3/11), has upheld the state’s position. From the tone of the justices’ questioning, that may be about to change.

The first attorney up, however, was Clement, and he immediately was hit with a barrage of questions from Kagan.

Under the Medicaid expansion provision, she said, the federal government will give the states 90 percent of the funds needed to cover newly eligible individuals. What if the government offered 100 percent of the funds, she said. Would the states still object?

“Yes,” Clement replied.

The federal government is offering to give states “a boatload of money,” she noted. “That doesn’t seem coercive to me.”

There are still federal conditions on how states use that money, Clement said.

Sotomayor asked, “at what percentage would a condition become coercive?” If the federal government gave the states 100 percent of their Medicaid funding, would that be coercive? The state can turn down the money, she said.

Clement insisted there must be some limit.

But Sotomayor persisted. “What’s coercive,” she asked. Is it that “the states don’t want to go to their voters and say we don’t want federal money,” so the citizens have to pay for medical care for the poor?

Administrative Law Limits Power

Ginsburg asked Clement if it is true that the federal government has conditioned the states’ receipt of Medicaid money on their acceptance of every new condition imposed by Congress. Breyer noted that a 1965 statute–the same one referenced in the Medicaid expansion provision–gives the secretary of health and human services the “discretion” to cut off federal funds if states refuse to comply with conditions imposed by the federal government. Thus, he said, states are not face with losing their Medicaid funds for noncompliance–only the possibility of losing their funds. It is up to the secretary, and under the Administrative Procedure Act (APA), her decision must be “reasonable,” and “not an abuse of discretion.”

Breyer asked Clement if he knew of any case in which the secretary had, in fact, followed through with the threat and cut off a state’s Medicaid funds and, further, whether that action had been found to be a “reasonable” exercise of her discretion.

Scalia inserted that, if the statute says the money can be taken away from the states, that is enough. It does not matter whether the secretary actually will take the funds away.

But courts have always looked at the reasonableness of an administrator’s actions, Breyer insisted. The secretary cannot, under court precedents, act arbitrarily or unreasonably.

Do Away With Medicaid?

Could the government, Sotomayor asked, do away with Medicaid altogether?

Clement hedged, but admitted he was not saying the states had a vested right to receive Medicaid funds.

Then “I don’t understand why” states do not have a choice here with regard to complying with new conditions or not receiving funds, Sotomayor said.

Clement said the question of whether Congress can do away with Medicaid all together is “fundamentally different” than the question of whether it can condition receipt of all Medicaid funds on compliance with the new PPACA requirements.

Ginsburg noted that there are states that like the new provision–should the court strike it and destroy the opportunity for those states to receive additional funds, she asked. Clement said that was not the point. If Congress had made participation in the new conditions voluntary–comply with the new conditions and get the new money–that would have been fine. But Congress did not do that, he said.

Ginsburg insisted that she has never seen a federal government program struck down because it is “too good.”

This case crosses the line, Clement said.

How is this Medicaid expansion provision different from all the other expansions of Medicaid Congress has enacted in the past 40-some years, Breyer asked. In implementing those expansions, the secretary had discretion to deny federal funds to any state that refused to comply, just as she does here, he said.

Clement said the “sheer size” of the PPACA expansion explains the difference.

“At what point is a program too big?” Kagan asked. Breyer noted that, in terms of percentages of gross adjusted product and taking inflation into account, the current expansion does not look that much bigger.

‘Your Money or Your Life’

Scalia brought the argument back to the meaningfulness of the choice offered to the states. Is it like, “your money or your life,” which is no real choice, he said.

At what point is the choice compromised, Roberts added.

Clement said the new money is hard to refuse, but, in addition, states are being told they will have to give up existing funds if they do not comply with the PPACA provision.

Has the states’ willingness to take the federal funds in the past compromised their ability to make a choice here, Roberts asked. It has put the states in a position where they cannot reasonably refuse the money, Clement said.

Kennedy raised a scenario in which the federal government took back all responsibility for Medicaid. If the federal government could just directly provide for health care for the poor, how is the interest of federalism concerned, he asked.

Clement said it was a matter of accountability. If the federal government took over Medicaid, then people could go to the federal government when it had a problem. With a dual state-federal cooperative system, the party accountable is not so clear, he said.

Kagan found the argument confusing. Medicaid was intended to be an example of cooperative federalism, she said. Cooperative federalism is fine, Clement said. But here, the federal government is forcing the states to participate.

Exercise of Spending Power

Appearing for the federal government, Verrilli told the court the Medicaid expansion provision is a perfectly constitutional exercise of Congress’s power under the taxing and spending clause.

But, Scalia said, the court said, in South Dakota v. Dole, 483 U.S. 203 (1987), that the federal government used federal funds to coerce state action. Verrilli responded that that was dicta in Dole and, in any case, the court said there was a possibility of coercion, not a fact of coercion, flowing from federal funding.

Is it all right for the federal government to tell a state to “take it or leave it,” but if you leave it, you lose all federal funds, Roberts asked.

Verrilli said that is not the case here.

Alito proposed a hypothetical in which the federal government took over education. Citizens would have to pay a federal education tax, and the federal government would distribute the funds to the states according to the percentage they spent on education the previous year, conditioned on the imposition of federal education guidelines. If a state turned down the funds, Alito said, its citizens would have to fund education within the state as well as pay the federal education tax. Would that be coercive, he asked.

Verrilli said it would not, because the states would have a choice of whether to accept the federal funds.

Then what is left, Alito asked. “Political constraints,” Verrilli replied. Congress would not take over education as a practical matter, he said.

As to Medicaid, however, it is not the norm that Congress has said the states can stay where they are at–Congress had changed Medicaid numerous times over the years, and every major expansion has imposed conditions on the states.

Back to Secretary’s Discretion

Is there any assurance the secretary will not exercise her discretion and deny funds to noncooperating states, Roberts asked. Before Verrilli could reply, Kagan asked whether the secretary ever has done that. “No,” Verrilli said.

There is no evidence anyone has been shot when confronted with “your money or your life,” Roberts noted. That does not mean the person making the threat never will shoot, he said.

But Verrilli insisted that the states and the federal government always have worked out these types of disputes. Neither wants to be in the position of denying medical care to the poorest of the poor, he said.

Still, Alito insisted, is it realistic to say the secretary never will deny Medicaid funds to a state based on its refusal to comply with conditions?

Say No to Funds?

In concluding the argument, Scalia asked whether Congress considered, in passing the Medicaid provision, that a state ever would leave the Medicaid program. If not, then the conditions imposed here are coercive, he said.

Congress merely predicted that the states would not leave, Verrilli replied. A “prediction is not coercive,” he said.

But if there is no Medicaid, and the individual mandate survives, how would the poorest of the poor pay for health insurance, Alito asked. Congress had to assume the states would accept the Medicaid expansion provision, he said.

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