011312 attorneys general amicus brief on health care reform

8/3/2019 011312 Attorneys General Amicus Brief on Health Care Reform

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No.11-398

In the Supreme Court of the United States

DEPARTMENT OF HEALTH AND HUMAN SERVICES,et al.,Petitioners,

v.

STATE OF FLORIDA,et al.,Respondents.

On Writ of Certiorari to theUnited States Court of Appeals

for the Eleventh Circuit

BRIEF OF THE STATES OF MARYLAND,CALIFORNIA,

CONNECTICUT,DELAWARE,HAWAII,ILLINOIS,IOWA,

NEW MEXICO,NEWYORK,OREGON, ANDVERMONT, THE

DISTRICT OF COLUMBIA, AND THEVIRGIN ISLANDS

ASAMICI CURIAE IN SUPPORT OF PETITIONERS

(Addressing Minimum-Coverage Provision)

DOUGLAS F.GANSLERAttorney General of Maryland

JOHN B.HOWARD,JR.Deputy Attorney General

WILLIAM F.BROCKMANActing Solicitor General

Counsel of Record

JOSHUAN.AUERBACHSTEPHEN M.RUCKMANSARAH W.RICE

Assistant Attorneys General200 Saint Paul PlaceBaltimore, Maryland [email protected]

(410) 576-7055

Attorneys for Amici Curiae

(Additional Counsel Listed on Inside Cover)Becker Gallagher Cincinnati, OH Washington, D.C. 800.890.5001


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KAMALAD.HARRIS

Attorney General of California1300 I StreetSacramento, California 95814

GEORGE JEPSENAttorney General ofConnecticut55 Elm StreetHartford, Connecticut 06106

JOSEPH R.BIDEN,IIIAttorney General of Delaware

820 N. French StreetWilmington, Delaware 19801

DAVID M.LOUIEAttorney General of Hawaii425 Queen StreetHonolulu, Hawaii 96813

LISAMADIGANAttorney General of Illinois100 West Randolph Street,12th Floor

Chicago, Illinois 60601

TOM MILLERAttorney General of Iowa1305 East Walnut StreetDes Moines, Iowa 50319

GARYKINGAttorney General ofNew MexicoP.O. Drawer 1508Sante Fe, New Mexico 87504

ERIC T.SCHNEIDERMAN

Attorney General of New York120 Broadway, 25th FloorNew York, New York 10271

JOHN R.KROGERAttorney General of Oregon1162 Court Street NESalem, Oregon 97301

WILLIAM H.SORRELLAttorney General of Vermont109 State Street

Montpelier, Vermont 05609

IRVIN B.NATHANAttorney General for theDistrict of Columbia441 4th Street, N.W., Suite600 SouthWashington, D.C. 20001

VINCENT F.FRAZERAttorney General of the VirginIslands

Department of Justice3438 Kronprindsens GadeGERS ComplexSt. Thomas, Virgin Islands 00802


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QUESTION PRESENTED

Does Congress have the power, under Article I ofthe Constitution, to enact the minimum-coverageprovision of the Patient Protection and AffordableCare Act, 26 U.S.C. 5000A, which requires non-exempt individuals to maintain a minimum level ofhealth insurance or pay a tax penalty?


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TABLE OF CONTENTS

QUESTION PRESENTED .......................................... i

TALBE OF CONTENTS ............................................. ii

TABLE OF AUTHORITIES ....................................... v

INTEREST OF AMICI STATES ................................ 1

INTRODUCTION ....................................................... 2

SUMMARY OF ARGUMENT ..................................... 4

ARGUMENT ............................................................... 7

I. THE HEALTHCARE REFORMS CONGRESSADOPTED IN THEAFFORDABLE CAREACT FALLSQUARELY WITHIN THE HISTORICALUNDERSTANDING OF THE COMMERCE POWER AS ATOOL FOR ADDRESSING INTERSTATEPROBLEMS THAT STATES CANNOT

EFFECTIVELYADDRESSALONE.. ............................ 7

A. The Commerce Clause EnablesCongress to Regulate InterstateCommerce Comprehensively ......................... 8

1. The Framers Empowered Congressto Act to Address Problems ofNational Scope .......................................... 8

2. Congress Has the Power to Regulate

Individual Conduct thatSubstantially Affects InterstateCommerce ............................................... 11


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B. Longstanding Precedent Confirms theUnderstanding of the Commerce Poweras a Means of Enabling Congress to

Address Problems that RequireCoordination and Cooperation Amongthe States .................................................... 13

C. Our Nations Healthcare Crisis Is anInterstate Problem that States CannotFully Address on Their Own, and Is

Thus a Proper Subject for the Exerciseof Congresss Commerce Power .................. 15

1. The Problem of Uncompensated CareTranscends State Boundaries ............... 15

2. Decisions to Forego Insurance Havea Substantial Effect on InterstateCommerce .............................................. 18

3. State-Level Reforms Cannot Fully

Address the Problems AssociatedWith Uncompensated Care ................... 20

4. Federal Regulation to Address theHealthcare Crisis Serves a CriticalRole in Aiding State Reform Efforts ..... 24

II. THE MINIMUM-COVERAGE PROVISION IS ANINTEGRAL ELEMENT OF CONGRESSSINTERSTATE SOLUTION TO THE HEALTHCARE

CRISIS ................................................................. 26


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III. THE AFFORDABLE CARE ACT, RATHER THANDISPLACING STATE AUTHORITY, PRESERVESSTATE POLICYMAKING DISCRETION IN THEIMPLEMENTATION OF HEALTHCARE REFORMS,BUILDING ON A SUCCESSFUL MODEL OFCOOPERATIVE FEDERALISM................................. 29

A. The Affordable Care Act Builds on aLong Tradition of Federal-StateCooperation ................................................. 29

B. The Affordable Care Act Affords StatesWide Latitude in Implementing KeyElements of the Acts Reforms ................... 31

CONCLUSION ......................................................... 37


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TABLE OF AUTHORITIESPage

CASES

AlaskaDept of Envtl. Conservation v.Environmental Prot. Agency,540 U.S. 461 (2004) ................................................ 36

Arkansas v. Oklahoma, 503 U.S. 91 (1992) ............. 31

Carter v. Carter Coal Co.,298 U.S. 238 (1936) ........ 19

Danforth v. Minnesota, 552 U.S. 264 (2008) ............ 13

Gade v. National Solid Wastes Management Assn,505 U.S. 88 (1992) .................................................. 31

Gibbons v. Ogden,22 U.S. (9 Wheat) 1 (1824) ......................... 11, 13, 14

Gonzales v. Raich,545 U.S. 1 (2005) .............................. 7, 10, 12, 19, 26

Harris v. McRae, 448 U.S. 297 (1980) ..................... 30

Helvering v. Davis,301 U.S. 619 (1937) ......... 3, 25, 30

Hodel v. Virginia Surface Mining & ReclamationAssn, 452 U.S. 264 (1981) .......................... 11, 30, 36

Hughes v. Oklahoma, 441 U.S. 322 (1979) ............... 11

King v. Smith, 392 U.S. 309 (1968) .......................... 31


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New York State Conf. of Blue Cross & BlueShield Plans v. Travelers Ins. Co.,514 U.S. 645 (1999) .......................................... 29, 36

New York v. United States,505 U.S. 144 (1992) .......................... 2, 6, 7, 8, 11, 12

Oregon Waste Sys., Inc. v. Department of

Envtl. Quality, 511 U.S. 93 (1994) ......................... 11

Printz v. United States, 521 U.S. 898 (1997)............ 36

Saenz v. Roe,526 U.S. 489 (1989) ............................ 24

Schaeffer v. Weast,546 U.S. 49 (2005) ..................... 31

Seven-Sky v. Holder,661 F.3d 1 (D.C. Cir. 2011) ................................ 6, 19

Steward Machine Co. v. Davis,301 U.S. 548 (1937) .............................. 25, 26, 30, 36

Thomas More Law Ctr. v. Obama,651 F.3d 529 (6th Cir. 2011) ............................ 19, 20

United States v. Lopez, 514 U.S. 549 (1995) ...... 27, 29

United States v. Darby,312 U.S. 100 (1941) .................................... 11, 13, 14

United States v. Morrison,

529 U.S. 598 (2000) .................................................. 2


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United States v. South-Eastern UnderwritersAssn,322 U.S. 533 (1944) ..................................... 15

Wickard v. Filburn, 317 U.S. 111 (1942) ............ 12, 14

Wisconsin Dept of Health & Family Servs. v.

Blumer, 534 U.S. 473 (2002) ............................ 30, 31

STATUTES

26 U.S.C. 4980H ..................................................... 31

26 U.S.C. 5000A ....................................................... i

29 U.S.C. 1144(a) .................................................... 29

42 U.S.C. 300gg-94 ................................................. 34

42 U.S.C. 1315a ...................................................... 34

42 U.S.C. 1315a(b)(2)(B)(x) .................................... 34

42 U.S.C. 1315a(b)(2)(B)(xi) ................................... 34

42 U.S.C. 1395f(b) .................................................. 17

42 U.S.C. 1396a(a)(10)(A)(i)(VIII).......................... 31

42 U.S.C. 18031 ...................................................... 31

42 U.S.C. 18031(b)(1) ............................................. 33

42 U.S.C. 18031(d)(3)(B) ........................................ 33

42 U.S.C. 18031(d)(4)(A) ........................................ 33


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42 U.S.C. 18031(e)(1)(B) ........................................ 33

42 U.S.C. 18051 ...................................................... 34

42 U.S.C. 18052 ...................................................... 34

42 U.S.C. 18091 ...................................................... 21

42 U.S.C. 18091(a)(2)(B) .................................. 16, 17

42 U.S.C. 18091(a)(2)(F)......................................... 16

42 U.S.C. 18091(a)(2)(G) ........................................ 28

Md. Code Ann., Health-Gen. 19-211 ...................... 18



REGULATIONS

76 Fed. Reg. 41,891 (July 15, 2011).......................... 33

OTHERAUTHORITIES

The Federalist No. 15 (A. Hamilton) (ClintonRossiter ed., 1961) .................................................. 12

The Federalist No. 16 (A. Hamilton) (ClintonRossiter ed., 1961) .................................................. 12

The Federalist No. 41 (J. Madison) (ClintonRossiter ed., 1961) .................................................. 10


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James Madison, Vices of the Political System of theUnited States, The Papers of Madison 348 50(Robert A. Rutlandet al., eds., 1975) ....................... 9

2009 Budget Analysis, Health RegulatoryCommissions, Dept. of Health andMental Hygiene 18 ................................................. 18

American Hospital Association, UncompensatedHospital Care Fact Sheet (Dec. 2010) .................... 17

Centers for Medicare & Medicaid Services,Historical National Health ExpenditureData Web Tables T. 1 (2011) .................................. 17

Robert D. Cooter & Neil S. Siegel,Collective Action Federalism: A GeneralTheory of Article I, Section 8, 63Stan. L. Rev. 115 (2010) ......................................... 10

Families USA, Hidden Health Tax: AmericansPay a Premium 2(2009) ......................................... 16

Bowen Garrett, et al., The Cost of Failure toEnact Health Reform (2009) ................................... 16

Health Services Cost Review Commission2010 Report 2-4 ..................................................... 17

Adele M. Kirk,Riding the Bull: ExperienceWith Individual Market Reform in Washing,

Kentucky, and Massachusetts, 25 J. HealthPolitics, Policy & Law 152 (2000) .......................... 22

Len M. Nichols,State Regulation: What HaveWe Learned So Far? 25 J. Health Politics,


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Policy & Law 175 (2000) ........................................ 22

Neil S. Siegel,Free Riding on Benevolence:Collective Action Federalism and the

Individual Mandate, 75 Law & Contemp.Probs. (forthcoming 2012) ...................................... 28

Nancy C. Turnbull,et al., Insuring the Healthyor Insuring the Sick? The Dilemma of

Regulating the Individual Health InsuranceMarket: Short Case Studies of Six States

(Feb. 2005) .............................................................. 23

U.S. Census Bureau, Health Insurance, HealthInsurance Historical Tables ................................... 21


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INTEREST OF AMICI STATES

Amici Curiae, the States of Maryland, California,Connecticut, Delaware, Hawaii, Illinois, Iowa, NewMexico, New York, Oregon, and Vermont, theDistrict of Columbia, and the Virgin Islands, have astrong interest in protecting and promoting thehealth, safety, and welfare of their citizens, aninterest that the Affordable Care Act advances in

vitally important ways.

The Amici States have each made determinedefforts to address the extraordinary problemsassociated with the current system of healthcaredelivery in the United States, including spiralingcosts, limitations on the availability of insurancecoverage, and restricted access to medical services.

Although the Amici States have achieved modestsuccesses, these state-by-state efforts cannot fullycounteract the force of inexorable national trendsdriven by problems that are fundamentally

interstate in nature. The experience of the AmiciStates demonstrates the need for action on thenational level.

The Amici States also bring a unique perspectiveto the questions of federalism raised in this case.The Amici States, no less than the RespondentStates, embrace our system of dual sovereignty andresist federal encroachment in areas properlyreserved to the states. Still, principles of federalismmust not be misapplied to block federal legislation

that addresses truly national problems, leaving bothstates and the federal government unable toadequately address and resolve pressing national


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concerns. The Amici States also have a compellinginterest in ensuring that constitutional principles ofcooperative federalism are validated when Congressseeks to address important national problems byenacting legislation that will be implementedthrough the joint participation of the federalgovernment and the states, as Congress has donehere.

INTRODUCTION

Though the respondents challenge to theAffordable Care Acts minimum-coverage provision isrooted in supposed limits on federal power inherentin the Commerce Clause, their claim has little to dowith the core concerns that have animated thisCourts Commerce Clause jurisprudence: it does notraise our oldest question of constitutional law[,] . . .discerning the proper division of authority betweenthe Federal Government and the States, New Yorkv. United States, 505 U.S. 144, 149 (1992), nor does itimplicate the problem of drawing distinction[s]between what is truly national and what is trulylocal, United States v. Morrison, 529 U.S. 598, 617(2000).

There can be no serious contention that existingdefects in the countrys markets for health care andhealth insurancemarkets that accounted for 17.6%of the entire national economy in 2009are

somehow local in origin, in scope, or in effect. Norcan one seriously contend that requiring most Americans to obtain a minimum level of health


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insurance coveragethrough their employers,through a state health benefit exchange, or througha state Medicaid programunduly encroaches onstate authority or state prerogatives.

As a result of the systemic problems in ourhealthcare system, a large and growing number of

Americans49 million in 2009lack healthinsurance and reliable access to basic healthcareservices; employers increasingly find it effectivelyimpossible to provide healthcare benefits to their

employees; and healthcare costs claim a massive andsteadily expanding proportion of the budgets of

American families, of state and federal expenditures,and of the national economy as a whole. Emergencyrooms now double as primary-care clinics formillions of uninsured; hundreds of thousands of

Americans have been driven into personalbankruptcy because of their inability to pay forhealth care; and state governments, in each budgetcycle over the last generation, have had to grapplewith increasingly painful choices about whether, and

if so how, to pay for health care for their mostvulnerable citizens.

The crisis in our healthcare system is plainlynational in area and dimensionsmuch like theproblem of elderly poverty that Congresscomprehensively addressed in enacting the SocialSecurity Act, Helvering v. Davis, 301 U.S. 619, 644(1937). Though state governments and privateactors have taken important and innovative steps toexpand access to health care and to restrain the

growth of health care costs, no remedy can be fullyeffective without action on a national level. TheCommerce Clause empowers Congress to take such


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action, and Congress properly employed that powerin addressing the nations healthcare crisis throughthe reforms enacted in the Affordable Care Act.

In enacting the Affordable Care Act, Congresschose not to establish a single-payer system or anational service for healthcare delivery. Instead, thereforms selected by Congress leave essentiallyundisturbed the predominantly private, market-based character of our healthcare economy. Just asimportantly, Congress designed its reforms in a

manner that respects the existing balance ofresponsibility between the federal government andthe states. The Act does not displace stateregulatory authority, but instead proceeds on thebasis of cooperative federalism: two of the threeprincipal channels through which the Act expandsaccess to health insuranceMedicaid programs andhealth benefit exchangesare intended to beestablished, developed, and operated by the statesaccording to their own policy choices.

SUMMARY OF ARGUMENT

Rather than embrace the essential genius of theconstitutional design and its allocation of regulatoryauthority between the states and the nationalgovernment, the respondents seek to justify theirattack on the minimum-coverage provision with anovel misconception of the commerce power, one thatdoes not derive from any principled understanding of

federalism. The Constitution restricts Congressspower to regulate commerce by limiting its object tointerstate commerce: Commerce . . . among the


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several States. The Constitution imposes thislimitationnot as an adjunct to the individual rightsenshrined elsewhere in the Constitutionbut as aprotection against incursions on the regulatoryauthority of the states. The restrictions onCongresss commerce power thus reinforce ourfederalist system of dual sovereignty.

But the conception of the commerce power thatunderlies the respondents attack on the minimum-coverage provision does not derive from any

principled understanding of federalism. On thecontrary, the respondents theory reflects amisapprehension of this Courts teachings aboutthe nature of the federal commerce power. It is nottrue, as the respondents appear to believe, that theConstitution presupposes a lack of plenary federalauthority to regulate interstate commerce. StateRespondents Cert.-Stage Brief at 1. This Court hasrepeatedly affirmed that, within the domain ofinterstate commerce, Congresss authority is indeedplenary, and does not differ in its reach from the

authority that states possess with respect tointrastate commerce.

Moreover, despite the rhetoric that accompaniesthe challenge to the minimum-coverage provision,the constitutional limitations on the commercepower do not embrace a libertarian objection toCongresss exercise of regulatory authority over theconduct of individuals. Rather than marking adeparture from commerce power norms, Pet. App.112a, the exercise of federal authority to regulate

individual conduct is consistent with the design ofthe Framers, who opted for a Constitution in whichCongress would exercise its legislative authority


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directly over individuals. . . . New York, 505 U.S. at165.

In invoking federalism limitations as the basis fortheir challenge to the Affordable Care Act, therespondents fail to appreciate that the federalcommerce power exists precisely to allow Congress toaddress problemslike those that plague thenations healthcare systemthat do not respectstate boundaries and that the states cannot fully andeffectively address on their own.

The factual premise for the respondentschallenge to the minimum-coverage provisionbased on an ostensible distinction between activityand inactivityignores reality by supposing thatthere are a meaningful number of citizens who willnever obtain health care and who therefore willnever affect the countrys healthcare economy. Tothe contrary, as the D.C. Circuit recognized, thehealth insurance market is unique, both because

virtually everyone will enter or affect it, and because

the uninsured inflict a disproportionate harm on therest of the market as a result of their laterconsumption of health care services. Seven-Sky v.

Holder, 661 F.3d 1, 18 (D.C. Cir. 2011). Congressacted within its authority in taking account of theseunique features of the healthcare economy and inenacting the minimum-coverage provision, withoutwhich the Affordable Care Acts other vital reformswould not be fully effective.

The Affordable Care Act does not represent an

incursion on state sovereignty. Rather, it is anindispensable aid to the states in their own efforts totackle the healthcare problems their citizens face.


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The framework established by the Affordable Care Act empowers the states, in partnership with thefederal government, to create enduring solutions tothe nations healthcare crisis. Where, as here,Congress has exercised its commerce power to act inpartnership with the states to confront problemswith both interstate and intrastate dimensions,Congress honors, rather than transgresses, thestructural limitations embodied in the Constitution.

ARGUMENT

I. THE HEALTHCARE REFORMS CONGRESSADOPTED IN THEAFFORDABLE CAREACT FALLSQUARELY WITHIN THE HISTORICALUNDERSTANDING OF THE COMMERCE POWER ASA TOOL FOR ADDRESSING INTERSTATEPROBLEMS THAT STATES CANNOT EFFECTIVELY

ADDRESSALONE.

The Commerce Clause represents the Framersresponse to the central problem giving rise to theConstitution itself: the absence of any federalcommerce power under the Articles ofConfederation. Gonzalez v. Raich, 545 U.S. 1, 16(2005). That absence of federal authority resultednot only in a national government effectivelyincapable of making national policy on matters ofinterstate and international commerce, but in thefrustration of state efforts to make policy on thesame matters. As the Court explained in New York

v. United States, the Framers adopted the CommerceClause to address this central problem byconferring plenary power on the federal government


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to regulate interstate commerce. 505 U.S. at 163-66.This power by definition included the authority toregulate directly the conduct of individual citizens.

See id. at 165 (the Framers opted for a Constitutionin which Congress would exercise its legislativeauthority directly over individuals).

The crisis in our countrys healthcare system is acontemporary example of the type of intractableinterstate problem for which the Framers adoptedthe Commerce Clause. It is a problem with national

scope and one that the states, acting alone, cannotfully address. The remedy that Congress selected toaddress the problem, the Affordable Care Act, fallswell within the power that the Commerce Clauseconfers.

A. The Commerce Clause Enables Congress

to Regulate Interstate Commerce Com-

prehensively.

1. The Framers Empowered Congress to Act to Address Problems of NationalScope.

The Commerce Clauses grant of broad power toCongress to regulate Commerce . . . among theseveral States reflected lessons learned from thefailure of the Articles of Confederation. Under

Article IX of the Articles of Confederation, the statesthemselves regulated commerce. Without amechanism for the federal government to coordinate

and facilitate interstate commerce, the states werehindered in their ability to confront problems withinterstate dimensions. As James Madison observed,


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a major defect in this arrangement was its inabilityto facilitate action in concert in matters wherecommon interest requires it, particularly withregard to our commercial affairs. James Madison,Vices of the Political System of the United States , in 9The Papers of Madison 348 50 (Robert A. Rutland etal., eds., 1975). Without coordinated interstateaction, a patchwork of state laws restrict[ed] thecommercial intercourse with other States; thisarrangement frustrated economic development andwas destructive of the general harmony. Id.

Alexander Hamilton adhered to the same view. Heobserved profound economic insecurity under the

Articles of Confederation: commerce . . . at thelowest point of declension, a violent and unnaturaldecrease in the value of land, and the drying up ofprivate credit, with borrowing and lending . . .reduced within the narrowest limits. Federalist No.15. For Hamilton, this economic insecurity couldonly be fully explained by that want of private andpublic confidence in the efficacy of the national

government. Id. Collective action problems,Hamilton further observed, hindered the states fromeffectively addressing these problems:

The greater deficiencies of some States furnishedthe pretext of example and the temptation ofinterest to the complying, or at least to thedelinquent States. Why should we do more inproportion than those who are embarked with uson the same political voyage? Why should weconsent to bear more than our proper share of the

common burden?

Id.


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This structural defect led Madison and his fellowFramers to advocate for a new Constitution underwhich the national government would have thepower to [m]aintain[] . . . harmony and properintercourse among the States. The Federalist No.41 (J. Madison) (Clinton Rossiter ed., 1961).1 Undertheir proposal, Congress would have the power tolegislate in all cases to which the separate States areincompetent, or in which the harmony of the UnitedStates may be interrupted by the exercise of

individual Legislation. Though some con-temporaries advocated stronger limitations onCongresss powers, the committee of theConstitutional Convention that drafted Article I,Section 8 adopted the approach that Madison andthe Virginia delegation had proposed.

The powers enumerated in Article I, Section 8including the power to regulate Commerce . . .among the several Statesovercame shortcomingsin the previous system by enabling the federal

government to address problems that the statescould not effectively resolve through uncoordinated,state-by-state action. See Gonzales v. Raich, 545U.S. 1, 16 (2005) (The Commerce Clause emerged asthe Framers response to the central problem giving

1See also Robert D. Cooter & Neil S. Siegel, Collective Action

Federalism: A General Theory of Article I, Section 8 , 63 Stan. L.Rev. 115, 121 (2010) (The structure of governance established

by the Articles of Confederation often prevented the states fromacting collectively to pursue their common interests. Solving

these problems of collective action was a central reason forcalling the Constitutional Convention.).


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rise to the Constitution itself: the absence of anyfederal commerce power under the Articles ofConfederation.); see alsoOregon Waste Sys., Inc. v.

Department of Envtl. Quality, 511 U.S. 93, 98-99(1994) (The Framers granted Congress plenaryauthority over interstate commerce in the convictionthat in order to succeed, the new Union would haveto avoid the tendencies toward economicBalkanization that had plagued relations among theColonies and later among the States under the

Articles of Confederation. (quoting Hughes v.

Oklahoma, 441 U.S. 322, 32526 (1979))).

2. Congress Has the Power to RegulateIndividual Conduct that Substantially

Affects Interstate Commerce.

The federal commerce power, by deliberatedesign, includes the power to regulate individualconduct. This Court has repeatedly recognized thatthe grant of federal power under the CommerceClause is plenary in nature. See, e.g., Hodel v.Virginia Surface Mining & Reclamation Assn, 452U.S. 264, 276 ([T]he Commerce Clause is a grant ofplenary authority to Congress.); United States v.

Darby, 312 U.S. 100, 114 (1941); Gibbons v. Ogden,22 U.S. (9 Wheat.) 1, 197 (1824) ([T]he sovereigntyof Congress, though limited to specified objects, isplenary as to those objects.). This plenary powernecessarily includes the power to regulate individualconduct. As the Court explained in New York v.United States, [u]nder the Articles of Confederation,

Congress lacked the authority in most respects togovern the people directly. . . . The inadequacy ofthis governmental structure was responsible in part


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for the Constitutional Convention. 505 U.S. at 163.Through the Commerce Clause and othercounterpart provisions, the Framers determined toextend the authority of the Union to the persons ofthe citizensthe only proper objects of government.

Id. (quoting Federalist No. 15). The Framersdeliberately established a federal government able tocarry its agency to the persons of the citizens, agovernment of the Union, like that of each State, . .able to address itself immediately to the hopes andfears of individuals. Id. (quoting Federalist No. 16)

(emphasis added).

The Commerce Clause empowers Congress toregulate the conduct of individuals whose actionssubstantially affect interstate commerce. Indeed, asthe Courts cases establish, Congress may regulateunder the Commerce Clause the conduct ofindividual people whose decisions not to participatein interstate commerce nonetheless have asubstantial effect on interstate commerce. It soconcluded with respect to federal restrictions on the

cultivation of wheat for home consumption inWickard v. Filburn, and, more recently, with respectto federal proscription of the cultivation ofmarijuana for home consumption in Gonzalez v.

Raich. As the Court explained in the latter case,the regulation is squarely within Congressscommerce power because production of thecommodity meant for home consumption, be it wheator marijuana, has a substantial effect on supply anddemand in the national market for that commodity.545 U.S. at 19 (discussing Wickard v. Filburn, 317

U.S. 111 (1942)).


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In this regard, [t]he authority of the federalgovernment over interstate commerce does not differin extent or nature from that retained by the statesover intrastate commerce. Darby, 312 U.S. at 116.Just as states have plenary authority to regulatecommerce within their boundaries, see Danforth v.

Minnesota, 552 U.S. 264, 280 (2008), so too doesCongress have plenary authority to regulatecommerce that crosses state boundaries.

B. Longstanding Precedent Confirms theUnderstanding of the Commerce Poweras a Means of Enabling Congress to

Address Problems that RequireCoordination and Cooperation Amongthe States.

From the time of Chief Justice Marshall, thisCourt has consistently interpreted Congressscommerce power as one intended to addressproblems that require coordination among states,where states, acting alone, can create problemsaffecting other states. In the seminal case ofGibbons v. Ogden, the Court recognized that thecommerce power was necessary to prevent one statefrom stifling the development of both another statescommerce and interstate commerce in the UnitedStates generally. Commerce among the states, theCourt explained, meant commerce of one stateintermingled with that of others, which necessarilycannot stop at the external boundary of each State.22 U.S. at 194. Without federal power to coordinate

this intermingled commerce, actions by one statecould negatively affect commerce in another state oramong states. Therefore, the Court held, the


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Commerce Clause must be understood as grantingCongress the power to regulate that commercewhich concerns more states than one. Id.

As the nations economy evolved and becamemore interdependent, the Supreme Court recognizedthat even small intrastate transactions could affectinterstate commerce. In Wickard v. Filburn, theCourt upheld the application of federal price-stabilization laws to a single farmers production ofwheat for home consumption, finding that the effect

of his contribution to the wheat market, when takentogether with that of many others similarly situated,is far from trivial. 317 U.S. at 128. The Court heldthat the commerce power extends to those activitiesintrastate which so affect interstate commerce . . . asto make regulation of them appropriate means to theattainment of a legitimate end, the effectiveexecution of the granted power to regulate interstatecommerce. 317 U.S. at 124 (citation omitted).

The Court has also recognized that a single state

can put itself at a competitive disadvantage withother states if it expends resources to address ageneral societal ill while other states fail to takeaction. In Darby, the Court held that federal wage-and-hour regulations were necessary to preventunfair competition between businesses in states withsuch laws and those in states without them, and thatsuch nationwide regulations were within Congressscommerce power. See 312 U.S. at 115. A state-by-state approach to eradicating the evils . . . ofsubstandard labor conditions would result in the

dislocation of the commerce itself caused by theimpairment or destruction of local businessesseeking to compete in a system of interstate


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commerce. Id. at 122. Only Congress, exercising itscommerce power, can legislate a solution whilemaintaining a level playing field among the states.

Thus, longstanding precedent has establishedthat the federal commerce power supplies the basisfor coordinated action to resolve problems thatstates, acting within their borders, cannot effectivelyaddress alone. As the Court explained in United

States v. South-Eastern Underwriters Association,the federal commerce power encompasses the power

to legislate concerning . . . transactions which,reaching across state boundaries, affect the people ofmore states than oneto govern affairs which theindividual states, with their limited territorial

jurisdictions, are not fully capable of governing.322 U.S. 533, 552 (1944). The nations healthcarecrisis is one that states are not fully capable ofgoverning without federal regulation that addressesthe interstate dimensions of the healthcare economy.

C. Our Nations Healthcare Crisis Is anInterstate Problem that States CannotFully Address on Their Own, and Is Thusa Proper Subject for the Exercise ofCongresss Commerce Power.

1. The Problem of Uncompensated CareTranscends State Boundaries.

The interstate nature of the market for healthcare is beyond serious dispute. The healthcare

economy accounted for 17.6% of the nations grossdomestic product in 2009. Many hospitalcorporations operate in numerous states, and


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medical supplies, drugs, and equipmentnot tomention patientsroutinely cross state lines. See 42U.S.C. 18091(a)(2)(B). Spending for healthinsurance exceeded $850 billion in 2009, and themajority of health insurance is sold by national orregional companies. See id. The value of healthcareservices provided to those without insurance in 2008was $116 billion. See Families USA,Hidden HealthTax: Americans Pay a Premium 2 (2009). Congressfound that providers were not compensated for $43billion of that total; that providers shift a substantial

portion of those costs onto insurance companies andother payers; and that annual family healthinsurance premiums are, on average, more than$1,000 higher than they otherwise would be as aresult of the further shifting of those costs. See 42U.S.C. 18091(a)(2)(F).

No state has fully insulated itself from thealarming trends in the number of people who lackinsurance and in the overall cost of health care. In2009, for example, 21.9% of Californians, 10.7% of

Hawaiians, 11.8% of Iowans, 16.1% of Marylanders,16.1% of New Yorkers, and 21.8% of Oregonianslacked health insurance; in the absence of thereforms Congress adopted in the Affordable Care

Act, those figures were projected to rise by 2019 to25.6%, 12.4%, 13.5%, 18.9%, 18.5%, and 26.1%respectively. See Bowen Garrett, et al., The Cost of

Failure to Enact Health Reform (2009), available athttp://www.rwjf.org/files/research/49148.pdf.

The American Hospital Association estimates

that the value of hospital-based uncompensated carehas risen steadily over the last 30 years, from $3.9billion in 1980 to $39.1 billion in 2009. See


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American Hospital Association, Uncompensated Hospital Care Fact Sheet (Dec. 2010), available athttp://www.aha.org/content/00-10/10uncompensatedcare.pdf. Total national healthcare expenditureshave risen from $27.3 billion in 1960, or 5.2% of thegross domestic product in that year, to $2.5 trillion,or 17.6% of the gross domestic product, in 2009.Centers for Medicare & Medicaid Services, HistoricalNational Health Expenditure Data Web Tables T.1(2011), available at https://www.cms.gov/NationalHealthExpendData/downloads/tables.pdf. In en-

acting the Affordable Care Act, Congress projectedthat, without meaningful reform, total nationalhealth expenditures would rise to $4.7 trillion in2019. See 42 U.S.C. 18091(a)(2)(B).

In Maryland, where hospitals in 2009 provided$999 million in uncompensated care to theuninsured,2 the State has established a healthcarecompensation structure to regulate and rationalizethe economic consequences of the inactivity that isthe core subject of this case. As a result of this

system, it is possible to trace more concretely thesubstantial effect on the healthcare economy offailing to maintain adequate health insurance.Under Marylands all-payer system, for which it hasreceived a waiver from the federal government under42 U.S.C. 1395f(b), the States Health ServicesCost Review Commission sets the rates for hospitalin-patient services paid by all payers, includingprivate insurers, the federal Medicare program, and

2

See

Health Services Cost Review Commission 2010 Report, at 2-4,available athttp://www.hscrc.state.md.us/documents/HSCRC_PolicyDo

cumentsReports/AnnualReports/GovReport10_MD_HSCRC.pdf.


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the States Medicaid program. See Md. Code Ann.,Health-Gen. 19-211, 19-212. In establishing theCommission, the Maryland General Assemblyexpressly sought to address the market problemsassociated with uncompensated care, see Md. Code

Ann., Health-Gen. 19-214, and a key virtue of theall-payer rate-setting system is that it rationalizesthe shifting of the costs of uncompensated care,avoiding a situation in which the bargaining powerof each payer determines the extent to which thecosts of uncompensated care will be shifted to it.

Each year, after studying the level of uncompensatedcare, the Commission authorizes hospitals to imposea surcharge to reimburse them for costs associatedwith providing uncompensated care. In 2009, thatsurcharge was 6.91%. See 2009 Budget Analysis,Health Regulatory Commissions, Department ofHealth and Mental Hygiene, at 18, available athttp://mlis.state.md.us/2009rs/budget_docs/all/operating/m00r_dhmh_health_regulatory_commissions.pdf.Thus, in Maryland, the inactivity that is thesubject of this casefailing to maintain adequate

health insuranceinflated the cost of in-patienthospital care to those who did maintain healthinsurance by nearly 7%.

2. Decisions to Forego Insurance Have aSubstantial Effect on InterstateCommerce.

In the healthcare context, the respondents

proffered distinction between activity andinactivity utterly fails to generate principled rules

for the exercise of regulatory authority. The properallocation of constitutional authority does not turnon the activity or inactivity of healthcare


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consumers, as the respondents contend, and thisCourt has refused to draw such artificial lines whenreviewing Congresss exercise of the commercepower. See Thomas More Law Ctr. v. Obama, 651F.3d 529, 547 (6th Cir. 2011) (Martin, J.) ([T]he textof the Commerce Clause does not acknowledge aconstitutional distinction between activity andinactivity, and neither does the Supreme Court.); id.at 560 (Sutton, J., concurring) (Commerce Clausedoes not contain an action/inaction dichotomy thatlimits congressional power); Seven-Sky, 661 F.3d at

16 (No Supreme Court case has ever held or impliedthat Congresss Commerce Clause authority islimited to individuals who are presently engaging inan activity involving, or substantially affecting,interstate commerce.); see also Carter v see alsoCarter v. Carter Coal Co., 298 U.S. 238, 307-08(1936) (Commerce Clause permits regulation of anyactivity or condition that substantially affectsinterstate commerce (emphasis added)).

The irrelevance of the supposed distinction

between activity and inactivity is evidenced inWickard, where the Court found that a decision toforestall resort to the market for wheatlike adecision to forestall resort to the health insurancemarketcould, in the aggregate, substantially affecta national market. 317 U.S. at 127-28. Similarly, in

Raich, the Court found that growing or possessingmarijuana for ones own usewithout anyconsumption, trade, or other activity related to itis subject to federal regulation, where Congress hada rational basis for believing that, when viewed in

the aggregate, that conduct would affect price andmarket conditions. See 545 U.S. at 19; see also

Seven-Sky v. Holder, 661 F.3d 1, 16-18 (D.C. Cir.


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2011). So too with health care: there is littledispute that the uninsured will impose billions ofdollars in costs on the national economy regardlessof whether their lack of insurance is deemedactivity or inactivity.

In any event, forgoing health insurance is indeedan activity. As Judge Sutton has explained, No oneis inactive when deciding how to pay for health care,as self-insurance and private insurance are twoforms of action for addressing the same risk. Each

requires affirmative choices; one is no less activethan the other; and both affect commerce. Thomas

More, 651 F.3d at 561 (Sutton, J., concurring).[F]ar from regulating inactivity, the minimumcoverage provision regulates individuals who are, inthe aggregate, active in the health care market. Id.at 548 (Martin, J.). If it is inactivity to forgo healthinsurance, when the United States expends morethan $43 billion annually to cover the cost of care forthose without insurance, then theres a whole lot ofinactivity going on in the national healthcare

market.

3. State-Level Reforms Cannot FullyAddress the Problems Associated WithUncompensated Care.

Uncompensated care in one state creates effectsfor multiple states, and so represents a problem thatis not fully susceptible to state-by-state solutions.The impediments are practical ones and are rootedin the interconnectedness of the American economy.

Today, if a state adopts a policy to reverse the risingnumber of people lacking access to basic health care,or to control the spiraling costs of health care,


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insurers who object to that policy can exit that statewith relative ease, as could healthcare providers,individuals, and employers who wish to avoid thetaxes, insurance expenses, or other burdensassociated with the states policy. At the same time,individuals and employers may easily enter a state ifthey wish to avail themselves of better healthcarepolicies, such as a state-imposed guaranteed-issuerequirement that ensures the availability of coverageregardless of pre-existing conditions. Similarly, astates decision to adopt more expansive standards

for Medicaid eligibility may attract applicants fromstates that retain stricter standards. Conversely,relocating to another state may present an attractivealternative for individuals and employers who wishto avoid taxes, insurance expenses, or other burdensassociated with the policies adopted in their homestate.

There are, of course, numerous examples ofeffective state policymaking in the area of healthcare, many of which Congress drew upon in enacting

the Affordable Care Act. Washington Statesinsurance program for people who have modestincomes but who are ineligible for Medicaid, forinstance, served as the model for the option in the

Act for states to create a basic health program. 42U.S.C. 18091. And, most notably, Massachusetts,which enacted a set of minimum-coverage,guaranteed-issue, and community-rating require-ments similar to those contained in the Act, hassucceeded in reducing the percentage of its citizenslacking health insurance to 4.4%by far the lowest

in the country. See U.S. Census Bureau, HealthInsurance, Health Insurance Historical Tables,


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available at http://www.census.gov/hhes/www/hlthins/data/historical.

Nonetheless, experience shows that, in the healthinsurance field, as in the fields of unemployment andold-age insurance, the interconnectedness of stateeconomies imposes practical restrictions on therange of policy choices open to any individual state,and also limits the efficacy of any solution chosen bya state that departs substantially from policiesadopted by other states. In the 1990s, a number of

states attempted to address an increasing lack ofaccess to individual insurance for sicker residents byenacting reform packages including guaranteedissue requirements. See Len M. Nichols, State

Regulation: What Have We Learned So Far?, 25 J.Health Politics, Policy & Law 175, 188 (2000).

Several of the states that attempted to institutethese reforms saw insurance providers pick upstakes and cease participation in those statesinsurance markets. In Kentucky, for example, 40

insurers departed the Commonwealth, leaving onlytwo remaining providers to serve the statewidemarket, after the reforms were instituted in 1994;similarly, in Washington, all but one out-of-statecommercial carrier stopped issuing new policiesbefore the States guaranteed-issue provision tookeffect. See Adele M. Kirk, Riding the Bull:

Experience With Individual Market Reform inWashington, Kentucky, and Massachusetts, 25 J.Health Politics, Policy & Law 152 (2000). InWashington, the one remaining commercial insurer

experienced significant losses because sickerindividuals flocked to its product. See id. at 140.When national carriers have the ability to avoid


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exposure to such losses by simply ceasing toparticipate in reformed markets, states are forced toabandon wanted policies, as Kentucky andWashington ultimately did. See id. at 133, 136-37,152, 158; Nancy C. Turnbull, et al., Insuring the

Healthy or Insuring the Sick? The Dilemma ofRegulating the Individual Health Insurance Market: Short Case Studies of Six States 7 (Feb. 2005); seealso Pet. App. 230a-231a (Marcus, J., dissenting)(discussing experience of state-level healthcarereform that led to insurers exiting the market).

The experience of states attempting to go it alonereveals the serious risks of a purely state-by-stateapproach when neighbor states can offer a morecongenial environment to insurance companies byforgoing healthcare reforms. This concern isparticularly acute in states with few carriers in themarket. In Alabama, for example, a single insurancecarrier has a 96% share of the small-group market;in North Dakota, the corresponding figure is 91%.

Beyond the impediments to effective statepolicymaking that flow from the interconnectednessof each states healthcare economy, many potentialstate solutions are foreclosed or preempted byfederal law. As discussed below, federal regulationhas displaced state authority to regulate largecomponents of the healthcare sector. Self-fundedemployer health plans covered by the EmployeeRetirement Income Security Act of 1974 (ERISA).

Are largely beyond the reach of state regulators as aresult of that statutes broad preemptive scope. In

addition, the single largest source of healthcareexpenditures, the Medicare program, is administeredby the federal government without state


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involvement. The states regulatory authority isfurther limited by the Constitution itself, whichprohibits a state from limiting its conferral ofwelfare benefits that are more generous than thoseprovided by other states to people who lived in theState for the preceding year. See,e.g.,Saenz v. Roe,526 U.S. 489 (1999). Thus, for example, any statethat wishes to establish eligibility criteria for itsMedicaid program substantially broader than thoseof its neighbors must be prepared, by virtue ofconstitutional mandate, to shoulder the cost of

extending those benefits to any new arrivals whomove to the state to avail themselves of Medicaideligibility.

4. Federal Regulation Serves a CriticalRole in Aiding State HealthcareReform Efforts.

The states should, and undoubtedly will, play acritical role in health care reform; as discussedbelow, the Affordable Care Act fully embraces state

policymaking within a national framework ofcooperative federalism. In the absence of such anational framework, however, state policymaking is

just as likely to be driven (or paralyzed) by interstatecompetitive pressures as by a desire to function aslaboratories of democracy in finding innovativesolutions to these extraordinarily pressing problems.

This Court long ago recognizedwell beforehealth insurance could be purchased over theinternetthat the growing interconnection of state

economies poses an ever-greater challenge toeffective state-by-state policymaking on matters ofnational economic concern. Problems plainly


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national in area and dimensions often requirenational solutions, as the Court recognized in 1937in separate decisions upholding, respectively, thesystem of unemployment insurance benefits and thesystem of old-age benefits established in the SocialSecurity Act. See Steward Machine, 301 U.S. 548,586-89 (1937);Helvering, 301 U.S. at 644.

With respect to Congresss decision to provide ameasure of income security to older Americans,Justice Cardozo explained for the Court that the

laws of the separate states cannot deal with [theproblem of income insecurity and poverty among theelderly] effectively. Helvering, 301 U.S. at 644.This is so because, [a]part from the failure ofresources, states and local governments are at timesreluctant to increase so heavily the burden oftaxation to be borne by their residents for fear ofplacing themselves in a position of economicdisadvantage as compared with neighbors orcompetitors. Id. This fear is rational, and appliesto single-state efforts to reduce the cost and improve

the quality of healthcare services delivery, just as itapplies to a system of old age pensions, which, ifput in force in one state and rejected in anothercreates a bait to the needy and dependentelsewhere, encouraging them to migrate and seek ahaven of repose. Id. For that reason, as this Courtrecognized, [o]nly a power that is national can servethe interests of all in reforming the interstatehealthcare market. Id.

What is true of old-age pensions and healthcare

reform was also true of the decision to establish anational system of federal-state cooperation for


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providing unemployment insurance. There, too, asJustice Cardozo explained:

[I]f states had been holding back before thepassage of the federal law, inaction was notowing, for the most part, to the lack ofsympathetic interest. Many held back throughalarm lest, in laying such a toll upon theirindustries, they would place themselves in aposition of economic disadvantage as comparedwith their neighbors or competitors. . . .

Steward Machine, 301 U.S. at 588.

The states have long been active, creativeshapers of healthcare policy in this country. In the

Affordable Care Act, Congress ensured that they willcontinue to function in that capacity in the future.For a host of practical and legal reasons, however,the states, acting alone, cannot fully address thedefects in our countrys healthcare system.

II. THE MINIMUM-COVERAGE PROVISION IS ANINTEGRAL ELEMENT OF CONGRESSS INTERSTATESOLUTION TO THE HEALTHCARE CRISIS.

The minimum-coverage provision is squarelywithin Congresss Commerce Clause powers.Exercising this power, Congress may regulateeconomic activities that, in the aggregate, have asubstantial effect on interstate commerce. SeeGonzalez v. Raich, 545 U.S. 1, 17 (2005). Inaddition, Congress may regulate noneconomic

activity so long as the regulation is an essentialpart of a larger regulation of economic activity, inwhich the regulatory scheme could be undercut


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unless the intrastate activity were regulated.United States v. Lopez, 514 U.S. 549, 561 (1995).The minimum-coverage provision is a justifiableexercise of Congresss Commerce Clause authoritybecause (1) the aggregate effect of maintaining aminimum level of insurance coverage has asubstantial effect on commerce, and (2) thecomprehensive solution to health insurance reformwould be undercut without the minimum coverageprovision.

The minimum-coverage provision is an essentialand lawful part of the Affordable Care Acts attemptto provide healthcare access to individuals withpreexisting conditions, a group that is among thehardest of the uninsured to cover. The provision isessential because it helps prevent individuals fromfree-riding on state and federal budgets and on thosewho responsibly obtain health insurance. It is alsoessential because, without it, the preexisting-condition prohibition would lead to much higherinsurance premiums, causing more people to forgo

health insurance, and thereby worsening the impacton state and federal budgets. This dynamic is borneout by the experience, discussed above, of states thatsaw higher premiums and reduced coveragefollowing their adoption of guaranteed-issuerequirements that were not accompanied by arequirement akin to that imposed by the minimum-coverage provision.

The increase in insurance premiums without aminimum-coverage requirement is due to the

phenomenon of moral hazard: Under a systemwhere health insurers cannot turn away people withpreexisting conditions, many people will simply wait


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to purchase insurance until they are facing a healthemergency, secure in the knowledge that they will beable to obtain insurance for expensive treatmentswhen the time comes. This manifestation of moralhazard, known as adverse selection, skews theinsurance pool, since people will tend to opt into thepool only when they perceive their health risks to begreat.

Two unique features of the healthcare marketexacerbate the problem of adverse selection: the

need for services is highly unpredictable, and thecost of those services can be ruinously expensive.3Ones health condition, of course, is not static. Thereis no class of healthcare consumers who are foreverimpervious to illness and injury. Rather, presentlyhealthy people ineluctably become unhealthy orinjured in the future and then require more costlytreatment, just as presently unhealthy people regaintheir health and then require less costly treatment.No insurance regime can survive if people can optout when the risk insured against is only a risk, but

opt in when the risk materializes. Congress enactedthe minimum-coverage provision to prevent freeriders from distorting market prices for insurance inthis way.4 The minimum-coverage provision is thus

justified as an essential part of a larger regulation

3 Congress found that 62 percent of all personalbankruptcies are caused in part by medical expenses. 42

U.S.C. 18091(a)(2)(G).4See Niel S. Siegel, Free Riding on Benevolence: Collective

Action Federalism and the Individual Mandate, 75 Law &

Contemp. Probs. (2012), Working Paper at 25-27, available athttp://scholarship.law.duke.edu/faculty_scholarship/2386.


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of the health insurance industry. Lopez, 514 U.S. at561.

III. THE AFFORDABLE CARE ACT, RATHER THANDISPLACING STATE AUTHORITY, PRESERVESSTATE POLICYMAKING DISCRETION IN THEIMPLEMENTATION OF HEALTHCARE REFORMS,BUILDING ON A SUCCESSFUL MODEL OFCOOPERATIVE FEDERALISM.

A. The Affordable Care Act Builds on aLong Tradition of Federal-StateCooperation.

Todays healthcare economy is one in which therehas already been substantial displacement of stateregulatory authority. According to the U.S. CensusBureau, the federal Medicare program accounted for$502 billion in healthcare expenditures in 2009,representingmore than 20% of the national total.The Medicare program, unlike Medicaid, isadministered exclusively by the federal government,without state involvement. Roughly half of theexpenditures by private insurers are by self-fundedemployer health plans and largely beyond the reachof state regulatory authority by virtue of ERISApreemption. See 29 U.S.C. 1144(a);New York StateConf. of Blue Cross & Blue Shield Plans v. Travelers

Ins. Co., 514 U.S. 645, 658 (1999).

In the Affordable Care Act, rather than furtherdisplacing state regulatory authority, Congress

chose to proceed on the basis of cooperativefederalism, a manner of legislating in whichCongress allows the States, within limits


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established by federal minimum standards, to enactand administer their own regulatory program,structured to meet their own particular needs.

Hodel, 452 U.S. at 289. Although it is undisputedthat Congress could have displaced state authorityand enacted a single-payer system, its choice to relyon the private marketplace, state-operated Medicaid,and state-run insurance exchanges shows a profoundrespect for the principles of federalism that underlieCongresss enumerated powers.5

The Medicaid program, which in 2009 accountedfor $374 billion in healthcare expenditures (or about15% of the national total), is perhaps the preeminentexample of this type of legislation. See Wisconsin

Dept of Health & Family Servs. v. Blumer, 534 U.S.473, 495-96 (2002). States choose whether toparticipate in the Medicaid program, and itscornerstone is financial contribution by both theFederal Government and the participating State.

Harris v. McRae, 448 U.S. 297, 308 (1980). In thedevelopment of policy for the program, Congress

leaves a range of permissible choices to the States,and allows each State to strike its own balance inthe implementation of the Act. Blumer, 534 U.S. at

5 It is a notable irony of the respondents challenge to the

minimum-coverage provision, a challenge animated bylibertarian values, that the most salient difference between, onthe one hand, the Affordable Care Acts system for extending

protection to those who today lack access to basic health careand, on the other hand, the insurance systems established inthe Social Security Act and upheld against similar challengesin Helvering and Steward Machine, is that, in the Affordable

Care Act, Congress relied principally on the private market, noton public insurance programs, to achieve its objectives.


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495, 497 (internal citation omitted). Other examplesof cooperative federalism include Aid to Familieswith Dependent Children, King v. Smith, 392 U.S.309, 316 (1968); the Individuals with Disabilities inEducation Act, Schaffer v. Weast, 546 U.S. 49, 52(2005); the Clean Water Act,Arkansas v. Oklahoma,503 U.S. 91, 101 (1992); and the OccupationalHealth and Safety Act of 1970, Gade v. National

Solid Wastes Management Assn, 505 U.S. 88, 97(1992).

B. The Affordable Care Act Affords StatesWide Latitude in Implementing KeyElements of the Acts Reforms.

The Affordable Care Act embraces the model ofcooperative federalism. The millions of Americanswho will gain access to affordable health insuranceas a result of the Acts reforms will look primarily toone of three sources to obtain coverage: theiremployers, state Medicaid programs, and statehealth benefit exchanges. Currently-uninsured

employees of large employers will gain access toemployer-sponsored insurance by virtue of the Actsemployer-responsibility provision. See 26 U.S.C. 4980H. Many Americans will become newlyeligible for Medicaid, which will be extended to coverthose whose incomes do not exceed 133% of thefederal poverty level. See 42 U.S.C. 1396a(a)(10)(A)(i)(VIII). Others who currently lackinsurance may purchase it through a health benefitexchange, a competitive insurance marketplace ineach state. 42 U.S.C. 18031. Congress has

provided substantial federal funding for theseexchanges, but has left to the states, in the firstinstance, the policy choices that determine how the


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exchanges will be established and will operate. Seeid. Thus, of the three most significant channelsthrough which previously-uninsured Americans willobtain insurance after full implementation of the

ACA, one is the expansion of an existing privatesource of coverage (employer-sponsored insurance),and two are programs of cooperative federalism(state Medicaid programs and state-based healthbenefit exchanges).

With regard to the Acts expansion of Medicaid

eligibility, it is sufficient for present purposes toemphasize what this Court has previously observed:the Medicaid program exemplifies cooperativefederalism, leaving a range of permissible choicesto the States and allowing each State to strike itsown balance in the implementation of the Act,

Blumer, 534 U.S. at 495, 497. In expanding access tohealth care for the countrys most vulnerablecitizens, the Affordable Care Act does not create agiant new federal entitlement program. Instead, the

Act expands a highly successful program that is

jointly overseen by the federal government and thestates and that is implemented entirely by thestates.

With regard to health benefit exchanges, the Actprovides in the first instance for the exchanges to beestablished and developed by the states themselves,subject to limited federal oversight and with thesupport of substantial federal funding. At least 13states have enacted legislation concerning theseexchanges, joining Massachusetts and Utah, both of

which had previously established an exchange. Thecore functions of these state-based exchanges are (a)to certify qualified health plans for sale in the


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state, (b) to facilitate the purchase of such plans byconsumers seeking individual coverage, and (c) toassist small employers in enrolling their employeesin such plans. 42 U.S.C. 18031(b)(1), (d)(4)(A).

Significantly, a state has broad discretion todetermine the basic package of benefits that a planoffered through its exchange must provide. See 42U.S.C. 18031(d)(3)(B). Moreover, under recentguidance from the Department of Health andHuman Services, states have substantial latitude in

defining essential health benefits, based onconditions in each states insurance market. SeeCenter for Consumer Information and InsuranceOversight, Essential Health Benefits Bulletin,December 16, 2011. The minimum-coverageprovision requires individuals to maintain insurancethat provides these essential health benefits.Thus, the operation of the very provision at issue inthis case will be influenced by decisions made at thestate level. And, naturally, the states may exercisethis policymaking authority differently, arriving at

results that are tailored to the needs and preferencesof its citizens, thereby fulfilling one of the promisesof our federal system by acting as laboratories for

policy experimentation.

The Act further authorizes each state to make thefundamental determination whether its exchangewill offer for purchase any plan that meets minimumrequirements, or if instead its exchange will adoptso-called active purchasing approaches tocertification, such as competitive bidding processes

or negotiations with insurance carriers of planterms, cost, network breadth, and service quality.

See 42 U.S.C. 18031(e)(1)(B); 76 Fed. Reg.


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41,891-92, 41,921 (July 15, 2011). All of theseprovisions, as well as numerous others, afford toeach state the opportunity to decide not only whatkinds of health plans its exchange will offer forpurchase, buteven more fundamentallywhatkind of exchange it will have.

Beyond the fact that two of the three principalchannels through which the Affordable Care Actexpands access to health insurance are intended tobe developed and implemented by the states

themselves, the Act exemplifies cooperativefederalism in other highly significant ways. Forexample, the Act affords each state the option, alongwith substantial federal financial assistance, toestablish a basic health program for individualswho are ineligible for Medicaid but whose familyincome is less than 200% of the federal poverty level.

See 42 U.S.C. 18051. The Act also establishes aprocess, to be implemented jointly by federalregulators and state insurance commissioners, thatwill subject annual increases in health insurance

premiums to enhanced regulatory rate review. See42 U.S.C. 300gg-94.

The Act also encourages policy innovation by thestates, allowing states to apply for waivers of the

Acts requirements, see 42 U.S.C. 18052, and to testother innovative payment and delivery models, 42U.S.C. 1315a. These provisions offer newopportunities for a state to shape the manner inwhich the federal Medicare programagain,accounting for roughly 20% of total national health

expenditurespays for care to beneficiaries in thatstate. See 42 U.S.C. 1315a(b)(2)(B)(x) & (xi).


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These core features of the Act, which bolster,rather than usurp, state authority in the arena ofhealthcare regulation, refute the respondentscontention, accepted by the panel majority below,that the Affordable Care Act supersedes amultitude of the states policy choices in key areas oftraditional state concern and obliterat[es] theboundaries inherent in the system of enumeratedcongressional powers. Pet. App. 143a, 187a. In

virtually every respect, Congress decided tomaintain the existing balance of responsibility

between the federal government and the states.Rather than supplant state authority, Congressdirected federal regulators to work in cooperationwith state Medicaid programs, state health benefitexchanges, state insurance commissioners, and otherstate institutions in such endeavors as expandingaccess to health care, regulating marketparticipants, and testing innovative strategies tocontrol healthcare costs. At a minimum, acomparison of the cooperative federalism thatcharacterizes the approach taken in the Affordable

Care Act with, for example, ERISAs preemptionprovision, through which Congress overrode all stateauthority to regulate roughly 15% of the entirehealthcare economy, reveals the hyperbole in therespondents claim that the Affordable Care Actsupersedes state policy choices and obliteratesour federalist system.

Moreover, in keeping with the best values ofcooperative federalism, the states remainaccountable to their citizens for the policy decisions

they make in implementing essential aspects ofhealthcare reform, because the broad discretionafforded to state officials under the Act allow the


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states to structure[] the reformsto meet their ownparticular needs. Hodel, 452 U.S. at 289; cf.Printzv. United States, 521 U.S. 898, 929-30 (1997); NewYork v. United States, 505 U.S. at 167-68. In thecritical provisions of the Act discussed above,Congress did not consign States to the ministerialtasks of information gathering and making initialrecommendations, while reserving to [the federalgovernment] the authority to make final judgmentsunder the guise of surveillance and oversight.

Alaska Dept of Envtl. Conservation v.

Environmental Prot. Agency, 540 U.S. 461, 518(2004) (Kennedy, J., dissenting). Rather, whileaddressing a crisis in the health care system that isplainly national in scope and effect, the AffordableCare Act allow[s] state governments to beaccountable to the democratic process, id., inmaking and implementing critical state-level policychoices, such as in deciding the operating model forits health benefit exchange and in deciding whatbenefits must be provided in plans offered forpurchase through the exchange.

The healthcare reforms adopted in the AffordableCare Act do not represent an incursion on statesovereignty or an encroachment on state regulatoryauthority. On the contrary, like the system offederal-state cooperation established in the SocialSecurity Act for providing insurance againstunemployment, the Acts operation is notconstraint, but the creation of a larger freedom, thestates and the nation joining in cooperative endeavorto avert a common evil. Steward Machine, 301 U.S.

at 587.


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CONCLUSION

The judgment of the court of appeals invalidatingthe minimum-coverage provision should be reversed.

Respectfully submitted,

DOUGLAS F.GANSLERAttorney General of Maryland

JOHN B.HOWARD,JR.

Deputy Attorney General

WILLIAM F.BROCKMANActing Solicitor General

Counsel of Record

JOSHUAN.AUERBACHSTEPHEN M.RUCKMANSARAH W.RICE

Assistant Attorneys General200 St. Paul Place, 20th Floor

Baltimore, Maryland [email protected](410) 576-7055

Attorneys for Amici Curiae

January 13, 2012

011312 attorneys general amicus brief on health care reform

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