Yesterday, United States District Judge Henry E. Hudson (Eastern District of Virginia) found unconstitutional the Patient Protection and Affordable Care Act (PPACA) provision which requires most uninsured Americans to obtain coverage or pay a penalty.  Read Judge Hudson’s Memorandum Opinion.

Virginia Attorney General Kenneth T. Cuccinelli sued Health and Human Services Secretary Kathleen Sebelius, in her official capacity, alleging that the PPACA conflicts with Virginia law and that the Act’s purchase mandate is unconstitutional.  This lawsuit is similar to the lawsuit led by Florida Attorney General Bill McCollum in which twenty other states are participating in Florida.  A hearing on the States’ motion for summary judgment in that case is scheduled for December 16, 2010.

The Act’s Minimum Essential Coverage Provision (Section 1501 of the PPACA) requires that every United States citizen, other than those specifically excepted, maintain a minimum level of health insurance coverage beginning in 2014.  According to Section 1501, the failure to comply will result in a penalty on a taxpayer’s annual tax return.

Judge Hudson opined—in connection with partially granting summary judgment to the Commonwealth of Virginia—that the requirement in Section 1501 of the PPACA that individual citizens purchase private health insurance is unconstitutional and exceeds Congress’s commerce-clause power.  According to Judge Hudson, Section 1501 of the PPACA constituted a “unchecked expansion of congressional power” that would “invite unbridled exercise of federal police powers.”  Judge Hudson also found unavailing the federal government’s argument that the purchase mandate is a valid exercise of Congress’s taxation power.  The Judge observed that the generation of revenue as a legislative objective was merely a “transparent afterthought.”  Judge Hudson severed Section 1501’s purchase mandate from the Act but declined to grant Virginia’s request for injunctive relief pending appellate review.  According to the Judge, the likelihood of irreparable harm—a necessary element for issuance of an injunction—was minimal considering that the purchase mandate at issue does not take effect until 2013.

The Virginia Attorney General’s Office is seeking to “fast track” the case to the United States Supreme Court.  This would require the Department of Justice to join with the Virginia Attorney General’s office in waiving a hearing in the Fourth Circuit Court of Appeals, allowing the case to move immediately to the Supreme Court for resolution.

This case represents the first case involving a successful constitutional challenge to the PPACA.

Employer’s Take Away

This decision will not have an immediate impact on employers.  However, the decision adds to the growing uncertainty facing employers regarding the effect of PPACA on health insurance-related planning and budgeting.  We will continue to monitor PPACA-related developments in order to effectively guide employers through this field of uncertainty.