Obama health care hangs on business clause

by The City Wire staff ([email protected]) 119 views 

BLOOMBERG — When the U.S. Supreme Court upheld the 1964 Civil Rights Act, the justices said next to nothing about racial equality, the ideal that drove the landmark law’s enactment.

Instead, the court cited the constitutional clause that lets Congress regulate interstate commerce, saying the law barred discrimination at hotels and restaurants used by travelers moving across state lines.

In the last 75 years, the commerce clause has become one of the Constitution’s most potent provisions, underlying federal laws that affect every American business and consumer, from the 1938 minimum-wage statute to the 2010 Dodd-Frank financial regulations. Next month the 16-word clause will play a starring role again as the focus of the fight over President Barack Obama’s health-care law.

Critics say it has expanded far beyond the original purpose and are looking to the health case to re-establish some limits.

“The modern version of the commerce clause is designed to allow the federal government to regulate anything and everything in the national economy,” said Richard Epstein, a New York University School of Law and University of Chicago Law School professor who contends the health-care law is unconstitutional.

The bulk of the Patient Protection and Affordable Care Act falls comfortably within the commerce clause power, at least as it’s been defined by the Supreme Court over the past seven decades. Health care accounts for 18 percent of the U.S. economy and much of the business, including the sale of prescription drugs, takes place across state lines.

The constitutional disagreement lies in the law’s requirement that Americans get insurance or pay a penalty. Opponents say that provision crosses the line because it would force people to buy a product — something they say Congress lacks the power to do.

“The mandate represents an unprecedented effort by Congress to compel individuals to enter commerce in order to better regulate commerce,” Paul Clement, the lawyer for 26 states challenging the law, told the justices in March.

In defending the law, the Obama administration says virtually every American will eventually require health care and that the uninsured affect the market because they often can’t pay for their treatments. And the insurance mandate will hold down the costs of policies by making certain that insurers aren’t covering only the sickest — and hence, the most expensive — people, the administration says.

“What is being regulated is the method of financing” the purchase of health care, U.S. Solicitor General Donald Verrilli told the court. “That itself is economic activity with substantial effects on interstate commerce.”

The high court will probably rule in the case in late June.

The debate over the commerce power has come a long way since the Constitutional Convention in 1787.

The framers adopted the provision to address perhaps the most glaring inadequacy of the Articles of Confederation, the loose agreement among the states that predated the Constitution. That agreement let states discriminate against each other’s goods — a “defect” that had been “clearly pointed out by experience,” James Madison wrote in the Federalist Papers.

The clause’s importance stems from the government’s structure, where the Constitution grants Congress specified powers, including borrowing money, declaring war and establishing post offices. No. 3 on the list is allowing Congress “to regulate Commerce with foreign Nations and among the several States, and with the Indian Tribes” — the commerce clause.

For the first century, the clause’s primary relevance was to block state laws that interfered with interstate trade. Not until the late 19th century, when Congress began reacting to a nationalizing economy, did the court begin to take up sweeping federal legislation.

In 1895 it ruled the Sherman Antitrust Act, which bars efforts to monopolize markets, couldn’t constitutionally be applied to the nation’s sugar industry. The majority said the Constitution didn’t let Congress regulate manufacturing — of refined sugar or any other product.

“Commerce succeeds to manufacture, and is not part of it,” Chief Justice Melville Fuller wrote.

That ruling set the tone for the court’s restrictive interpretation of the commerce power over the next four decades. In 1918, the justices struck down a federal law that aimed to tackle child labor by barring the interstate shipment of goods produced in factories with workers under age 14.

The turning point came in a 1937 ruling that upheld the National Labor Relations Act, which gave employees the right to bargain collectively and created a board to crack down on unfair labor practices. For the first time, the court said Congress could regulate activities such as manufacturing that have a substantial effect on interstate commerce — even if they do so indirectly.

Buoyed by appointees of President Franklin Roosevelt, the court followed up in 1941 by upholding the Fair Labor Standards Act, which included a federal minimum-wage requirement. A year later, the court said a federal quota on wheat production could constitutionally apply even to grain used on a family farm for consumption on the premises.

The wheat decision, known as Wickard v. Filburn, may represent the high-water mark for the commerce clause. The court bolstered federal authority by invoking a separate provision that allows laws “necessary and proper” for carrying out Congress’s other powers. Epstein once wrote that the ruling “does not pass the laugh test if the issue is whether it bears any fidelity to the original constitutional design.”

What followed was an era of virtually unlimited congressional power under the commerce clause, as underscored by the two civil rights rulings the court issued in December 1964, less than six months after the law was enacted.

“The power of Congress in this field is broad and sweeping,” Justice Tom Clark wrote for the court in one of the cases. “Where it keeps within its sphere and violates no express constitutional limitation it has been the rule of this court, going back almost to the founding days of the republic, not to interfere.”

The commerce power now provides the legal basis for the vast majority of federal criminal statutes, including drug prohibitions and securities fraud laws, said Erwin Chemerinsky, dean of the University of California at Irvine School of Law. The clause has let the government enact the Clean Water Act, the Endangered Species Act, food-safety regulations and consumer-protection laws.

For business, that expansion has proven to be a blessing as much as a curse. Even as the commerce clause has permitted increased federal regulation, it has ushered in the types of national standards that companies prefer to state-by-state regulation.

The U.S. Chamber of Commerce invokes the clause against state laws it says interfere with free trade. In one pending case, the trade group is opposing a Michigan law that would require all beverage containers sold in the state, even those made elsewhere, to include a particular mark. The state says the goal is to prevent people from collecting bottles and cans elsewhere and redeeming them for the 10-cent Michigan deposit.

“The notion that one state can dictate how businesses conduct their affairs in other states is anathema to the most fundamental principles that animate the commerce clause,” the group said in court papers.

As for Congress’s power, the Supreme Court began to re-establish limits in 1995, when an ideologically divided court invalidated a federal law barring guns near schools. The majority called for “a distinction between what is truly national and what is truly local.”

A second decision in 2000 barred the part of a federal law that authorized lawsuits alleging gender-motivated violence. In both cases, the court faulted Congress for regulating what was essentially non-economic conduct.

Those rulings marked the beginning of what Chemerinsky calls the fourth era of commerce clause interpretation, an epoch whose significance would grow with a ruling striking down the insurance requirement.

“The health-care case might give us a real indication in this fourth era how far the pendulum is going to swing,” Chemerinsky said.