Unexpected Twists in the Affordable Care Act Decision

JURIST Guest Columnist Sallie Sanford of the University of Washington School of Law says that the Supreme Court's recent decision upholding the Affordable Care Act will have lasting effects not only for the nation's health care system, but also for the future interpretation of several key constitutional provisions...

In its keenly anticipated decision in National Federation of Independent Business v. Sebelius, the Supreme Court found the "individual mandate" provision of the Affordable Care Act (ACA) constitutional, along with nearly the entirety of the rest of the Act. The Court did so with an unexpected vote count and on unanticipated legal bases.

Chief Justice Roberts joined the more liberal wing of the Court and wrote for the 5-4 majority in upholding the ACA's key requirement that most citizens have insurance or make a "shared responsibility payment" to the IRS. This, the majority held, is a valid exercise of Congress' taxation powers.

The Court also upheld the ACA's Medicaid expansion, but effectively made it an option, not a requirement, for the states. It would be unconstitutionally coercive, seven justices held, to threaten noncompliant states with revocation of their existing levels of federal Medicaid funding.

Justices Scalia, Kennedy, Thomas and Alito filed a rare joint dissent. The joint dissenters viewed the individual mandate and Medicaid expansion as unconstitutional and unseverable from the rest of the ACA. Thus, they would have thrown out the entire law.

Justice Ginsburg, joined by Justices Breyer, Sotomayor and Kagan, would have upheld the individual mandate on broader bases. They concluded that, in addition to the taxing power, the requirement was well within Congress' authority under the Constitution's Commerce and Necessary and Proper clauses.

The justices' complex, interconnected opinions will engage scholars, politicians and citizens for years to come. In the following paragraphs, I summarize key aspects of the ACA decision and highlight several questions it raises.

The Individual Mandate is Not a Tax under the AIA

As an important preliminary matter, all nine justices agreed that the Anti-Injunction Act (AIA) did not apply and thus did not preclude consideration of the case. The AIA, a Reconstruction-era statute, generally requires that a challenge to a federal tax wait until the tax is paid or an enforcement action initiated.

Under the terms of the ACA, no payment for failure to obtain insurance is due until April 2015. All of the parties and numerous amici urged the Court to find jurisdiction and not prolong the legal uncertainty. In fact, the Court had to appoint a private attorney to argue the AIA's applicability.

The Court concluded that — for purposes of the AIA — the "shared responsibility payment" is not a tax. As to this statute, labels matter. Within the ACA, Congress generally labeled this payment a "penalty" and not a "tax."

Because the Court ruled that the AIA did not apply, it left for another day the question of whether that statute is jurisdictional, whether it precludes judicial consideration even where the parties want a decision on the merits. Here, of course, the parties did get a decision on the merits.

The Individual Mandate Survives

Both CNN and Fox initially reported that the individual mandate had been thrown out. How could they have gotten the story so wrong? Perhaps they rushed to their on-air reports based on the Chief Justice's statement from the bench and the first part of his opinion, declaring that the mandate exceeds Congress' powers to regulate commerce and to take actions "necessary and proper" for exercising that constitutionally enumerated power.

Yet the Chief Justice went on, in his remarks from the bench and in his opinion, to state that the mandate is within Congress' powers under a different constitutional provision. With support from the Court's four more liberal justices, the mandate survived as a tax.

Limits on Commerce Clause Power

Commerce Clause authority was expected to be the determinative issue. Statements within the ACA ground Congress' authority in this constitutional provision. The two Appeals Courts that upheld the ACA (the Sixth Circuit and DC Circuit) and the one Appeals Court that reversed it (the Eleventh Circuit) focused on this provision, and it dominated the Supreme Court's historically lengthy oral arguments in this case.

Five members of the Court concluded that the Commerce Clause allows Congress to regulate economic activity, but not inactivity. "That Clause," declared the Chief Justice, "authorizes Congress to regulate interstate commerce, not to order individuals to engage in it."

Although everyone is likely to participate in the markets for transportation and food, the Chief Justice wrote, "[t]he Commerce Clause is not a general license to regulate an individual from cradle to grave, simply because he will predictably engage in particular transactions." Someone who may buy a car or broccoli in the future is not currently "active" in those markets. Analogously, someone who has chosen not to purchase insurance is not engaging in commercial activity that Congress may regulate under the Commerce Clause.

In their joint dissent, Justices Scalia, Kennedy, Thomas and Alito did not explicitly state that they joined this portion of the Chief Justice's opinion, but did, in strong language, support it. To accept the mandate as within the Commerce Clause, they wrote, would "extend federal power to virtually all human activity."

Justice Ginsburg's concurrence, which Justices Breyer, Sotomayor and Kagan joined on this point, would have upheld the mandate as well within Congress' powers under the Commerce Clause. Furthermore, they argued that it is a necessary and proper exercise of Congress' larger regulation of the health insurance industry that, among other reforms, prevents discrimination against those with pre-existing conditions.

"Beyond dispute," Ginsburg contended, "Congress had a rational basis for concluding that the uninsured, as a class, substantially affect interstate commerce." This is because the uninsured utilize uncompensated care, shift costs to the insured, and destabilize the health insurance markets.

Analogies to the markets for broccoli or cars are inapt, she explained, "[t]he inevitable yet unpredictable need for medical care and the guarantee that emergency care will be provided when required are conditions nonexistent in other markets."

A Functional Interpretation of Taxing Power

From the beginning of this litigation — which commenced the day President Obama signed the ACA into law — the government has argued that the mandate is also within Congress' taxation powers. This was, in effect, the fallback constitutional justification.

A different five-justice majority held that the consequence for failure to maintain insurance "may reasonably be characterized" as a constitutionally appropriate tax. On this question, unlike the AIA statutory issue, labels are not crucial. The Chief Justice quoted prior case law to support the point that "[m]agic words or labels should not disable an otherwise constitutional levy."

Although usually labeled as a "penalty," the payment functions as a tax. It is to be collected by the IRS "in the manner" of a tax, and is based on percentage of income. The opinion noted that it is a relatively modest tax (when fully enacted, the greater of $695 or 2.5 percent of income) and that there might be no real consequence for failure to pay it.

The four more liberal members of the Court joined this part of the opinion. In their concurrence, they further argued that, having upheld the challenged provision on this basis, the Court had no need to opine on the Commerce Clause question.

The four more conservative justices dissented, arguing that the challenged payment is a penalty, not a tax. The majority's characterization amounts, they declared, to "a vast judicial overreaching," and "creates a debilitated, inoperable version of health-care regulation that Congress did not enact and the public does not expect."

Implications for Congressional Power?

How will these holdings impact Congressional power going forward? Does this decision expand Congress' power to regulate by taxation? Does it make sense to hold that the individual mandate is beyond Congress' Commerce Clause power but within its taxation power?

Taxes are frequently designed to encourage some behaviors (e.g. home ownership by way of the mortgage deduction) and discourage other behaviors (e.g. smoking by way of cigarette taxes). There might not be, however, another example of a tax owed because of one's failure to buy something.

As for the Commerce Clause, the Chief Justice wrote that the "activity" limitation follows from the precedent cases. Whether one agrees with that assessment of the precedent or not, it is certainly new as an explicitly stated boundary to what has historically been an expansive federal power. Most academics (including me) thought that the Commerce Clause challenge had minimal chances of success.

Does this portend future rulings reigning in federal authority? Is it, in the words of Justice Ginsburg, a "stunningly retrogressive" view of Congress' ability to respond to national economic problems? Is it a holding of the Court, or simply dicta, and does that distinction really matter here?

It might be that this case presents a unique issue that would have been unlikely to recur anyway. The ACA's defenders had to reach back to the first Congress to find an explicit example of Congress requiring people to purchase a private product (in that case, muskets for militia use).

States Given Flexibility in Medicaid Expansion

The most surprising and potentially consequential aspect of this case may turn out to be the ruling on the ACA's expansion of Medicaid to cover all citizens with incomes below 133 percent of the Federal Poverty Level. As to the newly eligible, the ACA specifies that the federal government is to cover 100 percent of the costs for the first several years, ratcheting down to 90 percent in 2020. The current federal match averages 57 percent, though several lower-income states have a match closer to 70 percent.

The Court held that it would be unconstitutionally coercive — would violate the Tenth Amendment — for Congress to threaten revocation of a state's existing federal Medicaid funds if a state declined to expand its Medicaid program. This threat is "economic dragooning," the Chief Justice wrote, "that leaves the states with no real option but to acquiesce in the Medicaid expansion."

Seven justices (all except Justices Ginsburg and Sotomayor) joined in this holding. This marks the first time that the Supreme Court has found that a federal conditional spending program crosses the line between permissible inducement and impermissible coercion.

The Chief Justice noted that Medicaid is a voluntary program, whose statutory language reserves Congress' right to alter or amend its terms. The states could not anticipate, however, that this reservation "included the power to transform the program so dramatically." This expansion, in the view of the majority, "is a shift in kind, not merely degree."

Significant Practical Implications

This effectively makes the expansion of Medicaid a voluntary option for the states. Will any state actually decline to expand its program and leave potentially eligible low-income citizens without coverage? Will this undermine the ACA's goal of near-universal insurance coverage?

Several governors have said they will reject the expansion. It is hard to believe, though, that any state will persist in rejecting such a substantial financial carrot. Many hospitals, physicians and local governments that now bear the costs of providing uncompensated care are likely to join with low-income advocates in lobbying legislatures to expand Medicaid and thus reduce the ranks of the state's uninsured.

Furthermore, as currently written, the ACA's insurance subsidies do not apply to those who would be eligible for Medicaid (or other affordable insurance). Thus, in a state that rejects the expansion, adult citizens just above the poverty level would be eligible for good insurance with generous subsidies, but those just below would not qualify for Medicaid or for subsidized insurance.

This stark inequity might grate on a state's voters. Those voters might also resent that they are effectively supporting Medicaid expansions in other states but not in their own.

In addition to these practical questions, the ruling raises legal issues for other federal programs. Congress has expanded Medicaid several times over the years (without an enhanced match). Were those expansions unconstitutional? Are there new limits on Congress' ability to attach conditions to other cooperative federal programs, such as those relating to education or highway construction?

How big does a conditional spending program have to be before modifications to it are coercive? It might turn out that this holding is limited to Medicaid. Medicaid is an unusually large federal-state program and its federal funding comprises an unusually large part of states' budgets.

A Switch in Time?

Speculation abounds that the Chief Justice changed his opinion — both his personal view and his written decision — sometime between the March oral arguments and the June term end. Citing "two sources with specific knowledge of the deliberations," CBS News reported that the Chief Justice initially voted to strike down the mandate, and assigned himself to write that majority opinion, with the vote count on the severability question unsettled.

A change of mind is not necessarily remarkable. Thoughtful individuals, including judges, should be open to persuasion by sound arguments. And judges do sometimes find that their initial perspective "won't write," or that a colleague's circulated draft is more persuasive.

A couple of points, though, make this possible switch notable. First, the Chief Justice provided the decisive fifth vote; the switch, if there was one, made all the difference. Second, the Supreme Court has been the rare institution that does not leak. Third, in several respects, much of the joint dissent reads as though it was intended to be the majority opinion.

Some have argued that the Chief Justice must have been swayed by concerns that the Court not be perceived as a partisan institution. I wonder if he was initially on the fence regarding the tax issue and undecided about severability.

Perhaps he was persuaded by the joint dissenters' argument that the mandate is integral to the function of the rest of the ACA and, if unconstitutional, cannot be severed from it. Given the ramifications of that result, of striking the entire statute, perhaps the taxation power arguments advanced by Justice Ginsberg and others took on additional persuasive force.

The Supreme Court's Resolution

The Supreme Court has resolved the legal questions presented in this historic case. The individual mandate is constitutional. The Medicaid expansion is constitutional as long as nonparticipating states don't risk loss of their existing federal Medicaid funds.

As a matter of law, the implementation of the ACA can proceed. Provisions that aim to make every citizen insurable can go into effect. Provisions that aim to provide near-universal insurance coverage can go into effect. Whether they will go into effect is now out of the hands of the Court and within those of the political system.


Sallie Sanford is an Assistant Professor of Law at the University of Washington School of Law. She teaches health law both at the law school and the School of Public Health. Her research interests include health care delivery systems, health administration law, Medicare and Medicaid, comparative health law, and medical and administrative ethics.

Suggested citation: Sallie Sanford, Unexpected Twists in the Affordable Care Act Decision, JURIST - Forum, July 13, 2012, http://jurist.org/forum/2012/07/sallie-sanford-scotus-aca.php.



This article was prepared for publication by Caleb Pittman, head of JURIST's academic commentary service. Please direct any questions or comments to him at academiccommentary@jurist.org

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