Judge Rejects Key Part of Obama Health-Care Law

By FOXBusiness

In a legal blow to the Obama administration, a U.S. District Court Judge ruled that a key provision of the recently-enacted health care law requiring individuals to have health insurance is unconstitutional.

U.S. District Court Judge Henry Hudson wrote in his opinion that the legal provision mandating health coverage, specifically known as Sec. 1501, “exceeds the constitutional boundaries of Congressional power” and should be stripped from the law.

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The ruling is most certainly expected to be appealed to the Supreme Court, and many legal experts had expected the high court will eventually rule on the overall constitutionality of the Patient Protection and Affordability Act.

The ruling originates from a legal challenge filed by Republican Virginia Attorney General Ken Cuccinelli. Virginia currently has a law on its books that says patients are not required to own health insurance and therefore was in violation of the recently-passed healthcare law. Virginia decided to pursue a separate legal challenge to the law from the joint lawsuit filed by 20 Republican state attorneys general.

In the Virginia case, the Obama Administration argued that it was well within its constitutional boundaries to enact an individual mandate for health insurance, citing the Commerce Clause in the U.S. Constitution and two other cases that have ruled in favor of the White House.

Hudson, who was appointed by President George W. Bush in 2002, said he found flaws in the White House’s argument saying that “at its core, this dispute is not simply about regulating the business of insurance – or crafting a scheme of universal health insurance coverage – it’s about an individual right to choose to participate.”

The legal argument against the health care law revolves partially around the question of what is an interstate economic activity. Typically activities like farming wheat or buying electricity over interstate lines were considered well within the broad constitutional grounds of the Commerce Clause.

But Virginia argued that the action of not buying - therefore not participating - in the economic activity of health insurance could not be something Congress could regulate, tax or penalize . Meanwhile the White House argued that the accumulative effect of people not purchasing health insurance would in effect qualify as an activity covered by the Constitution's Commerce Clause.

Hudson did not rule if the entire health-care law was invalid, saying that the Court requires more expert testimony and facts to rule on that question. Instead, Hudson carved Sec. 1501 out of the health-care law and is leaving the higher courts to rule on the broader law down the road.

The Court also did not issue a freeze on the broader provisions of the law, ruling against Virginia in this case, meaning that U.S. consumers will be largely unaffected until higher courts rule on the law.

In a statement, the Justice Department said it was "disappointed" with Judge Hudson's ruling and said "there is clear and well-established legal precedent that Congress acted within its constitutional authority in passing this law and we are confident that we will ultimately prevail.”

Hudson's ruling was not the first U.S. District Court to rule on the constitutional grounds of the Patient Protection and Affordability Act. Two Courts - the Western District of Virginia and the Eastern District of Michigan - have ruled that all provisions of the health care law were constitutional.

In a victory for the White House, Judge Hudson also determined only the mandate is unconstitutional, meaning the administration may move forward implementing the rest of the law.

The administration argues that the mandate, which requires most Americans without health insurance to pay $695 or 2.5% of their income, whichever is higher, was a tax. During the debate to pass the law, supporters argued the mandate did not amount to a tax, and instead was a penalty. Congress has greater authority to tax and Judge Hudson said the mandate “cannot be converted into a tax by the simple expedient of calling it such.”

“This is a good example of the leaps of logic the federal government needed to prevail,” said Cuccinelli of the administration's tax argument. “And today, they did not prevail.”

The Obama Administration is expected to appeal this decision to the Fourth Circuit U.S. Court of Appeals. Judicial analysts say that ruling will be the last stop before the U.S. Supreme ultimately settles this issue.

In a separate case, the administration and its opponents are waiting for a second significant U.S. District Court challenge; this one involving 20 states in a Florida federal court.

When asked about the potential impact on health care reform in a particular region if one District Court ruled against the law and the other District Court has not, the administration officials said the ruling should not expand beyond the area that court oversees.

The officials also said the earliest Court of Appeals decision would be sometime in the second half of next year, and that the Supreme Court will likely be asked to hear one of the cases after that. They said the legal challenges would be resolved by 2014, when much of the law will be implemented.

Meanwhile, lawmakers continue to push for changes to the law. Senator Ben Nelson (D-NE) is preparing a bill to overhaul the individual mandate.One idea gaining traction would replace the individual mandate with a voluntary system featuring an open enrollment season. Americans could opt not to have health insurance. If they later decided they wanted insurance outside of the enrollment window, they could pay a steep penalty to obtain coverage, said two sources.

Changes to the individual mandate would meet opposition from both parties. Democrats are reluctant to overhaul a significant piece of the law’s foundation. For Republicans, removing the law’s mandate may weaken the constitutional challenges to it, a source said.House Republicans plan on voting to fully repeal the health care law early next year. Even if it passes, the bill would be largely symbolic as it would never pass the Senate and, even if it did, the president would certainly veto it.

Shares of some major health insurance companies such as Aetna (NYSE:AET), WellPoint (NYSE:WLP) and United Health Group (NYSE:UNH) rose modestly on the ruling.

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