Individual Mandate is Constitutional

New York Times 28-Jun-12: “Supreme Court Lets Health Law Largely Stand.”

I was both wrong and right about the Commerce Clause argument against the individual mandate: wrong that the better argument supports its constitutionality, right that the commerce clause argument is a close call. The Court held that the mandate exceeds Congress’s Commerce Clause power and is not valid under the Necessary and Proper Clause.  The Court instead construed the penalty imposed on individuals who do not purchase health insurance to be a valid exercise of Congress’s taxing power. I’ll cheerfully admit I’ve thought little about this argument, mostly because my insight into the Constitution’s taxing provisions is slightly better than my understanding of string theory.

My quick reading of the Court’s syllabus of the opinion showed me that a quick reading of the opinion will not suffice to understand its many components. It’s one of those opinions where I will need to map in a matrix the outcome of each of the issues. That’s not happening this afternoon. The sun is (mostly) out and my individual mandate requires completing my projects and errands.

Waiting for the Court

I’m not sure I’m ready for today’s Supreme Court ruling on the Affordable Care Act–or, more precisely, for the howls and outrage that will arise from whichever side loses the individual mandate argument. I’ve been talking about it with my coffee buddies for the past few years. Most were–are–incredulous that there’s even a question about the ACA’s constitutionality. Of course the federal government can require everyone to buy health insurance! Health insurance is a good thing, like requiring people to wear seat belts, therefore the government can compel us to buy it! (One thing I’ve learned from teaching law for 15 years–most U.S. citizens have the faintest understanding of Federalism.) I believe the better arguments favor upholding it–I think the federal government can use its Commerce Clause powers to require us to buy health insurance because when we don’t buy health insurance we always shift our health care costs to third parties (hospitals, the government, people who do have health insurance), and thus the cumulative effect on interstate commerce of personal decisions not to buy health insurance is substantial–but I also believe there are legitimate, straight-faced arguments one can make against the law. (Not a popular position in the liberal circles I frequent or media I consume.)

Despite what pundits and Supreme Court justices say, decisions like this are not about applying objective rules, about “calling balls and strikes.” Indeed it’s to our national shame that Congress and the press didn’t call Chief Justice Roberts on this fallacious metaphor during his confirmation hearings. The strike zone is not objective. Umpires do not interpret it uniformly. The best baseball players can hope for is that the plate ump applies the strike zone consistently during a game. It is the job of Supreme Court justices to interpret and apply constitutional principles, which requires making policy decisions about the relationship between the government and the governed. That’s not being an activist judge; it’s being a Supreme Court judge. It’s inevitable that a justice’s political views will shape his or her interpretation of the Constitution. The best we can hope for is that a justice’s decisions are governed by consistent interpretation of constitutional principles, by stare decisis and profound respect for the Rule of Law, and by recognition that the Constitution was intended to be a living document (this rules out Justice Thomas.) There is tremendous tension between these three forces–which is why we lawyers say reasonable people can disagree. Unfortunately, when it comes to the national political discourse reasonable people have been hunted to extinction. I’m not eager for the nasty aftermath of the ACA decision, however it comes down.

Commerce Clause Arguments

The media is filled with articles and reports on this week’s Supreme Court arguments on the Affordable Care Act. This WSJournal article (subscription required) efficiently summarizes the arguments and justices’ questions. Definitions of the relevant economic activity reveal a key distinction between the law’s challengers and supporters–the former focus on the market for health insurance, the latter on the market for health care. The two are obviously connected but the law’s opponents argue that one can be in the market for the latter without being in the market for the former. The media consensus is that the law is in trouble–on CNN Jeffrey Toobin called the Supreme Court session “a train wreck for the Obama administration–and that Justice Kennedy is the key.

ObamaCare at the Supreme Court

Beginning today the Supreme Court is hearing three days of arguments on the constitutionality of the Affordable Care Act. The first issue is whether the Court can even consider the law’s constitutionality now–a legalistic argument that in the words of a lawyer challenging the law is “a kind of practical joke that the court is playing on the public.” The 1867 Anti-Injunction Act requires that a tax can only be challenged after it has been paid. The ACA’s penalty–or is it a tax?–for failing to obtain health insurance does not go into effect until 2014 and would not be payable until federal tax returns are filed in 2015, which could mean the challenge must wait. It’s an argument only a lawyer could love, with the twist as to whether the payment imposed for failure to obtain health insurance is a tax. As the NYTimes explains:

In the health care law, Congress called the required payment a penalty rather than a tax. But the penalty is contained in the Internal Revenue Code, and the health care law says it is to be “assessed and collected in the same manner” as a tax.

Mr. Verrilli, representing the Obama administration, walks a fine line. He has told the court that the administration wants a prompt ruling on the health care law and that the 1867 law should not stand in the way. Yet the administration does not want to damage its ability to rely on the 1867 law in other cases.

There are other complications. Mr. Verrilli’s argument that the penalty is not a tax for purposes of the 1867 law is in potential tension with one he will make on Tuesday, that the mandate was authorized not only by Congress’s power under the commerce clause but also by its power to levy taxes.

Mr. Verrilli argues that the name that Congress gave the payment required for violating the mandate in the health care law — a penalty, not a tax — matters for purposes of the 1867 law but is irrelevant in connection with the constitutional taxing power, where “it is the practical operation of the provision, not its label, that controls.” (emphasis additional)

As I said, it’s an argument only a lawyer could love.

Pro-ACA Op-Ed

Yesterday the New York Times ran an Op-Ed piece by Harvard Law Professor Einer Elhauge arguing for the constitutionality of the Affordable Care Act under the commerce and necessary and proper clauses. He concludes that “Congress can mandate the purchase of health insurance as long as it conditions that mandate on engagement in some commercial activity” and “even if the [insurance purchase] mandate were not directly authorized under the commerce clause, it is authorized under the necessary and proper clause as rationally related to the constitutional exercise of the power to regulate premiums and prohibit rejecting the sick.”

Court Enjoins Colorado Ecommerce Reporting Law

Last year Colorado passed a law requiring retailers who do not collect Colorado sales and use taxes to–

  1. “notify Colorado customers that the customer is required to pay use tax on the purchase;
  2. send an annual statement to each Colorado customer, summarizing the customer’s total annual purchases from the e-tailer; and
  3. file an annual information report with the Colorado Department of Revenue showing the total amount of sales made to each customer in Colorado.”

Colorado could then use this information to monitor residents’ compliance with state laws requiring reporting and payment of use taxes.  E-Commerce Times reports that the Direct Marketing Association challenged the sale on the grounds that it discriminates against out-of-state retailers and burdens interstate commerce.  Last month a federal court in Denver issued a preliminary injunction preventing the state from enforcing the law until its validity can be determined at trial.

Tribe on the ACA

This Op-Ed piece by Larry Tribe, constitutional law scholar and Harvard Law School professor, explains why “[t]here is every reason to believe that a strong, nonpartisan majority of justices will do their constitutional duty, set aside how they might have voted had they been members of Congress and treat this constitutional challenge for what it is — a political objection in legal garb”–in other words, why they will uphold the constitutionality of the Affordable Care Act.

Legal versus Political Issues

And here’s my response to a friend who asked if the Florida decision was a “clear case of judicial activism and over-reaching with a political agenda.”

The challenge to the ACA raises serious constitutional law questions.  The results have been politicized, but the issue goes to the heart of the Constitution’s allocation of power among the states, the federal government, and the people.  Legal analysis requires putting aside agreement with the ends of health care reform and asking this question:  if I disagreed with the operation of the law, would I still believe it was within Congress’s power to pass it?  If Congress decided national defense and public safety required every competent non-felon adult in the U.S. to own a handgun, would it be within Congress’s power under the commerce clause? (There may be other constitutional flaws to this hypothetical but I’m making this up on the fly to frame the question.) The courts that have considered these challenges have so far split on partisan lines, but it ignores the legitimacy of the constitutional issues to assume nothing more than party affiliation drives the outcome.

Pro-ACA Argument

The constitutionality of the Affordable Care Act is a lively topic at morning coffee.  Today a friend sent a link to a pro-ACA argument.  Here’s a copy of my response.

This argument has intellectual appeal–I keep expressing it in the shorthand “not to decide is to decide,” meaning inactivity also has consequences–and it’s a concept that the law recognizes in some contexts. In some states, a seller of residential property has a common-law (meaning, judge-imposed as opposed to statutorily-imposed) duty to disclose information about the property that would not be readily apparent or easily discoverable through typical buyer’s diligence. The duty arises just by virtue of the seller’s superior knowledge, whether or not the buyer asks a question that would trigger disclosure, and the seller can be liable for any economic harm the buyer suffers from the seller’s failure to disclose. The legal question, though, is not whether the argument has intellectual appeal. It’s whether regulating inactivity is within Congress’s power under the commerce clause. Answering that question requires looking at prior commerce clause cases to see how the Court has defined the scope of commerce clause power. This author frames the question this way:

the Commerce Clause empowers the federal government to regulate interstate commerce; the American health care system is interstate commerce; and the Affordable Care Act regulates the health care system

That law is not that simple. In 1995 in US v Lopez the Court ruled the Gun Free School Zone Act was beyond Congress’s commerce clause power. The government argued (among other things) that guns are sold in interstate commerce, that guns are often used in connection with the drug trade, which is in interstate commerce, that the presence of guns in schools has a deleterious effect on education, turning out students less able to reach their potential as economic actors, affecting interstate commerce. The Court disagreed, saying there was insufficient nexus between the activity regulated–guns in schools–and Congress’s commerce clause power. If the law were as simple as the writer suggests the Lopez case would have come out the other way, because “guns are in interstate commerce; and the Gun Free School Zone Act regulates gun possession.”

My aim is only to explain the legal context of the ACA challenge. It’s easy to talk about as pure politics, and if the Court eventually strikes down the law in a 5-4 decision I have no doubt the common wisdom will be that it was decided on pure politics.  I think the legal discussion is more interesting and intellectually challenging than the binary left/right, democrat/republican, pro-Obama/anti-Obama discussions.  It involves fundamental issues about natural rights and individual liberty, as the founding fathers understood them, and the Constitution’s limits on federal government power.

Florida Court Strikes Down ACA

A federal court in Florida ruled today that the Affordable Care Act’s individual mandate violated the Commerce Clause and, because the court found the individual mandate could not be severed from the rest of the Act, declared the whole law unconstitutional.  I’ve not carefully read the court’s 78-page opinion, but I’ve read enough to see it relies on activity argument noted in prior posts on this subject:

It would be a radical departure from existing case law to hold that Congress can regulate inactivity under the Commerce Clause. If it has the power to compel an otherwise passive individual into a commercial transaction with a third party merely by asserting — as was done in the Act — that compelling the actual transaction is itself “commercial and economic in nature, and substantially affects interstate commerce” [see Act § 1501(a)(1)], it is not hyperbolizing to suggest that Congress could do almost anything it wanted. It is difficult to imagine that a nation  which began, at least in part, as the result of opposition to a British mandate giving the East India Company a monopoly and imposing a nominal tax on all tea sold in America would have set out to create a government with the power to force people to buy tea in the first place.

The court concludes that failure to purchase health insurance is not an activity.  The court rejects the argument that the “three unique elements of the health care market” (no one can opt out, hospitals arerequired to provide care regardless of ability to pay, and unpaid costs are shifted to third parties) relied on by the government are “constitutionally significant.”

What if only one of the three factors identified by the defendants is present? After all, there are lots of markets — especially if defined broadly enough — that people cannot “opt out” of. For example, everyone must participate in the food market. Instead of attempting to control wheat supply by regulating the acreage and amount of wheat a farmer could grow as in Wickard, under this logic, Congress could more directly raise too-low wheat prices merely by increasing demand through mandating that every adult purchase and consume wheat bread daily, rationalized on the grounds that because everyone must participate in the market for food, non-consumers of wheat bread adversely affect prices in the wheat market. Or, as was discussed during oral argument, Congress could require that people buy and consume broccoli at regular intervals, not only because the required purchases will positively impact interstate commerce, but also because people who eat healthier tend to be healthier, and are thus more productive and put less of a strain on the health care system.

Upholding the individual mandate would require piling “inference upon inference” to support an attenuated link between “what is being regulated and its effect on interstate commerce.”

Regarding the argument that the decision to forgo the purchase of health-care insurance is an activity, the court states-

There is quite literally no decision that, in the natural course of events, does not have an economic impact of some sort. The decisions of whether and when (or not) to buy a house, a car, a television, a dinner, or even a morning cup of coffee also have a financial impact that — when aggregated with similar economic decisions — affect the price of that particular product or service and have a substantial effect on interstate commerce. To be sure, it is not difficult to identify an economic decision that has a cumulatively substantial effect on interstate commerce; rather, the difficult task is to find a decision that does not.

This is significant because “‘economic decisions’ are a much broader and far-reaching category than are ‘activities that substantially affect interstate commerce.'”  The court ends the Commerce Clause analysis with this paragraph:

Because I find both the “uniqueness” and “economic decision” arguments unpersuasive, I conclude that the individual mandate seeks to regulate economic inactivity, which is the very opposite of economic activity. And because activity is required under the Commerce Clause, the individual mandate exceeds Congress’ commerce power, as it is understood, defined, and applied in the existing Supreme Court case law.