In perhaps the most widely anticipated Supreme Court decision since Bush v. Gore in 2000, the Patient Protection and Affordable Care Act (“PPACA”) was upheld on Thursday in a narrow 5 to 4 decision. Many believed that the Court would hold the law unconstitutional because of a provision known as the “individual mandate,” which requires most U.S. citizens to purchase health insurance or pay a penalty. Instead, the Court decided that the mandate was constitutional because the penalty that one must pay for not buying insurance is a tax, which Congress has the authority to impose. The Court did reject a provision of PPACA requiring states to comply with new eligibility requirements for Medicaid or risk losing their existing Medicaid funding, but the fundamental core of the law was upheld and remains intact. Our analysis of the Court's decision follows.
In oral arguments before the Supreme Court in March, the Administration had put forth multiple justifications for the constitutionality of PPACA’s individual mandate: first, that Congress has the authority under each of the Commerce Clause and the Necessary and Proper Clause to impose the mandate; and second, that the mandate is constitutional under Congress’s broad power to impose taxes.
In its decision, the Court first chose to address the Government’s defense of the mandate under the Commerce Clause. On its review, the Court found that approving the mandate under this reasoning would “open a new and potentially vast domain to congressional authority,” because it would induce people to become active in commerce (i.e., purchasing insurance) when otherwise they would not. Writing for the majority, Chief Justice Roberts added that “the proposition that Congress may dictate the conduct of an individual today because of prophesied future activity finds no support.” In other words, Congress can impose legislation on the existing insurance market, but cannot create laws affecting individuals not currently “engaged in commerce.”
The Court then voiced its disapproval of the Administration’s contention that Congress had the authority under the Necessary and Proper Clause to enact the mandate because it is an “integral part of a comprehensive scheme of economic regulation.” In considering this theory, the Court said that to uphold the law under this clause would be “a substantial expansion of federal authority” and that, as a result, “no longer would Congress be limited to regulating under the Commerce Clause” which limits the scope of Congress’s authority to existing activity. “Instead,” the Court continued, “Congress could reach beyond the natural limit of its authority.”
The final argument put forth by the Administration was that the mandate is constitutional under Congress’s authority to levy taxes. Writing on behalf of himself and Justices Breyer, Ginsburg, Kagan, and Sotomayor, Chief Justice Roberts upheld the mandate under this criterion, finding that the responsibility to make a payment to the government if one chooses not to purchase insurance is a tax, rather than a penalty. The reasons for this, the Chief Justice wrote, are three-fold: first, under PPACA, the amount a person must pay when declining to purchase insurance may never be higher than the cost of insurance, allowing consumers to make a “reasonable financial decision” about whether to purchase insurance; second, the mandate contains no scienter requirement (i.e., it is not a punishment only for a willful violation); and third, the payment is collected by the Internal Revenue Service through the normal process of taxation.
Chief Justice Roberts stated that if Congress had intended the law to be considered a “penalty” as the statute reads, instead of a tax, then Congress would be implying that any person who chooses not to purchase insurance is breaking the law. He pointed out that PPACA attaches no “negative legal consequences to not buying health insurance, beyond requiring a payment to the IRS.”
The Court held that the expansion of the Medicaid program proposed in PPACA is constitutional. Medicaid is a joint federal and state program, with the federal government paying a percentage of the cost that varies by state. Under PPACA, Congress had offered states new funds to expand their Medicaid rolls by at least 16 million people. However, another PPACA provision would have required states to comply with new eligibility requirements for Medicaid or risk losing their existing funding.
The Court ruled that Congress has the power to require that any state that accepts the new Medicaid funds comply with the new eligibility requirements that will expand Medicaid coverage to that state’s citizens. However, according to the Court, Congress overstepped its bounds in threatening to withdraw all Medicaid funding from states that refuse to comply with the eligibility rules. Such a threat, the Court held, exceeds Congress’s power under the Constitution’s Spending Clause.
Chief Justice Roberts’ majority opinion stated, “Nothing in our opinion precludes Congress from offering funds under the Affordable Care Act to expand the availability of health care, and requiring that States accepting such funds comply with the conditions on their use. What Congress is not free to do is to penalize States that choose not to participate in that new program by taking away their existing Medicaid funding.”
As a result of the decision, states may choose whether or not to participate in the Medicaid expansion. If they accept the additional funds offered, they must comply with the new eligibility rules. States may also elect to continue to participate in the Medicaid program as they do currently, without the expanded eligibility and additional federal funds.
In their dissenting opinion, Justices Alito, Kennedy, Scalia, and Thomas wrote, “To say that the Individual Mandate merely imposes a tax is not to interpret the statute but to rewrite it.” Justice Kennedy added, "In our view, the entire Act before us is invalid in its entirety." In the view of the four dissenters, eliminating the individual mandate would have required striking down the entire law, including many provisions that are not directly related to the mandate. For example, the dissenters concluded that the state health insurance exchanges to be established under PPACA would not be able to “operate in the manner Congress intended” without the mandate. The dissent also stated that other unrelated provisions of PPACA would not have been enacted independently and were not compelling enough to retain.