Guest Essayist: Joerg Knipprath

On March 23, 2010, President Barack Obama signed into law the Patient Protection and Affordable Care Act (“ACA”), sometimes casually referred to as “Obamacare,” a sobriquet that Obama himself embraced in 2013. The ACA covered 900 pages and hundreds of provisions. The law was so opaque and convoluted that legislators, bureaucrats, and Obama himself at times were unclear about its scope. For example, the main goal of the law was presented as providing health insurance to all Americans who previously were unable to obtain it due to, among other factors, lack of money or pre-existing health conditions. The law did increase the number of individuals covered by insurance, but stopped well short of universal coverage. Several of its unworkable or unpopular provisions were delayed by executive order. Others were subject to litigation to straighten out conflicting requirements. The ACA represented a probably not-yet-final step in the massive bureaucratization of health insurance and care over the past several decades, as health care moved from a private arrangement to a government-subsidized “right.”

The law achieved its objectives to the extent it did by expanding Medicaid eligibility to higher income levels and by significantly restructuring the “individual” policy market. In other matters, the ACA sought to control costs by further reducing Medicare reimbursements to doctors, which had the unsurprising consequence that Medicare patients found it still more difficult to get medical care, and by levying excise taxes on medical devices, drug manufacturers, health insurance providers, and high-benefit “Cadillac plans” set-up by employers. The last of these was postponed and, along with most of the other taxes, repealed in December, 2019. On the whole, existing employer plans and plans under collective-bargaining agreements were only minimally affected. Insurers had to cover defined “essential health services,” whether or not the purchaser wanted or needed those services. As a result, certain basic health plans that focused on “catastrophic events” coverage were substandard and could no longer be offered. Hence, while coverage expanded, many people also found that the new, permitted plans cost them more than their prior coverage. They also found that the reality did not match Obama’s promise, “if you like your health care plan, you can keep your health care plan.”

The ACA required insurance companies to “accept all comers.” This policy would have the predictable effect that healthy (mostly young) people would forego purchasing insurance until a condition arose that required expensive treatment. That, in turn, would devastate the insurance market. Imagine being able to buy a fire policy to cover damage that had already arisen from a fire. Such policies would not be issued. Private, non-employer, health insurance plans potentially would disappear. Some commentators opined that this was exactly the end the reformers sought, at least secretly, so as to shift to a single-payer system, in other words, to “Medicare for all.” The ACA sought to address that problem by imposing an “individual mandate.” Unless exempt from the mandate, such as illegal immigrants or 25-year-olds covered under their parents’ policy, every person must purchase insurance through their employer or individually from an insurer through one of the “exchanges.” Barring that, the person had to pay a penalty, to be collected by the IRS.

There have been numerous legal challenges to the ACA. Perhaps the most significant constitutional challenge was decided by the Supreme Court in 2012 in National Federation of Independent Business v. Sebelius (NFIB). There, the Court addressed the constitutionality of the individual mandate under Congress’s commerce and taxing powers, and of the Medicaid expansion under Congress’s spending power. These two provisions were deemed the keys to the success of the entire project.

Before the Court could address the case’s merits, it had to rule that the petitioners had standing to bring their constitutional claim. The hurdle was the Anti-Injunction Act. That law prohibited courts from issuing an injunction against the collection of any tax, in order to prevent litigation from obstructing tax collection. Instead, a party must pay the tax and sue for a refund to test the tax’s constitutionality. The issue turned on whether the individual mandate was a tax or a penalty. Chief Justice John Roberts concluded that Congress had described this “shared responsibility payment” if one did not purchase qualified health insurance as a “penalty,” not a “tax.” Roberts noted that other parts of the ACA imposed taxes, so that Congress’s decision to apply a different label was significant. Left out of the opinion was the reason that Congress made what was initially labeled a “tax” into a “penalty” in the ACA’s final version, namely, Democrats’ sensitivity about Republican allegations that the proposed bill raised taxes on Americans.

Having confirmed the petitioners’ standing, Roberts proceeded to the substantive merits of the challenge to the ACA. The government argued that the health insurance market (and health care, more generally) was a national market in which everyone would participate, sooner or later. While this is a likely event, it is by no means a necessary one, as a person might never seek medical services. If, for whatever reason, people did not have suitable insurance, the government claimed, they might not be able to pay for those services. Because hospitals are legally obligated to provide some services regardless of the patient’s ability to pay, hospitals would pass along their uncompensated costs to insured patients, whose insurance companies in turn would charge those patients higher premiums. The ACA’s broadened insurance coverage and “guaranteed-issue” requirements, subsidized by the minimum insurance coverage requirement, would ameliorate this cost-shifting. Moreover, the related individual mandate was “necessary and proper” to deal with the potential distortion of the market that would come from younger, healthier people opting not to purchase insurance as sought by the ACA.

Of course, Congress could pass laws under the Necessary and Proper Clause only to further its other enumerated powers, hence, the need to invoke the Commerce Clause. The government relied on the long-established, but still controversial, precedent of Wickard v. Filburn. In that 1942 case, the Court upheld a federal penalty imposed on farmer Filburn for growing wheat for home consumption in excess of his allotment under the Second Agricultural Adjustment Act. Even though Filburn’s total production was an infinitesimally small portion of the nearly one billion bushels grown in the U.S. at that time, the Court concluded, tautologically,  that the aggregate of production by all farmers had a substantial effect on the wheat market. Thus, since Congress could act on overall production, it could reach all aspects of it, even marginal producers such as Filburn. The government claimed that the ACA’s individual mandate was analogous. Even if one healthy individual’s failure to buy insurance would scarcely affect the health insurance market, a large number of such individuals and of “free riders” failing to get insurance until after a medical need arose would, in the aggregate, have such a substantial effect.

Roberts, in effect writing for himself and the formally dissenting justices on that issue, disagreed. He emphasized that Congress has only limited, enumerated powers, at least in theory. Further, Congress might enact laws needed to exercise those powers. However, such laws must not only be necessary, but also proper. In other words, they must not themselves seek to achieve objectives not permitted under the enumerated powers. As opinions in earlier cases, going back to Chief Justice John Marshall in Gibbons v. Ogden had done, Roberts emphasized that the enumeration of congressional powers in the Constitution meant that there were some things Congress could not reach.

As to the Commerce Clause itself, the Chief Justice noted that Congress previously had only used that power to control activities in which parties first had chosen to engage. Here, however, Congress sought to compel people to act who were not then engaged in commercial activity. However broad Congress’s power to regulate interstate commerce had become over the years with the Court’s acquiescence, this was a step too far. If Congress could use the Commerce Clause to compel people to enter the market of health insurance, there was no other product or service Congress could not force on the American people.

This obstacle had caused the humorous episode at oral argument where the Chief Justice inquired whether the government could require people to buy broccoli. The government urged, to no avail, that health insurance was unique, in that people buying broccoli would have to pay the grocer before they received their ware, whereas hospitals might have to provide services and never get paid. Of course, the only reason hospitals might not get paid is because state and federal laws require them to provide certain services up front, and there is no reason why laws might not be adopted in the future that require grocers to supply people with basic “healthy” foods, regardless of ability to pay. Roberts also acknowledged that, from an economist’s perspective, choosing not to participate in a market may affect that market as much as choosing to participate. After all, both reflect demand, and a boycott has economic effects just as a purchasing fad does. However, to preserve essential constitutional structures, sometimes lines must be drawn that reflect considerations other than pure economic policy.

The Chief Justice was not done, however. Having rejected the Commerce Clause as support for the ACA, he embraced Congress’s taxing power, instead. If the individual mandate was a tax, it would be upheld because Congress’s power to tax was broad and applied to individuals, assets, and income of any sort, not just to activities, as long as its purpose or effect was to raise revenue. On the other hand, if the individual mandate was a “penalty,” it could not be upheld under the taxing power, but had to be justified as a necessary and proper means to accomplish another enumerated power, such as the commerce clause. Of course, that path had been blocked in the preceding part of the opinion. Hence, everything rested on the individual mandate being a “tax.”

At first glance it appeared that this avenue also was a dead end, due to Roberts’s decision that the individual mandate was not a tax for the purpose of the Anti-Injunction Act. On closer analysis, however, the Chief Justice concluded that something can be both a tax and not be a tax, seemingly violating the non-contradiction principle. Roberts sought to escape this logical trap by distinguishing what Congress can declare as a matter of statutory interpretation and meaning from what exists in constitutional reality. Presumably, Congress can define that, for the purpose of a particular federal law, 2+2=5 and the Moon is made of green cheese. In applying a statute’s terms, the courts are bound by Congress’s will, however contrary that may be to reason and ordinary reality.

However, when the question before a court is the meaning of an undefined term in the Constitution, an “originalist” judge will attempt to discern the commonly-understood meaning of that term when the Constitution was adopted, subject possibly to evolution of that understanding through long-adhered-to judicial, legislative, and executive usage. Here, Roberts applied factors the Court had developed beginning in Bailey v. Drexel Furniture Co. in 1922. Those factors compelled the conclusion that the individual mandate was, functionally, a tax. Particularly significant for Roberts was that the ACA limited the payment to less than the price for insurance, and that it was administered by the IRS through the normal channels of tax collection. Further, because the tax would raise substantial revenue, its ancillary purpose of expanding insurance coverage was of no constitutional consequence. Taxes often affect behavior, understood in the old adage that, if the government taxes something, it gets less of it.

Roberts’s analysis reads as the constitutional law analogue to quantum mechanics and the paradox of Schroedinger’s Cat, in that the individual mandate is both a tax and a penalty until it is observed by the Chief Justice. His opinion has produced much mirth—and frustration—among commentators, and there were inconvenient facts in the ACA itself. The mandate was in the ACA’s operative provisions, not its revenue provisions, and Congress referred to the mandate as a “penalty” eighteen times in the ACA. Still, he has a valid, if not unassailable, point. A policy that has the characteristics associated with a tax ordinarily is a tax. If Congress nevertheless consciously chooses to designate it as a penalty, then for the limited purpose of assessing the policy’s connection to another statute which carefully uses a different term, here the Anti-Injunction Act, the blame for any absurdity lies with Congress.

The Medicaid expansion under the ACA was struck down. Under the Constitution, Congress may spend funds, subject to certain ill-defined limits. One of those is that the expenditure must be for the “general welfare.” Under classic republican theory, this meant that Congress could spend the revenue collected from the people of the several states on projects that would benefit the United States as a whole, not some constituent part, or an individual or private entity. It was under that conception of “general welfare” that President Grover Cleveland in 1887 vetoed a bill that appropriated $10,000 to purchase seeds to be distributed to Texas farmers hurt by a devastating drought. Since then, the phrase has been diluted to mean anything that Congress deems beneficial to the country, however remotely.

Moreover, while principles of federalism prohibit Congress from compelling states to enact federal policy—known as the “anti-commandeering” doctrine—Congress can provide incentives to states through conditional grants of federal funds. As long as the conditions are clear, relevant to the purpose of the grant, and not “coercive,” states are free to accept the funds with the conditions or to reject them. Thus, Congress can try to achieve indirectly through the spending power what it could not require directly. For example, Congress cannot, as of now, direct states to teach a certain curriculum in their schools. However, Congress can provide funds to states that teach certain subjects, defined in those grants, in their schools. The key issue usually is whether the condition effectively coerces the states to submit to the federal financial blandishment. If so, the conditional grant is unconstitutional because it reduces the states to mere satrapies of the federal government rather than quasi-sovereigns in our federal system.

In what was a judicial first, Roberts found that the ACA unconstitutionally coerced the states into accepting the federal grants. Critical to that conclusion was that a state’s failure to accept the ACA’s expansion of Medicaid would result not just in the state being ineligible to receive federal funds for the new coverage. Rather, the state would lose all of its existing Medicaid funding. As well, here the program affected—Medicaid—accounted for over 20% of the typical state’s budget. Roberts described this as “economic dragooning that leaves the States with no real option but to acquiesce in the Medicaid expansion.” Roberts noted that the budgetary impact on a state from rejecting the expansion dwarfed anything triggered by a refusal to accept federal funds under previous conditional grants.

One peculiarity of the opinions in NFIB was the stylistic juxtaposition of Roberts’s opinion for the Court and the principal dissent, penned by Justice Antonin Scalia. Roberts at one point uses “I” to defend a point of law he makes, which is common in dissents or concurrences, instead of the typical “we” or “the Court” used by a majority. By contrast, Scalia consistently uses “we” (such as “We conclude that [the ACA is unconstitutional.” and “We now consider respondent’s second challenge….”), although that might be explained because he wrote for four justices, Anthony Kennedy, Clarence Thomas, Samuel Alito, and himself. He also refers to Justice Ruth Bader Ginsburg’s broadly as “the dissent.” Most significant, Scalia’s entire opinion reads like that of a majority. He surveys the relevant constitutional doctrines more magisterially than does the Chief Justice, even where he and Roberts agree, something that dissents do not ordinarily do. He repeatedly and in detail criticizes the government’s arguments and the “friend-of the-court” briefs that support the government, tactics commonly used by the majority opinion writer.

These oddities have provoked much speculation, chiefly that Roberts initially joined Scalia’s opinion, which would have made it the majority opinion, but got cold feet. Rumor spread that Justice Anthony Kennedy had attempted until shortly before the decision was announced to persuade Roberts to rejoin the Scalia group. Once that proved fruitless, it was too late to make anything but cosmetic changes to Scalia’s opinion for the four now-dissenters. Only the justices know what actually happened, but the scenario seems plausible.

Why would Roberts do this? Had Scalia’s opinion prevailed, the ACA would have been struck down in its entirety. That would have placed the Court in a difficult position, especially during an election year, having exploded what President Obama considered his signature achievement. The President already had a fractious relationship with the Supreme Court and earlier had made what some interpreted as veiled political threats against the Court over the case. Roberts’s “switch in time” blunted that. The chief justice is at most primus inter pares, having no greater formal powers than his associates. But he is often the public and political figurehead of the Court. Historically, chief justices have been more “political” in the sense of being finely attuned to maintaining the institutional vitality of the Court. John Marshall, William Howard Taft, and Charles Evans Hughes especially come to mind. Associate justices can be jurisprudential purists, often through dissents, to a degree a chief justice cannot.

Choosing his path allowed Roberts to uphold the ACA in part, while striking jurisprudential blows against the previously constant expansion of the federal commerce and spending powers. Even as to the taxing power, which he used to uphold that part of the ACA, Roberts planted a constitutional land mine. Should the mandate ever be made really effective, if Congress raised it above the price of insurance, the “tax” argument would fail and a future court could strike it down as an unconstitutional penalty. Similarly, if the tax were repealed, as eventually happened, and the mandate were no longer supported under the taxing power, it could threaten the entire ACA.

After NFIB, attempts to modify or eliminate the ACA through legislation or litigation continued, with mixed success. Noteworthy is that the tax payment for the individual mandate was repealed in 2017. This has produced a new challenge to the ACA as a whole, because the mandate is, as the government conceded in earlier arguments, a crucial element of the whole health insurance structure. The constitutional question is whether the mandate is severable from the rest of the ACA. The district court held that the mandate was no longer a tax and, thus, under NFIB, is unconstitutional. Further, because of the significance that Congress attached to the mandate for the vitality of the ACA, the mandate could not be severed from the ACA, and the entire law is unconstitutional. The Fifth Circuit agreed that the mandate is unconstitutional, but disagreed about the extent that affects the rest of the ACA. The Supreme Court will hear the issue in its 2020-2021 term in California v.. Texas.

On the political side, the American public seems to support the ACA overall, although, or perhaps because, it has been made much more modest than its proponents had planned. So, the law, somewhat belatedly and less boldly, achieved a key goal of President Obama’s agenda. That success came at a stunning political cost to the President’s party, however. The Democrats hemorrhaged over 1,000 federal and state legislative seats during Obama’s tenure. In 2010 alone, they lost a historic 63 House seats, the biggest mid-term election rout since 1938, plus 6 Senate seats. The moderate “blue-dog” Democrats who had been crucial to the passage of the ACA were particularly hard hit. Whatever the ACA’s fate turns out to be in the courts, the ultimate resolution of controversial social issues remains with the people, not lawyers and judges.

An expert on constitutional law, and member of the Southwestern Law School faculty, Professor Joerg W. Knipprath has been interviewed by print and broadcast media on a number of related topics ranging from recent U.S. Supreme Court decisions to presidential succession. He has written opinion pieces and articles on business and securities law as well as constitutional issues, and has focused his more recent research on the effect of judicial review on the evolution of constitutional law. He has also spoken on business law and contemporary constitutional issues before professional and community forums, and serves as a Constituting America Fellow. Read more from Professor Knipprath at:

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