NFIB v. Sebelius , U.S., No. 11-393,
Key Holding: U.S. Supreme Court holds constitutional Patient
Protection and Affordable Care Act's individual mandate, saying Congress was
authorized under the U.S. Constitution's taxing and spending clause.
Key Impact: Federal government and states may continue to implement
measures pursuant to PPACA.
By Mary Anne Pazanowski
In a 5-4 decision, the U.S. Supreme Court June 28 declared constitutional a
key provision of the federal health reform law, known as the individual mandate
or minimum coverage provision, which requires virtually all U.S. citizens to
obtain health care insurance or pay a penalty (NFIB v. Sebelius , U.S., No. 11-393,
Chief Justice John G. Roberts Jr. cast the deciding vote to uphold the
validity of the Patient Protection and Affordable Care Act's controversial
provision, set to go into effect in 2014. The ruling, though, rested on somewhat
unexpected grounds: Congress's power under the U.S. Constitution's taxing and
While the “most straightforward reading” of the mandate is that it commands
individuals to buy insurance, it also can be read merely as establishing a
condition--lack of health insurance--that triggers a tax, Roberts said.
“Under that theory,” he wrote, “the mandate is not a legal command to buy
insurance. Rather it makes going without insurance just another thing the
Government taxes, like buying gasoline or earning income. And if the mandate is
in effect just a tax hike on certain taxpayers who do not have health insurance,
it may be within Congress's constitutional power to tax.”
Justice Ruth Bader Ginsburg, along with Justices Stephen G. Breyer, Sonia M.
Sotomayor, and Elena Kagan, joined Roberts in upholding the mandate on tax
grounds, but they would have gone further and also found the provision valid
under the commerce clause. Opponents had argued that Congress could not use the
commerce clause to force individuals to engage in commercial activity by
requiring them to purchase a commodity or service.
Justices Anthony M. Kennedy, Antonin Scalia, Clarence Thomas, and Samuel A.
Alito Jr. dissented. Writing for the four, Kennedy said Congress exceeded
federal power in enacting PPACA when it mandated the purchase of health
insurance and threatened states with the loss of Medicaid funds if they refused
to expand Medicaid in compliance with the health reform law. The “entire statute
is inoperative,” Kennedy wrote for the dissenters.
In the other major holding, the majority of justices left open a few
questions about PPACA's Medicaid expansion provision. Roberts, Breyer, and Kagan
would have held that the provision violates the Constitution by threatening
states with the loss of existing funding if they decline to comply with the
expansion. Ginsburg and Sotomayor would have upheld the provision in its
Taken together, the two opinions appear to hold that the Medicaid provision
is constitutional, but only if the threat to the states for noncompliance is
limited to loss of new funds provided under PPACA. The administration cannot
take away from the states all existing Medicaid funds, the majority of justices
The court also held that the tax anti-injunction act (AIA), 26 U.S.C. §
7421(a), did not bar its consideration of the case on the merits. This statute
strips courts of jurisdiction to hear pre-enforcement challenges to monetary
extractions. Roberts wrote that there was no reason to believe Congress, which
characterized the payment due for noncompliance with the mandate as a “penalty,”
intended it to be treated as a tax for purposes of the AIA.
Since the majority upheld the individual mandate, it did not reach the
question of whether portions of PPACA could be severed and ruled on
independently from the rest. The dissenters would have invalidated the entire
Initial reactions to the decision were mixed. Caroline Fredrickson, president
of the American Constitution Society (ACS) in Washington, said in a phone
briefing that the tax-based outcome was “far from expected.” But Stuart Gerson,
a former acting U.S. attorney general now with Epstein Becker & Green in
Washington, told BNA he was not overly surprised.
“Congress has always had broad power under the tax clause,” Gerson said.
Attorneys familiar with the case had said all along that the tax argument could
lead to the court's upholding the statute, he said.
Gerson also said the opinion shows that the justices “don't go for politics.”
Timothy Jost, a health care policy expert and Washington & Lee University
Law School professor in Lexington, Va., agreed, saying the court had, “to its
great credit, demonstrated that it remains committed to the rule of law.”
Jeffrey Rosen, a professor at the George Washington University Law School and
a well-known legal commentator, added that the decision was a “dramatic
vindication of [Chief Justice Roberts's] vision of bipartisanship.”
Speaking during the ACS teleconference, Rosen said Roberts made clear from
the start of his tenure that he believes it is bad for the court and the country
to have politically polarized, 5-4 decisions. It “took a lot of courage” for
Roberts to break with the conservative majority in this case to avoid a
polarized result, Rosen said.
“The hardest vote must have been his,” Rosen added.
Not everyone was pleased with the result. Ilya Shapiro, a senior fellow in
constitutional studies at the Cato Institute in Washington, called the opinion
“a baby-splitting decision.” While it was gratifying that the court rejected the
commerce clause as a justification for the individual mandate, its reliance on
the tax clause in “no way rehabilitates the government's constitutional excess,”
Shapiro said in an email to BNA.
“If Congress can slip the Constitution's structural limits by simply 'taxing'
anything it doesn't like,” Shapiro wrote, “its power is no more limited that it
would be had it done so under the Commerce Clause.”
The case stemmed from three separate petitions for review of a decision by
the U.S. Court of Appeals for the Eleventh Circuit. In a split opinion, the
appeals court held the mandate unconstitutional (157 HCDR, 8/15/11). The
commerce clause did not give Congress authority to require individuals to
purchase products they did not want, the appeals court said.
The Eleventh Circuit also determined that the individual mandate could not
survive as an exercise of Congress's taxing power. Congress repeatedly referred
to the mandate as imposing a “penalty,” not a “tax,” for noncompliance. Courts
uniformly had held that the penalty could not be considered a tax for
constitutional purposes, the Eleventh Circuit observed.
The court also found PPACA's Medicaid expansion provision constitutional. It
said Congress has authority under the spending clause to place conditions on
outlays of federal funds and that the condition in question was not unduly
Finally, the court held that the individual mandate, though unconstitutional,
could be separated from the remainder of PPACA, thus saving the rest of the
The parties challenging the law--26 states, led by Florida--and the National
Federation of Independent Business (NFIB)--an advocacy group for small
businesses--filed separate petitions arguing against the Eleventh Circuit's
severability ruling (189 HCDR, 9/29/11). The states also asked the court to
review the Medicaid expansion question (207 HCDR, 10/26/11).
The Obama administration filed its own petition (No. 11-398), requesting the
court to review the constitutional issue and determine whether Congress had
authority to enact the individual mandate (189 HCDR, 9/29/11).
The high court granted all three petitions (220 HCDR, 11/15/11). It heard
oral arguments over three days in late March (58 HCDR, 3/27/12; 59 HCDR,
3/28/12; 60 HCDR, 3/29/12).
The court heard the AIA issue the first day, the constitutional issue the
second, and the severability and Medicaid issues on the final day.
Throughout the history of the case, the briefs had focused on the extent of
Congress's power under the commerce clause and whether it could, pursuant to
that power, force individuals to acquire health insurance. Roberts concluded
that the individual mandate could not be sustained on that ground. That was not
the end of the story for the chief justice, however.
Although labeled a “penalty,” the exaction imposed by the individual mandate
“looks like a tax in many respects,” Roberts said. From this “functional”
perspective, it is a tax, he found. The amount is not prohibitory, it is
collected solely by the Internal Revenue Service through normal means of
taxation, and it is not a punitive or criminal sanction. The exaction also will
raise revenue, though Roberts concedes that is not its main purpose.
Roberts said that high court “precedent demonstrates that Congress had the
power to impose an exaction in the [individual mandate] under the taxing power,
and that [the mandate] need not be read to do more than impose a tax. That is
sufficient to sustain it.”
The penalty otherwise complied with constitutional requirements for taxes,
Roberts said. It did not fall within any recognized categories of direct taxes
and was not a capitation tax, he said, because it was to be paid only by
individuals who lacked health insurance.
Roberts concluded that the financial penalty imposed by the individual
mandate on citizens who failed to obtain health insurance “may reasonably be
characterized as a tax. Because the Constitution permits such a tax, it is not
our role to forbid it, or to pass upon its wisdom or fairness.”
Ginsburg, in her opinion, concurred in Roberts's determination that the
individual mandate is a proper exercise of Congress's taxing and spending clause
powers. Breyer, Sotomayor, and Kagan concurred.
A majority of the court, however, rejected the government's argument that the
individual mandate also could be upheld under the commerce clause.
Writing for himself on this point, Roberts acknowledged that the “path of
[the court's] Commerce Clause decisions has not always run smooth.” But, he
said, Congress has never before tried to rely on its commerce clause power “to
compel individuals not engaged in commerce to purchase an unwanted product.”
While “[l]egislative novelty is not necessarily fatal,” Roberts wrote,
“sometimes 'the most telling indication of [a] severe constitutional problem …
is the lack of historical precedent.'”
A law forcing individuals to
participate in an activity cannot be sustained under the commerce clause.
--Chief Justice John Roberts
The commerce clause grants Congress the authority to regulate commerce among
the states, he said. The power to regulate “presupposes the existence of
commercial activity to be regulated.” Precedent also bears this out, Roberts
said, as the court's past decisions “uniformly describe the power as reaching
“The individual mandate, however, does not regulate existing commercial
activity,” Roberts said. It instead requires individuals to become active--and
thus opens “a new and potentially vast domain to congressional authority.”
Roberts added that Wickard v. Filburn, 317 U.S. 111 (1942), in which
the court upheld restrictions on farmers growing wheat for personal consumption,
represents the outer limit of Congress's commerce clause authority.
A law forcing individuals to participate in an activity cannot be sustained
under the commerce clause, Roberts concluded.
Ginsburg disagreed with Roberts on this point and accused the chief justice
of relying “on a newly minted constitutional doctrine” in holding that the
commerce clause does not allow Congress to “compe[l] individuals to become
active in commerce by purchasing a product.” There is no precedent for such a
ruling, Ginsburg said, nor is it supported by the text of the Constitution.
Ginsburg, along with Breyer, Sotomayor, and Kagan, would have held that
Congress acted within the confines of its constitutional power in enacting the
individual mandate. “Whatever one thinks of the policy decision Congress made”
to address the problems raised by uncompensated care and lack of insurance
coverage, “it was Congress's prerogative to make it,” she said.
The court owes “strong deference” to Congress's economic and social
legislation. So long as Congress had a rational basis for concluding that the
uninsured as a class substantially affected interstate commerce, the legislation
should be upheld, Ginsburg wrote. The justice found that Congress had a rational
basis for the individual mandate.
In responding to Ginsburg, Kennedy's dissent harkened back to Roberts's
argument. It is true, he said, that Congress needs only a rational basis for
concluding that a regulated activity substantially affects interstate commerce.
“But it must be activity affecting commerce that is regulated, and not
merely the failure to engage in commerce,” he said.
There are “structural limits” on Congress's power to regulate private
conduct, Kennedy said. Whatever those limits are, “they cannot be such as will
enable the Federal Government to regulate all private conduct and to compel the
States to function as administrators of federal programs,” he wrote.
Addressing Wickard, Kennedy said the decision always has been regarded
as on the outskirts of the commerce clause. It is one thing to tell a farmer he
can only grow a certain amount of wheat, he said. It would be another thing
entirely to penalize a farmer for failing to grow wheat. The latter is not an
economic activity, even though it necessarily would affect interstate commerce,
Kennedy said. It is the activity that may be regulated, not the failure to
engage in commerce, he emphasized.
Kennedy wrote that the dissenters would have stopped here and not gone on to
analyze the tax clause argument. He nevertheless went on to refute the
majority's decision, saying that the exaction required by the individual mandate
clearly was not a tax. It was not labeled as such and, moreover, was a penalty
for failing to buy insurance.
“We have never classified as a tax an exaction imposed for violation of the
law, and so too, we never have classified as a tax an exaction described in the
legislation itself as a penalty,” Kennedy wrote.
The most unclear aspect of the court's decision involved the
constitutionality of PPACA's Medicaid expansion provision.
Roberts, joined by Breyer and Kagan on this point, wrote that there was “no
doubt” the provision “dramatically increases state obligations under
The three justices concluded that the Medicaid expansion provision “violates
the Constitution by threatening existing Medicaid funding.” According to the
Roberts's opinion, “Congress has no authority to order the States to regulate
according to its instructions.” While Congress can condition receipt of federal
funds, the states must be given “a genuine choice on whether to accept the
offer,” he said. The current provision gives states no such choice.
Roberts, however, proposed a remedy, saying that the provision would be
constitutional if the federal government is precluded from denying noncomplying
states all Medicaid funding. In other words, states that choose to comply with
the expansion provision would receive regular Medicaid funding as well as
additional funding available under PPACA, but those that do not comply simply
would not get the additional funds.
Ginsburg, joined by Sotomayor, said Congress has the power to set the
conditions for states' receipt of Medicaid funds. Moreover, Medicaid, as amended
by PPACA, “is not two spending programs,” but one, with a single aim--to enable
low-income individuals to afford health care. There is nothing that prevents the
federal government from imposing additional conditions on the states, she
Given the remainder of the court's agreement with Roberts that the
prospective withholding from the states of formerly available funds exceeds
Congress's spending power, however, Ginsburg said she “entirely agree[d]” with
Roberts as to the appropriate remedy.
The dissenters' view that the expansion should be scrapped, along with the
rest of the statute, was “a radical departure from the Court's normal course,”
Ginsburg said. It would be better to salvage the law as much as possible.
Because Roberts found the “withholding” of federal funds, not the grant of
additional funds under PPACA, incompatible with the spending clause, “Congress'
extension of Medicaid remains available to any State that affirms its
willingness to participate,” Ginsburg said.
What that means, according to experts consulted by BNA, is that the Medicaid
provision remains viable, but is limited. Jost said, based on his reading of the
Ginsburg and Roberts opinions, that “states need not participate in the
expansion, but if they do, they will get the full federal funding.” States
cannot lose existing funding by refusing to participate, but “can lose funding
if they agree to participate and then don't do it properly,” he said.
Gerson said Medicaid remains a “problematic area.” He said he does not
believe the administration would “come down hard” on any state that declined to
participate in the expansion and, in any case, the provision is saved if read to
mean that states can refuse to participate in the expansion without risking
funds they currently receive.
Full text of the court's opinion is at http://op.bna.com/hl.nsf/r?Open=mapi-8vpkj5.