CQ WEEKLY – COVER STORY
March 17, 2012 – 11:47 a.m.
The Issues Before the Justices
By Gail Sullivan, CQ Staff
The Supreme Court will begin hearing oral arguments during the week of March 26 in a case challenging the 2010 health care law (PL 111-148, PL 111-152). The core considerations for the justices:
Is It Too Soon to Rule?
A law called the Tax Anti-Injunction Act (AIA) could throw a wrench into all the speculation over how the mandate question will play out. And that might suit the court just fine, since as a general rule, it avoids deciding major constitutional questions unless absolutely necessary. The fact that the justices granted an additional half hour of argument to this question suggests it might very well be an escape hatch.
The gist of the AIA is this: Federal courts can’t entertain a tax case until the government actually tries to collect. The rationale is that if everyone who had a beef with the Internal Revenue Service could put off paying taxes by suing, the government would be inundated with lawsuits, and it might seriously clog the revenue stream.
So if a taxpayer tries to sue prematurely, the lawsuit gets thrown out of court. That’s what the 4th U.S. Circuit Court of Appeals did, and if the Supreme Court agrees, that’s exactly what might happen to the health care law.
But what does a tax law have to do with the Affordable Care Act? The penalty for disregarding the “individual mandate” — that is, for failing to buy insurance — comes in the form of a payment included with the miscreant’s federal income tax return. The 4th Circuit in Liberty University v. Geithner, said that no matter the label, the penalty was basically a tax. And until the tax is levied, any suit is a “pre-enforcement” action.
Of course, the health care individual mandate doesn’t even take effect until 2014. Therefore, no penalties can be sought by the government until 2015. At that point, a taxpayer could sue, and then the case would have to make its way back up to the Supreme Court again.
To decide whether the AIA applies, postponing a decision on constitutionality of the mandate, the court must determine whether the penalty provision of the health care law is really a “tax.”
Ordinary people know a tax when they owe it — and pay it. In this case, it’s not quite so simple. The text of the AIA doesn’t define “tax,” so it’s open season for parties to argue in favor of whatever definition best suits their purpose. Robert Long, the court-appointed attorney arguing that the AIA applies, urged the court to use the “ordinary meaning” of the word found in Webster’s dictionary. This conveniently broad definition — “every species of imposition on persons or property” — certainly encompasses the penalty provision, bringing the lawsuit within the AIA’s reach.
Long also points out that Congress directed the IRS to collect the penalty “in the same manner as taxes.” In this view, if the penalty walks like a tax and talks like a tax, it must be a tax.
The challengers and the administration point out that the tax code defines penalty and tax differently, the latter having a “wide array of substantive and procedural statutory consequences . . . .”
The parties on this side of the issue note that the purpose of the health care law was not to raise revenue, but rather to punish noncompliance. They cite previous cases distinguishing a tax penalty from a penalty imposed as punishment for failing to meet some other legal requirement.
Even if it is a tax, the challengers argue this lawsuit is outside the scope of the AIA, which bars only lawsuits brought for the purpose of restraining a tax. That was not the purpose of the suits against the mandate. But this is just mincing words, maintains Long, who says the challengers can’t make an end run around the AIA by characterizing their lawsuit as a challenge to the mandate rather than its enforcement mechanism. The 4th Circuit likewise found this argument laughable, pointing to Liberty University’s complaint, which identified the penalty as a tax, and asked the court for an injunction against enforcement.
The Issues Before the Justices
The consequences are dramatic either way. An election year ruling could provide a rallying cry for Republicans anxious for repeal or put wind in Obama’s sails as he heads for a second term. If delayed, the uncertainty could endure for years as states, agencies, and businesses continue to spend billions implementing a law that could be deemed unconstitutional or, depending on the elections, repealed.
Is the Mandate Constitutional?
“The Congress shall have power . . . to regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.”
On these few words in Article I of the Constitution, Congress has constructed the edifice of the regulatory state with little interference, and considerable help, from the Supreme Court over the years. The New Deal laws, civil rights laws and environmental regulations have all been predicated on the commerce power.
And not since the New Deal has the court rejected any major act of Congress on Commerce Clause grounds.
But Florida and its allies in the suit against the health care law may find some hope in the two cases in recent years in which the court has put some limits on Commerce Clause power.
In a 1995 case, United States v. Lopez, the Court struck down a law making it illegal to have firearms in a school zone. Generally, laws that govern health, safety and welfare are the province of states. But the government argued that guns in schools handicap the educational process in a manner that would “result in a less productive citizenry . . . [and] have an adverse effect on the Nation’s economic well-being.”
The Court said that was a reach, finding that the effects on interstate commerce were “so indirect and remote that to embrace them . . . would effectually obliterate the distinction between what is national and what is local and create a completely centralized government.”
A few years later, in United States v. Morrison, the Court found that a statute providing a civil remedy to victims of gender violence was unconstitutional on the grounds that gender-motivated crimes were not “economic activity.”
While the spirit of those cases — there are limits on Congress — is helpful to the challengers, the court has never had occasion to rule on whether Congress can require citizens to buy a commercial product. Nor has it considered whether Congress has the power to penalize “inactivity” — in this case, not buying insurance.
The fact that it has not dealt with these questions left the lower courts adrift.
The mandate imposes a tax penalty starting in 2014 on those who don’t maintain health insurance coverage, be it through Medicare, Medicaid, an employer plan or individual purchase. The function of the penalty is to keep costs down by bringing healthy people into the insurance pool and deterring what are known as “free riders,” who don’t buy insurance and then rely on society to pay when they show up in the emergency room.
The challengers argue that Congress’ power to regulate economic activity doesn’t extend to the non-purchase of insurance, which in their view is inactivity. And the government, they argue, can’t make an end run around this limit — mandating the purchase of insurance doesn’t convert this inactivity into an activity that Congress can regulate.
The Issues Before the Justices
The uninsured are outside the stream of commerce, and thus out of Congress’ reach, they say. Like bringing a gun into a school zone, the choice to remain uninsured is too remote from its economic impact to be within Congress’ power to regulate.
In support of the health care law, the government will point to a 2005 case, Gonzalez v. Raich, cited often in the Justice Department’s brief. In that case, the Court held that a federal law banning marijuana possession trumped a California state law allowing Angel Raich to grow pot in her backyard for personal medical use. Local use, they reasoned, affected supply and demand in the national marijuana market, making the regulation of local use “essential” to effectuate Congress’ larger goal of regulating the interstate drug trade. They distinguished the non-economic, criminal nature of the conduct at issue in Morrison and Lopez from a regulation of economic activity in this case.
Perhaps the most discussed part of Raich was a concurrence by Justice
By that logic, the Court need only agree that the uninsured threaten to undercut Congress’ otherwise valid goal of health care reform to uphold the mandate.
The government characterizes the mandate as regulating the consumption of health care, not the purchase of health insurance. Specifically, it’s about how people “finance their participation in the health care market,” be it through purchase of insurance or by “free riding” on the system.
And just as Angel Raich’s pot was, in Scalia’s words, “never more than an instant from the interstate market,” the government says the uninsured are never more than an instant from getting the flu or winding up in the emergency room.
In case the court is reluctant to find that the mandate is itself a valid exercise of Congress’ commerce power, the government argues that the mandate is constitutional on the grounds that it is essential to effectuate health reform’s “comprehensive regulatory scheme.” This is the basis on which the court upheld the statute in Raich, albeit with the majority finding a connection to economic activity necessary to their conclusion.
The government again takes a page from Scalia’s book, arguing that it doesn’t matter whether being uninsured counts as activity (economic or otherwise), because the uninsured threaten to undercut Congress’ otherwise valid goal of health care reform. The challengers counter that, although Congress can remove barriers to enforcement of a regulatory scheme, it cannot “offset the costs . . . by conscripting strangers to that scheme who are otherwise beyond its commerce power.”
Is Congress Coercing States?
It’s established that Congress may set the terms by which it offers federal money to the states. Conditional funding is the basis for federal mandates that affect highways, education, law enforcement and, of course, Medicaid.
Any decision upsetting that practice could, theoretically, have a greater impact on government than the ruling on the individual mandate. That’s one reason most observers think the court will not go there, although they wonder why the justices have chosen to consider it.
The health care law would expand Medicaid coverage, starting in 2014, to include all adults younger than 65 with incomes below 133 percent of the federal poverty level, or $30,657 for a family of four.
In the last hour of oral arguments, the court will take a break from concerns relating to the mandate and consider whether the health care law unconstitutionally coerces the states by requiring them to either expand the Medicaid program or lose funding for it altogether.
The Issues Before the Justices
The court’s decision to hear this issue was something of a surprise, given that conditional federal grants are a dime a dozen and that no federal court has ever found such a grant to be unconstitutionally coercive. Even the three-judge panel that struck down the mandate upheld the Medicaid expansion as constitutional.
But the Supreme Court has hinted at a limit to this particular exercise of Congress’ spending power.
The key precedent is South Dakota v. Dole. There, the Court rejected a state’s challenge to the withholding of federal highway funds from states that didn’t set the legal drinking age at 21 but observed that “. . . in some circumstances, the financial inducement offered by Congress might be so coercive as to pass the point at which ‘pressure turns into compulsion.’”
In this case, the challengers argue that the Medicaid expansion passes that point by making the states an offer they can’t afford to refuse. The “choice” to expand the program isn’t voluntary at all, they say, because Congress is conditioning “not just newly available funds but pre-existing funding on a State’s agreement to expand a program . . . .”
But the government counters that the states knew what they were getting into when they signed up. After all, when Congress created Medicaid, it reserved the right to make full program funding contingent on the acceptance of new conditions.
The reality is that the states have come to depend on federal matching funds to supplement the significant portion of their own budgets necessary to manage what has become the largest federal grant-in-aid program.
But the government says that the states are exaggerating this burden. For one thing, the federal government will pay 100 percent of the additional cost for the first three years, ratcheting down its contribution until 2020, when the states must pay 10 percent — a federal contribution far greater than in previous expansions.
Finally, the states appeal to principles of federalism, arguing that, without limits, Congress’ spending power could obliterate the distinction between the power given to the federal government and that reserved for the states. Urging the court to identify the point of coercion, the states say there need not be a “wholesale invalidation of spending programs,” because tying coerciveness to the sheer size of the Medicaid program and its connection to the mandate would result in a narrow ruling. But the government counters that asking the court to decide whether a federal grant is coercive forces courts into “the role of arbiters of conflicting policy judgments” and that the court has no business “delving into essentially political questions about states’ differing policy choices and budgetary priorities.”