It looked to be in trouble, so what happened?

During the oral arguments a few months ago, most of us watched several Supreme Court justices give the White House's legal counsel a pretty rough time regarding the legality of the Affordable Care Act.  Of course, that was then and this is now.  The Supreme Court has been debating two key points in the Act: (1) Is it constitutional for the federal government to require citizens to buy health insurance or pay a "penalty" for not buying it and (2) Is the manner in which the federal government is "encouraging" the states to follow its proscribed Medicaid program coercive or is it an appropriate use of federal power. 

Well, we have the court's answer. On the first point, the Supreme Court voted 5-4 in favor of the provision. This was a surprise to many, me included. On point number two, the court declared this aspect of the Affordable Care Act unconstitutional. 

I - Is the individual mandate requiring individuals to buy insurance constitutional?

The White House made two arguments in support of this issue's constitutionality. One argument was more or less soundly rejected and the other was accepted.

I was up last evening until the wee hours of the morning reading the transcripts by Chief Justice Roberts and the majority as well as the views of the dissenting justices to better understand how the Supreme Court arrived at its conclusions. The following is the short-hand version of the logic of the court:

Argument

White House's Position

Supreme Court's Position

Personal Comment

#1 - The individual mandate requiring people to buy insurance or pay a penalty is legal under the Constitution's Commerce Clause.

Under the Commerce Clause of the Constitution, the federal government is authorized to regulate interstate commerce. Because insurance is a "pooled" product, when one does not buy insurance, they affect the price of the product for everyone else in the pool. Additionally, cost shifting occurs because pool members pay higher prices for services because medical providers shift the cost of care from non-payers to payers. Because this issue affects all citizens across state lines, interstate commerce is in play and thus, all citizens can be required to buy insurance.

The court voted 7-2 against this provision.The court noted that many of the points made by the White House's counsel may be true, but the question is "Can someone be made to engage in an economic transaction under the Commerce Clause? The court stated that the Commerce Clause should apply to existing economic activity, not economic inactivity. When a citizen chooses not to engage in an economic transaction, the federal government, under the Commerce clause, cannot force that activity to occur.

This seems so obvious that it is embarrassing that this argument was put forth in the first place. To believe otherwise allows the federal government to force citizens to eat vegetables, go to the gym, ride the train, etc.

Of course, read below and you can see that this power is still there through taxation. 

#2 - The individual mandate requiring people to buy insurance or pay a penalty is legal under the federal government's authority to tax.

The White House argued that the penalty described in the Affordable Care Act is a tax. As the Constitution gives the federal government the power to tax, the mandate requiring people to buy insurance or pay a tax is constitutionally legal.

In a 5-4 decision, the Supreme court agreed with the White House's argument. Chief Justice Roberts pointed out that while the Affordable Care Act did not in any instance use the word "tax" to describe the penalty that one would pay for not buying health insurance, because the penalty is due at tax time, payable to the IRS, and the IRS has the right to withhold tax refunds if the citizen does not pay the penalty, the word "penalty" can be construed to mean "tax."

The dissenting Supreme Court justices were very frustrated by the Majority's position on this point. As the Affordable Care Act used the word "penalty" eighteen times and the word "tax" zero times, these dissenting justices state that the Affordable Care Act needs to be judged by what it says, not what others want it to say. Note also that in 2009, in an interview with George Stephanopoulos, President Obama explicitly stated that the act was "not a tax increase" and he strongly implied it wasn't a tax at all.

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II - Is the process of "encouraging" the states to enact the Medicaid provisions of the Affordable Care Act unconstitutionally coercive?

Argument

White House's Position

Supreme Court's Position

Personal Comment

It is settled law that the federal government may "encourage" states to follow the federal government's lead in supporting legislation by withholding some level of federal funding. As a result, the provisions of the Affordable Care Act encouraging states to implement the new Medicaid program are constitutional.

In an effort to encourage states to adopt the Medicaid provisions of the Affordable Care Act, the federal government offered substantial federal dollars to states that agree to implement the Medicaid provisions of the act. Additionally, if states decline to do so, the federal government has the authority to completely withhold federal funds associated with Medicaid from the offending state.

The Supreme Court voted against this provision of the act. While the court does believe that the federal government has the right to create incentives for states to follow its lead and to create minor penalties for those that do not, the ability of the federal government to completely withdraw Medicaid funding from a state is a coercive and unconstitutional action.

It's important to note that when the drinking age was increased to age 21, the federal government penalized non-conforming states by withholding 5% of their federally available highway funds. At most, this would have cost a state approximately 1% of its annual budget expenditure.

Today, Medicaid spending accounts for 20% of the average state's budget. Federal funds support 50% - 83% of that amount. A complete withdrawal of that financial support was appropriately referenced as a "gun to the head" by the Chief Justice.

Let me know if you found this analysis interesting!  Enjoy your weekend. It's going to be HOT here in Atlanta! 

Stay well,
Bruce