UPHOLDING THE OBAMACARE LAW:

VALID TAX OR INVALID CONGRESSIONAL

IMPOSITION?

A Report for Taxation 1 (Professor Laforteza) Ann Margaret Lorenzo

THE CASE THUS FAR: District Court:

Individual Mandate cannot be severed from whole Act so law in its entirety is struck down.

Eleventh Circuit CourtIndividual Mandate exceeds Congress’ power. Not a tax so could not be justified under taxing power.

Several Court of Appeals have heard challenges to this law, with 25 (or 26) States joining the suit to question law’s constitutionality.

A 100-word explanation In order for Congress to pass a law, it must rely on a specific

clause of the Constitution. That way, states have areas in which they have the exclusive ability to legislate.

The Obama Administration first argued that Obamacare was valid as a regulation of commerce. The Supreme Court rejected that argument because Obamacare regulates inactivity (not having insurance).

The administration also argued that the law does not make failing to purchase health insurance a crime. Instead, the law requires those who do not buy insurance to pay a tax. The Supreme Court accepted that argument. So, Obamacare is constitutional.

From: http://morethantwentycents.wordpress.com/2012/06/28/100-word-explanation-of-obamacare-decision/

The Context Obama wants to make health care available to

more people.

Pre-Obamacare, only certain groups were covered by the Medicaid funds from the Federal Government, i.e. pregnant women; people over 65, disabled, poor

The State Experience Failures Kentucky

New YorkEnacted guaranteed-issue and community-rating laws

without requiring universal acquisition of insurance Result: DISASTER. Skyrocketing insurance premiums-

reduced individuals covered- insurance companies closed.

Massachusetts In fact, in 2009, Massachusetts’ emergency rooms served

thousands of uninsured, out-of-state residents.○ Influx of unhealthy individuals into a State with universal

health care would result in increased spending on medical care service.

REMEMBER: Congress’ power to legislate is not plenary; It is

limited by Article I Section 8, enumerating the permissible subjects of legislation of the National Congress

The remaining subjects not so named were considered retained by the state governments, them being considered closer to the governed and hence, better able to address their needs and concerns.

The Picture According to Justice Ginsburg: Many Americans remain uninsured. Either unwilling or unable to buy insurance.

(2009, 50 Million Americans)

But health-care providers are still mandated to provide health-care even to those unable to pay. (Hospitals can’t refuse patients.) They provide care but receive no payment. (2008, $43B uncompensated care)

So hospitals raise prices, passing along cost of uncompensated care to those who pay reliably- government and private insurance companies.

Insurance companies raise premiums. (Estimated family insurance premiums raised by $1,000 per year)

= FREE RIDE (insured pays for the uninsured)*even worse, late medical care means more expensive because of late diagnosis of

diseases.

The Picture According to Justice Ginsburg States then who undertake health-care reforms on

their own risk placing themselves in an economically disadvantaged position. Out-of-state residents seek health-care in their hospitals, receiving uncompensated health care.

Facing that risk, States are more unlikely to undertake such reforms on their own.

Hence, the solution presented by the Patient Protection and Affordable Care Act (Obamacare).

The Picture According to Justice Ginsburg Congress devised 3-part solution:

Guaranteed-issue requirement (insurers can’t deny coverage on the ground of person’s medical history)

Community-rating price (insurers can’t charge higher premiums to those with preexisting medical conditions)

Individual mandate provision (individuals are mandated to be insured)

How did Congress ensure state participation? If States opt out of the Expanded Medicaid

Program, they lose all previous Medicaid fundings from the Federal Government. Eg. If under the old scheme, State A received $10 B to

ensure healthcare coverage to people over 65; poor; etc. ○ State A stands, under the new scheme, to receive more

funds from the federal government to cover more people for healthcare.

○ If State A refuses to cover more people, it loses not just the new funds it expects to receive but the previous yearly allowance for Medicaid it received ($10 B) .

The Questioned Provisions of the Patient Protection and Affordable Care Act : §5000A Individual Mandate Provision

Individuals not otherwise exempted must procure healthcare coverage by 2014, otherwise, they must pay the penalty ($95 to $965 or 2% of household annual income)

§2001 Expanded Medicaid FundingStates, to receive the new funds and to continue

receiving Medicaid funds from Federal Government, must agree to participate in program and cover more people. If they opt out, they lose ALL Medicaid grant.

Government’s Position: Individual Mandate is within power of Congress to

enact under the Commerce Clause.

If the Commerce Power does not support the mandate, it should still be upheld as an exercise of the power to tax. The only effect of the mandate is to raise taxes on those who do not do so, and thus the law may be upheld as a tax.

The Three Opinions Main Opinion by Chief Justice Roberts

Individual Mandate is Constitutional (5-4)Withholding Medicaid Funds is Not Constitutional (7-2)

Separate Opinion of Justice GinsburgBoth Constitutional; Individual Mandate actually justified

under Commerce Power so no need to justify as tax

Dissenting Opinion of Justices (4)Whole law unconstitutional

THE VOTE ON THE INDIVIDUAL MANDATE

Chief Justice Roberts sided with the Liberals (Justices ) to uphold the constitutionality of the individual mandate

The Conservatives (Justices Scalia, Kennedy, Thomas and Alito) dissented, voting to strike down the provision along with the whole law.

The Votes The Constitutionality of the Individual Mandate

5-4 in favor of its validity ○ Although CJ Roberts upheld it on the ground that it was a

tax, not regulation of commerce Justice Ginsburg was of the opinion that the CJ need not have

resorted to the tax argument since it was a valid exercise of the National Congress’ power to regulate commerce

The constitutionality of withdrawing Medicaid funds 7-2 in favor of its being stricken down for being

unconstitutionally coercive for states

THE CHIEF JUSTICE OPINION (MAIN) Holds the Anti-Injunction Act does not bar the

Court’s consideration of the case

Holds that the minimum coverage provision (individual mandate) is not justified under the Commerce Clause but is justified as tax

Holds that the Spending Clause does not authorize the compulsion placed on the states to participate in the Obamacare program of extended coverage

THE CHIEF JUSTICE OPINION (MAIN)Individual Mandate- The mandate does NOT regulate existing

commercial activity. It instead compels the individual to become active in commerce by purchasing a product on the ground that their failure to do so affects interstate commerce.

- To construe the Commerce power to permit Congress to regulate individuals DOING NOTHING would open a potentially vast domain to congressional authority.

THE CHIEF JUSTICE OPINION (MAIN)Individual Mandate

- We have never permitted Congress to anticipate that activity itself in order to regulate individuals not currently engaged in commerce.

*Everyone will likely participate in the food market but that does not authorize Congress to direct them to purchase particular products in those markets today. While Government seeks to persuade the Court by saying it’s a special product, we find that cars and broccoli are no more purchased for their own sake than insurance.

THE CHIEF JUSTICE OPINION (MAIN)Individual Mandate- Government alternatively asks us to read the

mandate not as ordering individuals to buy insurance, but rather as imposing a tax on those who do not buy that product.

- Under that theory, the mandate is not a legal command but just another thing the Government taxes. If the mandate is in effect just a tax hike on certain taxpayers who do not have insurance, it may be within Congress’ constitutional power to tax.

THE CHIEF JUSTICE OPINION (MAIN)Individual Mandate

- Failure of law to call it a tax does not make it not so.

- In the case of Drexel Furniture, the so-called tax was actually a penalty. It was an exceedingly heavy burden, it imposed a penalty on employing underage labor and the tax was enforced by the DOL instead of revenue agencies.

THE CHIEF JUSTICE OPINION (MAIN)Individual Mandate- Although there may be concerns that the tax is

imposed for an omission, 3 considerations allay these concerns.

- Constitution does not guarantee individuals may avoid taxation by inactivity.

- Congress’ inability to use its taxing power to influence conduct is not without limits.

- Although power to tax is greater, than commerce power, taxing power does not give Congress the same degree of control over individual behavior.

JUSTICE GINSBERG OPINION

Agree that the Anti-Injunction Act does not bar the SC’s consideration of the case

Agree that the minimum coverage provisions is a proper exercise of the Congress’ taxing power

BUT: Hold that Commerce Clause authorizes Congress

to enact the minimum coverage provisions Hold that the Spending Clause permits the

Medicaid expansion exactly as Congress enacted it.

GINSBURG: THE INDIVIDUAL MANDATE CJ Roberts need not have resorted to the tax

argument. Although I agree in the result, because it was eventually held constitutional, I hold that the individual mandate is justified under the Commerce Clause. “Virtually every person residing in the US, sooner or later, will

visit a doctor or other health-care professional.” Uninsured consume large amount of healthcare; their

consumption drives up market prices; foist costs on others and reduces market efficiency and price stability.

Given that, foregoing insurance is hardly “doing nothing” but instead an “economic decision”

It’s regulating commercial activity.

GINSBURG: THE INDIVIDUAL MANDATE Congress’ power to regulate commerce is guided

by 2 principles:Congress has power to regulate economic activities that

‘substantially affects interstate commerce’Court owes large measure of respect to Congress when

it enacts economic and social legislations○ Court asks only (1) whether Congress had rational basis

for concluding that regulated activity substantially affects interstate commerce and (2) whether there is reasonable connection between regulatory means selected and asserted ends

GINSBURG: THE INDIVIDUAL MANDATE To apply test:

Congress has rational basis for concluding that the uninsured, as a class, substantially affects interstate commerce. ○ Uninsured consumption of healthcare;

crossing states to receive better care, etc.

GINSBURG on Chief Justice Opinion CJ Roberts’ holding that the individual mandate

cannot be justified under Commerce Clause places unnecessary constraints on Congress’ Commerce Powers CJ is saying Congress can’t compel people to be active

in commerce by purchasing a productBut it should be seen that what Congress is doing is not

merely forcing people to buy an unwanted product but to participate in the market that they will eventually venture in, at one point or another in their lives. (Everyone will eventually need healthcare)

GINSBURG on Chief Justice Opinion It is Congress’ role, not the Court’s, to delineate

the boundaries of the market it seeks to regulate.

CJ defines healthcare market as to include only those transactions which will occur in the very near future.

Congress could’ve reasonably viewed the market from a long-term perspective. (Again, everyone is bound to consume healthcare)

GINSBURG on Chief Justice Opinion The CJ’s analogy of the car market to the

healthcare market is simply inapt. The CJ is saying that the uninsured are not active in the

healthcare market in much the same way that a person without a car is inactive in the car market.

The uninsured consumes healthcare by getting a free ride from those who purchase insurance.

The person without a car will have to pay for one to be able to have one, he will not be given a free one at the expense of another consumer.

GINSBURG on Chief Justice Opinion To uphold the individual mandate as valid exercise

of Congress’ Commerce Powers is not to give them unbridled powersForcing people to buy broccoli v. forcing them to get

insurance

“Judges and lawyers live on the slippery slope of analogies; they are not supposed to ski it to the bottom.”○ Dissenting said if individual mandate is sustained,

“Congress could make breathing in and out the basis for federal prescription.”

Ginsburg: Congress Spending Power CJ holds the exercise of Congress’ Spending

Power unconstitutionally coercive. (1) Medicaid Expansion is a new grant program; not an

addition to Medicaid Program.

(2) Expansion was unforeseeable by the States when they first signed on to Medicaid.

(3) The threatened loss of funding is so large that States have no real choice but to participate.

Ginsburg: Congress Spending Power (1) The Medicaid is one program. States were never

under any illusion that Congress won’t amend it. In fact, Congress has done so many times.

(2) States have no vested right to Medicaid funding. It is and has always been federal funds just granted to states to dispose of in a manner that Congress directs.

(3) States have always received the federal funding with the understanding that Congress can grant it with certain conditions.

Ginsburg: Congress Spending Power Another thing that militates against the highly

coercive nature of the Medicaid Expansion is the fact that states can always raise its own revenues to replace the federal funding it stands to lose by opting out of the program.

Instead of mandating purchase of insurance and imposing penalty for failure to do so, the state may impose a different kind of tax to raise its own revenues for its own healthcare program.

Ginsburg: Congress Spending Power At bottom, the other members of this Court in

effect say that the States’ reliance on federal funds limits Congress’ authority to alter its spending programs.

IT’S BACKWARDS. Congress, not the states, is tasked with spending federal money in service of general welfare.

SCALIA, KENNEDY, THOMAS AND ALITO DISSENTING OPINION

Whether failure to engage in economic activity (purchase of health insurance) is subject to regulation under the Commerce Clause.

Whether the congressional power to tax and spend permits the conditioning of a State’s continued receipt of all funds under a massive state-administered federal welfare program upon its acceptance of an expansion of that program.

SCALIA, KENNEDY, THOMAS AND ALITO DISSENTING OPINION

There is a difference between regulating economic activity and INACTIVITY. In effect, what is sought to be regulated is ‘failure to maintain minimum coverage’.

Purchasing insurance is commerce but one does not regulate commerce that does not exist by compelling its existence.

“Regulate”- to adjust by rule, method or established mode. It can mean to direct the manner of something but not to direct that something come into being.

SCALIA, KENNEDY, THOMAS AND ALITO DISSENTING OPINION With the guaranteed-issue, community-rating and individual

mandate provisions of the new law, Congress has impressed into service third parties, healthy individuals who could be but are not customers of the relevant industry, to offset the undesirable consequences of the regulation.

If Congress can reach out and command even those furthest removed from an interstate market to participate in the market, then the Commerce Clause becomes a front of unlimited power, “the hideous monster whose devouring jaws… spare neither sex nor age, nor high nor low, nor sacred nor profane.”

SCALIA, KENNEDY, THOMAS AND ALITO DISSENTING OPINIONINDIVIDUAL MANDATE - Is not justified by the Proper and Necessary Clause - Is not justified under the Commerce Clause

- Government says healthcare market is one of essentially universal participation, not taking into consideration that health care market principally includes of goods and services that the young people primarily affected by the Mandate do not purchase.

- If every person comes within the Commerce Clause simply because he will one day engage in commerce, the idea of limited government is at an end.

- Is not justified by the Taxing Power - The government can’t have it both ways, calling the imposition not a

tax for the purpose of the Anti-Injunction Law and a tax for upholding its constitutionality.

SCALIA, KENNEDY, THOMAS AND ALITO DISSENTING OPINIONThe government cannot argue both ways that it is

both a tax and a penalty. The question the court should answer is not whether Congress had the power to frame the minimum-coverage provisions as a tax but whether it did so.

SCALIA, KENNEDY, THOMAS AND ALITO DISSENTING OPINIONJurisprudence defines both tax and penalty:Tax- an enforced contribution to provide for the support of

government.Penalty- is an exaction imposed by statute as punishment

for an unlawful act.

In a few cases, Court has held a tax imposed upon private conduct to be so onerous as to be in effect a penalty. But the reverse has never been so, that we have held a penalty to be a tax. When a law adopts the criteria for a wrongdoing and imposes monetary penalty, it creates a regulatory penalty, not a tax.

SCALIA, KENNEDY, THOMAS AND ALITO DISSENTING OPINION Government argues that it’s a legal obligation with a

tax; if citizens choose to not get healthcare coverage and instead just pay the tax, they are in compliance with the law.

The Main Opinion saying the Individual Mandate merely imposes a tax is not to interpret the statute but to rewrite it. (Note that nowhere in the 900-page law did Congress mention tax) Even if we admit it as tax, we confront another constitutional

issue of whether it is a direct tax that must be apportioned among the States according to their population.

SCALIA, KENNEDY, THOMAS AND ALITO DISSENTING OPINIONAs to the Medicaid Expansion- It is obvious from the lack of a back-up scheme by

Congress that they had never imagined a state opting out of the law’s coverage. They knew very well that the cut in funding that the States would have to absorb would be more than enough deterrent for States not to opt out.

- Congress has the power to spend money as it sees fit (giving dole-out federal funds with certain conditions attached), but not to coerce states into enforcing objectives and programs of the federal government.

SCALIA, KENNEDY, THOMAS AND ALITO DISSENTING OPINIONAs to the Medicaid Expansion- What the Dissent fails to consider is that there is that

heavy pressure on the state to accept the program because it stands to lose its biggest federal budget grant. - Nearly 22% of all state expenditures combined. - Without the grant from federal government, state government

would be hard-pressed to look for other revenue-raising measures to support its own previously-established healthcare system. - Eg. Arizona gives 12% of its own budget to Medicaid and rely on

federal funding to provide the rest. If Arizona lost federal funding, it has to commit additional 33% of its state budget to fund an equivalent program.

SCALIA, KENNEDY, THOMAS AND ALITO DISSENTING OPINION

One last point: Since it appears from the very inter-related provisions of the law that it was created to work as an intricate whole, the striking down of the Medicaid Expansion provision should warrant the striking down of the whole law.

POLITICAL CONSEQUENCES:

The Obama Legacy v.

The Romney Promise