Virginia's Health Care Reform Lawsuit Goes Forward: What's Behind Judge's Ruling

U.S. District Court Judge Henry E. Hudson ruled Monday that Virginia's lawsuit against the health care reform law can proceed to a hearing on the merits. He has, in effect, agreed to rule on the constitutionality of health care reform.

To make that decision, Judge Hudson found that yes, Virginia has a right to sue ("standing") to invalidate the law; and yes, the issues are fully developed in the case (the are "ripe"), and are ready for a hearing on the merits and decision even though much of the law, including the key issue, the individual mandate, hasn't yet taken effect. As a result, the judge concluded he could hear the case if Virginia's complaint did indeed state a claim. And then he ruled yes, Virginia's claims that the law is unconstitutional are legitimate and deserving of a full hearing on their merits.

How Judge Hudson reached those conclusions is interesting, in part because the path he took is unavailable to the states in the multistate lawsuit against health care reform. Virginia gained standing and its claims ripeness because Virginia had passed a statute that conflicts with health care reform, and would fall before the federal law, unless the court finds the federal law unconstitutional. As a result, it doesn't matter that the provision of the law at the heart of the case won't take effect until 2014. In short, it's only because Virginia is defending its own statute against a federal law that it asserts is unconstitutional that the judge is able to look at the law's constitutionality. The multistate lawsuit does not involve an analogous situation: Those states will have to persuade a judge they have standing and their claims are ripe by some other path.

After Judge Hudson decided that he could consider Virginia's claims, he looked at both sides' arguments regarding the source of Congress's power to enact health care reform, particularly Congress's power to require people to buy health insurance or pay a penalty. From a legal standpoint, the judge defined the issue as:

The federal government claims that Congress gets the power from the Commerce Clause, the Necessary and Proper Clause, and the taxing power of the General Welfare Clause. Virginia disputes that any of these apply.

The Commerce Clause Argument

Congress has the right to regulate "interstate commerce." Over our country's history, the courts have had to figure out what precisely that is. The Supreme Court has found virtually every economic activity sufficiently "interstate," including one farmer's wheat-growing or one medial marijuana patient's cultivation of pot plants for personal consumption. Virginia contends that a decision not to purchase something is not engaging in economic activity and thus cannot be regulated under the Commerce Clause, even if, as the federal government contends, that decision has an impact on interstate commerce. The federal government disagrees that the uninsured are economically inactive, asserting that at some point everyone seeks medical attention and receiving health care services without paying for them -- as many uninsured people do -- is economic activity.

"Never before has the Commerce Clause and the associated Necessary and Proper Clause been extended so far" as the individual mandate would take it, wrote Judge Hudson in finding that Virginia had made "a plausible claim with an arguable legal basis" with regard to the Commerce Clause.

The Taxing Power Argument

Congress has the power to levy taxes for the general welfare, and that power, as the judge put it, is "less bridled" than the Commerce Clause. The federal government makes its tax argument by noting that the individual mandate's "penalty" is part of the tax code. Because the taxing power is so broad, the judge thought it harder for Virginia to survive dismissal on this ground, but nonetheless found it had managed.

Virginia rejects the idea that the individual mandate is a tax, saying instead it is a mere penalty. As a penalty, Congress's power is more limited, and if the Commerce Clause doesn't confer enough power, the penalty fails. So if the mandate is a penalty, the question returns to the Commerce Clause question.

As a tax, Virginia argues, the individual mandate would still fail because Congress can tax what it can't regulate (think the estate tax, for example) but it can't regulate via a tax those areas which it can't otherwise regulate. As the federal government countered, however, just because a tax has a regulatory effect that encourages, discourages, or even deters conduct, it is not invalid (think cigarette taxes.) Here the judge seemed to decide that the question again refers back to the Commerce Clause question.

As for the Necessary and Proper Clause, which allows Congress to pass necessary and proper laws, it helps the federal government only if the law supports one of Congress's powers. So if the taxing power argument reduces to the Commerce Clause question, then the Necessary and Proper Clause is no independent help to the federal government.

From here, the case will go forward, with a summary judgment hearing scheduled Oct. 18, after which Judge Hudson will issue a decision, which, regardless of whom it favors, is certain to be appealed.