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From Health Law Daily, July 12, 2013

Fourth Circuit finds employer mandate valid under Commerce Clause and Congress’s taxing power, rejects religious challenges to both employer and individual mandates

By Sheila Lynch-Afryl, JD, MA

The Fourth Circuit, reconsidering a case in light of National Federation of Independent Business v Sebelius, 132 S. Ct. 2566 (2012) (NFIB), upheld the constitutionality of both the individual mandate and employer mandate of the Patient Protection and Affordable Care Act of 2010 (P.L. 111-148) (Liberty University, Inc. v Lew, July 11, 2013, Motz, D, Davis, A, and Wynn, J). The employer mandate was a valid exercise of Congress’s authority under the Commerce Clause and its taxing power, and religion-based challenges to both the individual and employer mandates were rejected. The court also found, contrary to its earlier decision, that it had jurisdiction to address the merits of the case.

Background. The plaintiffs, Liberty University and several individuals, filed a complaint against the Secretary of the Treasury and other officials (collectively, the Secretary) seeking a declaration that the individual and employer mandates are invalid. They alleged that the mandates exceeded Congress’s Article I powers and violated the Tenth Amendment, the Establishment and Free Exercise Clauses of the First Amendment, the Religious Freedom Restoration Act (42 U.S.C. sec. 2000bb-1) (RFRA), the right to free speech and free association under the First Amendment, the Article I, Section 9 prohibition against unapportioned capitation or direct taxes, and the Guarantee Clause.

The district court upheld the constitutionality of both mandates. On appeal, the Fourth Circuit held that the Anti-Injunction Act barred it from considering the claims and remanded the case back to the district court with instructions to dismiss for lack of jurisdiction. The Supreme Court granted the plaintiffs’ petition for certiorari, vacated the Fourth Circuit’s judgment, and remanded for further consideration in light of NFIB.

Jurisdictional issues. The Anti-Injunction Act (26 U.S.C. sec. 7421(a)) (AIA) provides that “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person.” While Liberty University’s challenge to the employer mandate is a pre-enforcement suit to enjoin the collection of an exaction codified in the Internal Revenue Code, in NFIB, the Supreme Court made clear that the AIA applies only where Congress intends it to. The Fourth Circuit found because that Congress primarily referred to the employer mandate exaction as an “assessable payment” rather than a “tax,” it did not constitute a tax for purposes of the AIA and, therefore, the AIA did not bar the suit.

The court also rejected the Secretary’s argument that the plaintiffs lacked standing; Liberty University is an “applicable large employer” subject to the employer mandate, and it plausibly alleged that the mandate will increase the cost of providing health coverage. The individual plaintiffs’ allegations that they do not want to purchase health insurance and that the individual mandate will create a financial hardship were sufficient to establish standing.

Commerce power. Liberty University argued that the employer mandate exceeds Congress’s commerce power because it compels employers to engage in particular conduct or purchase an unwanted product, contrary to the dictates of NFIB. In NFIB, five justices of the Supreme Court concluded that the Commerce Clause did not grant Congress the authority to compel an individual to enter commerce by purchasing a good or service. The Fourth Circuit distinguished NFIB in this context, as the employer mandate does not seek to create commerce in order to regulate it: employers are already, by their nature, engaged in economic activity. In addition, the employer mandate does not require employers to purchase an unwanted product, since they are free to self-insure.

The employer mandate is a valid exercise of Congress’s authority under the Commerce Clause, the court found, because the mandate regulates employee compensation, which is both a term of employment that substantially affects interstate commerce and an activity that substantially affects workers’ interstate mobility.

Taxing power. In NFIB, the Supreme Court held that the individual mandate constituted a tax and that Congress acted within the scope of its constitutionally granted authority in imposing it. The Fourth Circuit applied the Supreme Court’s “functional approach” in concluding that the employer mandate, too, was a valid exercise of Congress’s taxing power. Like the individual mandate found valid in NFIB, the employer mandate exaction “looks like a tax” because it is paid into the Treasury, found in the Internal Revenue Code, and enforced by the Internal Revenue Service; and it lacks a scienter requirement, does not punish unlawful conduct, and leaves large employers with a choice for complying with the law. Accordingly, the court upheld the employer mandate as a valid exercise of Congress’s taxing power.

Religion-based grounds. The plaintiffs contended that the individual and employer mandates violate their free exercise rights under the First Amendment and the RFRA because the mandates force them to violate their religious belief that they should play no part in facilitating or supporting abortions. The court found, however, that PPACA is a neutral law of general applicability, as it imposes no burden based only on conduct motivated by religious belief. Nor does PPACA “substantially burden” their exercise of religion because it does not force them to facilitate or support abortion; rather, PPACA allows an individual to obtain, and an employer to offer, a plan that offers no abortion services.

Finally, the court rejected the plaintiffs’ argument that the two religious exemptions in PPACA violate the Establishment Clause and their Fifth Amendment equal-protection rights. The individual mandate’s religious-conscience exemption (26 U.S.C. sec. 5000A(d)(2)(A)) does not discriminate against the plaintiffs’ religious practices, as it makes no explicit and deliberate distinctions between religious sects. The court further found that the eligibility cutoff of December 31, 1999, for the application of the health care sharing ministry exemption (26 U.S.C. sec. 5000A(d)(2)(B)) showed no deliberate attempt to distinguish between particular religious groups and served secular legislative purposes.

The case number is 10-2347.

Attorneys: Mathew D. Staver (Liberty Counsel) for Liberty University, Inc. Alisa Beth Klein (United States Department of Justice) for Jacob Lew, Secretary of the United States Department of the Treasury; Kathleen Sebelius, Secretary of the United States Department of Health and Human Services; Seth Harris, Acting Secretary of the United States Department of Labor; Eric H. Holder, Jr., Attorney General of the United States.

Companies: Liberty University, Inc.; United States Department of the Treasury; United States Department of Health and Human Services; United States Department of Labor; United States Department of Justice Office of the Attorney General

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