Bloomberg News

Justices Suggest Parts of Health-Care Law May Be Dropped

March 28, 2012

Protesters argue during the Supreme Court's hearing about the constitutionality of President Obama's healthcare law on March 26, 2012, in Washington. Photographer: Jahi Chikwendiu/The Washington Post/Getty Images

Protesters argue during the Supreme Court's hearing about the constitutionality of President Obama's healthcare law on March 26, 2012, in Washington. Photographer: Jahi Chikwendiu/The Washington Post/Getty Images

U.S. Supreme Court justices indicated during three days of arguments that they may reject the centerpiece of President Barack Obama’s health-care overhaul -- its requirement that Americans obtain insurance -- and bring down other parts of the law with it.

The court concluded its hearings today on Obama’s signature domestic achievement, designed to extend health coverage to 32 million people. After casting doubt yesterday on the insurance mandate’s survival, they tangled on the final day over the consequences such a ruling would have.

“My approach would say, if you take the heart out of the statute, the statute’s gone,” Justice Antonin Scalia said.

The 2010 health-care law revamps an industry that accounts for 18 percent of the U.S. economy. The court hasn’t overturned legislation with such sweeping impact since the 1930s. The justices heard more than six hours of arguments starting March 26.

Questions from the bench during yesterday’s hearing on mandatory insurance coverage indicated the justices may split 5- to-4, with the court’s five Republican appointees joining to overturn that part of the law.

Justice Anthony Kennedy, who most often occupies the court’s ideological middle ground, said that by requiring Americans to buy something, the law “changes the relationship of the government to the individual in a very fundamental way.”

Rest of the Law

Today the court addressed what should happen to the rest of the law if the insurance mandate is thrown out.

Justices across the ideological spectrum expressed interest in overturning at least the provisions that require insurers to cover people with pre-existing conditions. The Obama administration and the insurance industry say those rules are so closely linked to the mandate that they can’t remain without it.

The justices were divided on whether to go further and throw out everything that remains of the health-care law if they void the mandate. The court’s four Democratic appointees urged a limited ruling and the Republican appointees offered various levels of support for toppling the remaining provisions.

In a separate session today, the court heard arguments on the law’s expansion of the Medicaid (USBOMDCA) program for the poor. Justices appointed by Democrats defended Congress’s power to expand Medicaid, while those appointed by Republicans expressed support for the argument made by 26 states that they would be unlawfully coerced into participating in the expansion.

Ruling in June

The justices probably will rule in late June, months before the November election. A ruling against the measure would give ammunition to Obama’s Republican challengers, who have said the law should be repealed.

The Standard & Poor’s Supercomposite Managed Health Care Index of 12 insurance companies rose 0.33 percent at today’s close as the broader S&P 500 Index declined.

The cost to protect against losses on the debt of U.S. health-care companies is rising as investors hedge against potential declines when the court rules.

Credit-default swaps linked to hospital operators HCA Holdings Inc., Tenet Healthcare Corp. (THC:US) and Community Health Systems Inc. (CYH:US) are poised for the biggest monthly increase since September, climbing an average 82 basis points to 598 basis points, according to data provider CMA.

Supporters and Opponents

The courtroom today was crowded with spectators. Outside, supporters and opponents rallied. “Liberty yes, Obamacare no!” some chanted, as others fired back, “We love Obamacare!”

The government and the insurance industry say that if Congress can’t make everybody have coverage, the justices should toss out sections of the law that say insurers must issue policies and set rates without regard to pre-existing health conditions.

Without mandatory insurance, the government says those provisions would create an industry “death spiral,” in which only patients with costly health conditions would obtain insurance. That would lead to higher premiums, which would prompt healthy policyholders to drop coverage, causing more rate increases, the government says.

Insurance industry groups, in a court brief, said Congress structured new policy requirements in a “package deal” with mandatory coverage.

‘Sharp Dividing Line’

Justice Elena Kagan, an Obama appointee, today pointed to congressional findings supporting that argument. She said there is a “sharp dividing line” between those insurance provisions and other parts of the law, including the insurance exchanges that would be created so people without employer-provided coverage could buy policies.

Kagan suggested she would oppose overturning the entire law, saying, “half a loaf is better than no loaf.”

Several justices disagreed on how the court could be most deferential to Congress. Justice Sonia Sotomayor said that perhaps the court should excise the mandate, if it’s found to be unconstitutional, and let Congress sort out the next step.

“The bottom line is: Why don’t we let Congress fix it?” Sotomayor asked.

Kennedy questioned whether it would be a “more extreme” exercise of judicial power to strike down some of the statute rather than all of it. Invalidating only the mandate would “impose a risk on insurance companies that Congress had never intended,” he said.

Black-Lung Benefits

Chief Justice John Roberts and Justices Ruth Bader Ginsburg and Stephen Breyer said the law includes items, such as reauthorizing black-lung benefits and an Indian health-care measure, that aren’t related to the insurance mandate.

“Why make Congress redo those?” Ginsburg said. It would be better to let Congress decide “whether it wants them in or out,” she said.

Paul Clement, the lawyer for the 26 states challenging the health law, argued that the court should invalidate the entire statute if it decides the mandatory insurance section, which he called “the very heart of this act,” is unconstitutional.

The mandate and the insurance coverage rules are connected to insurance exchanges that would be created so people without employer-provided insurance could buy coverage, he said. Those, in turn, are related to tax benefits for employers that offer insurance to their workers, he said.

Invalidating only the individual insurance mandate would be the “worst-case scenario” for insurance companies, said Paul Heldman, a health-policy analyst at Potomac Research Group in Washington. “That would create an unstable market for insurers in which they would be stuck covering the most expensive people while leaving the healthier people off the insurance rolls.”

Medicaid Program

In an afternoon session today, the justices considered a challenge by states to the expansion of the federal-state Medicaid (USBOMDCA) health-insurance program for the poor.

The health law’s Medicaid expansion is designed to cover 17 million uninsured people by extending eligibility to those with incomes of as much as 138 percent of the federal poverty line. States that don’t comply with the new expansion would lose all or part of their share of federal Medicaid funding.

“Can you conceive of any state saying no” to additional federal Medicaid funds, Scalia asked U.S. Solicitor General Donald Verrilli, who defended the measure. “And if you can’t, that sounds like coercion,” Scalia said.

Ginsburg said she couldn’t recall a “federal program struck down because it’s so good it becomes coercive to be in it.”

Withholding Money

Breyer minimized concerns by the states that the federal government is coercing them. He said the government has for years had the discretion to withhold Medicaid money if states don’t follow the rules, and the health-care law doesn’t change that power.

During yesterday’s arguments on mandatory insurance coverage, questions from the bench indicated the justices may split 5-to-4, with the court’s five Republican appointees joining to overturn that part of the law.

The Obama administration needs support from at least one Republican appointee on the nine-member court to uphold the 2010 law. Four of them -- Roberts, Scalia, Samuel Alito and Kennedy - - interrupted Verrilli repeatedly yesterday as he made his case for upholding the law.

An Atlanta-based federal appeals court found the health- insurance mandate unconstitutional and ruled that the rest of the law remains valid.

The health-care cases are National Federation of Independent Business v. Sebelius, 11-393; Department of Health and Human Services v. Florida, 11-398; and Florida v. Department of Health and Human Services, 11-400.

To contact the reporters on this story: Greg Stohr in Washington at gstohr@bloomberg.net; Laurie Asseo in Washington at lasseo1@bloomberg.net

To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net


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