The Tim Corrimal Show – Episode 214

So, we had a wonderful time recording Episode 214 of The Tim Corrimal Show this afternoon. Tim (@timcorrimal), Joe (@Marnus3) and I were joined by Cathy (@66Betty) of the Two Dozen Other Stupid Reasons blog for a discussion that focused primarily on the Supreme Court’s decision in National Federation of Independent Business v. Sebelius, No. 11-393 (slip op. June 28, 2012), the Affordable Care Act case that came down last week.

If you’re reading along at home, you can download a .pdf file of the National Federation of Independent Business case here.

As I attempted to explain on the show – and apologies for the long-winded dissertation – the case involved various challenges (by states, individuals and business organizations) to two of the key provisions of the Affordable Care Act: (1) The so-called individual mandate contained in 26 U.S.C. § 5000A, which requires uninsured individuals to obtain health insurance by 2014 or, if they fail to do so, to remit a “shared responsibility payment” to the IRS on their tax returns; and (2) the ACA’s expansion of Medicaid coverage, and, more specifically, the provisions of 42 U.S.C. § 1396c which permit the Secretary of Health and Human Services to deny a state all federal Medicaid funds if it opts out of the ACA’s expanded coverage. To resolve constitutional challenges to those two provisions, the Court had to address these basic questions:

(1)            Are suits challenging the individual mandate barred by the Federal Anti-Injunction Act, 26 U. S. C. §7421(a), which 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 was assessed”?

            (2)            If challenges to the individual mandate are not barred by the Anti-Injunction Act, is the individual mandate constitutional under either (a) the Commerce Clause, or (b) Congress’ taxing authority?

            (3)            Is the ACA’s Medicaid expansion, including the power granted to the Secretary of Health and Human Services to withhold all Medicaid funds from states that opt out of the expansion, a valid exercise of Congress’ powers under the Spending Clause?

Writing for the Court, Chief Justice Roberts first held that the Anti-Injunction Act did not bar suits challenging the individual mandate and the “shared responsibility payment” that would become due as a consequence of failing to obtain health insurance by 2014. As Chief Justice Roberts explained, under the Anti-Injunction Act no one can sue the federal government to enjoin the imposition or collection of a tax; rather, in order to challenge a tax in court the taxpayer must first pay the tax and then sue for a refund. Because the individual mandate and “shared responsibility payment” obligations do not go into effect until 2014, suits challenging the latter would be premature if the Anti-Injunction Act applied. But the Court noted that the issue is not whether the “shared responsibility payment” might be considered, in substance, a tax; instead, the issue is whether Congress intended the Anti-Injunction Act to apply to the “shared responsibility payment”:

The Anti-Injunction Act applies to suits “for the purpose of restraining the assessment or collection of any tax.” [26 U.S.C.] §7421(a) (emphasis added). Congress, however, chose to describe the “[s]hared responsibility payment” imposed on those who forgo health insurance not as a “tax,” but as a “penalty.” [26 U.S.C.] §§5000A(b), (g)(2). There is no immediate reason to think that a statute applying to “any tax” would apply to a “penalty.”

Congress’s decision to label this exaction a “penalty” rather than a “tax” is significant because the Affordable Care Act describes many other exactions it creates as “taxes.” See Thomas More [Law Center v. Obama], 651 F. 3d [529], at 551 [(CA6 2011)]. Where Congress uses certain language in one part of a statute and different language in another, it is generally pre­sumed that Congress acts intentionally. See Russello v. United States, 464 U. S. 16, 23 (1983).

…

The Anti-Injunction Act and the Affordable Care Act, however, are creatures of Congress’s own creation. How they relate to each other is up to Congress, and the best evidence of Congress’s intent is the statutory text.

National Federation of Independent Business v. Sebelius, slip op. at 12-13. Accordingly, based upon the language of Section 5000A, the Court concluded that Congress did not intend the Anti-Injunction Act to apply.

Next, having determined that suits challenging the individual mandate could proceed despite the Anti-Injunction Act, Justice Roberts addressed the question whether the individual mandate itself passed muster under the Commerce Clause (“Congress shall have the Power … To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes”), and the Necessary and Proper Clause (“Congress shall have Power … To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof”), both of which are contained in Article I, section 8 of the U.S. Constitution.

Acknowledging the extraordinary breadth of the commerce power as interpreted by the Court over the past century –

We have recognized … that “[t]he power of Congress over interstate commerce is not confined to the regulation of commerce among the states,” but extends to activities that “have a substantial effect on interstate commerce”

– slip op. at 17, citing United States v. Darby, 312 U. S. 100, 118–119 (1941), Chief Justice Roberts nonetheless determined that the individual mandate itself – i.e., the statutory requirement that uninsured individuals purchase health insurance – could not be sustained under the Commerce Clause (or, by extension, the Necessary and Proper Clause), because the commerce power extends only to the regulation of activities affecting interstate commerce, not inactivity of any stripe … no matter how much the failure to act affects interstate commerce:

As expansive as our cases construing the scope of the com­merce power have been, they all have one thing in com­mon: They uniformly describe the power as reaching “activity.” It is nearly impossible to avoid the word when quoting them. …

The individual mandate, however, does not regulate existing commercial activity. It instead compels individ­uals to become active in commerce by purchasing a product , on the ground that their failure to do so affects interstate commerce. Construing the Commerce Clause to permit Con­gress to regulate individuals precisely because they are doing nothing would open a new and potentially vast do­main to congressional authority.

Slip op. at 19-20.

However, even though the Chief Justice believed that the individual mandate could not be sustained under the commerce power, he (and the majority of the Court) recognized that the sole means of enforcing the individual mandate is to require individuals who fail to obtain health insurance to remit to the IRS on their annual tax returns a “shared responsibility payment” based upon a percentage of their incomes (up to the amount a qualifying health insurance plan would cost). Thus, even though the mandate itself would be unconstitutional under the Commerce Clause, the Court had to ask whether it would be reasonable to interpret the enforcement mechanism as a tax, and, if so, whether it could therefore be upheld under Congress’ power “to lay and collect Taxes” under Article I, section 8:

The text of a statute can sometimes have more than one possible meaning. … And it is well established that if a statute has two possible meanings, one of which violates the Constitution, courts should adopt the meaning that does not do so.

The most straightforward reading of the mandate is that it commands individuals to purchase insurance. After all, it states that individuals “shall” maintain health insurance. 26 U. S. C. §5000A(a). Congress thought it could enact such a command under the Commerce Clause, and the Government primarily defended the law on that basis. But, for the reasons explained above, the Com­merce Clause does not give Congress that power. Under our precedent, it is therefore necessary to ask whether the Government’s alternative reading of the statute—that it only imposes a tax on those without insurance—is a rea­sonable one.

Slip op. at 31-32.

The Court then determined that it was, in fact, reasonable to interpret Section 5000A – the individual mandate provisions – as a tax (despite having previously held that the Anti-Injunction Act does not apply), and, under that interpretation, that Section 5000A was within Congress’ power under the Tax Clause of Article I, Section 8. Reviewing Supreme Court precedent to determine whether the “shared responsibility payment” under Section 5000A was, in substance, a tax or a penalty, the Court stated:

The same analysis here suggests that the shared re­sponsibility payment may for constitutional purposes be considered a tax, not a penalty: First, for most Americans the amount due will be far less than the price of insur­ance, and, by statute, it can never be more. It may often be a reasonable financial decision to make the payment rather than purchase insurance, unlike the “prohibitory” financial punishment in [Bailey v.] Drexel Furniture [Co.,] 259 U. S. [20], at 37 [(1922)]. Second, the individual mandate contains no scienter requirement. Third, the payment is collected solely by the IRS through the normal means of taxation—except that the Service is not allowed to use those means most sugges­tive of a punitive sanction, such as criminal prosecution. See §5000A(g)(2). The reasons the Court in Drexel Furni­ture held that what was called a “tax” there was a penalty support the conclusion that what is called a “penalty” here may be viewed as a tax.

Slip op. at 35-36 (footnotes omitted).

Moreover, the fact that the “shared responsibility payment” was intended to influence behavior (i.e., to encourage the uninsured to purchase health insurance) was not enough to render that provision something other than a tax. Taxes, the Court noted, are often used to influence behavior and to raise revenue, and yet are regularly upheld under Congress’ taxing authority. Slip op. at 36-37.

Finally, Chief Justice Robert’s opinion addressed Medicaid expansion and the power granted to the Secretary of Health and Human Services to withhold the entirety of a state’s Medicaid funds – including funds for traditional Medicaid services as they existed prior to the ACA – if the state opts out of the expanded Medicaid plan under the ACA. Justice Roberts noted that Congress frequently conditions the states’ receipt of federal funds on the state taking actions that Congress could not, constitutionally, require them to take, and that, as a general principle, Article I, Section 8’s Spending Clause does not prohibit attaching those strings to federal dollars. However, Justice Roberts went on to say:

At the same time, our cases have recognized limits on Congress’s power under the Spending Clause to secure state compliance with federal objectives. “We have re­peatedly characterized . . . Spending Clause legislation as ‘much in the nature of a contract.’” Barnes v. Gorman, 536 U. S. 181, 186 (2002) (quoting Pennhurst State School and Hospital v. Halderman, 451 U. S. 1, 17 (1981)). The legitimacy of Congress’s exercise of the spending power “thus rests on whether the State voluntarily and knowingly accepts the terms of the ‘contract.’” Pennhurst, supra, at 17.

Slip op. at 46-47.

Ultimately, the Chief Justice concluded that 42 U.S.C. § 1396c violated this principle because the threat of withholding all Medicaid funds from states that opt out “is economic dragooning that leaves the States with no real option but to acquiesce in the Medicaid expansion.”  Slip op. at 52. But the solution, according to the Chief Justice, was not to strike down Section 1396c altogether:

In light of the Court’s holding, the Secretary cannot apply §1396c to withdraw existing Medicaid funds for failure to comply with the requirements set out in the expansion.

That fully remedies the constitutional violation we have identified. The chapter of the United States Code that contains §1396c includes a severability clause confirming that we need go no further. That clause specifies that “[i]fany provision of this chapter, or the application thereof to any person or circumstance, is held invalid, the remainder of the chapter, and the application of such provision to other persons or circumstances shall not be affected thereby.” §1303. Today’s holding does not affect the continued ap­plication of §1396c to the existing Medicaid program. Nor does it affect the Secretary’s ability to withdraw funds pro­vided under the Affordable Care Act if a State that has chosen to participate in the expansion fails to comply with the requirements of that Act.

So, while the basic provisions of the ACA remain in tact, the Court severely restricted one of the primary ways in which the Act sought to encourage states to accept Medicaid expansion.

In any event, both the ACA itself and the Court’s opinion in National Federation of Independent Business v. Sebelius are complex and will, undoubtedly, lead to further discussion and analysis on the show. For now, I hope you enjoy the latest episode and I hope our discussion shed some light on the Court’s ruling.