Health Care Law Challenges Move Toward Supreme Court: Michigan Suit Denied as Florida Suit Moves Forward

Just a week after a Michigan judge prevented a suit challenging the Patient Protection and Affordable Care Act from moving forward, a Florida judge allowed a similar challenge to be judged on its merits. Both cases, Thomas More Law Center v. Obama and Florida v. U.S. Department of Health and Human Services, challenge the new health care law. Specifically, the suits alleged that the individual mandate provision of the health care law, which is scheduled to go into effect in 2014 and would require every individual (except for a number exempted) in the U.S. to purchase health care, violates the constitution. In Michigan, a judge held that it does not. In Florida, a judge held that, due to its unprecedented nature, it could violate the constitution and denied the motion to dismiss, which will allow the case to move forward based on its merits.

Many commentators believe these lawsuits and others, like Virginia v. Sebelius in Virginia and Kinder v. Geithner in Missouri, will ultimately end up in the U.S. Supreme Court.

Florida v. Department of Health and Human Services

The Florida suit alleged that the statute violates the U.S. Constitution by mandating that every American purchase health care or else pay a penalty. The six-count complaint charged that the statute exceeded congressional authority under the commerce clause, violated due process and otherwise interfered with states’ sovereignty rights.

The 65-page opinion begins by determining whether, for analytical purposes, the prescribed payment for non-compliance with the individual mandate was a penalty or a tax. The court considered it a penalty, therefore holding that the statute cannot be considered constitutional based only on the federal government’s taxation powers.

The court also considered whether the plaintiffs had standing to pursue the litigation, which, in short, requires that a plaintiff has suffered a concrete harm  by the defendant which is capable of being redressed by the court. The court held that it did because while the individual mandate provision will not take effect until 2014, the injury is impending and will occur in due time.

Addressing the merits of the case, the court dismissed plaintiffs’ claim that the law interfered with the individual states’ (19 others joined Florida in the suit) sovereignty rights as employers. The court also dismissed plaintiffs argument that the individual mandate violates due process rights, holding that the freedom to decide whether or not to buy health care is not a “fundamental right.”

The plaintiffs argued that the federal government exceeded its power over the states by “coercing” them to expand Medicare. The court ruled that the argument was “shaky,” but nevertheless allowed it to move forward because little law in the Fourth Circuit (which includes Florida) addresses the coercion theory: that is the theory that the federal government may induce states to participate in federal programs through financial incentives, but it cannot put the states in a position where rejecting a federal program would be so burdensome as to tip the scale from mere inducement to actual coercion. The theory came from the Supreme Court’s decision in South Dakota v. Dole.

Finally, the court addressed plaintiffs’ claim that the statute improperly expands the commerce clause of the U.S. Constitution. The court reasoned that the individual mandate is unprecedented in history (apparently not having read Bradley Latino’s article, “The Original Individual Mandate, Circa 1792“), which alone does not make it unconstitutional. However, the court held that the unprecedented nature and novelty of the commerce clause justification makes the question as to whether the statute is an unconstitutional expansion of the commerce clause, at the very least, enough to state a claim for relief. Hence, the court ruled, the litigation may move forward. Which is to say that the plaintiffs claim survived in part the motion to dismiss for failure to state a claim. A first, but important hurdle, though governed by a deferential standard in favor of the plaintiffs. Barring the unforeseen, the next hurdle will be the motion for summary judgment.

“In American legal practice summary judgment can be awarded by the court prior to trial, effectively holding that no trial will be necessary. Issuance of summary judgment can be based only upon the court’s finding that: 1) there are no issues of “material” fact requiring a trial for their resolution, and 2) in applying the law to the undisputed facts, one party is clearly entitled to judgment.”

Thomas More Law Center v. Obama

On Oct. 7, just a week before the Florida ruling, a Michigan judge, deciding on the merits of the case, found for the defendants in a suit challenging the individual mandate to buy health insurance in the Patient Protection and Affordable Care Act. The opinion, written by Judge Steeh, found that the Plaintiffs, the Thomas More Law Center and other individually named plaintiffs, had standing even though they have not been penalized under the law for not buying health care. This provision does not take effect until 2014.

The judge ruled that the plaintiffs had standing because, even though the challenged provision of the bill does not go into effect for four more years, they suffered an immediate harm because they could be taking an action, or arranging their affairs,  such as saving money in anticipation of the mandate.

In Virginia v. Sebelius, the court also found standing for the plaintiff in a challenge to the statute. There, however, the court ruled that the plaintiff, the Commonwealth of Virginia, had standing because the commonwealth made its own statute prohibiting any individual mandates to purchase health insurance. The claim survived a motion to dismiss and will move forward.

Here, however, the motion was dismissed on other grounds. Judge Steeh rejected plaintiffs’ argument that refraining from purchasing insurance was economic “inactivity” and therefore could not be subject to federal control under the commerce clause of the U.S. Constitution. Instead, the judge reasoned that plaintiffs were making an “economic decision” to pay for healthcare services later, out of pocket, rather than sooner, by purchasing a health insurance plan.

Finally, the judge reasoned that the individual mandate is essential to a broader regulatory scheme. Citing Gonzalez v. Raich, where the Supreme Court sustained Congress’s authority to prohibit the possession of homegrown marijuana for personal use because of its impact upon the aggregate, the court noted that the individual mandate on healthcare was essential to a broader regulatory scheme. Like in Raich, the statute would not work without a mandate to purchase health insurance, the court noted, because, “the most costly individuals would be in the insurance system and the least costly would be outside it.” The court concluded that the individual mandate is a reasonable or rational means of carrying out Congress’s goal.

The Florida court’s ruling on standing makes it the third court to allow a suit challenging the individual mandate to overcome the standing argument, a procedural hurdle some commentators did not believe those opposed to the individual mandate could overcome. Having said that, the Michigan court’s decision is the first of the suits to be decided on the merits– and the Individual Mandate prevailed.

McDonald’s Balks, Gets Waiver to Continue Serving Up McSurance to Employees

Photo by M.Minderhoud

On Oct. 5, the Department of Health and Human Services granted waivers exempting employers from complying with certain provisions of the health care law, according to Bloomberg.  News of the waivers came just days after the Wall Street Journal reported that McDonald’s had warned federal regulators that it would drop health insurance for nearly 30,000 hourly restaurant workers unless regulators waived the requirement that companies provide a minimum of $750,000 of coverage next year, increasing incrementally to unlimited coverage in 2014.

The health care bill also requires that 80 to 85 percent of health care premiums must be spent on benefits, as opposed to administrative costs. According to the WSJ article:

“McDonald’s and trade groups say the percentage, called a medical loss ratio, is unrealistic for mini-med plans because of high administrative costs owing to frequent worker turnover, combined with relatively low spending on claims.”

Mini-med plans, such as the plans McDonald’s offers to its hourly restaurant workers, typically have low premiums and low caps on benefits. The basic plan at McDonald’s costs about $700 per year and caps out at $2,000. The better plan costs roughly $1250 and caps out at $5000, and the best plan caps $1700 per year and caps out at $10,000. Yes, that’s a yearly max benefit to premium ratio of less than 3 to 1 for the basic plan, 4 to 1 for the better, and roughly 6 to 1 for the best. You don’t have to be an actuary to conclude that those ratios bode well for health insurance as a profitable concern– for the insurer. And it is not hard to imagine why an 80 to 85% medical loss ratio requirement would seem onerous to a company which provides an insurance policy which by definition maxes out at 33%.

The Wall Street Journal quoted Jerry Newman, a professor at State University of New York at Buffalo who penned “My Secret Life on the McJob” after working undercover at a McDonald’s, who said the mini-plan could be a life saver. “The packages maybe could be better, but for a start, they’re quite good,” he told WSJ.

Are they? Kate Pickert, who writes for Time Magazine, criticized the so-called mini-med plans:

“The Wall Street Journal described the McDonald’s coverage episode as an “unintended consequence,” but killing off plans like those offered by the fast food chain couldn’t have been more intentional. Policy experts have long known that “mini-med plans,” also known as “limited medical benefit plans,” rarely end up being a good deal for those who buy them. If you have a real medical need — like a broken bone or surgery — this insurance doesn’t come close to covering it. If you only use the coverage for a few doctor appointments, you would have been better off paying cash. Consumer advocates — including some attorneys general and state insurance commissioners — have sought to curb these plans for years.”

Judging by how quickly McDonald’s request for a waiver was granted, it seems like politicking is at play. From the Bloomberg story:

“The big political issue here is the president promised no one would lose the coverage they’ve got,” Robert Laszewski, chief executive officer of consulting company Health Policy and Strategy Associates, said by telephone. “Here we are a month before the election, and these companies represent 1 million people who would lose the coverage they’ve got.”

However, there’s one more piece of the puzzle. What about those who cannot afford a decent plan? Where do they turn? I have a feeling we have not heard the last of the public option debate. The McDonald’s episode could be the start of many unintended consequences of the health plan.

If the administration is so quick to buckle to private insurers demands, then what hope does the health care law have of actually making a difference in how American’s get their health care? Perhaps the real problem is in the gap between now and 2014 when the law fully takes effect. Still, questions remain as to whether the health care law was strong enough to begin with. Remember, a poll by the Associated Press reminds us that American’s who believe the health care bill did not go far enough outnumber those who believe the health care law went too far two-to-one. President Obama ran his campaign on a public option and has since stated that the public option was never integral to his plan for health care reform.  The gaps that will lie between what the health care law requires and what employers are currently willing to offer under the new law will seemingly need to be somehow filled.

Reconciliation Without Conference: The Health Reform Bill Moves Closer to a Vote

US Senate Gavel

[Ed. Note: Health Reform Watch is very pleased to welcome Corey Klein to the blog. Corey is both a journalist and a law student here at Seton Hall Law. As a reporter, Corey garnered numerous awards from both the New Jersey Society of Professional Journalists and the New Jersey Press Association. We look forward, as we're sure will you, to his contributions to HRW.]

Congressional Democrats have been attempting to iron out a final health care reform bill behind closed doors this week in order to avoid delay tactics by Republicans, according to media reports.

The House and Senate passed two versions of the bill. Typically, an official public conference would be held to resolve differences between the two versions, but Democrats want to keep Republicans from extending the debate in an effort to stall the bill. President Barack Obama has not been critical of this move, stating that he is eager to sign a health care bill into law as soon as practical, according to Reuters.

A few key differences between the House and Senate versions are how the bill will be financed and whether the bill will include a public health care option.

Congressional Republicans have stated that they would block the bill by any means necessary. In response, Democrats decided to finalize the bill behind closed doors.

If the bill had gone to a public conference, a number of Senators and Representatives would meet together to work out differences between the two bills. The members of the conference committees, known as managers, cannot substantially change the bill, but they could keep provisions in one version of the bill or drop amendments in another. They cannot add any new amendments.

Each house of Congress has several managers. For example, the House may have seven and the Senate may have four. The numbers do not need to be equal.

After reaching a decision, the managers return to their respective houses of Congress and tell their fellow Congressmen and Senators if they were able to agree on all or part of the bill or if they were not able to agree on the bill.

If they were able to agree on the entire bill, the bill is revoted upon in both houses. If they were not able to agree on the entire bill, or if they were only able to agree on parts of it, the bill returns to the conference committee. If the differences are too vast, the bill could just die out.

The members of these conference committees are usually senior members of standing committees. These conference committees would have been made up of members of both parties and high-ranking Republicans vowed to block efforts to let the bill leave their respective committees to go up for a final vote.

Also, the House and Senate support the bill by slim margins, with some Democrats opposing certain aspects of the bill. By negotiating informally and out of the public eye, Democrats can bring a final version of the bill to a vote without a formal conference.

Democrats responded by negotiating with their own party behind closed doors. The decision to finalize the bill behind closed doors was met with some criticism. CSPAN has issued a letter to Democrats urging them to make the negotiations public.

Republicans seized on CSPAN’s letter as evidence that Democrats were not being transparent, but Democrats dismissed these criticisms as further efforts to kill the legislation.

Nonprofit Health Related CEO Compensation

Health Insurance Company CEOs in the U.S. earned tens of millions in 2008, but what about nonprofits? If you guessed that nonprofit CEOs are paid less than their private sector counterparts, you are right. But the numbers are no less shocking to the average American. Below are the highest paid nonprofit workers at the largest nonprofit healthcare organizations, hospitals and medical centers in the U.S, courtesy of the Chronicle of Philanthropy.

Last year, some of the top paid nonprofit workers took pay cuts while others saw increases in compensation. Despite a global recession, many health-related nonprofits reported higher income in 2008, according to the report by The Chronicle of Philanthropy, which surveyed compensation information from the top 400 charities and foundations in the U.S.

According to the Chronicle, it asked each organization to answer a questionnaire and provide its most recent 990 tax form. This year, not every organization provided the information. In fact, most of the top paid executives from 2007 did not provide the information in 2008.

Based on 2007 data, the highest paid nonprofit worker was Herbert Padres, chief office of New York-Presbyterian Hospital. Padres earned  $6,170,885 in 2007. That’s $118,671 per week. In some parts of the country, that is enough to purchase a home. Every week. It is certainly enough to purchase one of the finest cars on the market.

As we’ve noted before on this blog:
Under the strictures of 501(c)(3) nonprofits are confined to paying executives “reasonable compensation” and supplying “community benefit.” Unfortunately, neither of these terms are particularly well defined. In [this] study’s executive summary, the IRS puts it so:

“The community benefit standard is the legal standard for determining whether a nonprofit hospital is exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code.”

“Observations. Both the community benefit and reasonable compensation standards have proved difficult for the IRS to administer. Both involve application of imprecise legal standards to complex, varied and evolving fact patterns.”

The varied and evolving fact pattern of nonprofit executive compensation looks something like this:

The nonprofit healthcare CEO with the highest salary in 2008 (given the incomplete response) was James J. Mongan, CEO of Partners HealthCare Systems. Mongan earned $3,376,554 in 2008.

Nonprofit executive compensation, health-related nonprofit:
New York-Presbyterian Hospital Herbert Pardes (CEO): $6,170,885
Memorial Sloan-Kettering Cancer Center Harold Varmus (CEO): $3,677,402
Partners HealthCare System James J. Mongan (CEO): $3,376,554
New York Presbyterian Hospital Steven J. Corwin (COO): $3,127,051
Mount Sinai School of Medicine Samin Sharma (Professor of Medicine and Cardiology): $2,894,580

Note: Aside from James J. Mongan, all numbers are for the 2007. Compensation amounts include deferred compensation and fringe benefits.

See Health Insurance CEO Compensation Here.