In a 193 page long release, including four separate opinions, the United States Supreme Court largely upheld the entirety of the Patient Protection and Affordable Care Act (“ACA”). Among other things the Act’s pertinent sections under the Court’s review included whether the individual mandate portion created a bar to prevent judicial consideration until 2014, and whether it was an unconstitutional exercise of Congressional power. The Court was also asked to consider whether the mandated expansion of the Medicaid coverage was improperly forced upon states.
To understand the holdings on these issues, a brief summary of the factual bases is important.
Under the ACA, the individual mandate, requires most Americans to maintain “minimum essential” health insurance coverage. For individuals who are not exempt, and who do not receive health insurance through an employer or government program, the means of satisfying the requirement is to purchase insurance from a private company. Beginning in 2014, those who do not comply with the mandate must make a “shared responsibility payment” (“SRP”) to the Federal Government.
Section 1396a of the ACA requires states to expand their Medicaid programs to cover all individuals who have incomes below 133 percent of the federal poverty limit and under 65 by 2014. It also mandates that all new Medicaid recipients be offered “essential health benefits” as part of their state coverage. Under the Act, states refusing to comply with this expansion lose all their federal Medicaid funding.
The following is a summary of the holdings on the key issues and the basic positions taken by the various dissenting Justices.
The Anti-Injunction Act
The Anti-Injunction Act provides that “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax is assessed.” In essence, this Act bars any litigation to enjoin or obstruct the collection of taxes. So, the threshold question before the Court could decide the merits of the case was whether the SRP levied for failing to purchase insurance constitutes a tax such that the Anti-Injunction Act would prevent the Court from taking up this appeal.
Chief Justice Roberts concluded that the penalty was just as it was labeled in the ACA – a penalty – not a tax, and that the Anti-Injunction Act does not present a bar. He noted that “Congress’s decision to label this exaction a ‘penalty’ rather than a ‘tax’ is significant because the ACA describes many other exactions created as ‘taxes’.” He noted that Congress can describe something as a penalty but direct that it be treated as a tax for purposes of the Anti-Injunction Act. However, no such direction is present here. Thus, The Anti-Injunction Act does not prevent review of the ACA.
The Individual Mandate
As just stated, the ACA describes the SRP as a “penalty” and not a “tax.” The majority held that while this labeling allows the ACA to avoid the fatality of the Anti-Injunction Act, it does not determine whether the SRP may be viewed as a constitutional exercise of Congress’s taxing authority. In determining whether the SRP was a valid exercise of Congress’s taxing power, the Court stated that it used a “functional approach” to determine the Act’s practical application and essential character, rather than searching for certain “magic words or labels.”
Using this approach, the majority concluded that the SRP was a tax for purposes of determining whether the provisions were a valid exercise of Congress’s taxing authority. Justice Roberts, writing for the majority, stated that this conclusion was reached despite the SRP being labeled a “penalty,” because the payments function less like a punishment and more like a tax. The majority relied on the concept that a “penalty” means “punishment for an unlawful act or omission,” and determined that the SRP was not a tax for an unlawful act because neither the ACA nor any other law “attaches negative legal consequences to not buying health insurance, beyond requiring a payment to the IRS.” Therefore, the majority determined that the SRP “merely imposes a tax citizens may lawfully choose to pay in lieu of buying health insurance.” They determined that the tax does not “restrict the lawful choice whether to undertake or forgo the activity on which the tax is predicated [i.e. buying health insurance]. Those subject to the individual mandate may lawfully forgo health insurance and pay higher taxes, or buy health insurance and pay lower taxes. The only thing they may not lawfully do is not buy health insurance and not pay the resulting tax.”
The Court then turned to the issue of whether taxing an omission rather than an affirmative act was constitutional, and held that “[f]irst, and most importantly, the Constitution does not guarantee that individuals may avoid taxation through inactivity.” According to the Court, while the Constitution prevents federal regulation of inactivity under the Commerce Clause, it has no such protection from the imposition of taxes as a consequence of that inactivity.
The Court also recognized, however, that Congress’s exercise of its taxing power to influence conduct is not unlimited. The majority emphasized that the limit is determined by the tax’s penalizing features. It stated that when the extension of the penalizing features extend too far, the “tax” loses its character as a tax and becomes a “mere penalty with the characteristics of regulation and punishment.”
Although the breadth of Congress’s power to tax is greater than its power to regulate commerce, the taxing power does not give Congress the same degree of control over individual behavior as the commerce power. The majority explained its position that giving Congress power to regulate a particular decision under the Commerce Clause could authorize the Federal Government to command individuals as it deems fit and subject those who disobey to criminal sanctions. In contrast, the taxing power is limited to requiring an individual to pay money into the Federal Treasury and no more. It does not give the Government power to compel or punish individuals subject to the tax. Therefore, the majority stated its position that imposing a tax “leaves an individual with a lawful choice to do or not do a certain act, so long as he is willing to pay a tax levied on that choice.”
For these reasons, the majority held that the ACA’s requirement that certain individuals pay a financial penalty for not obtaining health insurance may reasonably be characterized as a tax, and was within Congress’s Constitutional authority.
Expansion of Medicaid
Again, the Supreme Court’s ruling on the ACA’s expansion of Medicaid resulted in a divided Court. Ultimately, the Court concluded that the extent and method of the expansion was unconstitutional. However, a separately constituted majority agreed that it could be remedied by limiting the government’s ability to withhold existing Medicaid funds conditioned on a state’s compliance with the expansion.
At the core of the analysis is a constitutionally implicit limitation on Congress’s Spending Clause Power. Customarily, Congress is entitled to condition the grant of federal funds to the states on compliance with federal programs. However, Congress may not step over the line from using financial inducements to encourage state compliance with federal programs to exerting a “power akin to undue influence.” In this case, the Court considered whether the ACA’s threat to withdraw existing Medicaid funds from the states if they do not comply with the expansion crosses the threshold from persuasion to unconstitutional coercion.
While noting that Congress reserved the power under the original version of the Medicaid Act to “alter” or “amend” the Medicaid program at will, Roberts concluded that the expansion laid out in the ACA signaled an impermissible modification of the Act which went beyond mere alteration or amendment. Ultimately, Roberts determined that the ACA’s threat to withhold existing Medicaid funds if the states do not comply with the requirements of the Medicaid expansion was unduly and unconstitutionally coercive. “In this case,” Roberts concluded, “the financial ‘inducement’ Congress has chosen—[the withdrawal of existing Medicaid funds]—is much more than “relatively mild encouragement’—it is a gun to the head.”
To cure the unconstitutionality recognized by a majority of the Court, Roberts concluded that the ACA may condition the availability of its “new” funds on compliance with the Medicaid expansion provisions. “What Congress is not free to do,” Roberts explained, “is to penalize States that choose not to participate in that new program by taking away their existing Medicaid funding.”
Three dissenting opinions followed the Chief Justice’s opinion. One authored by Justice Ginsburg, one by Justice Kennedy, and one by Justice Thomas.
Justice Ginsburg’s opinion (joined in its entirety by Justice Sotomayor and in varying parts by Justices Breyer and Kagan) agreed with the Chief Justice that the Anti-Injunction Act does not bar the Court’s consideration of this case, and that the individual mandate is a proper exercise of Congress’s taxing power.
Unlike the Chief Justice, however, Ginsburg would also have held that the individual mandate is a valid exercise of Congress’s power to regulate commerce and under the Necessary and Proper Clause of the Constitution. Finally, Ginsburg stated that she would have held that the Spending Clause permits the Medicaid expansion exactly as Congress enacted it – with the penalty for noncompliance by a state to include the removal of all existing Medicaid funding for that state. Despite this difference in reasoning, however, Ginsburg agreed with the Chief Justice’s end result, that the Medicaid expansion will stand but that states will not face the prospect of any impact to existing Medicaid funding should they choose not to comply with the expansion.
Justice Kennedy wrote a dissenting opinion. He was joined in that opinion by Justices Alito, Scalia and Thomas. Overall, these Justices took the position that the entire Act should have been declared invalid. They stated as follows:
The Act before us here exceeds federal power both in mandating the purchase of health insurance and in denying the non-consenting states all Medicaid funding. These parts of the Act are central to its design and operation, and all the Act’s other provisions would not have been enacted without them. In our view it must follow that the entire statute is inoperative.
Justice Thomas wrote a single paragraph dissent in which he added a few comments regarding the application of the Commerce Clause.
Kathryn R. Gilchrist | David W. Donnell | Brant J. Ryan