12 HASTINGS CENTER REPORT September-October 2012

The new millennium is still very young, so it is too early to declare National Federation of Inde-pendent Business v. Sebelius1 the health law “case

of the century,” but that title would not be hyperbolic. Never before have we seen a case of such monumental importance for how health care is financed and delivered in the United States. other sources thoroughly docu-ment the legal, intellectual, and political background and its several companion cases in the lower courts,2 and so I’ll assume that the reader has basic familiarity with what came before, in the Northern District of Florida and the Eleventh Circuit.

At the Supreme Court, no decision has been more closely watched and more anxiously awaited since Bush v. Gore in 2000. In the balance was the fate of President obama’s signature piece of domestic legislation, one that affects nearly every aspect of the largest segment of our economy, and so is perhaps the most important piece of social legislation since the New Deal. To no one’s sur-prise, the decision was announced at the very end of the Court’s term and was split five to four.

What was very surprising, however, was the Court’s embrace of the tax power defense of the individual man-date. And what was outright shocking was a seven-to-two majority in favor of finding the Medicaid expansion unconstitutional unless states are allowed to opt out of the expansion. It was widely believed that both the tax defense and the Medicaid attack would fail, as they had repeatedly in the lower courts. The Supreme Court, as the highest in the land, is entitled to create new doctrine and reinterpret prior precedent. But in a case of such high profile, it was startling that the Court did so in a way that caught almost every observer flat-footed.

The case holds great significance not only for the fate of the Patient Protection and Affordable Care Act—and, thus, for the nation’s health care public policy—but also for constitutional doctrine that applies much more broadly than in the health care arena. In sum, the ACA survives, but just barely. Despite upholding the ACA in most respects, the Court significantly weakened the individual mandate, and it gave states an escape route that might substantially erode the law’s gains in insur-ance coverage. The individual mandate is downgraded to what amounts to a “play or pay” option for individuals that allows them to remain uninsured legally if they are willing to pay the tax. The Medicaid expansion remains available for states that wish to take advantage, but states that do not are free to opt out of it as well.

More than this, the case articulates and applies two new constraints on federal power that have never before been imposed. The commerce clause cannot be used to compel people to enter into commerce. And the spend-ing power cannot be used to force states to take on a new federal program in order to preserve federal funds for an existing program the size that Medicaid currently is.

The Commerce Power

There are two key elements of the Court’s commerce power analysis. First, the Court draws a sharp dis-

tinction between regulating people who are engaged in commerce versus forcing people into commerce in order to regulate them. The Court stressed that Congress had

Essays

The Affordable Care Act Survives, for Now

By MARK A. HAll

Mark A. Hall, “The Affordable Care Act Survives, for Now,” Hastings Cen-ter Report 42, no. 5 (2012): 12-14. DoI: 10.1002/hast.67

The Affordable Care Act lives to fight another day. In lieu of our regular At Law column, the essays below offer contrasting perspectives on the

Supreme Court’s decision and the way forward with health reform.

September-October 2012 HASTINGS CENTER REPORT 13

never done the latter, and that all of its important commerce clause precedents had always involved the former.

Yet rejecting direct application of the commerce clause does not settle the matter because the government relied on the Constitution’s “necessary and proper” clause, defending the individual mandate as a key component of the ACA’s valid regulation of insurers. Without the mandate, the law’s guaranteed issue and community rating provisions would cause adverse selection. Despite this admitted necessity, the Court concluded that “such an expansion of federal power is not a ‘proper’ means for making those [insurance] reforms ef-fective” because then “Congress could reach beyond the natu-ral limit of its authority and draw within its regulatory scope those who otherwise would be outside of it.”

Invoking the mandate’s “impropriety” in this fashion has the potential to open a powerful new path toward restricting federal powers—reminiscent of principles the Court rejected during the New Deal era. For instance, might this precedent foreclose federal mandates needed to respond effectively to public health emergencies or natural disasters? only time, and fur-ther litigation, will tell.

The Spending Power

Under well-established constitutional principles,

Congress may not “comman-deer” states by ordering them to carry out federal programs, but it is free to entice states into federal programs by offering money with strings attached. Known as “conditional spend-ing,” our laws are rife with examples, in arenas such as high-way construction, environmental protection, unemployment insurance, and education.

A previous Supreme Court decision warned that a federal-ly imposed financial condition might become “so coercive as to pass the point at which ‘pressure turns into compulsion.’”3 But lower courts had never taken up the invitation to apply a compulsion test in other cases, and several courts, backed by scholarly commentary, were skeptical that such a test could ever be administrable. How is one to know, after all, when federal funds transmute from temptation to coercion?

The Court brushed aside any qualms about line-drawing since it “is enough for today that wherever that line may be, this statute is surely beyond it.” one key to this holding is the sheer magnitude of Medicaid funding, but size alone did not make the difference. As Justice Kagan suggested in oral argument, it doesn’t seem coercive simply to offer states “a boatload of money” with conditions attached about how it

is spent. But, rather than Congress just defining the terms for receipt and use of Medicaid funds, it was crucial that the Court chose to view the ACA’s expansion of Medicaid as a new program, attached to but separate from existing Medic-aid. This allowed the Court to reason that Congress may not threaten to withhold funding for an existing program unless states join another program, when the existing program is the size of Medicaid.

Under this reasoning, it mattered not at all that the ACA’s Medicaid expansion is funded almost entirely by the fed-eral government. As Justice Roberts wrote, “‘Your money or your life’ is a coercive proposition, whether you have a single dollar in your pocket or $500.” However, rather than

disarm Congress by striking the Medicaid expansion as a whole—or the ACA in its entirety—a majority of five held that the remedy is to bar the federal government from ending Medicaid funding for noncomplying states. As a re-sult, the Medicaid expansion remains on the books, and generous federal matching funds are available for states that would like to take ad-vantage. But states that want to refuse the expansion may do so and keep their existing funding intact.

Still, the exact scope of the Court’s ruling is uncertain. The ACA contains a variety of Medicaid amendments beyond simply increasing

eligibility to 133 percent of the poverty line. Do all of these changes fall together, or only the largest? or, does it depend on which changes belong to “old Medicaid” and which be-long only to Medicaid’s expansion? Key rulings on these is-sues can be expected from the Department of Health and Human Services.

The Tax Power

Throughout the litigation, government had maintained the fallback defense that, if the mandate cannot be sus-

tained as regulation of commerce, it instead can be viewed as a valid exercise of Congress’s broad tax power. Taking the po-litical risk of embracing the tax characterization proved to be a prescient legal strategy, since this turned out to be the only basis on which Justice Roberts was able to find agreement with the Court’s more liberal justices.

I will not delve into the complex technical aspects of this argument but instead will simply note that, in the lower courts, only one of the dozen or so judges to consider the tax argument ended up agreeing with it, in large part because

The case applies two new constraints on federal power: the commerce clause cannot be used to compel commerce,

and the spending power cannot be used to force states to take on a new program.

14 HASTINGS CENTER REPORT September-October 2012

Congress had gone out of its way to avoid characterizing the mandate’s penalty as a tax provision. Therefore, the Court’s embrace of the tax argument was a surprise to most observers.

That does not mean, however, that the tax defense was an unsightly stretch of prior precedents, especially consider-ing that courts are supposed to give Congress the benefit of the doubt in upholding a law on any conceivable basis. Even though Congress had not characterized the mandate penalty as a tax, the penalty’s collection is entirely through the tax system, and it is calculated as a percent of income, as part of one’s income tax return.

As a consequence of rejecting the commerce power and ac-cepting only the tax power, Justice Roberts was able to say that people may “lawfully forgo health insurance and pay higher taxes”—opening the door to possibly widespread noncompli-ance. Moreover, political observers believe that, because the mandate is merely a tax, it might be possible for Congress to repeal the mandate as part of a budget reconciliation leg-islative process that is not subject to filibuster in the Senate. Therefore, without a president willing to veto such a repeal, a swing of only a few seats in the Senate in the November election might end up dooming the mandate after all. once again, only time will tell.

1. 576 U.S. ___ (2012). 2. The most comprehensive compilation of resources can be found at

http://acalitigationblog.blogspot.com/. See also S.R. Latham, “Whither the Affordable Care Act?” Hastings Center Report 42, no. 3 (2012): 14-15; and M.A. Hall, “Constitutional Challenges to Compulsory Insur-ance: A Guide Through the Gauntlet,” Hastings Center Report 41, no. 2 (2011): 14-15.

3. South Dakota v. Dole, 483 U.S. 203 (1987).

In her classic 1993 article, “The Struggle for the Soul of Health Insurance,” Deborah Stone contrasted the prin-ciple of mutual aid—“the essence of community” in the

face of sickness—and the principle of actuarial fairness, un-der which “each person should pay for his own risk.” Stone claimed that “in most societies sickness is widely accepted as a condition that should trigger mutual aid,” while in the Unit-ed States, a competitive insurance industry fosters in people “a sense of their difference, rather than their commonalities, and their responsibility for themselves only, rather than their interdependence,” leading to the fragmentation of “commu-nities into ever-smaller, more homogeneous groups” and “the destruction of mutual aid.”1

Except within families, and perhaps in small communities like the Amish, Hutterites, or religious orders, mutual aid as a means of sharing the cost of sickness rarely happens out of simple altruism. However, the health care financing systems of virtually all developed nations are, as Stone claims, based on the principle of “solidarity,” or mutual aid. But although this mutual aid is fundamentally based on a societal com-mitment to community in the face of sickness, in the end it is implemented through the coercive authority of the state. Either members of society are required by law to purchase in-surance, as in the Netherlands and Switzerland, or to partici-pate in a “sickness fund,” as in Germany or Israel, or they are required to pay taxes that finance a public insurance system, as in the United Kingdom or Canada. Anyone who, without

A Mutual Aid Society?

By TIMOTHy STOlTzFuS JOST

Timothy Stoltzfus Jost, “A Mutual Aid Society?” Hastings Center Report 42, no. 5 (2012): 14-16. DoI: 10.1002/hast.68