Wednesday, April 28, 2010

Health Care Reform Update: Health Benefit Exchanges are unconstitutional

While the constitutional debate rages over whether the federal government can require individuals to purchase health insurance, a fundamental part of the health care reform bill has been ignored that may be unconstitutional.

Section 1311 (p. 130) creates health benefit exchanges in every state. The state is responsible for administering and ultimately funding the exchange. An exchange publishes a list of all health insurance options for individuals and small businesses. Such exchanges are already used in Massachusetts and will be the workhorse of Obamacare.

The exchanges will operate both a website and toll-free hotline for consumers to use in shopping for health insurance and will have other features. The exchange will certify, renew, and decertify listed health insurance plans. It will be the exchanges most consumers will use to purchase health insurance. Get cut off from the exchange and a health insurance company will suddenly find it much harder to sell plans as well as suffer from the stigma decertification would carry even though it could sell health insurance outside of the exchange.

The constitutional problem lies in the creation and funding of the exchanges. The federal government provides grants to the states for exchanges. The states are given no choice in whether they can accept the grant or establish the exchanges: "A State shall use amounts
awarded under this subsection for activities (including planning activities) related to establishing an American Health Benefit Exchange" (p.130, Section 3).

The grants are available until January 1, 2015 (Section 5, p. 143). The plan must then become "self-sustaining". The states can charge "assessments or user fees to participating health insurance issuers" or to "otherwise generate funding, to support its operations." In other words, the states are on their own in funding the exchanges after 2014 even though the federal government ordered the states to create the exchanges and regulated their operation. If an exchange runs out of money, the state will have to cough up the money.

Under the ruling of New York v. U.S. (1992), the exchanges are unconstitutional, as the Court held the federal government cannot directly order the states to regulate anything or take a particular action. NY was a case where the federal government directed New York to accept nuclear waste from waste generators within the state. The Court ruled such action was unconstitutional under the Tenth Amendment. The federal government could either regulate the activities of individuals (including preemption of an area of regulation such as banking) or place conditions on the receipt of federal funds but it could not directly order the states to regulate an activity. p.145

Justice O'Conner pointedly wrote
"Congress could, if it wished, pre-empt entirely state regulation in this area, a review of this Court’s decisions, see, e. g., Hodel v. Virginia Surface Mining & Reclamation Assn., Inc., 452 U. S. 264, 288, and the history of the Constitutional Convention, demonstrates that Congress may not commandeer the States’ legislative processes by directly compelling them to enact and enforce a federal regulatory program, but must exercise legislative authority directly upon individuals. Pp. 159–166.

Nevertheless, there are a variety of methods, short of outright coercion, by which Congress may urge a State to adopt a legislative program consistent with federal interests. As relevant here, Congress may, under its spending power, attach conditions on the receipt of federal funds, so long as such conditions meet four requirements. See, e. g., South Dakota v. Dole, 483 U. S. 203, 206–208, and n. 3. Moreover, where Congress has the authority to regulate private activity under the Commerce Clause, it may, as part of a program of “cooperative federalism,” offer States the choice of regulating that activity according to federal standards or having state law pre-empted by federal regulation. See, e. g., Hodel, supra, at 288, 289. Pp. 166–169."
It is hard to see how the exchanges will stand under this analysis. Congress ordered the states to create the exchanges. Congress directed the Secretary to issue standards to be used by the exchanges. The Secretary will establish the "criteria for the certification" of health care plans for the exchanges and create the forms to be used (p. 134). Grants are provided to the states but the states are not given the option of declining the grants or refusing to create the exchanges. The law simply tells the states they will create the exchanges and after 2014, fund it themselves. While health care opponents use the Lopez case in their fight to repeal Obamacare, it must be noted that case dealt with the individual activity of carrying firearms within a thousand feet of a school (the Gun Free School Zone Act) and not whether federal could directly order a state to create a new state agency, issue the guidelines for the agency, and then order the state to fund said agency. NY is directly on point.

Simply put, the health care law's treatment of the exchanges is a "commandeering" of the states as outlined by New York and will likely be struck down by the Supreme Court. If the exchanges are to survive, then Congress must provide permanent grants and give the states an "opt-out" option or direct the federal government to create and operate the exchanges itself. If opponents of the law wish to kill it or rip a huge hole in the heart of the bill, the health benefit exchanges are a good place to start. Without the exchanges, it is hard to see how Obamacare will operate.

Copy of Bill


Anonymous said...

The phrase you point out is " shall use the AMOUNTS AWARDED" is that different from the requirements of any federal grants? Where is the language about requiring a state to take the money?
Why doesn't this have to do with interstate commerce?
And, I'm not crying that an insurance company could be left off an exchange if it's not offering good coverage.

Kingfish said...

There is nothing in the section stating the receipt of the grant/award is optional. Numerous other commentators have taken the same position. "shall award to the states" means shall award, not shall "offer". Blame Congress for sloppy drafting and no where in that section is there any indication the state can actually refuse the grant and to set up an exchange.

Anonymous said...

Just saw the news...

We could pay for healthcare with the 25K barrels of oil pumping into the Gulf a day. Or, maybe the current estimate of $200B could go towards the gaps.


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