Is it a Tax or Isn’t it?
Supreme Court Ruling on the
Constitutionality of PPACA
October 10, 2012
Hamilton Emery
The Regence Group
is an Independent Licensee of the Blue Cross and Blue Shield Association.
1
Overview
• Tax Anti-Injunction Act
•
It is not a tax
•
•
•
Commerce Clause
Necessary and Proper Clause
Tax and Spending Clause
• Individual Mandate (upheld by 5-4 majority)
• It is a tax
• The Court should resort to “every reasonable construction . . . In order
to save a statute from unconstitutionality.”
• Medicaid Expansion (overturned by 7-2 majority)
•
Federal government cannot coerce a State by withholding existing
federal Medicaid funds
• Did Chief Justice Roberts switch his vote?
• Impact of ruling and moving forward
•
What should an employer know?
2
Overview Continued
• After
• 100 years of legislation and trying
• 1 (recent) year of Congressional debate
• 2 years of litigation
• 1000 pages of judicial opinions
• Health reform survives by a single vote
• Ironically, because it involves a tax, which no one thought it did
3
Background and Procedural History
• The Patient Protection and Affordable Care Act, Pub. L. 111148, signed into law on March 23, 2010
• 26 States challenged the constitutionality of PPACA
• Lower court’s decisions on Individual Mandate:
•
•
Individual mandate and entire Act was constitutional (6th Circuit)
Individual mandate unconstitutional, but could be severed from
the rest of the Act (11th Circuit)
• Individual mandate and entire Act was unconstitutional (D.C. Fl)
• Not ripe for review because of Anti-Injunction Act (4th Circuit)
• No Court overturned Medicaid expansion
• Supreme Court Granted cert on November 14, 2011
4
The Proceedings
• Three days of oral argument (rare)
•
•
•
Tax Anti-Injunction Act
Individual Mandate
Medicaid Expansion
• Comments:
•
Prior to oral argument – most commentators thought that PPACA
would be upheld
• Consensus is that the Government did not fare well
• Court particularly harsh toward Medicaid Expansion
5
Tax Anti-Injunction Act
• AIA was originally enacted in 1867
•
Except for 14 exceptions, “no suit for the purpose of restraining
the assessment or collection of any tax shall be maintained in
any court by any person, whether or not such person is the
person against whom such tax was assessed.”
• Cannot challenge the tax until after the tax is first assessed.
• Holding:
•
•
•
•
That the individual mandate is a penalty and not a tax
Section 5000A defines the mandate as a penalty
Other sections in PPACA refer to taxes
Congress’s use of the term “penalty” vs. “tax” was persuasive
Therefore, case was ripe for review
• NOTE:
Interesting that Court refers to mandate as a penalty
and expressly states that it is not a tax
6
Individual Mandate
• PPACA:
•
Section 1501 of The Patient Protection and Affordable Care Act
of 2010 requires that every United States citizen, other than
those falling within specified exemptions, maintain a minimum
level of health care coverage for each month beginning in 2014
(the “Individual Mandate”). Failure to comply will result in a
penalty payment to be paid along with that person’s federal
income tax return.
7
Individual Mandate – The Commerce Clause
• Enumerated Powers
•
Federal Government is a government of limited power
• May only act within certain enumerated powers:
– Common Defense, imposts and excises, lay and collect taxes, regulate
commerce, borrow money, establish post offices and post roads,
declare war, provide and maintain a navy/army, to coin money, patents,
and Necessary and Proper clause
•
States are charged with the general welfare and safety of the
populous
• The Commerce Clause
•
U.S. Constitution, Article I, Section 8, Clause 3
• United States Congress shall have the power to “regulate commerce
with foreign nations, and among the several states, and with the
Indian tribes.”
•
Expands and contracts depending on the Court
8
Individual Mandate – History of The Commerce Clause
• Historical Growth of Commerce Clause:
•
Traditional Power:
• Power to regulate trade between the states (Gibbons v. Ogden)
– Power to regulate interstate navigation: “Commerce, undoubtedly is traffic, but it
is something more – it is incourse . . . [A] power to regulate navigation is as
expressly granted, as if that term had been added to the word ‘commerce’ . . .
[T]he power of Congress does not stop at the jurisdictional lines of the several
states. It would be a very useless power if it could not pass those lines.”
• Expansion:
• First, Congress may regulate the use of the channels of interstate
commerce
• Second, Congress may regulate the instrumentalities of interstate
commerce, or persons or things in interstate commerce, even where
the threat may come only from intrastate activities
• Third, Congress may regulate those activities that have a substantial
relation to interstate commerce (substantial affect on interstate
commerce)
9
Individual Mandate – History of The Commerce Clause
(cont.)
• Historical Growth of Commerce Clause Continued:
•
Substantial Effect on Commerce:
• Activity, taken in the aggregate, would have a substantial effect on
commerce
• Wickard v. Filburn (Agricultural Adjustment Act)
– Wheat stabilization efforts
•
Limits on Commerce Clause
• Two Cases:
– United States v. Lopez (Gun-Free School Zones Act)
– United States v. Morrison (Violence Against Women Act)
• Drew back on activities that are intra-state and touch on traditional
state powers
10
Individual Mandate – Holding on The Commerce Clause
• Congress can “regulate” commerce
•
The power to “regulate” commerce presupposes the existence of
commercial activity to be regulated
•
Comparison of enumerated powers
• Commerce clause vs. establishment clauses
• Acknowledges expansive interpretation of Commerce Clause
• But all prior cases involved the regulation of “activity”
• Individual mandate does not regulate existing commerce, but
compels persons to become active in commerce
• Congress cannot create commerce in order to regulate it
•
If Congress could create commerce, they would be able to
regulate everything
11
Individual Mandate – Necessary and Proper Clause
• Necessary and Proper Clause
•
Congress shall have the power “[t]o make all laws which shall be
necessary and proper for carrying into execution the foregoing
powers, and all other powers vested by the Constitution in the
government of the United States, or in any department or office
thereof.”
• Allows Congress to pass statutes in the grey area
•
Allow Congress to act slightly outside of enumerated powers
12
Individual Mandate – Holding on Necessary and Proper
Clause
• Derivative Power:
•
Court held that in all cases, this clause is used as a derivative to
an enumerated power
•
Individual mandate attempts to create the necessary predicate to
the exercise of an enumerated power to draw all people within
Congress’s ability to regulate
• Necessary and Proper:
•
Supreme Court acknowledged that the mandate is necessary for
PPACA
• Supreme Court held that the predicate use was not proper
• Did not allow Necessary and Proper Clause as a basis for
Individual Mandate
• If you stopped here . . .
13
This is what happens.
14
Individual Mandate – Tax and Spend Clause
• Tax and Spend Clause:
•
Congress has the power to lay and collect taxes
• Not a point of emphasis during oral argument
•
Throw away argument for the government
• Functional Approach
•
To determine constitutionality, Supreme Court uses a functional
approach ‘“[d]isregarding the designation of the exaction, and
viewing its substance and application.’”
15
Individual Mandate – Tax and Spend Clause (cont.)
• Functional Approach applied to individual mandate:
•
Payment is not so high that there is no choice but to purchase
health insurance
• NOTE: a common criticism of the individual mandate
•
Payment is not limited to willful violations
• Nothing in PPACA (or any other law) attaches negative legal
consequences to not buying health insurance, aside from a payment
to the IRS
• Payment is collected solely by the IRS through the normal
means of taxation
16
Individual Mandate – Tax and Spend Clause (cont.)
• Direct Tax Clause:
•
No Capitation, or other direct, Tax shall be laid, unless in
Proportion to the Census or Enumeration herein before directed
to be taken.
• Requires that certain taxes be apportioned equally by population
among the states
•
Individual Mandate is not like a capitation or other direct tax, and
does not need to be apportioned so that each State pays in
proportion to its population
17
Individual Mandate – Threading the Needle
• Anti-Injunction Act:
•
•
•
Congress passed the statute
Congress may set when AIA applies
PPACA defines mandate as a “penalty”
• Constitution:
•
•
Supreme Court looks to substance
Held that mandate is a tax for constitutional purposes
• Congress’s label of penalty
•
Cannot control whether the payment is a tax for purposes of the
Constitution,
•
But does determine the application of the Anti-Injunction Act
18
Medicaid Expansion – State Coercion
• Spending Clause:
•
Allows Congress to establish cooperative state-federal Spending
Clause programs
•
The legitimacy of Spending Clause legislation depends on
whether a State voluntarily and knowingly accepts the terms of
such programs
• Congress cannot coerce a State to take Medicaid Expansion
•
Problem is where Federal Government not only conditions
money for future expansion efforts on a State, but
• Where Federal Government conditions all money for that
program on accepting new conditions.
19
The Dissents
• Justice Ginsburg’s biting “dissent”
•
•
•
•
Congress could have established public option, so why not this?
Swipe at Mitt Romney
Repeated swipes at the Chief Justice
Commerce clause:
• Unique market that everyone is “in”
• Just regulating “payment” options in market
• Non-purchase of insurance affects everyone already in commerce
20
The Dissents Continued
• The Conservatives’ dissent
•
•
•
•
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Shockingly, no mention of the Chief Justice’s opinion
Pointed section against Justice Ginsburg
Commerce clause: Accepts Chief Justice’s views
Taxing Power: label’s matter
Medicaid expansion: joined the majority, but rejected severability
21
Summary of Decision
• Tax Anti-Injunction Act – not a barrier to review
• Individual Mandate (upheld by 5-4 majority)
•
•
•
Commerce Clause – is not proper
Necessary and Proper Clause – is not proper
Tax and Spending Clause – is proper
• Medicaid Expansion (overturned by 7-2 majority)
•
Decision reversed
22
Did Chief Justice Roberts Change His Vote
• Possible signs that Chief Justice Roberts might have changed
his vote:
•
Dissent is written as a majority opinion
• Substantial discussion of severability – rare when issue is moot
• Majority is a bit thrown together
• Dissent attacks Justice Ginsburg and not the Chief Justice
• No author for the dissent
• Very Rare
• Roberts may have written most of the dissent as part of the majority
holding
23
Future Legal Challenges and Lawsuits?
• Major issue was the Individual Mandate
• Contraception coverage
•
Dozens of Catholic dioceses and schools filed lawsuits in various
states charging constitutionality of the Act’s contraception
coverage requirement
• Employer challenges
• Expected lawsuits challenging the implementation of the statute
• Would attack minor provisions
• Pay or Play challenges?
24
Future Political Challenges to PPACA
• Political Issue for Election
•
Romney: “What the Court did not do on its last day in session, I
will do on my first day if elected President of the United States.
And that is I will act to repeal Obamacare.”
• Potential Political Quagmire
•
As unpopular as PPACA is, current market is even less popular
• What can be done?
•
House of Representatives – control the purse strings
• Defund the subsidy?
•
Republican Presidency and Republican Congress
• Perhaps move to repeal (see risks above)
• NOTE: GOP would need 60 votes in Senate to overcome DNC
filibuster of a repeal bill.
• Reconciliation – could unwind portions, but not all
25
Impact of SCOTUS Ruling on PPACA Implementation
• Federal Healthcare Exchanges
•
Who will Run?
• Federal Government
• Utah
• Partnership Exchange
– Essential Health Benefits
– QHP Certification
•
•
Limited benefit offerings?
Open enrollment begins fall of 2013, for effective date of January
1, 2014
• Medical Loss Ratio
• Pay or Play Penalties
26
Impact of SCOTUS Ruling on Medicaid Eligibility
• Expansion of Medicaid eligibility from incomes below 100% of
federal poverty level to incomes below 133% of federal poverty
level (practically would have been 138% FPL due to 5%
disregard under Act)
• States may now forego Act’s Medicaid expansion provisions
• If a State foregoes expansion:
• Individual Impact:
• Individual may obtain coverage in the exchange
• Individual purchasing on exchange would be entitled to subsidy
•
Employer Impact:
• Possible increased exposure to shared responsibility payments
• Payment imposed where employees obtain coverage on exchange
and receive subsidy
• Example: employee at 120% FPL
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Questions
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