The Supreme Court’s Healthcare Ruling

The Supreme Court’s Healthcare Ruling and the Making of a New Tax

By R. Tamara de Silva
June 28, 2012

Today a divided Supreme Court held that the individual mandate within the Affordable Care Act (“ACA”) is Constitutional (567 U. S. ____ (2012))[1] . The 193 page opinion contains an excellent discourse on the Commerce Clause, state rights, un-enumerated rights and what are supposed to be the limits of the Federal government’s power, making the jist of the ruling all the more extraordinary, if not ironic. The decision is remarkable because it is the first time in our history that it has been held that the United States Constitution permits a financial penalty for non-performance of an economic act to be treated as a tax. According to Chief Justice John G. Roberts, “The Affordable Care Act’s requirement that certain individuals pay a financial penalty for not obtaining health insurance may reasonably by characterized as a tax…Because the Constitution permits such a tax, it is not our role to forbid it, or to pass upon its wisdom or fairness.” As of this writing I cannot think of another example where the non-performance of an act results in the levying of a Federal tax. Federal tax is generally levied on such things as income, investment income and the consumption of certain goods like alcohol, gasoline guzzling cars, telephones, duck stamps, et. al.

In writing about President Obama’s healthcare law earlier in the year, I pointed out that the Supreme Court would rule upon the Constitutionality of the ACA based upon three criteria, the Commerce Clause, the Taxing Clause and the Necessary and Proper Clauses within the United States Constitution.[2] Like most others, I dismissed the possibility that the Supreme Court would utilize the Taxing Clause to uphold the individual mandate of the ACA because the mandate is a penalty or punishment rather than a tax, and the purpose of taxes has historically always been to raise revenue – not to be punitive. Apparently I was completely in error.

Commerce Clause Preserved

The Supreme Court’s decision was always to be of monumental importance to either keeping the Government’s powers under the Commerce Clause checked, or allowing them to be let upon the nation, unfettered, limitless and absolute. The Supreme Court correctly stated that were the ACA to be upheld under the Commerce Clause it, “would open a new and potentially vast domain to congressional authority.” The Framers knew the difference between regulating commerce and using the power of the Commerce Clause to coerce commerce and every act that may in the aggregate of all people performing it, have any impact on commerce. Had the Supreme Court upheld the ACA under the Commerce Clause, Congress would be able to regulate absolutely everything in America under its ability to regulate commerce.

Chief Justice John Marshall wrote almost two hundred years ago in Gibbons v. Ogden, 22 U.S. 1 (1824), that Congress’ power under the Commerce Clause is the power, “to prescribe the rule by which commerce is to be governed. This power, like all others vested in Congress, is complete in itself, may be exercised to its utmost extent, and acknowledges no limitations, other than are prescribed in the Constitution.” [3] Congress has long had the power to regulate insurance and as such and to some degree, health insurance. [4] Chief Justice Roberts rejected the Government’s argument for the individual mandate based on congressional use of the Commerce Clause because he stated that Congress had a power to regulate commerce not to create it. In all five Justices rejected the argument that the individual mandate of the ACA would pass Constitutional muster under the Commerce Clause, Chief Justice Roberts, Justices Scalia, Kennedy, Thomas and Alito.

The ACA was meant to help the over 50 million or so Americans without health-care coverage, and to ensure that those with health insurance coverage do not lose it. Much of the most politically broad based support for healthcare reform is based on legitimate concerns over runaway health-care costs. Many opponents of the ACA, while acknowledging problems with the current health care system have suggested alternatives to a national health care plan but their solutions place them squared against two of the most powerful lobbied interests in Washington, insurance companies and tort lawyers. Advocates for private sector solutions like opening up the health care market to allow individuals to purchase insurance across state lines and to select only the type of coverage they need, argue that these two solutions alone would automatically make health care more affordable to a majority of Americans by driving insurance premiums down. It is difficult to argue that medical tort reform, curtailing frivolous medical malpractice suits, and the curbing of medical drug class action suits (plaintiffs for which are shamelessly solicited on every channel during every day of prime time television) would not help the entire medical industry-though who will take on the tort bar?

Those who do not have health insurance and use the emergency room or public hospitals when sick (what are called “cost-shifters”) shift an immense economic cost on those who have health insurance and the insurance industry as a whole. Ironically what today’s Supreme Court ruling does not address, because it is not addressed in the ACA, is that fact that the largest cost-shifters, illegal aliens (who account of $8.1 billion in health care costs) and low-income persons (who are already covered by Medicaid, at the cost of $15 billion per annum) will be exempt from the mandated health care regime of ACA. The most important feature in the over 2,700 page ACA is its individual mandate because this was always intended to shift some of the costs of health care to the healthy and the voluntarily uninsured -requiring that these groups, and ironically not the costliest cost-shifters, purchase private insurance.

Mandate as a Tax But Not a Penalty?

The purpose of taxation is to raise revenue. The purpose of penalties is to punish and deter unwanted behavior-sometimes, as in the case of the individual mandate, with the promise of criminal prosecution. The two have historically been distinct though with some overlap. For example, there are legal penalties for speeding (below what rises to the charge of reckless driving), streaking, violating the copyright laws or removing stickers from mattresses. Some of these penalties carry fines but the purpose of these fines is not to raise revenue so much as it is to deter conduct. In essence, no where even in the labyrinth of the IRS Code are streaking or removing mattress labels “taxable events.”

Chief Justice Roberts, joined by Justices Breyer, Ginsburg, Kagan and Sotomayor agreed with the Government’s argument that the individual mandate within the ACA constitutes a tax on people who do not buy health insurance and is permissive under Congress’ taxing power. Here is where the logic of Justice Roberts’ opinion gets tougher to follow.

How can the individual mandate, which imposes a financial penalty upon anyone who does not purchase health insurance after 2014, and is not exempt from doing so, be called anything other than a penalty? Chief Justice Roberts states that what the mandate is called (Congressional Democrats and the White House have referred to the mandate as a penalty and not a tax-ACA itself refers to the mandate as a penalty) is not determinative of what it is. His opinion states that the individual mandate is distinguishable from a penalty because, “the mandate is not a legal command to buy insurance,”-it is a requirement that people who do not purchase insurance pay the IRS a fine. If this seems like a distinction without a discernable difference-you would not be alone in thinking so. Chief Justice Roberts argues that the failure of an individual to purchase health insurance would not, while subjecting that person to an IRS fine, be unlawful. If this is true, I do not advise passing this along as a defense if the fine is not paid…

Congress may have stumbled upon a new way to mandate every type of behavior the Court correctly forewarned against it using the Commerce Clause to mandate, by use of the Taxing Clause. Losing the distinction between penalties and taxes may prove a slippery and dangerous slope-one that institutionally empowers the lawmaker and makes mincemeat of the ability of the hapless individual to any longer avoid doing any number of things-such as not purchasing any number of items that she simply does not want. Thinking through the potential abuses for Court’s reasoning in this instance is disturbing. There is more to the Court’s opinion deserving of analysis but the use of the Taxing Clause to uphold the ACA’s individual mandate, is a legal and historical first.

Ultimately, like so many things that happen in American life and political discourse, the jury of public opinion will come down on the Court’s decision as it does on so much else-along deepening political battle lines between current iterations of liberalism and progressivism. Not everything must be about politics but perhaps it must when the country seems deeply divided within itself about the role of its government. Divided between those who want the government merely to assure equal opportunity to all and those who seek a far more idealized realization of fairness, and even a greater equality of outcomes. What we are lacking is a jury fixed merely on preserving the freedoms and institutions of the Constitution.@

R. Tamara de Silva
June 28, 2012 Chicago, Illinois
R. Tamara de Silva is an independent trader and lawyer
1. 2. 3. Marbury v. Madison, 5 U.S. 137 (1803). at pp. 196 4. Think of ERISA, CORBRA, HIPAA, et. al.