Originally published June 28, 2012

Keywords: federal power, commerce clause, proper clause, taxing clause, spending clause, anti-injunction act

On June 28, 2012 the Supreme Court issued one decision, described below, of interest to the business community.

  • Federal Power—Commerce Clause
  • Federal Power—Necessary and Proper Clause
  • Federal Power—Taxing Clause
  • Federal Power—Spending Clause
  • Jurisdiction—Anti-Injunction Act

National Federation of Independent Business v. Sebelius , No. 11-393 (previously discussed in the November 14, 2011 Docket Report).

The Supreme Court today upheld the constitutionality of key provisions of the Affordable Care Act ("ACA"), the Obama Administration's signature health care law. By a 5-to-4 vote, the Court held that the so-called "individual mandate," which requires that all individuals maintain a minimum level of health insurance or make an annual "shared responsibility payment," 26 U.S.C. § 5000A, falls within Congress's power to "to lay and collect Taxes," U.S. Const. art. I, § 8, cl. 1. The Court also upheld the ACA's Medicaid expansion, which provides additional federal funds to states that extend Medicaid eligibility to persons earning up to 133% of what those at the federal poverty line earn, see 42 U.S.C. § 1396a(a)(10)(A)(i)(VIII), but restricted the power of the Secretary of Health and Human Services to withdraw a state's existing Medicaid funds if it does not comply with the new coverage requirements.

In an opinion by Chief Justice Roberts, the Court first held that the Anti-Injunction Act ("AIA"), 26 U.S.C. § 7421(a), did not deprive it of jurisdiction to review the challenge to the individual mandate at this time. The AIA prohibits courts from considering any action that seeks to enjoin "the assessment or collection of any tax," which means that any person seeking to challenge a tax must first pay it and then sue for a refund. The Court held that because Congress labeled the "shared responsibility payment" a "penalty" rather than a "tax," Congress did not intend for challenges to the individual mandate to be subject to the AIA. The Justices were unanimous on this point.

The Court then held, in a portion of the Chief Justice's opinion joined by Justices Ginsburg, Breyer, Sotomayor, and Kagan, that the individual mandate was a permissible exercise of Congress's power under the Taxation Clause, U.S. Const. art. I, § 8, cl. 1. Although the "shared responsibility payment" for individuals who fail to maintain health insurance is labeled a "penalty" rather than a "tax," the Court held that it functions as a tax on those who go without insurance and therefore falls within Congress's power to lay and collect taxes. In reaching this conclusion, the Court reasoned that individuals who fail to maintain health insurance are not subject to any punitive sanctions beyond the shared responsibility payment; that the amount of the payment is small, and usually far less than the price of insurance; and that the payment is collected by the IRS through the normal means of taxation. (Mayer Brown LLP filed an amicus brief arguing that the individual mandate should be upheld under the Taxation Clause.) In a joint dissenting opinion, Justices Scalia, Kennedy, Thomas, and Alito argued that the shared responsibility payment is a not a tax because its primary role is not to raise revenue, but rather to penalize individuals who fail to comply with the minimum coverage requirement.

In a separate section, the Chief Justice concluded that the individual mandate is not independently authorized by the Commerce Clause, U.S. Const. art. I, § 8, cl. 3, or the Necessary and Proper Clause, id. § 8, cl. 18. The Chief Justice reasoned that the power to "regulate Commerce" extends only to individuals who are already engaged in commercial activity, so it does not permit Congress to compel the uninsured to engage in commerce by purchasing health insurance. He further reasoned that the individual mandate is not necessary for Congress to exercise any of its other powers and is not a proper means for carrying out the ACA's insurance reforms. In their separate, joint opinion, Justices Scalia, Kennedy, Thomas, and Alito agreed that the individual mandate falls outside the scope of these powers. Justice Ginsburg, joined by Justices Breyer, Sotomayor, and Kagan, would have held that the individual mandate was within these powers because Congress had a rational basis for concluding that the medical needs of the uninsured have a substantial effect on interstate commerce and because the individual mandate is necessary to the effective operation of other insurance reforms.

Finally, in a portion of the Chief Justice's opinion joined in full by Justices Breyer and Kagan, a plurality of the Court upheld the Medicaid expansion on the condition that states which decline to participate may not be threatened with the loss of their existing Medicaid funds. The joint opinion of Justices Scalia, Kennedy, Thomas, and Alito agreed with the Chief Justice that the threat of withdrawing all of a state's Medicaid funding is unconstitutionally coercive, but would have invalidated the expansion in its entirety rather than reforming the statute by limiting which funds may be threatened. A concurring opinion by Justice Ginsburg, joined by Justice Sotomayor, would have permitted the Secretary of Health and Human Services to rescind the entirety of a state's Medicaid funds if it declined to comply with the ACA's expanded coverage requirements.

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