Insurance Law

McGuireWoods on the Supreme Court's Federal Health Care Reform Law Decision


By Stephanie A. Kennan, Brian Looser, Vincent A. Dongarra and R. Brent Rawlings


On June 28, 2012, the Supreme Court of the United States issued its opinion in the case of National Federation of Independent Business et al. v. Sebelius, Secretary of Health and Human Services, et al. [enhanced version available to subscribers], ruling on the constitutional challenges to the federal health reform law, the Patient Protection and Affordable Care Act, Pub. L. No. 111-148 (the ACA).  The Court upheld the controversial "individual mandate" as constitutional under Congress's tax power and permitted the ACA's Medicaid expansion to continue, but only on a voluntary basis by the states.

The Anti-Injunction Act Does Not Bar a Decision

Question before the Court:  Does the Supreme Court have the authority to consider the constitutionality of the individual mandate given the penalties for non-compliance do not take effect and would not have been paid until 2015?   The Anti-Injunction Act (AIA) provides that the taxpayer must pay the tax before being able to challenge it. So is the penalty a tax?   

Decision:  The Court held that the AIA did not bar a decision because-for purposes of the AIA only-the penalty for failing to obtain health insurance under the individual mandate is not a tax.  Chief Justice Roberts, writing the only portion of the opinion in which all the justices joined, disagreed stating that the AIA and ACA "are creatures of Congress's own creation. How they relate to each other is up to Congress, and the best evidence of Congress's intent is the statutory text." Opinion of Roberts, C.J. at 13. In other words, when analyzing the individual mandate under the rules of the congressionally-created AIA, it is more important that Congress referred to it as a "penalty" instead of a "tax," even though it effectively functions as a tax.   

Policy Perspective of Decision: The Court's ruling on this question does not cause a change in policy or implementation. 

The Individual Mandate is Constitutional as a Tax

Question before the Court:   Can the federal government require Americans to obtain health insurance by January 1, 2014 or pay a penalty?  The Court reviewed Congress's power to institute the individual mandate under the Commerce Clause, Necessary and Proper Clause, and the Taxing and Spending Clause. 

Decision:  The Court upheld the individual mandate, not under the Commerce Clause or the Necessary and Proper Clause, but as a valid exercise of Congress's enumerated power to collect taxes under the Taxing and Spending Clause.   

The Court held that the individual mandate could not be sustained as a valid exercise of Congress's authority under the Commerce Clause because a necessary precursor of that authority is some existing activity that affects interstate commerce.  The Court reasoned that the individual mandate does not regulate an existing activity; rather, it compels individuals to become involved in an activity and that "[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."  Opinion of Roberts, C.J. at 13.   

The Court also dismissed arguments that the individual mandate could be sustained as a valid exercise of the Necessary and Proper Clause.  The Court reasoned that, while the individual mandate may be "necessary" to the guaranteed-issue and community-rating provisions, it is not "proper" because the necessity is based upon the guaranteed-issue and community rating provisions themselves.


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