Today, the U.S. Supreme Court issued its long-awaited opinion on the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148), ruling 5-4 that the individual mandate is constitutional as a tax. As a surprise to many, the fifth vote was not made by swing-voter Justice Kennedy, but by conservative Chief Justice Roberts, who broke with the other conservative members of the Court and authored the opinion.
He was careful to emphasize in his introduction that he was strictly giving an analysis based on the Constitution, not whether political policies were necessarily wise, and that “[i]t is not our job to save the people from the consequences of their political choices.”
As the centerpiece of PPACA, the individual mandate will require most Americans, beginning in 2014, to maintain “minimum essential” health insurance coverage or be subject to a “penalty.” The “penalty,” known as a “shared responsibility payment,” is to be paid with the person’s taxes to the Internal Revenue Service (IRS).
The Court considered whether this mandate was imposed by Congress constitutionally, and considered the federal government’s arguments that Congress’ power derived from the Commerce Clause, Necessary and Proper Clause and the Taxing Clause of the Constitution.
Commerce Clause Analysis
“The Framers gave Congress the power to regulate commerce, not to compel it.”
The Court concluded that the imposition of a mandate to purchase health care insurance was outside of Congress’ Commerce Power granted under Article I, Section 8, Clause 3 of the U.S. Constitution. The Commerce Clause grants Congress the power to “regulate Commerce with foreign Nations and among the several States, and with the Indian Tribes.”
Rejected, was the government’s argument that the mandate was within Congress’s Commerce Power because a cost-shifting problem is created by the failure of individuals to purchase insurance, which has a “substantial and deleterious effect on interstate commerce.”
Chief Justice Roberts reasoned that the power to regulate commerce is dependent on the pre-existence of commercial activity that can be regulated. Congress does not have the power to force individuals who have chosen not to engage in commerce to buy a product they do not desire. To grant such a power to legislators would be dangerously opening a door to a “new and potentially vast domain to congressional authority,” putting a potentially unlimited number of individual decisions under Congress’s authority to make such decisions for people.
The Chief Justice hypothesized that Congress imposed a law requiring all citizens to buy vegetables, with the goal in mind that an unbalanced diet results in diseases which increase health care costs (even more so than uninsured persons) that are passed on other citizens in the market. He observed that the bad decisions of other people commonly have a negative effect on others engaged in interstate commerce; however, under the government’s rationale, Congress could force others to act how the federal government wanted them to act, drastically changing the relationship between citizen and government.
Necessary & Proper Clause Analysis
Under Article I, Section 8, Clause 18 of the Constitution, Congress is granted the authority to enact provisions “incidental to the [enumerated] power, and conducive to its beneficial exercise” and “make all laws that are necessary and proper for carrying into execution” its Constitutionally enumerated powers. The government argued that the mandate is necessary as it serves as an “integral part of a comprehensive scheme of economic regulation” of insurance reforms.
The Court concluded the clause does not license the exercise of any “great substantive and independent power” beyond those specifically granted in the Constitution. The mandate is distinguished as it provides Congress with the “extraordinary ability to create the necessary predicate to the exercise of an enumerated power.”
In addition, the individual mandate does not qualify under this clause as an essential component of the government’s insurance reforms. Despite the fact that the government finds the mandate necessary to its reforms, it is not a proper vehicle.
Taxing Clause Analysis
The Court found that the individual mandate did survive the requirements of the Taxing Clause, Article I, Section 8, Clause 1 of the U.S. Constitution, which grants Congress the power to “lay and collect taxes.”
Comparing the “penalty” for not purchasing health insurance to taxes for gasoline and earning income, Chief Justice Roberts concluded that the mandate is not a “legal command” to purchase health insurance, but the choice of going without it “just another thing the Government taxes.”
Despite the fact that PPACA refers to the tax as a “penalty,” the terminology is irrelevant here as it is undeniably a tax, which the Court identifies by the following factors:
- The “penalty” is paid into the Treasury by taxpayers when they file their annual tax returns;
- The “penalty” does not apply to persons who do not pay federal income taxes;
- The amount of the “penalty” is calculated by taking into account factors including number of dependents, joint filing status and amount of taxable income;
- The requirement is included in the Internal Revenue Code and is enforced by the IRS;
- The “penalty” produces at least some revenue for the federal government.
Other considerations for the constitutionality of the tax include the fact that the tax is considerably less than the price of health care insurance; the mandate contains no scienter requirement; and the tax is solely collected by the IRS through normal means of taxation. The fact that a person failing to pay the tax cannot be subject to criminal sanctions is a key consideration.
The Court acknowledged that the goal of the mandate is to encourage citizens to change their behavior and buy health insurance. However, Chief Justice Roberts stated taxes to encourage or discourage certain behavior are not new to our society. Paying a tax because you do not want to do something does not make that choice unlawful. He offered examples of cigarette taxes making up half the cost of the product to discourage smoking and tax incentives given to encourage citizens to buy home mortgages. If a person chooses not to buy insurance, but instead pays the tax, his or her behavior is perfectly lawful.
Even within taxing power, the tax must conform with other constitutionality requirements. One argument against the tax is that any direct tax must be apportioned among the states, so that each state pays in proportion with its population. The Court found that this type of tax does not comprise a “direct tax” or capitation, where every single person must pay the tax regardless of his or her circumstance. The exemption of some persons from the tax and the act of not buying health insurance trigger the tax.
The Chief Justice’s larger issue was if the Commerce Clause does not allow Congress to regulate those who do not participate in commercial activity, why can Congress impose a tax for the same inactivity? He explained that it can for the following reasons:
- This tax does not recognize a new federal power. The Constitution does not guarantee that citizens can avoid paying taxes by not doing something;
- There are limits on Congress’ power to use its taxing power to influence conduct. The power to impose the mandate/tax does not exceed those limits because no one is punished or criminalized for not paying the tax.
- The power to tax does not give Congress the same extent of control over individual conduct as the Commerce Clause.
- Under the tax power, citizens can only be required to pay money to the Federal Treasury. Each person can choose whether to engage in particular action, knowing that inaction will result in a tax.
- Under the commerce power, the federal government can “bring its full weight to bear,” including the imposition of criminal sanctions.
PPACA’s financial penalty for a failure to purchase health insurance is reasonably characterized as a tax, which is permissible by the Constitution.
Stay tuned for coverage for further coverage of the majority opinion.
Prior coverage of oral arguments and amicus briefs can be found here:
- Amicus briefs — Medicaid
- Amicus briefs — severability
- Oral arguments — Anti-Injunction Act
- Oral arguments — mandate/penalty
- Oral arguments — severability