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How the Supreme Court Upheld the Affordable Care Act

July 05, 2012 By Ben Schweigert, Fellow

The recent case on the constitutionality of the Affordable Care Act (ACA), lesser known as National Federation of Independent Business v. Sebelius, was the most recent in a century-long struggle between the Supreme Court and Congress over the scope of Congress’s powers to regulate the economy.

After much anticipation—and many faulty predictions from commentators, including myself—the Court upheld all of the key provisions of the Act, handing the president a major victory. But understanding how the Court reached this conclusion, and what it means for Congress’s economic powers more generally, requires untangling the Justices’ divided and overlapping opinions.

Congress only has the powers that the Constitution specifically gives it. If it tries to take action beyond those powers, its action is unconstitutional. However, some of the powers of the federal government are stated in very broad terms. Two of the broadest relate to the power of Congress to operate in the economic arena, and both were at issue in NFIB v. Sebelius.

First, Congress has the power “[t]o regulate Commerce . . . among the several States.” This clause is known as the Interstate Commerce Clause. Second, Congress has the “Power To lay and collect Taxes . . . to . . . provide for the . . . general Welfare of the United States.” This clause is known as the Taxing and Spending Clause or the General Welfare Clause. Because these powers are so important and so vague, the struggles between Congress, the President, and the Supreme Court over the meanings of these provisions—especially the Commerce Clause—have been among the most contentious and bitter in our nation’s history.

In NFIB v. Sebelius, the plaintiffs, the NFIB and its allies, argued that Congress lacked the power to enact two parts of the Affordable Care Act. First, they objected to the Act’s requirement that each person in the United States purchase health insurance. Under this provision, if a person does not purchase insurance, then she has to pay a penalty to the IRS when she files her income taxes for that year. The plaintiffs argued that the Commerce Clause did not permit Congress to compel individuals to engage in commerce, only to regulate commerce in which citizens had freely decided to engage. They argued that the Taxing and Spending Clause did not permit the mandate because Congress described the payment as a “penalty,” not as a tax.

Second, they objected to the Act’s provision expanding Medicaid coverage to include the working poor. This provision allows states to opt out of this program, but says that, if they do, they lose all of their Medicaid funding, even the money they were getting before the Act was passed. The plaintiffs argued that because Medicaid is such a massive program, states could not realistically decline to participate. Therefore, they argued the expansion was coercive—a violation of the Constitution according to previous Supreme Court cases that held that the federal government may not command the states to enforce federal policy.

The Obama Administration responded that both the Commerce Clause and the Taxing and Spending Clause gave Congress the power to enact the individual mandate. It argued that the individual mandate fell within the Commerce Clause because it was a means of regulating the national market for health care. It argued that the mandate fell within the Taxing and Spending Clause because the only consequence of a person declining to abide by the mandate was that he make a payment on his taxes.

The Administration likewise argued that the Medicaid expansion was permissible under the Taxing and Spending Clause, because the provision merely offers states money to spend to advance the general welfare. The states were free to reject the funds, and the program was therefore not coercive.

The Court was therefore faced with three large questions: (1) Could Congress enact the mandate under the Commerce Clause? (2) Could Congress enact the mandate under the Taxing and Spending Clause? And (3) could Congress enact the Medicaid expansion under the Taxing and Spending Clause?

On all three of these questions, the Court divided. Chief Justice Roberts, joined by four other justices—Ginsburg, Breyer, Sotomayor, and Kagan—held that the individual mandate was within Congress’s taxing power and was therefore constitutional. The justices explained that, in effect, the Act gave people a choice: buy health insurance or make an additional payment at tax time. In this way, Roberts explained, the Act made “going without insurance just another thing the Government taxes, like buying gasoline or earning income.”

The ruling on the Medicaid expansion was more confusing, and in the end, the Court limited but did not eliminate it. Justices Scalia, Kennedy, Thomas, and Alito concluded that the expansion was unconstitutional and must be eliminated. Justices Ginsburg and Sotomayor concluded that the expansion was fine as written. Chief Justice Roberts and Justices Kagan and Breyer argued for a middle ground: they held that conditioning all of a state’s Medicaid funding on its participation in the program was unconstitutionally coercive, but that it would be fine to condition any new money for the expansion on a state’s participation in the expanded program. This way a state could decline to participate in the program, losing access to the extra money, but it wouldn’t lose the Medicaid funding it was already receiving under the program as it existed before the Act.

This meant that no position on the constitutionality of the Medicaid expansion commanded the necessary five votes. But Justices Ginsburg and Sotomayor explained that, if the provision as written must be held unconstitutional, as seven of the justices believed, then they supported the remedy proposed by Roberts. This meant that there were five votes for Chief Justice Roberts’ proposal to limit the expansion provision rather than to strike down it down entirely, and this position carried the day.

So what happened to the Commerce Clause question? The Court didn’t need to rule on it, because it had upheld the mandate under the Taxing and Spending Clause. But the justices expressed their views, nonetheless, splitting in yet another different way. Chief Justice Roberts and Justices Scalia, Kennedy, Thomas, and Alito all concluded that the individual mandate was beyond the power of Congress to regulate commerce, while the other four justices disagreed. However, because these legal conclusions did not affect the outcome of the case, they are not “holdings” of the Court—not precedent that must be followed in future cases.

In the final analysis, therefore, the Court handed a massive policy victory to Obama by upholding the Affordable Care Act, but it did not render a sweeping new ruling on Congress’s economic powers. The bases for upholding the mandate and limiting the Medicaid expansion were narrow, and may not have major policy consequences in future cases. And the Court did not make a ruling on Congress’s power under the Commerce Clause, by far the most controversial aspect of the case. In that way, perhaps our nation’s highest judicial body acted how it should have: judiciously.

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  • tony says:

    July 10, 2012 at 12:30 pm

    By calling it a tax, Roberts then changes the law so that if the Repubs take over the Senate, then they can repeal it based on 51 votes & no chance of filibuster.

  • Ben Schweigert says:

    July 10, 2012 at 4:50 pm

    Hi Tony,

    Thanks for reading the piece.  I’d love to hear the analysis supporting your suggestion.  It seems to me that the Supreme Court decision would have little effect on whether a bill to modify the Affordable Care Act could pass the Senate with a simple majority.  I assume you’re talking about the budget reconciliation process, through which certain bills can pass the Senate without the possibility of a filibuster.  My understanding is that this process is reserved for provisions with a non-incidental fiscal impact.  This is certainly the case for much of the Affordable Care Act, but it seems like it would have been the case even in the absence of Roberts’ opinion.  After all, the Democrats passed important amendments to the Affordable Care Act through the reconciliation process in 2010.

  • tony says:

    July 10, 2012 at 5:20 pm

    Hi Ben, I heard it from Tom Hartmann on the radio. He also played a comment from the Senate Minority leader that because it is now classified as a tax that it could be handled as a tax manner which can be dealt with as a matter for reconciliation. I took their word for it & it confirms why the Dems called it a penalty so it would be covered by the filibuster rules…