On Monday, a federal court in the Eastern District of Virgina (Virginia v. Sebelius) found the individual mandate in the Patient Protection and Affordable Care Act unconstitutional.
The key constitutional question in this case is whether the individual mandate is a valid exercise of its power to regulate interstate commerce. The Supreme Court has consistently upheld the federal government's right to regulate even local activity if it substantially affects interstate commerce or is an integral part of a broader regulatory scheme that permissibly regulates interstate commerce. The federal mandate presents a novel and important question of law, however, about whether the commerce clause is broad enough to allow the federal government to require citizens to purchase private goods.
The court in Virginia v. Sebelius says no. In its decision, the court embraced the plaintiff's characterization of the subject being regulated as "inactivity" and noted that " to survive a constitutional challenge the subject matter must be economic in nature ... and involve activity." Allowing the federal government to regulate "inactivity" by forcing citizens to purchase insurance merely as a condition of their existence seemed a radical extension of the commerce clause power that is inconsistent with legal precedent. Two other district courts in Florida (Florida v. U.S. Department of Health and Human Services) and Ohio (U.S. Citizens Ass'n v. Sebelius) have refused to dismiss legal challenges to the individual mandate based on similar reasoning.
Despite this latest development, this issue is far from settled. The Virginia decision is being appealed, and so far two other courts have upheld the individual mandate.
District courts in Michigan (Thomas More Law Center v. Obama) and the Western District of Virgina (Liberty University v. Geithner) found that the mandate is a consitutionally permissible exercise of the federal government's right to regulate interstate commerce for two key reasons.
First, both courts found that the government made a strong case for the fact that health care coverage (or lack of it) substantially affects interstate commerce, and that a mandate is essential for the overall regulatory scheme created in the Care Act. Second, the courts also rejected the plaintiffs' characterization of the failure to purchase insurance as "inactivity." The courts agreed with the government that the health care market is a unique market and that people cannot opt out of this market; although health care needs are unpredictable, everyone will likely need health care at some point and everyone is legally entitled to emergency care regardless of ability to pay. A decision to not to purchase insurance is activity - it is an economic decision to pay out-of-pocket that has terrible implications for health care providers, financers, government, and other patients.
Plaintiffs have raised other legal arguments to challenge the mandate. For example, plaintiffs have alleged that the mandate violates the Free Exercise Clause of the First Amendment, and the Equal Protection and Due Process Clauses of the Fifth Amendment. However none of these claims have gained traction so far. Plaintiffs have also challenged the government's claim that the tax penalty for the mandate is a valid exercise of its taxing power under the General Welfare Clause of Article I. Despite the fact that the penalty is assessed as a tax, courts have largely rejected the government's taxing power justification. Instead the courts agree with plaintiffs that this assesment is more accurately characterized as a regulatory "penalty," whose constitutionality turns on whether the individual mandate is valid under the Commerce Clause.
You can find a more detailed discussion about why I think the individual mandate will ultimately be found constitutional in my earlier post, The Constitutionality of the Individual Mandate.