Health Care Reform – Legal & Regulatory – Part 1: The Supreme Court Opinion

Health Care Reform – Legal – Part 1: The Supreme Court Opinion

In National Federation of Independent Business, et al. v. Kathleen Sebelius, Secretary of Health and Human Services, et al., the U.S. Supreme Court upheld the so-called “individual mandate” in the federal health care reform bill, a/k/a the Patient Protection and Affordable Care Act (PPACA), a/k/a Obamacare. Chief Justice Roberts delivered the Court’s opinion. In this opinion, five Justices of the Supreme Court (Chief Justice Roberts and Justices Kennedy, Scalia, Thomas, and Alito) held that the Commerce Clause does not support the individual mandate component of the PPACA, but that the mandate was a valid exercise of Congressional power to “lay and collect taxes.”

Justice Ginsburg (joined by Justices Breyer, Sotomayor, and Kagan) agreed with the Chief Justice’s opinion that the mandate is Constitutional under Congress’s ability to tax, but disagreed with his Commerce Clause conclusion. Justices Scalia, Kennedy, Thomas, and Alito filed a dissenting opinion, arguing that the individual mandate represented an attempt by Congress to regulate beyond its power under the Commerce Clause, and was unsupported by the taxing power. They also argued that the whole PPACA must be struck down.

Justice Thomas filed a separate dissenting opinion.

Key Points From the Supreme Court Decision on Healthcare Reform (Obamacare)

The much-anticipated Supreme Court decision, written by Chief Justice Roberts, boils down to a few key points:

• Beginning 2014, most Americans will either have to buy health care insurance, or pay a tax. This is the so-called “individual mandate,” also known as “minimum essential” health insurance coverage under 26 USC § 5000A.
• “The mandate does not apply to some individuals, such as prisoners and undocumented aliens. § 5000A(d). Many individuals will receive the required coverage through their employer, or from a government program such as Medicaid or Medicare. See § 5000A(f). But for individuals who are not exempt and do not receive health insurance through a third party, the means of satisfying the requirement is to purchase insurance from a private company.”
• The tax is called a “shared responsibility payment” (5000A(b)(1)), also described as a “penalty.” It’s calculated as a percentage of household income, subject to a floor based on a specified dollar amount and a ceiling based on the average annual premium the individual would have to pay for qualifying private health insurance. In 2016, for example, the penalty will be 2.5 percent of an individual’s household income, but no less than $695 and no more than the average yearly premium for insurance that covers 60 percent of the cost of 10 specified services (e.g., prescription drugs and hospitalization).
• The Affordable Care Act’s 10 “titles stretch over 900 pages and contain hundreds of provisions. This case concerns constitutional challenges to two key provisions, commonly referred to as the individual mandate and the Medicaid expansion.” This leaves many other provisions untouched.

Key Legal Conclusions—Obamacare Healthcare Reform Decision

Chief Justice Roberts, writing for the majority of the U.S. Supreme Court, ruled on three essential points of law:

1. The Anti-Injunction Act (which prohibits a lawsuit to enjoin a tax), does not apply, because the Affordable Care Act describes the individual mandate as a “penalty” and not a “tax.”
2. The individual mandate is not a valid exercise of Congress’s power under the Commerce Clause and the Necessary and Proper Clause. “The individual mandate cannot be upheld as an exercise of Congress’s power under the Commerce Clause. That Clause authorizes Congress to regulate interstate commerce, not to order individuals to engage in it.” Put another way, “The Framers knew the difference between doing something and doing nothing. They gave Congress the power to regulate commerce, not to compel it. Ignoring that distinction would undermine the principle that the Federal Government is a government of limited and enumerated powers.”
3. The individual mandate is within Constitutional power to “lay and collect Taxes,” as it can be read not as compelling people to buy insurance, but rather, as a tax against those who do not. “In this case, however, it is reasonable to construe what Congress has done as increasing taxes on those who have a certain amount of income, but choose to go without health insurance. Such legislation is within Congress’s power to tax.”

The Court also ruled that 42 USC Section 1396c was unconstitutional. This provision would have given the Secretary of Health and Human Services the authority to penalize States that choose not to participate in the Medicaid expansion by taking away their existing Medicaid funding. The rationale was that the Spending Clause grants Congress the power to pay the debts and provide for the general welfare of the United States, but does not give Congress the authority to require the States to regulate.

Analysis

Judicial Restraint or Verbal Wizardry?

Although stunning in the political virtuosity it accomplishes for giving a green light to Obamacare, Chief Justice Roberts presents his opinion as an exercise in judicial restraint: “We do not consider whether the Act embodies sound policies. That judgment is entrusted to the Nation’s elected leaders. We ask only whether Congress has the power under the Constitution to enact the challenged provisions.”

This is recognized Constitutional jurisprudence: the judges are not there to legislate, but merely to exercise their authority if legislation violates the Constitution. The Court here does not substitute its view of health care reform for the legislative process, but simply applies several principles of Constitutional law as it sees them.

There are two puzzling features with respect to the claim of judicial restraint. One, the Court states that the individual mandate is a tax for purposes of the Anti-Injunction Act, but it is a tax for purposes of the Constitutionality of the Affordable Care Act. But, however bizarre this may seem, Chief Justice Roberts argues that there is nothing inherently wrong with reading a statute two different ways, for two different purposes.

Second, the Court seems to have reached out to save Obamacare by appealing to the taxing power. To this point, Chief Justice Roberts’ defense is that “the question is not whether” its view of the mandate as a tax “is the most natural interpretation…but only whether it is a ‘fairly possible’ one.” Thus, the Court simply made a “reasonable” interpretation of the Constitution as applied to the statute. Conclusion: “The Federal Government may enact a tax on an activity that it cannot authorize, forbid, or otherwise control.”

The dissenting opinion calls out Chief Justice Roberts as being flat-out wrong on both counts: “The provision challenged under the Constitution is either a penalty or else a tax.” Further: “we know of no case, and the Government cites none, in which the imposition was, for constitutional purposes, both…. The two are mutually exclusive.” The dissent makes the point that the issue is not whether Congress “had the power to frame the minimum-coverage provision as a tax, but whether it did so.” In other words,” we cannot rewrite the statute to be what it is not.” What Congress enacted was: “a mandate that individuals maintain minimum essential coverage, enforced by a penalty.” The dissent calls the Government’s arguments to the contrary, “feeble” and “flimsy,” supported by “fly-by-night briefing,” trying to “cloak” an “argument in superficial plausibility,” and “verbal wizardry,” carried “far, deep into the forbidden land of the sophists.”

As to judicial restraint, the dissent writes:

“The Court today decides to save a statute Congress did not write. It rules that what the statute declares to be a requirement with a penalty is instead an option subject to a tax. And it changes the intentionally coercive sanction of a total cut-off of Medicaid funds to a supposedly noncoercive cut-off of only the incremental funds that the Act makes available.

* * *

The Court regards its strained statutory interpretation as judicial modesty. It is not. It amounts instead to a vast judicial overreaching. It creates a debilitated, inoperable version of health-care regulation that Congress did not enact and the public does not expect. It makes enactment of sensible health-care regulation more difficult, since Congress cannot start afresh but must take as its point of departure a jumble of now senseless provisions, provisions that certain interests favored under the Court’s new design will struggle to retain. And it leaves the public and the States to expend vast sums of money on requirements that may or may not survive the necessary congressional revision….

The values that should have determined our course today are caution, minimalism, and the understanding that the Federal Government is one of limited powers. But the Court’s ruling undermines those values at every turn. In the name of restraint, it overreaches. In the name of constitutional avoidance, it creates new constitutional questions. In the name of cooperative federalism, it undermines state sovereignty.”

What Worked: 5 Justices Agree on Limits to Commerce Clause-Based Federal Power

One good point about Chief Justice Roberts’ opinion is that it rejects the Commerce Clause as a potential basis for upholding the Affordable Care Act. The opinion emphasizes limits on federal power. The Court takes pains to “to avoid creating a general federal authority akin to the police power.”

The 4 Justices in dissent eloquently state the limits of the Commerce Clause: “The striking case of Wickard v. Filburn, 317 U.S. 111 (1942), which held that the economic activity of growing wheat, even for one’s own consumption, affected commerce sufficiently that it could be regulated, always has been regarded as [*3] the ne plus ultra of expansive Commerce Clause jurisprudence. To go beyond that, and to say the failure to grow wheat (which is not an economic activity, or any activity at all) nonetheless affects commerce and therefore can be federally regulated, is to make mere breathing in and out the basis for federal prescription and to extend federal power to virtually all human activity.”

As unpopular as Obamacare currently is, the Court does well to emphasize the Court’s limited role in analyzing the Constitutionality of a statute, and its duty to not overstep its bounds into the legislative or executive purview. “Members of this Court are vested with the authority to interpret the law; we possess neither the expertise nor the prerogative to make policy judgments. Those decisions are entrusted to our Nation’s elected leaders, who can be thrown out of office if the people disagree with them. It is not our job to protect the people from the consequences of their political choices.”

The Supreme Court on the Economics of Healthcare Reform

The Court did take note of the economic problem the Affordable Care Act was trying to solve: the fact that medical care providers deliver significant amounts of care to the uninsured, pursuant to federal and state legal obligations, for which they are not reimbursed; and consequences, pass along the cost of uncompensated to the government and private insurance companies.

Per Justice Ginsburg and concurring Justices: “The net result: Those with health insurance subsidize the medical care of those without it. As economists would describe what happens, the uninsured “free ride” on those who pay for health insurance…. Higher premiums, in turn, render health insurance less affordable, forcing more people to go without insurance and leading to further cost-shifting.” The lack of affordable care means that many people go without necessary care.

Instead of enacting a single-payer system (i.e., a “tax-and-spend federal program like Social Security,” where the sole payer is the federal government), “would have left little room for private enterprise or the States.” While Chief Justice Roberts’ opinion disclaims any view of the wisdom of Obamacare, and focuses on its Constitutionality, the concurring opinion states that by using “some new tools … Congress was able to achieve a practical, altogether reasonable, solution.” The solution included prohibiting insurers from denying coverage based on a person’s medical history or condition (the “guaranteed issue” requirement), and from charging higher persons to those with preexisting conditions (the “community rating” requirement).

A Troubling Coda: The Dissent’s View of Severability

The dissenting opinion described the individual mandate and the Medicaid expansion as “two pillars” of the Affordable Care Act. Both, the dissent stated, are invalid. “It follows, as some of the parties urge, that all other provisions of the Act must fall as well.” Put more specifically:

“Major provisions of the Affordable Care Act —i.e., the insurance regulations and taxes, the reductions in federal reimbursements to hospitals and other Medicare spending reductions, the exchanges and their federal subsidies, and the employer responsibility assessment — cannot remain once the Individual Mandate and Medicaid Expansion are invalid. That result follows from the undoubted inability of the other major provisions to operate as Congress intended without the Individual Mandate and Medicaid Expansion. Absent the invalid portions, the other major provisions could impose enormous risks of unexpected burdens on patients, the health-care community, and the federal budget. That consequence would be in absolute conflict with the ACA’s design of “shared responsibility,” and would pose a threat to the Nation that Congress did not intend.”

Critiques

Here are some of my favorite quotes:

“[F]ive justices agreed in no uncertain terms that the federal government cannot require people to buy something, cannot regulate inactivity, cannot impose economic mandates as a means of regulating interstate commerce. And yet, Obamacare stands…In 13 cryptic pages, Roberts fashioned a not-quite-silk purse out of a sow’s ear, salvaging—to continue the porcine metaphor—Obamacare’s bacon from the constitutional flames…. Congress can’t make you buy broccoli—Roberts was clear on that, explicitly rejecting the government’s pooh-poohing of that infamous hypothetical—but can tax you for not buying broccoli. That’s a constitutional distinction without a practical difference.” (Ilya Shapiro, Cato Institute)

“Chief Justice John Roberts was the surprising swing vote in today’s Obamacare decision. Although he agreed with the four conservative Justices, including Kennedy, that the individual mandate was not a regulation of interstate commerce, he voted with the Court’s moderates to hold that it was justified as a tax. Because people who don’t obtain insurance pay a tax to the IRS, the mandate was within Congress’s power to raise taxes for the general welfare. As a result, the Affordable Care Act was upheld….With this deft ruling, Roberts avoided what was certain to be a cascade of criticism of the high court. No Supreme Court has struck down a president’s signature piece of legislation in over 75 years. Had Obamacare been voided, it would have inevitably led to charges of aggressive judicial activism. Roberts peered over the abyss and decided he didn’t want to go there.” Adam Winkler, UCLA law professor

“Intellectually shabby.” Richard Epstein

“Whatever political benefit President Obama gains from the continuing legal enforceability of his unpopular health control law and its widely-disliked individual mandate, plaintiffs who wish to challenge congressional and presidential overreaching have much stronger Supreme Court precedent than they did yesterday.” David B. Kopel, Denver University

“Notwithstanding the majority’s assurances about the limits of federal power under the Commerce, Necessary and Proper, and Spending Clauses, the Court ratified what many perceive as the most significant expansion of federal power in 75 years…. As conceived by the ACA majority, the power to raise revenue through taxes—a power that all governments must have—includes a necessarily sweeping power to regulate individual choices through financial incentives” Clark Neily, Institute for Justice.

Roberts could have severed the guaranteed issue and community rating provisions, and left the rest of the Affordable Care Act, intact. “Instead, he invented out of whole cloth a new definition of taxation that contravenes long-standing precedent. He added hundreds of billions of dollars to the federal deficit, by way of his Medicaid ruling. And he forever tarnished his legacy as a Justice, and his promise to the nation that he would serve as an umpire, and “remember that it’s my job to call balls and strikes, and not to pitch or bat.”” Forbes.

My Bottom Line

My bottom line consists of three observations:

• Chief Justice Roberts makes compelling arguments about the limits of federal power under the Commerce Clause. He eloquently pleads judicial restraint. Nonetheless, his opinion upholds key components of the Affordable Care Act, and the dissent shreds his willingness to find grounds under the taxing power in order to save the statute. And the dissent ably points out the equivalent of Shakespeare’s, “methink the lady doth protest too much.” The Roberts opinion makes room for a huge government juggernaut. Constitutional law scholars can quibble over what the taxing power authorizes or doesn’t authorize, but the bottom line is that Roberts used this power as a hook for something the Commerce Clause could not support.

• The Affordable Care Act represents vast expansion of government power and intrusion into healthcare markets. In the long run, it may well become known as the Unaffordable Care Act as its mandates will doubtless increase healthcare costs. As importantly, reducing the subjective nuances and complexity of health care to economic models and focusing too much on cost will inevitably reduce quality of care, or—as many physicians fear—result in more “cookbook medicine.”

• The Act provides for sweeping regulatory changes. But there are two areas it does not address: (1) the overlay of many laws on the federal and state levels that already shape healthcare (for example, anti-kickback laws; licensing laws for healthcare professionals; legal rules governing malpractice; laws governing conflicts of interest in healthcare); (2) the emergence of nanotechnology, robotics and artificial intelligence, genomics, and other technological advances, the suddenness and scale of which will dwarf current debate over Obamacare.

We’ll turn to these other developments next.