August 2012 Bar Bulletin
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August 2012 Bar Bulletin

Clearing the Air on Obamacare ... or Not

By Randy Aliment and Tim Ashcraft


On June 28, the U.S. Supreme Court rendered its decision in National Federation of Independent Business v. Sebelius, Secretary of Health and Human Services, more commonly known as the Court's decision on the Patient Protection and Affordable Care Act (the "Act"). In this decision, the Court looked at two issues: first, whether the Act's individual mandate to purchase health insurance was constitutional, either under the Commerce Clause or Congress' ability to tax; and second, whether the Act's expansion of Medicaid was constitutional.

The majority opinion was written by Chief Justice John G. Roberts, Jr., joined by different justices depending on the specific portion of his opinion. Turning to whether the mandate was constitutional, Chief Justice Roberts wrote that the individual mandate requires most Americans to maintain minimum health insurance coverage. For those individuals who are not exempt and who do not purchase health insurance, that person must make what the Act refers to as a "shared responsibility payment." The Act describes the payment as a penalty.

The payment is calculated as a percentage of household income subject to both a floor and a ceiling. The penalty is paid to the Internal Revenue Service along with an individual's taxes, and the Act provides that the penalty shall be assessed and collected in the same manner as tax penalties. However, the Act does bar the IRS from using some of its normal enforcement tools, such as criminal prosecutions.

The government argued that the mandate was proper under both the Commerce Clause and the Necessary and Proper Clause. It contended that under the Commerce Clause the individual mandate is constitutional because the failure to purchase health insurance has a substantial and deleterious effect on interstate commerce, creating a cost-shifting problem. Under the Act, insurance companies are prohibited from denying coverage to those with pre-existing conditions and prohibited from charging unhealthy individuals higher premiums than healthy individuals.

These new provisions, however, do not address the problem of individuals who choose not to purchase health insurance; to the contrary, these reforms exacerbate the problem because it allows individuals to not purchase health insurance until they become sick, relying on the prohibition against pre-existing conditions and purchasing health insurance only when it becomes required. To solve these problems, Congress came up with the individual mandate.

Chief Justice Roberts, joined by the four dissenting justices (Scalia, Kennedy, Thomas and Alito), wrote that the mandate was not permissible under the Commerce Clause. While it is well established that Congress has broad authority under the Commerce Clause, "Congress has never attempted to rely on that power to compel individuals not engaged in Commerce to purchase an unwanted product."

Roberts noted that the Constitution gave Congress the power to regulate commerce, which assumes the existence of commercial activity to be regulated. The individual mandate, however, did not regulate commercial activity, but rather compelled commercial activity. "[C]onstruing the Commerce Clause to permit Congress to regulate individuals precisely because they are doing nothing would open a new and potentially vast domain to Congressional authority.... The Commerce Clause is not a general license to regulate an individual from cradle to grave, simply because he will predictably engage in particular transactions."

Chief Justice Roberts made short work of the government's argument under the Necessary and Proper Clause that "the mandate is an 'integral part of a comprehensive scheme of economic regulation,'" noting that the clause does not expand the government's power, but merely clarifies that it has the power to execute those powers otherwise granted. "Each of our prior cases upholding law under the [Necessary and Proper] Clause involved exercises of authority derivative of, and in service to, a granted power."

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