Why did the Supreme Court uphold the Affordable Care Act? BU law professor Abigail Moncrieff explains

Today, the Supreme Court issued a resounding victory for a century-long effort to create universal health insurance coverage in the United States. That’s right—the first presidential candidate to campaign on national insurance was not Barack Obama, Bill Clinton, Richard Nixon, or even FDR. It was Teddy Roosevelt, running on the Bull Moose ticket in 1916. A mere 94 years later, Congress finally managed to pass comprehensive health care reform, but as we all know, the legislative victory met immediate judicial resistance. Today, the Supreme Court reversed the lower courts’ decisions to strike down the law, holding that the individual mandate is a valid exercise of Congress’s power to lay and collect taxes and that the Medicaid expansion can proceed as long as the states’ participation is voluntary.

The Individual Mandate

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The big surprise today, other than Chief Justice John Roberts’s decision to join the liberal justices in upholding the Affordable Care Act (ACA), is that the decision has nothing to do with the Commerce Clause. The vast majority of scholarly and media attention has focused on whether the individual mandate, which arguably compels individuals to buy insurance, is a valid regulation of interstate commerce. Although Roberts expressed his opinion that it is not, that argument was unnecessary to the Court’s holding, and it is therefore not binding for lower courts or future Supreme Court justices.

Instead, the Court’s real holding focused on Congress’s power to lay and collect taxes. The 5-4 majority held that the individual mandate is constitutionally permissible as an exercise of Congress’s power, laid out in Article I and in the Sixteenth Amendment, to tax individuals. Since Congress’s laws need to be permissible under only one of the Legislature’s constitutionally enumerated powers, the Court’s decision that the mandate is a tax is enough to uphold the whole statute.

So, how and why is the mandate a tax, especially given that Congress and President Obama went out of their way to call it a penalty?

There are two things that are important here. First, the Court’s test for whether a financial exaction is a tax or a penalty doesn’t depend on the words Congress uses. The constitutional test depends on the heft of the fine (whether it’s so hefty as to seem penal), the mental state required for the fine (whether it applies only to people who intended to break the law), and the means of collecting the fine (whether there’s a separate regulatory structure in place, beyond the IRS, to figure out who must pay).

Since the ACA’s fine for failure to carry insurance is very low (and statutorily calibrated to the price of insurance so that no one will ever pay more for refusing insurance than for buying insurance), since the fine applies regardless of whether the individual knew she was uninsured, and since the fine is assessed and collected exclusively by the IRS, the Court held that it is a tax rather than a penalty under the long-standing constitutional test.

The second thing that was important to Roberts’s analysis is that the courts have a long history of interpreting statutes so as to save them from constitutional invalidation. Here, the Court had two choices with respect to the ACA’s fine: It could be a penalty or a tax. If the Court chose to interpret it as a penalty, the statute would be unconstitutional. If it chose to interpret as a tax, the statute would be fine. Since the Court frequently tries not to invalidate statutes, as Chief Justice Roberts noted, it was clearly better to hold that the fine was a tax.

The Medicaid Expansion

The other part of the Court’s opinion today addressed the constitutionality of the Medicaid expansion, which, as written in the statute, would have required all states to provide Medicaid coverage to everyone who makes less than 133 percent of the federal poverty line. If a state refused to expand coverage, the Secretary of Health and Human Services (HHS) had authority to withdraw all federal funding from the state’s Medicaid program, basically making it impossible for the state to continue participating in Medicaid without expanding coverage.

The Supreme Court held that the HHS Secretary’s power to punish non-expanding states by killing their preexisting Medicaid programs was unconstitutionally coercive. But why? Congress changes the Medicaid statute all the time, and the only enforcement tool HHS has ever had for ensuring states’ compliance with federal Medicaid requirements is the threat of withdrawing funding.

The key here is that the change the ACA made to Medicaid fundamentally altered the nature of the program. Before the ACA, Medicaid was always a program for medically needy individuals. It covered children, parents, and pregnant women, all of whom generally have higher medical costs than childless adults. The expansion of the program to childless adults would turn Medicaid into a program for all needy individuals, not just medically needy individuals. That, Chief Justice Roberts said, is a change in the kind of program the states are required to run, not just a change in the degree of coverage the states are required to provide.

The Court’s solution, however, was simply to prevent HHS from withdrawing pre-ACA Medicaid funding from states that refuse to expand. The Court simply made the expansion voluntary for the states. Any state that wants to change its program can, but HHS can’t require every state to expand.

Overall, today is a very good day for President Obama and for United States health care reform. It’s also a pretty good day for Congress. The Court saved the members from needing to start the next 100-year slog toward workable insurance coverage for all Americans.