William L. Newkirk
In late June, the United States Supreme Court is expected to rule on the constitutional challenge to the Affordable Care Act (ACA). This ruling may be the most significant event in the history of employee health since President Nixon signed the act creating the Occupational Safety and Health Administration (OSHA) in 1970.
While definitively predicting the court’s upcoming ruling is impossible, deciding the case yourself can be helpful in understanding the issues involved. Take comfort in knowing that existing court decisions and legal opinions have been all over the map and, as a result, no matter what you decide, a judge or legal scholar agrees with you.
Brief Case Overview
The ACA restructures the healthcare system in the United States and includes, at its core, a controversial “Individual Mandate” which assesses a penalty on almost anyone who does not possess a particular package of health insurance coverages.
Twenty six states have challenged the constitutionality of the ACA, saying that, among other things, it violates the 10th Amendment to the United States Constitution, one of the “Bill Of Rights” that states:
“The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”
In other words, if the Constitution does not specifically give a power to the federal government, the power remains with the states and people. Here’s how that applies in this case: In 2006, the governor of Massachusetts, Mitt Romney, signed into law a healthcare reform bill designed to address the complex problem of providing healthcare coverage to all state residents. Almost everyone agrees that Gov. Romney and the Massachusetts legislature had the right to adopt such a health plan for their state. Unless prevented by its state Constitution, every other state could do the same. But no other state has followed Massachusetts’s lead.[i] Under the ACA, the federal government is forcing all states to accept a Massachusetts-like solution. The states challenge the federal government’s right to do this, stating that the 10th Amendment prevents it.
The ACA seeks to extend affordable insurance coverage to almost everyone, including the traditionally hard-to-insure group with significant pre-existing conditions, by requiring insurance companies to accept these people (“guaranteed issue”) and to rate insurance premiums over the whole community rather than the high-risk individual (“community rating”). In order to make these expensive features economically feasible for insurers, the ACA attempts to force large numbers of uninsured, healthy young people to buy policies which are highly profitable to insurance companies. In a sense, the ACA requires healthy, young adults to subsidize unhealthy older people. If someone doesn’t buy insurance, he or she must pay a penalty, depending on income, payable to the Internal Revenue Service on the 1040 tax form and administered and collected like a tax.
Issue 1: Is the Penalty a Tax?
The first issue you will need to decide is whether the penalty is, in fact, a “tax.” Elected officials who support the ACA do not want this revenue to be considered a “tax” because they don’t want to be accused of “raising taxes.” Here’s an illustrative interchange between President Obama and commentator George Stephanopoulos on Sept. 20, 2009, on ABC news:
STEPHANOPOULOS: “…it’s still a tax increase.”
OBAMA: “No. That’s not true, George. The — for us to say that you’ve got to take a responsibility to get health insurance is absolutely not a tax increase.”[ii]
This semantic sleight of hand has caused some humorous moments. Solicitor General Donald Verrilli argued in the Supreme Court that the “penalty” to enforce the Individual Mandate was not a “tax,” but in making his argument he could not avoid calling it a “tax.”
VERRILLI: “That if they don’t pay the tax, they violated a federal law.”
JUSTICE KAGAN (trying to correct him): “But as long as they pay the penalty…”
VERRILLI: “If they pay the tax, then they are in compliance with the law.”
JUSTICE BREYER: “Why do you keep saying it’s a tax?”
VERRILLI: “If they pay the tax penalty, they’re in compliance with the law.”
JUSTICE BREYER: “Thank you.”
VERRILLI: “Thank you, Justice Breyer.”
JUSTICE BREYER: “The penalty.”
VERRILLI: “Right. That’s right.”
If the Individual Mandate is a tax, Congress may be on fairly firm constitutional ground. Article 1, Section 8 of the Constitution states:
“The Congress shall have Power to lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence [sic] and general Welfare of the United States.”
Congress already does this. Medicare is a well-recognized example of the federal government imposing a tax to provide for the general welfare of the United States. But using the Congress’s taxing provision as a justification for the Individual Mandate faces a roadblock, as Justice Alito noted:
JUSTICE ALITO: “Has the Court ever held that something that is a tax for purposes of the taxing power under the Constitution is not a tax under the Anti-Injunction Act?”
The Anti-Injunction Act, an 1867 federal law, says “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person.” People who object to taxes must pay first and litigate later to prevent government from being stopped for lack of money while the case is being litigated. As Justice Breyer pointed out:
JUSTICE BREYER: “But one thing that’s relevant in my mind is that taxes are, for better or for worse, the life’s blood of government.”
Under the ACA, the first penalties do not go into effect until 2014; they must be paid on federal tax returns by April 2015. If the Anti-Injunction Act applies, the courts are forbidden to hear challenges to the healthcare law at this time. In fact, despite its adamant position that the penalty is not a tax, the Obama administration argued in trial courts that the Anti-Injunction Act applies. It later abandoned that argument on appeal.
Congress could have explicitly said the Anti-Injunction Act did not apply to the Individual Mandate penalty in the text of the ACA, but it did not. Congress could, by legislation, clarify this issue at any time. During the first 100 years of the Anti-Injunction Act, the courts granted numerous exceptions to its application, which caused confusion. For the last 50 years, the Supreme Court has been consistent in not granting exceptions.
So, as judge, if you think the penalty enforcing the Individual Mandate is a tax, you must decide that you can’t hear the case until 2015 or find some creative exception to the Anti-Injunction Act.
Issue 2: Is Healthcare Interstate Commerce?
Fearful of being seen as “tax and spenders,” ACA supporters had to create a constitutional justification that allowed the Individual Mandate but did not rely on Congress’s taxing power. Instead, they decided to rely on Congress’s ability to regulate interstate commerce. Their argument goes something like this:
In sum, this says the healthcare market is interstate commerce and Congress can pass reasonable and proper laws to regulate it. There is no dispute so far. Congress already does this (e.g., HCFA, ERISA). Now the controversy starts:
This part of the argument met considerable skepticism in the Supreme Court, which led to Justice Scalia’s widely publicized broccoli example.
JUSTICE SCALIA: “Could you define the market — everybody has to buy food sooner or later, so you define the market as food, therefore, everybody is in the market; therefore, you can make people buy broccoli.”
Scalia’s concern was if the Supreme Court accepts this argument, then anything that happens as a result of being alive for which there is an interstate market can be regulated by the federal government.
Unable to provide a clear “limiting principle” on why Scalia’s argument was not valid, Verrilli acknowledged that the Commerce Clause argument may not find a receptive audience at the Supreme Court, and proposed that if the Court doesn’t like that argument it should treat the penalty as an exercise of Congress’s taxing power.
VERRILLI: “But if there is any doubt about that under the Commerce Clause, then I urge this Court to uphold the minimum coverage provision as an exercise of the taxing power.”
As judge, if you thought the Individual Mandate penalty was not a tax, then you have to decide whether a person’s failure to buy health insurance means that he or she is participating in interstate commerce, and if so, whether Congress has the power to order that person to buy insurance or to pay a fine. If you feel Congress has that power, you uphold the law. If not, you have to consider another issue: severability.
Issue 3: Does Severability Apply?
Congress could have said that if the Individual Mandate is held unconstitutional, the remainder of the law remains. But it did not do so for both political and practical reasons. First, it did not want to allow for the possibility that the mandate could be unconstitutional. Second, without a mandate, there wouldn’t be funds to pay for guaranteed issue and community rating. In addition, as Scalia said, invalidating portions of the law poses a practical consideration:
JUSTICE SCALIA: “…You really want us to go through these 2,700 pages? (Laughter.) And do you really expect the Court to do that? Or do you expect us to give this function to our law clerks? Is this not totally unrealistic, that we are going to go through this enormous bill item by item and decide each one?
As judge, if you hold the Individual Mandate unconstitutional, you need to decide whether it is key to the entire law and the entire law must be struck down, or whether you need to go through the 2,700 pages of the ACA and decide what stays and what goes.
It’s time for you to make your ruling. The decision tree summarizes your choices. What do you think is the most probable outcome?
Now let’s examine what are projected to be the three most likely outcomes in the Supreme Court.
Scenario #1: The Court votes to strike down the entire ACA by a vote of 5 (Roberts, Kennedy, Scalia, Alito, Thomas) to 4 (Breyer, Ginsburg, Sotomayor, Kagan). Chief Justice Roberts writes the opinion.
The majority refuses to apply the Anti-Injunction Act because it accepts the government’s argument that the “penalty” is not a “tax.”The Court rejects the government’s argument that the Individual Mandate is supported by the Commerce Clause of the Constitution. It also rules that the Individual Mandate provision is central to the ACA and its removal invalidates the entire law.
Implications: This is a pure party-line vote. It supports the notion that the Supreme Court has become another partisan institution and is handing the Republicans a victory they could not obtain through the democratic process. The Court places itself squarely in the middle of debate in a presidential election year. Congress must go back to the drawing board on healthcare reform.
Scenario #2: The Court upholds the Individual Mandate by a vote of 5 (Kennedy, Breyer, Ginsburg, Sotomayor, Kagan) to 4 (Roberts, Scalia, Alito, Thomas). Kennedy writes the opinion.
The majority refuses to apply the Anti-Injunction Act because it accepts the government’s argument that the “penalty” is not a “tax.” The Court upholds the mandate by concluding that the Individual Mandate is “necessary and proper” legislation for the regulation of interstate commerce.
Implications:Kennedy’s switch throws Chief Justice Roberts into the minority of what will be one of the most important cases of his tenure (although for institutional reasons the Chief might join the majority to write the opinion). The majority finds an argument to limit the impact of their ruling to avoid significantly restructuring the constitutional relationship between states and the federal government. Since the vote is not a purely party-line vote, the political implications are somewhat muted, but the Court is still an issue in the presidential election.
Scenario #3: The Court unanimously rules that it cannot decide the case at this time, citing the Anti-Injunction Act. Chief Justice Roberts writes the opinion.
The Chief Justice writes for a unanimous court which agrees that, regardless of what Congress calls them, revenues arising from application of the Individual Mandate trigger the Anti-Injunction Act. As a result, the courts are prevented from hearing the case until the revenues have been collected and the standard means of resolving a tax dispute are exhausted.
Implications:The Court presents a united front and argues that for 50 years it has required petitioners to exhaust legal processes after paying a tax before they can contest the case in court. It argues that if Congress wanted to create an exemption for this law it could have done so, but did not. And that if the Court is incorrect in judging the legislative intent, Congress can direct the courts through additional legislation. The Court takes no position on the constitutional challenge and in doing so, largely removes itself from the political argument over the ACA.
Trying to decide this case is an instructive exercise for all of us. When I teach using this exercise, I’m always asked how I would vote. In answering, I remember my best teacher on the subject, Harvard law Professor Paul Freund, who inspired me to get a degree studying constitutional government. In 1960, President John F. Kennedy asked Freund to become solicitor general. He politely refused, explaining he was busy writing a history of the Supreme Court. It was widely thought that this decision cost Freund an appointment to the Supreme Court when Felix Frankfurter retired in 1962. Freund instead focused on teaching and became “the dominant figure of his time in the field of constitutional law.”[i] Freund joked that it would take an hour to name all of the distinguished lawyers, scholars and politicians he had taught. Through that group, he continues to affect the course of the law even after his death (from cancer in 1992).
Freund also had undistinguished students. I admit that I fall into that category. But, as a legal historian, he taught me to think about Supreme Court cases mindful of the Court’s attention to legal precedent and maintenance of the Court’s legitimacy. Based on that, I hope the Court unanimously decides not to hear the case at this time for four reasons:
I believe Justice Kavanaugh’s dissent in the case when it was heard in the United States Court of Appeals for the District of Columbia says it best:
“The significant implications of a Commerce Clause decision in this case – in either side’s favor – leads to this point: If we need not decide the Commerce Clause issue now, we should not decide the Commerce Clause issue now. I therefore would not strain to sidestep the Anti-Injunction Act.”
SCHEDULE A DEMO