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The Supreme Court On The Individual Mandate’s Constitutionality: An Overview



June 28th, 2012
by Timothy Jost

On June 28, 2012, the United States Supreme Court upheld the constitutionality of the Affordable Care Act (ACA).  It did it in a long and complex decision that rejected the Constitutional argument for upholding the law that had received the most attention — that the ACA’s individual mandate was supportable under Congress’ power to regulate interstate commerce –and relied instead on a much less familiar argument, that Congress has authority to impose the mandate under its power to tax and spend.

The opinion was written by Chief Justice Roberts, as many had expected, but Justice Kennedy, whom many had thought would join in the majority, instead joined in a dissent that would have rejected the mandate and with it the entire ACA. The other justices lined up as expected—Justices Sotomayor, Kagan, Ginsburg, and Breyer voting to uphold the ACA; Scalia, Thomas, and Alito voting to reject it in full. The Court did limit the Medicaid expansions in part, in a decision by Justice Roberts joined by Justices Breyer and Kagan; however, although the limitations they imposed on federal programs may cause trouble in the future, they do not seriously harm ACA implementation.

This blog post discusses the Chief Justice’s majority opinion respecting the individual mandate, and also briefly discusses the concurring and dissenting opinions and the Court’s holding regarding the Affordable Care Act’s Medicaid expansion. (Sara Rosenbaum offers a detailed look at the Medicaid expansion holding in her post.)

Justice Roberts began his opinion by expressing his allegiance to the constitutional limitations on the power of the federal government.  Congress has limited powers in our federal system — no one disputes that; the question is only what are the legitimate limits to that power.  The states possess plenary police power, the federal government does not.

Roberts also recognized, however, that “proper respect for a co-ordinate branch of government requires that we strike down an Act of Congress only if the lack of constitutional authority to pass [the] act in question is clearly demonstrated.”  The Court retains the authority, nevertheless, to strike down acts of Congress that go too far. The question in this case was whether the ACA crossed the line.

Disposing Of The Anti-Injunction Act

After reviewing the ACA provisions at issue and the course of litigation below, the Chief Justice next disposed of one of the nagging questions that has plagued the ACA litigation from the beginning: whether a statute called the Anti-Injunction Act, which proscribes law suits to restrain the assessment or collection of taxes, barred a challenge to the individual mandate.  The mandate is enforced through a penalty imposed under the Tax Code; thus, the question arose as to whether any lawsuit to challenge it would have to wait until 2015 when a tax was first imposed.

Although both the challengers and defenders of the law claimed that the AIA did not apply, one appellate court held that it did,  as did a distinguished dissenter in the D.C.Circuit decision.  Chief Justice Roberts held that the AIA did not apply because the mandate penalty is a penalty rather than a tax and does not otherwise fall within the coverage of the AIA.  This was a bit of sleight of hand, since Roberts went on to uphold the mandate as a constitutional exercise of Congress’ authority to tax.  But it nonetheless allowed the Court to proceed to the merits, which everyone wanted.

The impact of Roberts’ AIA decision on another threat to the ACA. One footnote on the AIA argument, however:  One option open to the Court would have been to hold that the AIA does not in fact limit the jurisdiction of the federal courts, that the courts can hear pre-assessment challenges to tax laws under some circumstances.  The Court did not do this.

One ACA lawsuit waiting in the wings is a challenge to whether premium tax credits can be offered through the federal exchanges, an argument based on inconsistent wording in the ACA.  The only party with standing to bring such a lawsuit, however, will be an employer who is penalized because it fails to offer coverage and one of its employees receives a premium tax credit through a federal exchange.  Because the employer penalty is expressly called a tax, however, such a lawsuit will be blocked by the AIA until 2015, by which time implementation of the federal exchanges will be firmly in place.  Thus the ACA would seem to have dodged another bullet.

Considering The Mandate’s Constitutionality

The Commerce Clause argument. The Court next moved on to the mandate itself.  It first considered the argument that the mandate was justifiable as a legitimate regulation of interstate commerce.  Chief Justice Roberts rejected this argument, supported by Justices Scalia, Kennedy, Thomas, and Alito, but opposed by Justices Kagan, Breyer, Sotomayor, and Ginsburg.

The government had urged that the mandate was a legitimate exercise of the Commerce Clause for two reasons.  First, the government argued that it was necessary to compel uninsured people who could afford insurance to purchase it, and thus to deter them from freeloading on the insured population. Since preexisting law requires hospitals to provide emergency services regardless of ability to pay, there is a very real danger that the uninsured will do exactly this, and thus shift their costs to providers, the government, and insured Americans.

The second argument was that the mandate was necessary to protect insurance markets from adverse selection once the ACA’s guaranteed issue requirements go into effect.  If insurers must sell insurance to unhealthy people but there is no compulsion for healthy people to purchase insurance, insurance markets might enter a “death spiral,” where insurance becomes unaffordable for all.  In this argument, the federal government also relied on the Constitution’s Necessary and Proper Clause, arguing that the mandate was necessary to make insurance market reforms, which everyone admits fall within the power of Congress, function effectively.

Recognizing that the power of Congress to regulate commerce is broad, Roberts nevertheless held that it is not this broad.  The power to regulate commerce does not include the power to create it.  Previous applications of the Commerce Power have uniformly applied to regulation of preexisting commercial activity.  The Chief Justice essentially bought the broccoli argument that has been pressed so effectively by opponents to the ACA.  Recognizing that Congress already has vast power to regulate what we do, the Chief Justice was unwilling to allow it to regulate “what we do not do.”

The Court expressly rejected the government’s argument that all Americans eventually use health care; that all are active in the market for health care and the only question is whether they will insure or self-insure.  The Chief Justice observed that in fact people who are uninsured are not actively involved in commerce, and Congress could not justify the mandate by a prediction that some day they might be.  The individual mandate forces Americans to engage in commerce who choose not to — this is beyond the power of Congress.  Nothing about the nature of health care or health insurance justifies deviating from this basic principle.

Chief Justice Roberts also rejected the argument that the necessary and proper clause extended the authority of Congress under the Commerce Clause to justify the mandate.  The Necessary and Proper Clause enables Congress to adopt laws “convenient” or “conducive” to the exercise of its other powers, but does not expand on the scope of those powers to permit laws that are not “proper” to the exercise of other powers.   Congress cannot compel activity under the Commerce power, and the Necessary and Proper Clause does not change this.

Chief Justice Roberts ruling on the Commerce Clause argument is clear and decisive and entirely adopts the argument of the states and of legal scholars who have opposed the ACA.  It lays down a principle that Congress cannot compel Americans to engage in commerce against their will.  Millions of Americans will go to bed tonight safe in the knowledge that Congress will never make them eat broccoli.  But it is hard to think of any other examples where Congress would ever assert its Commerce clause authority to require the purchase of a private product.  This is really a unique situation.

Judge Kavanaugh noted in his dissent in the D.C. Circuit case that a decision striking down the individual mandate might foreclose future attempts to develop private sector solutions to public welfare issues, such as compelled participation in private savings plans in lieu of Social Security.  Indeed, the idea of the individual mandate came out of conservative advocacy groups and Republican-backed legislation trying to expand health coverage without a new public program.  Such approaches now seem foreclosed, but the Republic will go on.

The taxing and spending power argument.  In the biggest surprise of the day, however, the Chief Justice voted to uphold the mandate based on another Congressional power—the power to tax and spend.  The argument that the mandate could be used to uphold the mandate had been raised repeatedly below, but had been rejected by every judge that considered it except for Judge Wynn concurring in the Fourth Circuit case.  The government continued to press it, however, and in the end it carried the day.

The Chief Justice began his consideration of the tax issue by noting the general principle that a court should read an act of Congress to be constitutional if it can do so.  The Chief Justice read the mandate to say, essentially, that individuals who fail to purchase health insurance must pay a tax.  Going without insurance, just like many other actions or inactions, is a taxable event.

The “shared responsibility payment” that enforces the mandate, the Court observed, looks in many ways like at tax.  It does not apply to individuals who do not file tax returns and is collected with those returns.  It is assessed and collected in the same manner as taxes and is expected to raise $4 billion in revenue annually.  It is called a penalty rather than a tax in the statute, but the Court has held before in earlier cases that exactions not labeled taxes can in fact be taxes.  Labels are not the deciding factor, rather the substance and application of an exaction is determinative.

Of course, the exaction is meant to affect individual conduct.  But that is true of many, perhaps most, taxes and tax preferences in the tax code.  Moreover, although the exaction is called a penalty, it is not punitive.  It does not make failure to purchase insurance illegal, it merely imposes a tax on the failure to do so.  The Chief Justice rejected the dissenters’ argument that the statue must be stricken merely because of the label Congress placed on the exaction:  the real issue is the function of the exaction, not the label placed upon it.

Limitations on “direct taxes.”  Finally, the Chief Justice disposed of a lingering issue in the case based on a very obscure provision of the Constitution which imposes severe limitations on the collection of “direct taxes.”  ACA opponents had argued that, although the Supreme Court has not held a tax to be a direct tax for generations, it had finally encountered one in the ACA case.  A direct tax is a tax imposed on every person in the country, without regard to any other circumstance.  This is not the way the mandate tax functions.  It only applies to those who fail to purchase insurance.

Of course this raises again the challenges brought to the Commerce Clause justification for the mandate — do they apply to the mandate as a tax?  First, although Congress cannot compel activity, it can tax inactivity, and often has. Taxes can be so severe as to become punitive and thus be prohibited, but this is not true of the mandate tax, which is relatively weak.  Finally, it is one thing to force someone to do an activity, under threat of criminal sanctions for example, it is quite another to impose a tax.   In conclusion—Congress cannot force people to buy health insurance; Congress can tax people who fail to do so.

Concurring And Dissenting Opinions

The decision also contains three other opinions.  The first opinion, written by Justice Ginsburg and Justice Sotomayor, concurs with the Chief Justice in his finding the AIA does not to apply and his upholding the mandate as a tax, but dissents from the Chief Justice’s finding that the mandate cannot be supported under the Commerce Clause and from the limitations he placed on the Medicaid expansions.  Justices Breyer and Kagan join this opinion except as to the Medicaid section, where they join the Chief Justices opinion.

The second opinion is a dissenting opinion jointly written by Justices Scalia, Kennedy, Thomas, and Alito, dissenting from the Chief Justice’s opinion as to both the constitutionality of the mandate and of the Medicaid expansions, and concluding that the entire ACA should be nullified.  Finally, Justice Thomas adds a short dissent arguing for a much more limited reading of the Commerce Clause.

I will not analyze these opinions in detail here, although they are well worth reading.  The Ginsburg opinion presents the most eloquent and elegant argument I have yet  seen as to why it was necessary for the federal government to enact an individual mandate to ensure the proper regulation in interstate commerce in health care and health insurance.  She is particularly effective in explaining how health insurance is different from broccoli, in case anyone was getting them confused.  Finally, she pushes back against the Chief Justice’s crabbed reading of the Necessary and Proper Clause, particularly his creation of a new and limited understanding of the “proper” requirement.  Justices Ginsburg and Sotomayor would also have upheld the Medicaid expansion in full.

The joint dissent is styled entirely as a dissent, even though the dissenters agree with the Chief Justice’s holding that the mandate cannot be supported under the Commerce Claus.  The dissenters sees no problem in holding that the mandate cannot be supported under the Commerce Clause and are incredulous at the argument that the mandate can be supported as a tax. The dissenters also reject the Medicaid expansion in toto as a coercive exercise of the spending power.

The dissent concludes with a hip-bone-connected-to-the knee-bone analysis of the entire ACA, demonstrating that once the mandate and Medicaid expansions are removed, the entire statute collapses as a hollow shell.  Although for months experts have speculated as to whether the Court would strike only the mandate or the mandate plus a few other provisions and on what the vote margin would be, we incredibly ended up with only one vote separating a total nullification of the entire statute from a nearly complete affirmation of the ACA.

The Medicaid Expansion And The Coercion Doctrine

But in the end, the Court concludes that the mandate is constitutional, and with it the entire remainder of the ACA … except, the Medicaid expansion, in part.  Sara Rosenbaum deals with this issue in her post, but I will merely say the Court does not prohibit the Medicaid expansion from going forward; it simply makes it optional with the states.  States can expand Medicaid or not, but will not lose funding for their current program if they do not.  Of course, a state would have to have a pathologically strong attachment to political principle to walk away from hundreds of millions of federal dollars and leave thousands or hundreds of thousands of its citizens uninsured.   If a state wants to do this, however, it can.

In limiting the Medicaid expansion, the Court applies a coercion theory never before applied by a federal court to strike down a federal statute.  The implications are far reaching, and the case opens the door to many future lawsuits challenging future changes in many cooperative federal programs.

The bottom line is that the ACA is  constitutional.  The political and media circus that has surrounded this litigation for two years should end.  The states and federal government must move forward quickly with implementation.  The health, indeed the lives, of millions of Americans depend on it.  Let us move on.

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5 Trackbacks for “The Supreme Court On The Individual Mandate’s Constitutionality: An Overview”

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2 Responses to “The Supreme Court On The Individual Mandate’s Constitutionality: An Overview”

  1. jfm Says:

    As regards Medicaid expansion, I can’t see why any state would want to expand it to include all those up to 133% of the federal poverty level. Uninsured individuals meeting the latter criteria that currently are not covered by Medicaid would still be eligible to purchase subsidized commercial insurance through an exchange (in fact, they would be required to do so). Arguably there should be no impact on the number of covered lives; it would simply be a question of which plan would cover them.

    Moreover, not expanding Medicaid would represent two significant savings for the state: first, it would avoid the cost to the state of financing the difference between its current Medicaid benefits and the federal essential health benefit package for its existing Medicaid population; and second, it would eliminate the financial risk of relying on the Federal Government to maintain its promise to continue bearing the cost of the additional Medicaid covered lives. Given current Government deficits, that promise looks increasingly shaky.

  2. kholt16 Says:

    The ACA was and continues to be a burden with the level of tax money that will have to be paid to fund the current Medicare entitlement program and the future Medicaid expansion. The medical excise tax hurts innovation in the medical device industry, the insurers fee will be passed on to consumers as a “premium tax” and now the Supreme Court is adding another tax – the penalty tax (remember President Obama was quoted numerous times saying that the ACA is not another tax). http://bit.ly/MYjF9A is a link to an excellent piece on what today’s SCOTUS ruling means for healthcare.

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