Fourth Circuit Throws Out Health Reform Lawsuit

On Wednesday, another federal judge ruled unconstitutional the individual health insurance mandate in the Affordable Care Act (ACA). The judge said the federal government has no authority to require individuals to purchase health insurance or pay a penalty.  The Eleventh Circuit recently reached a similar conclusion, and the Fourth Circuit just threw out two lawsuits challenging the law for jurisdictional reasons.  For those keeping score, one circuit court has upheld the law, another has ruled the individual mandate unconstitutional, and the Fourth Circuit somehow managed to issue an opinion that did not satisfy anyone, except maybe the IRS.

In Liberty University v. Geithner, the Fourth Circuit ruled that it had no jurisdiction over the ACA lawsuit because of a federal statute barring lawsuits to enjoin the collection or assessment of taxes. The court characterized the mandate penalty as a “tax” for purposes of the Anti-Injunction Act (AIA), a bill to ensure the efficient collection of federal taxes by prohibiting lawsuits over taxes until the taxes have been paid. Both the plaintiffs and the federal government urged the court to avoid applying the AIA, but the court insisted on reaching the issue, because federal courts have limited jurisdiction.

Each court to consider the issue has declined to describe the ACA mandate penalty as a “tax” for constitutional purposes, but the Fourth Circuit said the Supreme Court’s interpretation of “tax” in the AIA is broader than that usage. The court cited a 1974 case construing the AIA to bar suits over taxes that function as regulatory penalties. Thus, the court ruled the ACA mandate penalty a “tax,” despite Congress labeling it a “penalty.”

The dissent argued that the court construed the AIA too broadly, emphasizing Congress’ deliberate use of the word “penalty” in the ACA. The dissent claimed the majority disregarded Congressional intent, but the majority suggested that its opinion honors Congress’ intent in the AIA.  The dissent cited the Sixth Circuit’s opinion, which also relied on Congress’ use of the word “penalty” in declining to apply the AIA.

Given this split, the Supreme Court may decide the AIA issue when it inevitably rules on the constitutionality of the ACA.  If the constitutional question has not been settled by 2014, when the mandate requirement kicks in, then these plaintiffs will have to pay the penalty.  Then, they can challenge that payment in court, just as Congress envisioned in the AIA.

In deciding to apply the AIA, the Fourth Circuit characterized the AIA as a Congressional request that the judiciary defer to the executive branch on individual tax issues, at least until the taxes are paid. The Supreme Court might similarly be tempted to shy away from a separation-of-powers battle on taxes. When the current Court reaches the merits of an ACA lawsuit, however, it may not be so cautious.