NOS. 11-393 and 11-400

In theIn theIn theIn theIn the Supreme Court of the United StatesSupreme Court of the United StatesSupreme Court of the United StatesSupreme Court of the United StatesSupreme Court of the United States

NATIONAL FEDERATION OF INDEPENDENT BUSINESS, et al.,Petitioners,

v.

KATHLEEN SEBELIUS, Secretary of Health andHuman Services, et al.,

Respondents.

STATE OF FLORIDA, et al.,Petitioners,

v.

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

On Writs of Certiorari to the United StatesCourt of Appeals for the Eleventh Circuit

BRIEF OF AMICUS CURIAE NATIONAL RESTAURANTASSOCIATION IN SUPPORT OF PETITIONERS

(SEVERABILITY)

Becker Gallagher · Cincinnati, OH · Washington, D.C. · 800.890.5001

January 6, 2012

LEON R. SEQUEIRA

Counsel of RecordDAVID M. WEINER

JENNIFER A. KRAFT

SEYFARTH SHAW LLP

975 F Street, NWWashington, D.C. 20004(202) 463-2400lsequeira@seyfarth.com

Counsel for Amicus CuriaeNational Restaurant Association

i

QUESTION PRESENTED

Whether the Patient Protection and AffordableCare Act, Pub. L. No. 111-148, 124 Stat. 119 (2010), asamended by the Health Care and EducationReconciliation Act of 2010, Pub L. No. 111-152, 124Stat. 109 (2010) (collectively the “Act”), must beinvalidated in its entirety because it is not severablefrom the Act’s individual mandate, 26 U.S.C. § 5000A,that exceeds Congress’s limited and enumeratedpowers under the Constitution.

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TABLE OF CONTENTS

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

TABLE OF CONTENTS . . . . . . . . . . . . . . . . . . . . . ii

TABLE OF AUTHORITIES . . . . . . . . . . . . . . . . . . iv

INTERESTS OF AMICUS CURIAE . . . . . . . . . . . 1

SUMMARY OF THE ARGUMENT . . . . . . . . . . . . 3

ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

I. THE INDIVIDUAL MANDATE IS NOTSEVERABLE FROM THE ACT . . . . . . . . . . . . 4

A. The Presumption of Severability Does NotApply to the Act . . . . . . . . . . . . . . . . . . . . . . 5

B. Congress Intended the Act’s Provisions toFunction as an Interrelated Whole . . . . . . . 6

1. Congress Declared the MandateEssential to Achieving the Purposes ofthe Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

2. Severing the Mandate Conflicts withCongress’s Intent that the Act Functionas an Integrated Whole . . . . . . . . . . . . . . 7

C. Attempting to Assess Whether AdditionalProvisions Should be Severed Would Requirethe Court to Infringe on the Role of theLegislature . . . . . . . . . . . . . . . . . . . . . . . . . . 9

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II. SEVERING THE INDIVIDUAL MANDATEFROM THE ACT WILL LEAD TO RESULTSCONGRESS DID NOT INTEND . . . . . . . . . . 10

A. The Remaining Provisions of the Act WouldCreate Dire Consequences for the HealthInsurance Market . . . . . . . . . . . . . . . . . . . . 13

B. The Restaurant Industry Will BeParticularly Impacted by the RemainingBurdensome Provisions of the Act . . . . . . . 16

1. Younger Workers are More Likely toForego Coverage . . . . . . . . . . . . . . . . . . 16

2. Industry Employers Will Be AdverselyAffected by the Cost of PartialImplementation of Health Care Reform . . . . . . . . . . . . . . . . . . . . . . . . . . 18

3. Without the Individual Mandate, theOfferings for Small Employers in theState Exchanges Would Be MoreExpensive . . . . . . . . . . . . . . . . . . . . . . . 20

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

iv

TABLE OF AUTHORITIES

Cases

Alaska Airlines, Inc. v. Brock, 480 U.S. 678 (1987) . . . . . . . . . . . . . . . . . . . . . . 6

Ayotte v. Planned Parenthood of N. New Eng., 546 U.S. 320 (2006) . . . . . . . . . . . . . . . . . . . . 7, 9

Brockett v. Spokane Arcades, Inc., 472 U.S. 491 (1985) . . . . . . . . . . . . . . . . . . . . . . 5

Free Enter. Fund v. Pub. Co. Accounting OversightBd., 561 U.S. –––, 130 S.Ct. 3138 (2010) . . . . . . . 5, 9

United States v. Booker, 543 U.S. 220 (2005) . . . . . . . . . . . . . . . . . . . . . . 8

Statutes

26 U.S.C. § 36B . . . . . . . . . . . . . . . . . . . . . . . . . . . 1926 U.S.C. § 45R . . . . . . . . . . . . . . . . . . . . . . . . . . . 1826 U.S.C. § 125(j) . . . . . . . . . . . . . . . . . . . . . . . . . . 1826 U.S.C. § 4980H . . . . . . . . . . . . . . . . . . . . . . . . . 1926 U.S.C. § 5000A . . . . . . . . . . . . . . . . . . . . . . . . . . . i42 U.S.C. § 280l . . . . . . . . . . . . . . . . . . . . . . . . . . . 1842 U.S.C. § 300gg-1(a) . . . . . . . . . . . . . . . . . . . . . . . 842 U.S.C. § 300gg-3 . . . . . . . . . . . . . . . . . . . . . . . . 1242 U.S.C. § 300gg-4 . . . . . . . . . . . . . . . . . . . . . . . . . 842 U.S.C. § 300gg-11(a)(1)(A), (b) . . . . . . . . . . . . . 1242 U.S.C. § 300gg-13(a). . . . . . . . . . . . . . . . . . 14, 1542 U.S.C. § 300gg-(a)(1) . . . . . . . . . . . . . . . . . . . . . 842 U.S.C. § 18011 . . . . . . . . . . . . . . . . . . . . . . . . . 1242 U.S.C. § 18031 . . . . . . . . . . . . . . . . . . . . . . 19, 20

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42 U.S.C. § 18091(a)(2)(C) . . . . . . . . . . . . . . . . . . . 742 U.S.C. § 18091(a)(2)(D) . . . . . . . . . . . . . 7, 18, 2042 U.S.C. § 18091(a)(2)(F) . . . . . . . . . . . . . . . . . . . . 742 U.S.C. § 18091(a)(2)(G) . . . . . . . . . . . . . . . . . . . 742 U.S.C. § 18091(a)(2)(I) . . . . . . . . . . 6, 7, 8, 13, 16

Health Care and Education Reconciliation Act of2010, Pub L. No. 111-152, 124 Stat. 109 (2010) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim

Patient Protection and Affordable Care Act, Pub. L.No. 111-148, 124 Stat. 119 (2010) . . . . . . . passim

Pub. L. No. 111-148, Title I, § 1255 (formerly§ 1253), 124 Stat. 162 (2010) . . . . . . . . . . . . . . 12

Rules

Sup. Ct. R. 37.3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Sup. Ct. R. 37.6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Regulations

Preamble to 26 C.F.R. 54.9815-1215T, InterimFinal Rules for Group Health Plans and HealthInsurance Coverage Relating to Status asGrandfathered Health Plan and the PatientProtection and Affordable Care Act, 75 Fed.Reg. 34553 (June 17, 2010) . . . . . . . . . . . . . . . 15

Preamble to Interim Final Rules for Group HealthPlans and Health Insurance Issuers Relating toCoverage of Preventive Services under thePatient Protection and Affordable Care Act, 75Fed. Reg. 41726 . . . . . . . . . . . . . . . . . . . . . . . . 14

vi

Other

2011 Restaurant Industry Forecast, NationalRestaurant Association . . . . . . . . . . . . . . . . . . . 1

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INTERESTS OF AMICUS CURIAE1

This brief is submitted on behalf of the NationalRestaurant Association (the “Association”) in supportof petitioner. The Association is the leading businessassociation for the restaurant and food serviceindustry. The industry comprises 960,000 restaurantand food service outlets employing 12.8 million peoplewho serve 130 million guests daily.2 The restaurantindustry is the nation’s second-largest private-sectoremployer; more than nine percent of the U.S.workforce is employed in this industry.

The restaurant and food service industry is uniquefor several reasons. First and foremost, smallbusinesses dominate the industry – with more thanseven out of ten eating and drinking establishmentsbeing single-unit operators. This industry alsoemploys a high proportion of part-time, seasonal, andtemporary workers, with fluctuating andunpredictable work hours, as well as unpredictablelengths of service. The workforce is typically young,with nearly half of its employees being under the ageof 25. The restaurant industry also has a high

1 Pursuant to Supreme Court Rule 37.6, amicus curiae certifiesthat no counsel for any party authored this brief in whole or inpart, and that no person other than amicus, its members, or itscounsel made any monetary contribution intended to fund thepreparation or submission of this brief. Pursuant to SupremeCourt Rule 37.3, amicus states that all counsel of record for allparties have filed with the Clerk’s office letters of blanket consentto the filing of amicus briefs.

2 2011 Restaurant Industry Forecast, National RestaurantAssociation.

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workforce turnover rate relative to other industrieswith a 75 percent average turnover rate in 2008compared to a 49 percent average turnover rate for theoverall private sector. In addition, the business modelof the restaurant industry produces relatively lowprofit margins of only four to six percent before taxes,with labor costs being one of the most significant lineitems for a restaurant.

This brief focuses on only one of the issues beforethe Court, the severability of the individual mandatefrom the other provisions of the Patient Protection andAffordable Care Act, Pub. L. No. 111-148, 124 Stat.119 (2010), as amended by the Health Care andEducation Reconciliation Act of 2010, Pub L. No. 111-152, 124 Stat. 109 (2010) (collectively, the “Act”).3 Inthe event this Court finds that Congress exceeded itsConstitutional authority in enacting the individualmandate, the Eleventh Circuit’s decision regardingseverability must be reversed, and the entire Act mustbe invalidated.

The Eleventh Circuit’s decision incorrectly appliesthis Court’s severability jurisprudence and fails torecognize the congressional objectives in passing theAct with numerous interrelated provisions. Moreover,if the Eleventh Circuit’s decision on severabilityprevails, the Act will produce a U.S. health caresystem that no longer provides any risk-poolingmechanism and that is certain to accelerate direfinancial impacts on those who provide healthinsurance, and on the restaurant industry in

3 The Association does not take a position as to whether theindividual mandate is constitutional.

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particular. These results contravene thecongressionally-declared purposes of the Act.

SUMMARY OF THE ARGUMENT

In the event the individual mandate in the Act isfound unconstitutional, it cannot be severed from thewhole and the entire Act is invalid. The Act wasdesigned and intended by Congress as an integratedremedy to the shortcomings of the U.S. health carecoverage system. As such, congressional intent willnot be served by severing the individual mandate andleaving in place the remnants of the Act that are notbeing directly challenged here. If the other provisionsof the Act remain in effect without the individualmandate, the Act will actually exacerbate many of thevery problems Congress sought to ameliorate, and thecost of health care coverage will significantly increase. The restaurant industry will be hit especially hard, byvirtue of the demographics of its workforce and thecharacteristics of its employers.

Particular features of the Act, such as the ban onpreexisting condition exclusions, the ban on lifetimeand annual limits, and the requirement for coverage ofadult children will, in the absence of the individualmandate, result in increased health insurance costs foremployers and individuals seeking insurance coverage. In response, many restaurant industry employers willno longer be able to afford to provide any health carecoverage to their employees, forcing those employeesto seek coverage from government-subsidized sources,which will increase the burden on U.S. and statetaxpayers, and undermine the private employer-basedhealth insurance system.

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ARGUMENT

I. THE INDIVIDUAL MANDATE IS NOTSEVERABLE FROM THE ACT

Introduction

The Act is one of the most far-reaching andcomplicated statutory regimes enacted by Congress inrecent memory. The nearly 2,700 pages of statutorylanguage and the thousands of attendant regulationsimpose (or will impose) countless intertwinedobligations on individuals, employers and stategovernments. The Act’s mandate that individualsmust purchase health insurance is the central elementof this regime to which virtually all of the otherreforms in the Act directly or indirectly relate. Without the individual mandate in place to facilitateand fund the Act’s other insurance and health carereform provisions, those remaining provisions cannotfulfill Congress’s stated goals in passing the Act.

The district court found the individual mandate tobe contrary to Congress’s power under theConstitution and, after considering this Court’sprecedents on the severability doctrine, correctlydetermined that the individual mandate could not besevered from the rest of the Act.

The Eleventh Circuit, in reversing the districtcourt’s decision on severability, incorrectly applied thisCourt’s severability jurisprudence and failed toproperly recognize the congressional intent in craftingthe Act’s provisions to function as an interrelatedwhole.

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A. The Presumption of Severability Does NotApply to the Act

This Court recently reaffirmed the doctrine ofseverability by noting that “[g]enerally speaking, whenconfronting a constitutional flaw in a statute, we try tolimit the solution to the problem, severing anyproblematic portions while leaving the remainderintact.” Free Enter. Fund v. Pub. Co. AccountingOversight Bd., 561 U.S. –––, –––, 130 S.Ct. 3138, 3161(2010) (citation and internal quotations omitted).

This presumption of severability of the offendingprovision has also been characterized as the “normalrule that partial, rather than facial, invalidation is therequired course.” Brockett v. Spokane Arcades, Inc.,472 U.S. 491, 504 (1985).

The Court’s use of the terms “generally speaking”in Free Enterprise Fund, and “normal rule” in Brockettnecessarily implies that there are instances whenseverability is not the proper remedy for aconstitutionally flawed statute. The unprecedentedreach of the Act and the dramatic effects itsinterrelated provisions have (or will have) on one-sixthof the U.S. economy is a clear indication that this isnot a typical case involving a question of whether tosever a discrete statutory provision. Indeed, if thiscase does not present the circumstances mandatingdeparture from the “normal rule” of severability, itwould be difficult to imagine the scenario warrantingsuch a departure.

Determining whether an unconstitutional provisioncan be severed from the remainder of the statutehinges on whether the provisions that would remain

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can function “in a manner consistent with the intent ofCongress” in passing the Act. Alaska Airlines, Inc. v.Brock, 480 U.S. 678, 685 (1987) (emphasis in original).

Although many remaining provisions of the Actmay technically function4 in the absence of theindividual mandate, it is clear that they would notfunction in accord with Congress’s overall objectivesand intent in passing the Act.

B. Congress Intended the Act’s Provisions toFunction as an Interrelated Whole

1. Congress Declared the MandateEssential to Achieving the Purposes ofthe Act

The Act is a carefully crafted legislativecompromise consisting of numerous provisions each ofwhich, by virtue of its inclusion in the Act, wasnecessary to the design and ultimate passage of theinterrelated reforms devised by Congress to addressthe ills in the U.S. health care system.

The lynchpin of these myriad reform provisions isthe individual mandate, which the congressionalfindings accompanying the Act repeatedly refer to asthe “essential” element upon which achievement of theAct’s objectives depends. See, e.g., 42 U.S.C.§ 18091(a)(2)(I) (“the requirement [to purchaseinsurance] is essential to creating effective healthinsurance markets”).

4 Indeed some provisions of the Act have already gone into effect.

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Congress described its objectives in the Act’sfindings, which include adding millions of newconsumers to the health insurance market, 42 U.S.C.§ 18091(a)(2)(C); achieving near-universal coverageand strengthening the private employer-based healthinsurance system, 42 U.S.C. § 18091(a)(2)(D); loweringhealth insurance premiums, 42 U.S.C.§ 18091(a)(2)(F); improving financial security forfamilies, 42 U.S.C. § 18091(a)(2)(G); and broadeningthe health insurance risk pool to include healthyindividuals, 42 U.S.C. § 18091(a)(2)(I). Each of thecongressional findings notes that these objectives wereto be accomplished either solely by the individualmandate or by the individual mandate operating inconjunction with other provisions of the Act.

Indeed, the Act’s most wide-ranging objective ofadding millions of new consumers to the healthinsurance market through the individual mandatewould likely lead to the fulfillment of the otherobjectives given Congress’s realization that healthyindividuals make up a significant portion of thecurrently uninsured and their insurance premiumswould offset additional costs associated with the Act’sother reforms that expand coverage.

2. Severing the Mandate Conflicts withCongress’s Intent that the Act Functionas an Integrated Whole

“[T]he touchstone for any decision” about whetherto sever an offending provision from the rest of the Act,“is legislative intent.” Ayotte v. Planned Parenthood ofN. New Eng., 546 U.S. 320, 330 (2006). In crafting theAct, Congress recognized that without an individualmandate, “many individuals would wait to purchase

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health insurance until they needed care.” 42 U.S.C.§ 18091(a)(2)(I). Individuals who forego the advancepurchase of insurance and who later need medical careare those who are often excluded from the insurancemarket as a result of pre-existing conditions and/or arethose who often have their medical expenses shifted toothers in the health care system.

Congress addressed these uninsured and cost-shifting problems in the Act by requiring individuals,including those who are healthy, to purchase andmaintain health insurance. The individual mandatealso serves to achieve near-universal coverage thatbroadens the risk pool and provides financing to covercosts associated with other reforms in the Act,including the guaranteed issue provision, theprohibition on insurance eligibility based on healthstatus, and the community rating provision. See 42U.S.C. §§ 300gg-1(a), 300gg-4, 300gg-(a)(1).

The objectives underlying the Act plainly revealCongress’s intent that the individual mandate isdesigned to work in conjunction with other provisionsin the Act to solve the identified shortcomings in thehealth care system. Thus, the absence of theindividual mandate as part of that reform regime“pose[s] a critical problem” for the Act to function asintended. United States v. Booker, 543 U.S. 220, 260(2005).

Indeed, severing the individual mandate wouldleave in place a set of reforms untethered from theiranchor that, rather than fulfill Congress’s objectives inpassing the Act, would actually exacerbate theproblems Congress set out to ameliorate. Seediscussion infra Part II.

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Such a result surely satisfies the requirement thatfor the entire Act to be invalidated, it be “evident thatCongress, faced with the limitations imposed by theConstitution, would have preferred no [Act] at all” tothe Act that remains. Free Enter. Fund, 130 S.Ct. at3161 (internal quotations and citations omitted).

C. Attempting to Assess Whether AdditionalProvisions Should be Severed WouldRequire the Court to Infringe on the Roleof the Legislature

Although it may be theoretically possible to parseevery line in the 2,700 page statute in an attempt todetermine congressional intent with respect to eachprovision, and whether and to what extent each is related to the individual mandate, and should besevered from the Act, such an exercise would overstepthe purview of the Court and infringe on the role of thelegislature. See Ayotte, 546 U.S. at 329-30 (“makingdistinctions . . . where line-drawing is inherentlycomplex, may call for a ‘far more serious invasion ofthe legislative domain’ than we ought to undertake”).

Therefore, rather than attempting to determinecongressional intent with regard to every provisionand its relation to the individual mandate, the entireinterrelated Act should be invalidated, so thatCongress may exercise its proper role and determinewhether any of the remaining provisions should beenacted absent the individual mandate.

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II. SEVERING THE INDIVIDUAL MANDATEFROM THE ACT WILL LEAD TO RESULTSCONGRESS DID NOT INTEND

Introduction

The Act is Congress’s attempt at a comprehensiveapproach to implementing reform in the healthinsurance market. The provisions are complex andintertwined, because Congress determined that onlyan integrated approach could address the variousproblems affecting the health care system.

Congress sought to address what it identified astwo major shortcomings in the current system: (1)that many Americans who want or need coveragecannot obtain it, or can only obtain part of thecoverage they need; and (2) that the risk poolingsystem is flawed because many healthy people do notelect to be covered. The Act addressed these problemsby extending coverage generally and broadening thescope of coverage to those already covered; and bymandating certain employers make coverage availableto individuals, and by mandating that each individualmaintain coverage. Much of the first part of thesereforms has already become effective or will becomeeffective before 2014, with universal availability ofinsurance and the individual mandate becomingeffective in 2014.

Of the various provisions of the Act, the individualmandate is the most critical because it is the primarymechanism to achieve near-universal health insurancecoverage, including among the relatively young andhealthy. Without the mandate, the Act creates aperverse system offering widespread availability and

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a broad scope of coverage without any true functioning“insurance” mechanism. Instead of obtaininginsurance in advance as a hedge against potentialfuture health care costs, the insurance could beaccessed “just in time” by individuals right beforemedical care is needed.

A lack of near-universal coverage andcorresponding influx of insurance premiums fromrelatively healthy individuals, who would otherwiselargely opt-out of medical insurance absent themandate, will deprive the system of needed revenue tofinance the expanded coverage mandated by the Act. This will undoubtedly lead to a spiraling increase inmedical costs, particularly as more individuals withcostly pre-existing conditions are provided insuranceat rates unrelated to their actual health risk.

The rising costs of health care will make insurancepremiums increasingly expensive, which will, in turn,force more individuals from the private insurancemarket and into government-sponsored plans, therebyshrinking the risk pool and causing insurance costs torise even more.

In other words, the Act without an individualmandate creates a system that is more expensivebecause there is no true risk pool where the healthcare costs of the participants can be financed by theinsurance premiums of both the healthy and the sick. Instead, it produces a system that mandates only thesick and injured be covered and, therefore, only thoseindividuals will be paying insurance premiums inadvance to finance health care. Such a regime isunsustainable.

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Another indication of the individual mandate’scentral role in the Act is the inclusion of staggeredeffective dates for many of the health insuranceprovisions, with the substantive health insurancereforms going into full effect in 2014, when theindividual mandate becomes effective. For example,the Act requires preexisting condition exclusions to beeliminated for dependent children for plan yearsbeginning on or after September 23, 2010, but requirespreexisting condition exclusions to be eliminated forall participants by 2014, when the individual mandateis scheduled to be effective. See 42 U.S.C. § 300gg-3.5 Similarly, the Act prohibits health plans fromincluding lifetime limits on essential health benefitsfor plan years beginning on or after September 23,2010, and permits only reasonable annual limits onessential health benefits until 2014. See 42 U.S.C.§ 300gg-11(a)(1)(A), (b). Beginning in 2014, however,when the individual mandate is scheduled to go intoeffect, the Act prohibits all annual limits on essentialhealth benefits. Id.6

Congress’s decision to tie the effective dates ofvarious provisions to the effective date of theindividual mandate reflects the central importance of

5 For dates effective as to children and then adults, see Pub. L. No.111-148, Title I, § 1255 (formerly § 1253), 124 Stat. 162 (2010)(renumbered § 1255 and amended, Pub. L. No. 111-148, Title X,§ 10103(e), (f)(1), 124 Stat. 895 (2010), and codified in note to 42U.S.C. § 300gg-3).

6 In addition, the Act permits grandfathered plans to excludeadult dependent children who are eligible to enroll in their ownemployer-sponsored plan from coverage, but only until 2014 whenthe individual mandate goes into effect. See 42 U.S.C. § 18011.

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the mandate to the effective implementation of theAct’s other reforms. Without the individual mandate,the rest of the provisions in the Act produceunbalanced changes that are unable to achieveCongress’s objectives for reform of the health care andinsurance system.

A. The Remaining Provisions of the ActWould Create Dire Consequences for theHealth Insurance Market

If the individual mandate is found unconstitutionaland the rest of the Act continues in effect, the healthinsurance market would suffer a significant adversefinancial impact contrary to Congress’s intent inpassing the Act.7

The Act’s prohibition on preexisting conditionexclusions and lifetime limits (which were commonpractices in the health insurance market beforepassage of the Act) while expanding coverage for adultchildren, drastically increases the potential liabilitiesfor those who provide health insurance. With theindividual mandate, this financial impact would be

7 See Brief of America’s Health Insurance Plans as Amicus Curiaein Partial Support of Certiorari Review in this case, pp. 6-8, 15-22(“Empirical evidence thus strongly indicates that a system ofmarket reforms unaccompanied by an individual mandate wouldcreate widespread and potentially economically disablinginstability in the insurance market and, over time, wouldsubstantially reduce access to affordable coverage.”); see also 42U.S.C. § 18091(a)(2)(I) (“By significantly increasing healthinsurance coverage, the requirement [to purchase insurance]. . .will broaden the health insurance risk pool to include healthyindividuals, which will lower health insurance premiums”).

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somewhat offset by the increased number of healthyindividuals obtaining coverage and thus contributingpremiums without consuming health care services.

Without this individual mandate, however, thisdrastic increase in liabilities for those who providehealth insurance is not offset at all. Indeed, healthyindividuals may not purchase any type of health careinsurance until they are actually sick, and at thatpoint the Act requires group health plans to providethem coverage. Thus, implementing the rest of theAct’s provisions related to health insurance withoutthe individual mandate would have a significantnegative economic impact on insurers and employersproviding health insurance coverage.

The preventive service provisions of the Act alsounderscore how the individual mandate is inextricablylinked to the overall solution crafted by Congress. When individuals receive preventive services, the costof health care in the long run is reduced.8 The Actrequires group health plans to provide 100 percentcoverage for preventive services. See 42

8 See Preamble to Interim Final Rules for Group Health Plans andHealth Insurance Issuers Relating to Coverage of PreventiveServices under the Patient Protection and Affordable Care Act, 75Fed. Reg. 41726, 41735 (“Increasing the provision of preventiveservices is expected to reduce the incidence or severity of illness,and, as a result, reduce expenditures on treatment of illness.….Researchers at the Centers for Disease Control and Prevention(CDC) … found that every dollar spent on immunizations in 2001was estimated to save $5.30 on direct health care costs and $16.50on total societal costs of the diseases as they are prevented orreduced (direct health care associated with the diseases avertedwere $12.1 billion and total societal costs averted were $33.9billion)).

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U.S.C.§ 300gg-13(a).9 Although this expandedcoverage would represent additional costs to the healthcare system, the individual mandate could be expectedto help offset these costs. This would occur becauseindividuals with coverage (as a result of the mandate)would be more likely to avail themselves of preventivecare, enabling doctors to identify and treat ailmentsearlier and at a much lower cost than if suchconditions were discovered and treated in later stagesas a serious health condition.

Without the individual mandate, however,individuals can drop in and out of coverage only whenthey think they need medical care and, withoutcontinuous coverage, will be less likely to seek outpreventive services. As a result, the Act’s expandedcoverage for preventive services will increase costs inthe health care system without the counterbalancingreduction in costs attained through early treatment ofailments among those who fail to maintain coverageand access to preventive care.

Congress recognized the critical nature of theindividual mandate and the dangers posed by this

9 The Act provides that plans with minimal changes, considered“grandfathered” are not required to meet this requirement, butthe Department of the Treasury, Department of Labor andDepartment of Health and Human Services estimated that by2013 up to 80 percent of small employer plans would losegrandfathered status. See Preamble to 26 C.F.R. 54.9815-1215T,Interim Final Rules for Group Health Plans and Health InsuranceCoverage Relating to Status as Grandfathered Health Plan and thePatient Protection and Affordable Care Act, 75 Fed. Reg. 34553(June 17, 2010). Thus, this requirement would apply to mostrestaurant industry group health plans.

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adverse selection. In fact, Congress explained in theAct’s findings its intent for the individual mandate to“minimize this adverse selection and broaden thehealth insurance risk pool to include healthyindividuals, which will lower health insurancepremiums.” 42 U.S.C. § 18091(a)(2)(I).

B. The Restaurant Industry Will BeParticularly Impacted by the RemainingBurdensome Provisions of the Act

The demographics of the restaurant workforce andthe characteristics of most restaurant employersmeans the industry would be subject to a particularlynegative impact if the individual mandate is severedfrom the rest of the Act.

1. Younger Workers are More Likely toForego Coverage

With the individual mandate in place, more people,including relatively healthy people, will be in theinsurance pool and contributing to the cost of coverage. Without the individual mandate, however, individualscould take a “wait and see” approach and electcoverage under an employer’s plan only after beingdiagnosed with a serious illness or experiencing anaccident that requires rehabilitative treatment.

This adverse selection concern would be mostprevalent among younger, healthier individuals, withmore limited income. Absent an individual mandate,workers who fit this profile are likely to decline healthcare coverage until they have an immediate need forcare.

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This result would have a disproportionate impacton restaurant employers because so much of theirworkforce is made up of precisely this demographic. Nearly half of the workers in the restaurant industryare under age 25 and the vast majority are employedon an hourly basis. An internal 2007 industry surveyrevealed that nearly three-fourths of the industry’shourly workforce does not elect to participate inemployer-provided health plan coverage.

In addition, restaurant employees often work fewerhours and earn less compensation, on average, thanthe overall United States workforce. Thus, the cost ofhealth care coverage would take up even more of theseemployees’ disposable income and, without theindividual mandate, they would have little incentive toenroll in their employers’ health plans until theyactually needed coverage for a particular condition. Infact, in the absence of the mandate, these individualswill have even less incentive to enroll than they do nowbecause the employers’ future health plans will bemore expensive as the remaining reforms in the Actdrive up costs (with a higher proportion of unhealthypeople in the risk pool worsening that trend), and thedownside to waiting to elect coverage (i.e., thatpreexisting conditions would not be covered) iseliminated.

If an individual needed health care at a certainpoint, the individual could either wait for theemployer’s annual enrollment period to becomecovered by the employer’s plan, or, in light of the highturnover rates in the restaurant industry, theindividual could instead obtain employment with anew employer and become enrolled immediatelywithout waiting for the annual enrollment period.

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In either case, the result is that restaurant plansare more likely to experience low enrollment with themajority of the employees who elect coverage beingthose requiring expensive medical treatment. Thisscenario would lead to steep increases in the cost ofcoverage and many restaurant owners no longer beingable to provide any coverage whatsoever to theirworkforce. This result would undermine the employer-provided health care system, contrary to Congress’sintent in passing the Act. See, e.g., 42 U.S.C.§ 18091(a)(2)(D) (“the requirement [to purchaseinsurance] achieves near-universal coverage bybuilding upon and strengthening the private employer-based health insurance system”).

2. Industry Employers Will Be AdverselyAffected by the Cost of PartialImplementation of Health Care Reform

The restaurant industry is composedoverwhelmingly of small employers. Congress’s goal ofhelping small employers provide health coveragewould be impeded by the large increase in the cost ofhealth care coverage, which would result if the rest ofthe Act stands without the individual mandaterequirement. Congress’s intent to help smallemployers provide health coverage is evidenced bynumerous provisions of the Act.10 If the Act is

10 For example, the Act provides a small business tax credit forqualifying employers’ contributions toward their workers’ healthinsurance premiums, 26 U.S.C. § 45R; authorizes grants to smallemployers to create wellness programs, 42 U.S.C. § 280l; and,creates a safe harbor from certain nondiscrimination testing rulesfor small employers through the use of a simple cafeteria plan forpre-tax contribution funding, 26 U.S.C. § 125(j). In addition, the

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implemented without the individual mandate,however, it would affirmatively place small employers,and their employees, in a worse position than theywere before passage of the Act. The Act’s otherreforms would increase the cost of coverage so muchthat many small employers will not be able to afford tooffer their employees any coverage. Thus, the specialprovisions targeted to help small employers providehealth care coverage to their employees would belargely useless.

In addition, employers subject to the employermandate would be even more likely to be subject toadditional penalties if the Act is implemented withoutthe individual mandate. The Act requires that anemployer with the equivalent of at least 50 full-timeemployees must either offer its full-time employeesand their dependents the opportunity to enroll in“affordable” minimum essential coverage or pay apenalty. See 26 U.S.C. §§ 36B, 4980H. While manyrestaurant employees are considered part-time, theAct requires that any employee working only 30-hoursper week would be considered full-time, and anemployer meeting the threshold of 50 employees wouldeither need to offer these individuals affordablecoverage or face a penalty.

As noted above, the other remaining requirementsof the Act would greatly increase the cost of coverage,but the Act’s “affordability” restriction on employersmeans they cannot charge an employee more than 9.5

Act requires the creation of State Exchanges as a means for smallemployers to have access to affordable health care coverage fortheir employees. See 42 U.S.C. § 18031.

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percent of the employee’s household income forcoverage.

Restaurant employers, whose workforce tends tohave lower household incomes, would need to keep theemployee premium at an even lower relative dollaramount to meet this 9.5 percent threshold. Consequently, restaurant employers would inevitablyhave to absorb a disproportionately high share of thedramatic price increases caused by the Act or paypenalties for not offering coverage. In either case, theprivate employer-based health insurance system willbe weakened, rather than strengthened as Congressintended. See, e.g., 42 U.S.C. § 18091(a)(2)(D).

3. Without the Individual Mandate, theOfferings for Small Employers in theState Exchanges Would Be MoreExpensive

Congress included provisions in the Act for Statesto create health care Exchanges through whichindividuals and small employers would be able topurchase coverage beginning in 2014. See 42 U.S.C.§ 18031.

As described above, the Act’s expansion ofinsurance coverage to the previously uninsuredgenerally increases the cost of health insurance. Withthe individual mandate, the insurance risk pool woulddramatically expand, enabling insurers to distributecosts across the wider pool and offer lower-costpremiums. The Exchanges would, thus, help smallemployers, like many of those in the restaurantindustry, access insurance coverage for theiremployees.

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Without the individual mandate, however, fewerindividuals will be included in the risk pool pricing forinsurance available on the Exchanges. As a result, theExchanges will not function as intended to providesmall employers with additional insurance coverageoptions for their employees.

CONCLUSION

Should this Court find Congress exceeded itsauthority in enacting the individual mandate, thejudgment of the Eleventh Circuit severing themandate from the rest of the Act must be reversed andthe entire Act must be invalidated.

Respectfully submitted,

LEON R. SEQUEIRA Counsel of RecordDAVID M. WEINERJENNIFER A. KRAFTSEYFARTH SHAW LLP975 F Street, NWWashington, D.C. 20004(202) 463-2400lsequeira@seyfarth.com

Counsel for Amicus Curiae