“The Healthcare Case” – National Federation of Independent Business v. Sebelius

by Professor Byron L. Warnken on June 28, 2012


Congress enacted the Patient Protection and Affordable Care Act in 2010 to lower the cost of health care while simultaneously increasing the number of Americans covered by health insurance.  There are two important aspects of the Act.  First, the individual mandate, a central provision, requires most Americans to have basic healthcare coverage.  Some individuals are exempt, and some receive health insurance through an employer or government program, but the remainder of Americans must satisfy the requirement by purchasing insurance from a private company. Beginning in 2014, those who do not comply with the requirements of the individual mandate will have to make a “[s]hared responsibility payment” to the Federal Government.  This “penalty” will be paid to the Internal Revenue Service (the IRS) grouped with one’s taxes, and the IRS will handle it in a similar manner to existing tax penalties.

The Second important aspect of the Patient Protection and Affordable Care Act is the Medicaid expansion.  Medicaid currently offers federal funding to States to help certain individuals, including the elderly, the blind, the disabled, needy families, pregnant women, and children in obtaining medical care.  The Medicaid expansion increases scope of Medicaid and the number of individuals covered by States. Under expanded Medicaid, States will provide Medicaid coverage by 2014 to adults with incomes up to 133 percent of the federal poverty level.  Currently, many States only cover adults with children, and even then only if their income is considerably lower than 133 percent.  The Act compensates for the increased burden on States by increasing federal funding to cover the costs.  If a State does not comply with the expanded coverage requirements, the as-enacted legislation could lead to the State losing the increased federal funding that accompanies the expanded coverage requirements, along with all of its current federal Medicaid funds.

Twenty-six States, the National Federation of Independent Business, and a few individuals brought suit in Federal District Court, challenging the constitutionality of the two central elements; the individual mandate and the Medicaid expansion. The Court of Appeals for the Eleventh Circuit upheld the Medicaid expansion as a valid exercise of Congress’s spending power, but concluded that Congress lacked authority to enact the individual mandate.  The Eleventh Circuit severed the individual mandate and left the rest of the Act intact.

The Case:

In National Federation of Independent Business v. Sebelius, No. 11-393 2012 WL 2427810 (June 28, 2012), the Supreme Court upheld the “Individual Mandate” as Constitutional under Congress’s Taxing Power and found the suit was not barred from addressing the Individual Mandate by Anti-Injunction Act.  The Court said the issue of the Individual Mandate was not barred by the Anti-Injunction Act because Congress treated the “shared responsibility payments” as a penalty for purpose of the Anti-Injunction Act and the Anti-Injunction Act only applies to taxes, not penalties.

Although the Court ultimately found the Individual Mandate to be Constitutional, it held the Mandate would be unconstitutional if the only authority Congress had enacted it under was the Commerce Clause.  This is because, although the Commerce Clause gives Congress the power to regulate interstate commerce, it does not give Congress power to regulate inaction affecting interstate commerce, only action affecting interstate commerce.  The individual mandate punished people for not buying insurance, a failure to act, rather than some kind of affirmative deed.

Similarly, the Court found the Necessary and Proper Clause was not enough to make the Individual Mandate Constitutional because, although necessary for the financial viability of the Act, the Individual Mandate was not a proper use of congressional power under the Commerce Clause.  The Court expressed concern for the repercussions of an overly expansive reading of the Necessary and Proper Clause.

Ultimately, the Court found the Individual Mandate Constitutional under Congress’s Taxing Power because the Mandate essentially functioned on a legal and Constitutional level as a tax.  One of Congress’s enumerated powers is the ability to levy taxes, and the purpose of the Individual Mandate, like other taxes, is to fund government projects – in this case, the Medicaid Expansion.

The Supreme Court upheld part of the Medicaid Expansion and struck down the remainder.  The Court upheld as Constitutional the portion of the Act that expanded Medicaid’s coverage to all adults and children below 133% of the poverty line and increased Federal Medicaid funding to States that participate in expansion.  But the Court struck down as unconstitutional the provision empowering Congress to revoke all Federal Medicaid funding for States that do not participate in the expansion.

The net effect of the Court’s ruling is to make participation in the Expanded Medicaid program optional for the States.  A given State may choose to participate and receive substantially increased Federal funding in exchange for being obligated to cover the newly expanded body of Medicaid recipients, or choose not to participate and receive neither the increased funding, nor the increased obligation.  For a State that chooses not to participate it will be as though the Medicaid Expansion never happened.  The Individual Mandate will still apply, but everything else will remain the same.

Breakdown of the Court’s Decision for the Medicaid Expansion:

The Court’s decision involved multiple opinions (a majority, a concurrence, and two dissents) by multiple Justices.  Some Justices agreed with all of a given opinion, while others agreed with only part, joined only part, or dissented from only part.  What follows is a breakdown of how the Justices voted.

A five Justice Majority (reached by adding up votes through views expressed by the Justices in multiple opinions): C.J. Roberts, J. Kagan, J. Breyer, J. Ginsburg, and J. Sotomayor were in favor of the proposition that Medicaid Expansion’s increased Federal Funding to the States, and its concomitant increased obligations on the part of the States were constitutional.

Three Justices, C.J. Roberts, J. Kagan, and J. Breyer, believed that depriving the state of ALL Federal Medicaid funding for not accepting the Expansion exceeded Congress’s power under the Spending Clause.  These Justices instead proposed the Act provide State’s with the option to participate in expansion, get increased funding, and comply with conditions, or not participate and keep their current funding and obligations.

Two Justices, J. Ginsburg and J. Sotomayor, thought the entire expansion program was Constitutional, including the provision allowing the Federal Government to revoke all Federal Medicaid Funding to States that did not adopt the Medicaid Expansion.

A seven Justice Majority (reached by adding up votes through views expressed by the Justices in multiple opinions) including the three Justices who joined the Majority Opinion (C.J. Roberts, J. Kagan, and J. Breyer), and the four Justices who joined in the Dissenting Opinion (J. Scalia, J. Kennedy, J. Alito, and J. Thomas) agreed that Congress’s power under Medicaid Expansion to revoke all Federal funding to States for Medicaid was unconstitutional.

The final result was essentially a 5/4 split with C.J. Roberts, J. Sotomayor, J. Kagan, J. Ginsburg, and J. Breyer in favor of upholding the Medicaid Expansion in general while striking Congress’s power to retract current Medicaid funding as a means to coerce non-participant States into joining the expansion.  Thus the Court held that the Affordable Care Act was Constitutional, but that Congress could not use it to bully States into participating in the Expanded Medicaid program.


The dissent concluded that the Affordable Care Act (ACA) exceeded the powers granted to congress by the constitution.  The greatest portion of their holding focused on the Commerce Clause and how allowing ACA to stand would expand the scope and power of the Commerce clause in an unprecedented way. They posed two question:  1. Is the failure to purchase healthcare insurance an activity that can be regulated in the way that growing wheat for personal consumption was considered part of interstate commerce in Wickard v. Filburn, 317 U.S. 111 (1942)?; and 2. Does Congress power to tax and spend permit conditioning Federal subsidies upon  State’s participation in ACA?

The Dissent cited the tenth amendment in that there are structural limits upon federal power that limits what person conduct it can prescribe and what it can impose on the sovereign states.  ACA structure exceeds federal power through the mandating the purchase of health insurance and in the denial of all Medicaid funding to the non-consenting states.  These central provisions make the entire law unconstitutional.

The dissent further opined that ACA regulates the failure to purchase a commodity within the stream of commerce, not an actual item of commerce. Purchasing the insurance is indeed part of commerce, but this regulation is not within the scope of the commerce clause.  A discussion of the definition of the word “regulate,” leads to the conclusion that what congress attempted in ACA’s mandate that all purchase health insurance goes beyond that definition and the dissent does not accept either of the Federal Government’s arguments to the contrary. The dissent further discusses how the structure of the mandate gives the young and healthy an incentive to opt out of purchasing insurance until they need it,  resulting in increased premiums, more people deciding to opt out, and / or the destruction of the insurance industry; thereby destroying the very reason the mandate was created. By Congress impressing the healthy into service to subsidize the sick, it grants the Commerce clause unlimited power. This discussion goes further in drawing distinctions between this case and others that have expanded the power of the commerce clause by stating that the other cases did not attempt to regulate a non-action by an individual and that ACA could have had other means to its ends where the other cases cited by the Government did not enjoy that luxury.  The dissent also pointed out that if this reasoning was extended to its logical conclusion that it would be hard pressed to find activity that the Congress could not regulate.

The final issue the dissent had with the mandate was ACA’s definition of health care “market.” The true market of a service or good is that of the people that are actually shopping for it at a given time. ACA defines it as those people, as well as including everyone else that is not currently looking for health insurance. The decision to not participate in a market is not itself a market activity, so this argument fails.  This inclusive view of the commerce clause that allows for every person to fall within its scope b y virtue that everyone will one day participate in the market will bring the notion of limited government power to an end.

In the dissent’s discussion of the Taxing Power, it is clear that they are of the opinion that Congress has regulated beyond the scope of the its authority. The notion that a penalty is also a tax is unprecedented in every way, but that is the alternative argument presented by the Government.  The dissent illustrates how they have differentiated between the two terms on multiple rulings and point to ACA’s actual language that defines the fee imposed for not purchasing insurance as a penalty.  Tax has never been defined as an “exaction imposed for violation of the law,” but this is the Government’s argument here. ACA imposes a penalty and not a simple tax.  Whereas penalties for absolute liability are common, and where a statute is silent as to a scienter, a traditional presumption of Mens Rea is made if a severe penalty. It is illogical to avoid calling a penalty a penalty for lack of a scienter. To repair this problem would ask the court to take on the role of legislators to re-write the law, which are beyond the scope of the Court’s powers.  In regarding that ACA fell within the Government’s tax power, it only allocated fifty words of it’s oral argument and 21 lines of its brief to the discussion, so they are equally unconvinced of this argument’s merit.

The dissent then opined on the jurisdiction under the Anti-injunction Act that precludes law suits that aim to restrain the assessment or collection of any tax  by person. Since the dissent concluded that ACA was not a tax, there was no question of the Court’s jurisdiction over the matter.

The Medicaid Expansion by virtue of ACA’s mandate  of severe sanctions against states that opt out of the program is unconstitutional. The language of ACA does not provide states with a real choice at all.  ACA’s state goal is to have nearly universal medical coverage and requires 100% state participation.  The argument that no state would want to opt out fails by the fact that more than half the states have brought suit.  The notion that Congress’ power to make expenditures for the “general welfare,” although overly broad, is not unlimited enough to over-ride the states’ right to opt out.  If left unchecked, this has the potential to blur the distinctions between national and local power by allowing Federal Government to control traditional areas of local concern. This is nothing less than coercion of the States through extreme threats of removing all sorts of connected Federal funding. This removes the State’s real option of choice because this will negatively affect either the services the states fund or raise the taxes of its residents. It further blurs the line of accountability between the state and federal officials for the services that are being provided as well. Voters will not be able to hold the true parties responsible for the actions of the local government and this will add to the confusion. The dissent also compared the financial impact of opting out of ACA  with opting out of other federal programs to show that ACA was coercion. Opting out of ACA could mean up to a loss of 22% of Federal grants . When compared to opting out of other programs that loose merely a fraction of a percentage of funding, this means that ACA is intended to coerce the states into opting in.  This is an unprecedented infringement on state’s rights.

In the dissent’s discussion of Severability, two factors were discussed: 1. Will the remainder of the law function as congress intended?: And 2. Would Congress have enacted each provision alone?  After a detailed analysis of the provisions interaction with one another, the dissent answered that no part of the law survived severance because each provision required the others to avoid increasing taxes, avoid increased insurance premiums, avoid loss of insurance coverage, to ensure the notion of “ shared responsibility”  through the design of ACA, and to ensure deficit reduction through lower health care costs. Undoing of one provision destroys the goal of the others, so the entire ACA must be left intact and voided as a whole.

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