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The U.S. Supreme Court’s majority ruling found the government’s reading of the statute — that it imposes a tax on individuals without insurance — is reasonable.

Health Care Law: Supreme Court’s Analysis of Legal Precedent

  • 7/11/2012

Health Care Law: Supreme Court’s Analysis of Legal Precedent

The Supreme Court heard three days of oral arguments in March 2012 on whether the Anti-Injunction Act (Code Sec. 7421) applies; whether the individual mandate (Code Sec. 5000A) is a proper exercise of Congress’ taxing power or its power under the Constitution’s Commerce or Necessary and Proper Clauses; and whether the Patient Protection and Affordable Care Act’s (PPACA) expansion of Medicaid exceeds the government’s spending authority. The Court also heard arguments on the viability of the PPACA without the individual mandate.

Writing for the majority, Chief Justice John Roberts said that the government’s reading of the statute — that it imposes a tax on individuals without insurance — is a reasonable one. “Under the mandate, if an individual does not maintain health insurance, the only consequence is that he must make an additional payment to the IRS...” The Chief Justice continued, “our precedent demonstrates that Congress had the power to impose the exaction in Section 5000A under the taxing power, and that Section 5000A need not be read to do more than impose a tax. That is sufficient to sustain it.” Chief Justice Roberts was joined by Justices Ginsburg, Breyer, Sotomayor, and Kagan in upholding the law under Congress’ power to tax.

Comment: The majority acknowledged that Congress did not label Code Sec. 5000A as a tax but held that labels do not control. The majority used the following example: “Suppose Congress enacted a statute providing that every taxpayer who owns a house without energy efficient windows must pay $50 to the IRS. The amount due is adjusted based on factors such as taxable income and joint filing status, and is paid along with the taxpayer’s income tax return. Those whose income is below the filing threshold need not pay. The required payment is not called a ‘tax,’ a ’penalty,’ or anything else. No one would doubt that this law imposed a tax, and was within Congress’s power to tax. That conclusion should not change simply because Congress used the word ‘penalty’ to describe the payment.”

In their dissent, Justices Scalia, Kennedy, Thomas, and Alito said, “We have never held that any exaction imposed for violation of the law is an exercise of Congress’ taxing power — even when the statute calls it a tax, much less when (as here) the statute repeatedly calls it a penalty.” The dissent noted that “eighteen times in Section 5000A itself and elsewhere throughout the Act, Congress called the exaction in Section 5000A(b) a ‘penalty.’” The dissent would have struck down the entire law.

Comment: In addressing the unconstitutionality of denying Medicaid funding to states that refuse to implement PPACA’s Medicaid expansion, the majority found: “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.” Since an estimated 17 million currently uninsured individuals would benefit from the Medicaid expansion, the impact that this part of the Court’s decision will have on PPACA’s overall goals remains to be seen.

Caution: Several PPACA cases remain outstanding and need to be resolved. For example, a case pending in the Fifth Circuit Court of Appeals, Physician Hospitals v. Sebelius, challenges the constitutionality of PPACA Section 6001, which imposes restrictions on physician-owned hospitals. Another case, Coons v. Geithner, currently pending in the district court of Arizona, raises several other issues, including the constitutionality of the Independent Payment Advisory Board, which PPACA created to find savings in Medicare. As a result of the Supreme Court’s decision, the core of the PPACA remains intact, and other challenges to the law based on those same grounds will not continue. However, other issues are still playing out, and one of them may provide the vehicle for invalidating significant PPACA provisions that are not related to the individual mandate or the Medicaid expansion.

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