A federal judge ruled that Congress violated the Constitution by requiring Americans to buy insurance as part of the health overhaul passed last year, and said the entire law "must be declared void."
With his ruling, U.S. District Judge Roger Vinson set up a clash over whether the Obama administration still has the authority to carry out the law designed to expand insurance to 32 million Americans.
David Rivkin, an attorney for the plaintiffs, said the ruling meant the 26 states challenging the law must halt implementation of pieces that apply to states and certain small businesses represented by plaintiffs.
But the Obama administration said it has no to plans to halt implementation of the law. Already, it has mailed rebate checks to seniors with high prescription drug costs, helped set up insurance pools for people with pre-existing medical conditions and required insurers to allow children to stay on their parents' insurance policies until they reach age 26.
"We will continue to operate as we have previously," a senior administration official said.
In a pre-emptive move, the Justice Department, which represents the administration, is considering whether to seek a stay while its appeal against the decision is pending, spokeswoman Tracy Schmaler said.
The legal morass is the biggest blow yet to the law since President Barack Obama signed it in March. Most of the plaintiffs—governors and attorneys general in 26 states—are Republicans seeking to knock down Mr. Obama's signature legislative achievement.
The ruling by Judge Vinson, a Republican appointee in Pensacola, Fla., is the second of four to find that at least part of the law violates the Constitution's Commerce Clause by requiring citizens to carry insurance or pay a fee. But in asserting that the whole law is unconstitutional, it went much further than an earlier ruling in a Virginia case.
Thus far, the court decisions are breaking down along party lines, with two Democratic appointees to the federal bench having upheld the law and two Republican appointees ruling against it. The matter is expected to be settled by the U.S. Supreme Court.
The possibility that a court could ultimately unravel the law underscores just how difficult it is to enact universal health insurance—a goal that had eluded presidents dating back to Theodore Roosevelt. Mr. Obama's law, signed after a long-fought partisan battle, has been hailed by supporters as a historic achievement. But it is also one that cost Democrats seats in this fall's midterm elections, as the public was still divided in its support of the legislation.
The court battle against the law—once seen as a long-shot strategy by the Republicans—has emerged as the greatest threat to the overhaul. While the Republican-led House has voted to repeal the law, that effort is expected to die in the Democratic-controlled Senate, and in any case would face President Obama's veto pen.
Now even some Democrats who voted for the overhaul are contemplating whether Congress should strip out the so-called individual mandate, a once unthinkable scenario since the provision is seen as the backbone of the law. Since the law requires insurance companies to accept all comers, even people who are already sick, it requires healthy people to buy coverage as well.
Otherwise, economists say, insurance premiums would likely rise sharply because people would wait until they were sick to seek coverage.
The victories are emboldening Republicans in Congress who see attacking the law as a key strategy for retaking the White House in 2012. "This ruling confirms what Americans have been saying for months: The health spending bill is a massive overreach," said Senate Minority Leader Mitch McConnell (R., Ky.)
In his 78-page ruling, Judge Vinson wrote that the entire law must be voided because the individual insurance mandate is "not severable" from the rest of the law. Some laws contain what's known as a severability clause that says the rest of the law stands should a judge strike down a piece of it. But Democrats left it out.
The judge said he didn't believe an injunction to stop the health overhaul was appropriate, because it is generally understood that the executive branch will obey a federal court. The government, however, doesn't believe the ruling requires it to stop implementing the overhaul.
In court filings and testimony before the judge, the Obama administration argued that requiring Americans to carry insurance was within its constitutional powers, particularly those of the Commerce Clause that allows it to regulate economic activity. It argued that the health-care market is unique since all Americans receive medical care at some point. Requiring them to buy insurance is just a way of regulating how they pay for it, the administration said.
Judge Vinson rejected that view. Under the Obama administration's logic, he wrote, "Congress could require that everyone above a certain income threshold buy a General Motors automobile—now partially government-owned—because those who do not buy GM cars (or those who buy foreign cars) are adversely impacting commerce and a taxpayer-subsidized business."
Judge Vinson ruled in favor of the Obama administration on a secondary part of the suit, saying that the law's expansion of the Medicaid federal-state insurance program for the poor doesn't violate the Constitution.
The states argued that the law's addition of 16 million Americans to the Medicaid rolls violates the Spending Clause of the Constitution by burdening them without giving them room to opt out of the program.
But Judge Vinson said states clearly have the option to withdraw from the program, even though states "have little recourse to remaining the very junior partner in this partnership."
Critics say the law's implementation has been undercut by waivers the administration granted to various parties to avoid aspects of the law. For example, the administration has temporarily exempted some companies that provide bare-bones "mini-med" insurance plans from meeting a requirement in the law that says insurers must spend a certain portion of premiums on medical care.
The Obama administration says such waivers are only a bridge until 2014, when the full law takes effect and employers have more options for providing affordable coverage.
In addition to the House vote for repeal, Republicans are drafting a series of bills targeting particularly unpopular pieces of the law, including its requirement that larger employers provide coverage or pay a fee. They're also laying plans to choke off funding to hire federal workers to implement the law.
Under the law, most Americans who do not carry insurance starting in 2014 will pay a penalty. It eventually tops out at $2,085 a year for families lacking insurance.
Health policy experts say one alternative to the provision would be to make insurance more expensive for those who wait to buy coverage, providing an incentive for the uninsured to get covered early. But lawmakers from both parties agree that it would be complicated, and risky, to pull out such a central piece of the law without driving up insurance premiums.