Untangling the Obamacare Challenge

 

During the hearings on Amy Coney Barrett’s nomination to the Supreme Court, one constant theme was whether her vote would jeopardize the Affordable Care Act. From the time of its inception, the ACA was a grievous social and economic mistake. Thereafter, Chief Justice John Roberts’s decision in NFIB v. Sebelius (2012) was a constitutional train wreck. Notwithstanding this sorry history, the most recent challenge to the ACA—raised in Texas v. California—is whether neutralizing the individual mandate under Section § 5000A(c) of the GOP’s Tax Cuts and Jobs Act of 2017 (TCJA) undoes the whole statute. This new challenge to the ACA is a sure constitutional loser, no matter what view one takes of the original legislation.

To set the stage for the current dispute, it is necessary to recapitulate the two key constitutional challenges to the ACA in NFIB v. Sebelius. The first was that the ACA exceeded the scope of the Commerce Clause, which gives Congress the power to “regulate commerce among the several states.” The second was that the individual mandate counts as a “tax” that falls within Congress’s power “to lay and collect taxes.”

In the ACA, the individual mandate was artfully disguised as a “shared responsibility payment” whereby young people who failed to enroll were made to pay a levy. As the chief justice noted in his NFIB opinion, the mandate was regarded at the time as an “essential” feature of the ACA structure: the mandate was necessary to keep young adults in the pool, who in turn provided the subsidies needed to keep the rates charged to older Americans affordable. It was presumed at the time that healthy, young adults otherwise would opt out of coverage in droves because their premiums would be far in excess of their collective benefits. The penalty/tax was designed to create a Catch-22, for now in principle young people stood to lose exactly the same amount by opting out of the ACA as by staying in.

The most principled challenge to the ACA has nothing to do with the commerce power as such. It is rather that the mandate constitutes an unconstitutional taking of private property without just compensation by forcing people to enter a losing transaction, something that neither the federal government nor the states can legally do. In my view, these mandated cross-subsidies are far more dangerous than subsidies paid out of general revenues. Nonetheless, the impoverished state of American takings law blocks any such attack. Though second best, the Commerce Clause line of attack surprisingly succeeded in the courts.

As articulated by the chief justice, the theory held that the commerce power gives Congress the authority to regulate pre-existing activities but does not permit the imposition of affirmative duties on an individual to enter into commerce against his will, as the individual mandate forces people to do. If you cannot make someone eat broccoli under the Commerce Clause, the chief justice memorably remarked, you cannot force them into the ACA’s individual mandate. In other words, the individual mandate falls out of the scope of the Commerce Clause’s power to regulate.

But in the next breath, the chief justice saved the individual mandate by upholding it as a tax, even though the legislation uniformly styled it as a penalty. But a tax on what, exactly? One characteristic of taxes is their base: they are levied on income, wealth, or some particular sale, lease, or other transaction. The mandate is not a tax on any of these objects. Indeed, if it is permissible to tax people for refusing to enroll in the ACA, it is permissible to tax them for not eating broccoli. The very objection that the chief justice made to the mandate under the Commerce Clause should have doomed it under the tax power as well.

A Fresh Look at the Taxing Power

There are, moreover, good structural reasons to link the taxing power to the commerce power in order to prevent the federal government from circumventing the limits of the latter. Just that principle was invoked in the Child Labor Tax case that came before the Supreme Court in 1922. The court unanimously held that it was unconstitutional for Congress to impose a hefty tax on firms that used child labor, no matter what amount of goods those firms sold into interstate commerce. In an earlier case, the court held by a five-to-four vote in Hammer v. Dagenhart (1918)—which was subsequently overruled in United States v. Darby (1941)—that it was unconstitutional for the federal government to refuse to allow the shipment into interstate commerce of goods made by firms that used child labor in any of its activities, including those unrelated to the goods so shipped. In other words, if the state cannot regulate a given activity directly, it cannot drive it out of business with a heavy tax passed with that intention. Chief Justice Roberts’s verbal gymnastics notwithstanding, the individual mandate was a penalty.

Ironically, it turned out that the chief justice was wrong when he postulated that the mandate was a “solution” to the adverse selection problem of the ACA, whereby young people opting out denied the scheme its cross-subsidy. Political opposition prior to the passage of the ACA shrank the size of the penalty such that opting out remained the preferred option for many younger people, necessitating direct subsidies to prop up the ACA’s shaky finances.

But then, as part of the GOP’s TCJA, the tax for the individual mandate was reduced to zero, a move that eliminated the unpopular mandate without overturning the act as a whole. A frontal attack on the ACA in light of the TCJA was launched by two private citizens and eighteen states in Texas v. California. They took the position that the de facto elimination of the individual mandate undermined the entire statutory scheme of the ACA. The claimants then reasoned that the mandate was “essential to and inseverable from” the remainder of the ACA. Thus, once there was no tax, the entire ACA had to fall because it was not possible to save the rest of the ACA once the mandate was severed from it.

In response, the Fifth Circuit found the TCJA’s mandate modification unconstitutional because the tax was effectively eliminated. But it then remanded the case to the district court for “an additional analysis” as to whether the mandate was severable from the ACA and, therefore, whether the rest of the ACA could survive.

The Supreme Court has now taken up the case, and it should hold that the rest of the ACA should survive, even if the mandate does not. The 2017 tax legislation made it clear that the mandate, even if deemed “essential” in 2010, was no longer essential because the ACA does quite well without it. Severance now is most appropriate because the ACA created a major reliance interest for millions of individuals who were either forced out of their prior plans or chose voluntarily to leave those plans for better coverage. The initial implementation of the ACA in 2012 resulted in massive dislocation for millions of individuals, employers, and insurers. Striking down the ACA—which Congress declined to do in 2017—would create a second round of massive dislocations.

A Clearer Foundation

At this point, the proper analysis for severance comes from Roberts’s decision in Seila Law v. Consumer Financial Protection Bureau (2020). There he held that vesting all the powers of the CFPB in a single chief officer, removable only for good cause, offended separation of powers and other constitutional norms by concentrating too much power in the hands of a single public official. It did not, however, void the entire CFPB, but instead rendered the director removable at the will of the president. In the words of the majority of the court, Congress would prefer that the court “use a scalpel rather than a bulldozer in curing the constitutional defect we identify today.” The 2017 Congress expressed its explicit preference that the remainder of the ACA survive. No court should undo that judgment.

We should assume that the TCJA removed the individual mandate in its entirety. That excision means that the ACA no longer need be upheld on the chief justice’s undue expansion of the taxing power. Indeed, with the mandate removed, the case for upholding the ACA in its entirety is strengthened under the Commerce Clause. The slimmer ACA is not vulnerable to attack on the ground that it forces people to buy insurance (and thereby engage in interstate commerce) against their will. Absent the individual mandate, the ACA is just a sweeping piece of legislation that regulates the health care industry—and does so justifiably, given the movement of patients, physicians, drugs, and equipment through the channels of interstate commerce.

There is accordingly no need to remand Texas to figure out the consequences of the TCJA on the Affordable Care Act. Strip out the mandate, and the only serious objection to the ACA under the Commerce Clause is removed. In fact, under any conceivable account of severability, the challengers should, and likely will, lose 9-0 in the Supreme Court after Amy Coney Barrett’s nomination is confirmed by the Senate.

© 2020 by the Board of Trustees of Leland Stanford Junior University.

Published in Healthcare, Law
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  1. CarolJoy, Thread Hijacker Coolidge
    CarolJoy, Thread Hijacker
    @CarolJoy

    Here is the part of the puzzle tha I never notice the conservatively minded people mention:

    The government on both the state and Fed level pays for your health insurance if you are poor. It pays your health insurance regardless of your poverty or lack of poverty if you are an immigrant willing to announce that the status of their household is impoverished.

    So then you have people who work in low wage jobs, whose employers are steadfastly diligent  about keeping their employees weekly hour count just below the minimum above which they would have to pay for the insurance for their workers. This often includes grocery and drug store workers.

    People who work full time as white collar workers usually have their health insurance paid for. As do managers, store managers, store owners etc. So often they’ re indifferent as to whether ObamaCare stays or goes.

    The people who can least afford health care insurance are left out, and this is why many people, including Candace Owen, are not over the top nuts about ending a way of insuring all Americans.

    Also it is more and more obvious that we as patients do not have a say in our health care treatment options. I have been having severe pain for the last few days. It is most likely diverticulitis. This means getting some decent probiotics in my system will put the diverticulitis in remission within 7 to 10  days of treatment. But if I had a doctor visit scheduled earlier today, and had mentioned my pain to them, they would have wanted anywhere from 2K to 15K worth of cancer tests done. Depending on what my doctor was like, I might be forced into those tests. Even though it would be far wiser for the physician to say “Go home; take your probiotics, but please re-schedule a second visit if you are still in paid 10 days from now.”

    To their credit, insurance companies stopped paying for expensive tests for heart problems, until after the patient completed a regiment of anti acids. (Unless the pain and distress the patient complained of indicated a cardiac event was in progress.) This saved the Big Insurers lots of money. That way the uninsured also saved money, plus everyone saved the distress and time of the testing. But that type of thinking fell by the wayside once the Big Insurers and the Big Medical People all got aboard the Patient Monetization Express.

    The entire “health system” in this country needs an overhaul. No matter what happens to ObamaCare, we still will be the most over-billed, over-tested group of citizens in the world, and we will still have the worst patient outcomes to show for it.

     

    • #1
  2. James Gawron Thatcher
    James Gawron
    @JamesGawron

    Richard,

    I understood your arguments in 2012. John Roberts sabotaged us and ensured a second term for Obama and damaged the healthcare of millions of Americans. If Trump loses I think you need to understand that the Democrats will pack the court to save Obamacare. You don’t stop Hitler or Stalin with Constitutional argument nor with free-market rational analysis.

    At this point, there is no substitute for political victory. If you think otherwise you are a fool.

    Regards,

    Jim

    • #2
  3. Gumby Mark (R-Meth Lab of Demo… Thatcher
    Gumby Mark (R-Meth Lab of Demo…
    @GumbyMark

    James Gawron (View Comment):

    Richard,

    I understood your arguments in 2012. John Roberts sabotaged us and ensured a second term for Obama and damaged the healthcare of millions of Americans. If Trump loses I think you need to understand that the Democrats will pack the court to save Obamacare. You don’t stop Hitler or Stalin with Constitutional argument nor with free-market rational analysis.

    At this point, there is no substitute for political victory. If you think otherwise you are a fool.

    Regards,

    Jim

    His point is they don’t need to pack the Court.  The current case is a loser even with the current Court.  He’s right.  Therefore, you are also right that there is no substitute for political victory.  Though the GOP and Trump have been unable to formulate a coherent alternative approach.  So maybe we are all right and wrong.

    • #3
  4. Columbo Member
    Columbo
    @Columbo

    Obamacare was built on lies. And sustained by SCOTUS by a lie. Even the defense rejected calling it a “tax”. That was made out of wholecloth by the Chief Justice Souter Roberts.

    And who can forget Jonathan Gruber?

    And Obama himself …

     

    • #4
  5. James Gawron Thatcher
    James Gawron
    @JamesGawron

    Columbo (View Comment):

    Obamacare was built on lies. And sustained by SCOTUS by a lie. Even the defense rejected calling it a “tax”. That was made out of wholecloth by the Chief Justice Souter Roberts.

    And who can forget Jonathan Gruber?

    And Obama himself …

    Columbo,

    You didn’t mention the fantasy fact that Obamacare would lower your premium by $2,500 per year.

    Listen Columbo, nobody, and I mean nobody, can lie like a Democrat. They took the gold medal in the propaganda triathlon (deceit, deception, and misdirection) again this year. Face it, we will never be in their class when it comes to lying.

    Regards,

    Jim

    • #5
  6. Columbo Member
    Columbo
    @Columbo

    James Gawron (View Comment):

    Columbo (View Comment):

    Obamacare was built on lies. And sustained by SCOTUS by a lie. Even the defense rejected calling it a “tax”. That was made out of wholecloth by the Chief Justice Souter Roberts.

    And who can forget Jonathan Gruber?

    And Obama himself …

    Columbo,

    You didn’t mention the fantasy fact that Obamacare would lower your premium by $2,500 per year.

    Listen Columbo, nobody, and I mean nobody, can lie like a Democrat. They took the gold medal in the propaganda triathlon (deceit, deception, and misdirection) again this year. Face it, we will never be in their class when it comes to lying.

    Regards,

    Jim

    Preach it Brother Jim!

    • #6
  7. CarolJoy, Thread Hijacker Coolidge
    CarolJoy, Thread Hijacker
    @CarolJoy

    Columbo (View Comment):

    Obamacare was built on lies. And sustained by SCOTUS by a lie. Even the defense rejected calling it a “tax”. That was made out of wholecloth by the Chief Justice Souter Roberts.

    And who can forget Jonathan Gruber?

    And Obama himself …

    The problem I have is that no one who was a Republican at that time in history ever noticed that it was the Big Insurers who got this bill passed.

    The Democrat rank and file hated it. We felt the same way about it that Sen Inhofe did. But we were told it was the best that Obama could do and he had to make concessions to the industry. We rent our garments and gnashed our teeth, but Emanuel and Liz Fowler were off in the WH basement taking the industries’ phone calls and writing up the 2200 page document that handed  the nation’s HC over to Big Insurance combined with Big Corporatized Medicine.

    We were told that it would at least be a tiny step forward. Which was a bare faced lie. After all, if the industries’ monies could get this passed in 2009, once they came into the windfall of a mandate forcing every American to have their version of HC, they would have even more money to keep it.

    Never forget what happened to Big Insurers and Big Corporatized Medicine in terms of stock market prices after the bill was passed. It was a champagne and caviar kind of week.

    But there were two winners in this scenario outside of Big Insurers and Big Corporatized Medicine. Rahm Emanuel never had to worry about who would keep his mayor for Chicago campaign coffers flush. And Liz Fowler soon was sitting at a very plush spot inside United HC, probably not even having to  show up to do any work after her magnificent gift to UHC.

    • #7
  8. MISTER BITCOIN Member
    MISTER BITCOIN
    @MISTERBITCOIN

    CarolJoy, Thread Hijacker (View Comment):

    Here is the part of the puzzle tha I never notice the conservatively minded people mention:

    The government on both the state and Fed level pays for your health insurance if you are poor. It pays your health insurance regardless of your poverty or lack of poverty if you are an immigrant willing to announce that the status of their household is impoverished.

    So then you have people who work in low wage jobs, whose employers are steadfastly diligent about keeping their employees weekly hour count just below the minimum above which they would have to pay for the insurance for their workers. This often includes grocery and drug store workers.

    People who work full time as white collar workers usually have their health insurance paid for. As do managers, store managers, store owners etc. So often they’ re indifferent as to whether ObamaCare stays or goes.

    The people who can least afford health care insurance are left out, and this is why many people, including Candace Owen, are not over the top nuts about ending a way of insuring all Americans.

    Also it is more and more obvious that we as patients do not have a say in our health care treatment options. I have been having severe pain for the last few days. It is most likely diverticulitis. This means getting some decent probiotics in my system will put the diverticulitis in remission within 7 to 10 days of treatment. But if I had a doctor visit scheduled earlier today, and had mentioned my pain to them, they would have wanted anywhere from 2K to 15K worth of cancer tests done. Depending on what my doctor was like, I might be forced into those tests. Even though it would be far wiser for the physician to say “Go home; take your probiotics, but please re-schedule a second visit if you are still in paid 10 days from now.”

    To their credit, insurance companies stopped paying for expensive tests for heart problems, until after the patient completed a regiment of anti acids. (Unless the pain and distress the patient complained of indicated a cardiac event was in progress.) This saved the Big Insurers lots of money. That way the uninsured also saved money, plus everyone saved the distress and time of the testing. But that type of thinking fell by the wayside once the Big Insurers and the Big Medical People all got aboard the Patient Monetization Express.

    The entire “health system” in this country needs an overhaul. No matter what happens to ObamaCare, we still will be the most over-billed, over-tested group of citizens in the world, and we will still have the worst patient outcomes to show for it.

     

    Excluding Medicaid expansion, according to Senator Martha Blackburn, 8 million people use Obama care 

     

    • #8
  9. MISTER BITCOIN Member
    MISTER BITCOIN
    @MISTERBITCOIN

    CarolJoy, Thread Hijacker (View Comment):

    Columbo (View Comment):

    Obamacare was built on lies. And sustained by SCOTUS by a lie. Even the defense rejected calling it a “tax”. That was made out of wholecloth by the Chief Justice Souter Roberts.

    And who can forget Jonathan Gruber?

    And Obama himself …

    The problem I have is that no one who was a Republican at that time in history ever noticed that it was the Big Insurers who got this bill passed.

    The Democrat rank and file hated it. We felt the same way about it that Sen Inhofe did. But we were told it was the best that Obama could do and he had to make concessions to the industry. We rent our garments and gnashed our teeth, but Emanuel and Liz Fowler were off in the WH basement taking the industries’ phone calls and writing up the 2200 page document that handed the nation’s HC over to Big Insurance combined with Big Corporatized Medicine.

    We were told that it would at least be a tiny step forward. Which was a bare faced lie. After all, if the industries’ monies could get this passed in 2009, once they came into the windfall of a mandate forcing every American to have their version of HC, they would have even more money to keep it.

    Never forget what happened to Big Insurers and Big Corporatized Medicine in terms of stock market prices after the bill was passed. It was a champagne and caviar kind of week.

    But there were two winners in this scenario outside of Big Insurers and Big Corporatized Medicine. Rahm Emanuel never had to worry about who would keep his mayor for Chicago campaign coffers flush. And Liz Fowler soon was sitting at a very plush spot inside United HC, probably not even having to show up to do any work after her magnificent gift to UHC.

    The health insurance lobby wrote the bill

     

    • #9
  10. MISTER BITCOIN Member
    MISTER BITCOIN
    @MISTERBITCOIN

    It’s a terrible law but we have been stuck with it since 2014 and it is Congress’s job to repeal and replace it, something they failed to do in 2017 when GOP had a majority in both houses

    Zero thanks to McCain, Collins and Murkowski

     

    • #10
  11. James Gawron Thatcher
    James Gawron
    @JamesGawron

    MISTER BITCOIN (View Comment):

    It’s a terrible law but we have been stuck with it since 2014 and it is Congress’s job to repeal and replace it, something they failed to do in 2017 when GOP had a majority in both houses

    Zero thanks to McCain, Collins and Murkowski

     

    Mister Bitcoin,

    Thanks, Paul Ryan. Screws up and retires. Not a stand-up guy but a sit-down guy.

    Regards,

    Jim

    • #11
  12. CarolJoy, Thread Hijacker Coolidge
    CarolJoy, Thread Hijacker
    @CarolJoy

    MISTER BITCOIN (View Comment):

    It’s a terrible law but we have been stuck with it since 2014 and it is Congress’s job to repeal and replace it, something they failed to do in 2017 when GOP had a majority in both houses

    Zero thanks to McCain, Collins and Murkowski

     

    It has been a delight to see amidst the Biden scandal,  the connections being made between seriously significant  fraudulent activity that broke campaign laws involving campaign donations to McCain in 2008. (Of course, he may have been unaware of these violations, as someone else might have been embezzling.)

    • #12
  13. MISTER BITCOIN Member
    MISTER BITCOIN
    @MISTERBITCOIN

    CarolJoy, Thread Hijacker (View Comment):

    MISTER BITCOIN (View Comment):

    It’s a terrible law but we have been stuck with it since 2014 and it is Congress’s job to repeal and replace it, something they failed to do in 2017 when GOP had a majority in both houses

    Zero thanks to McCain, Collins and Murkowski

     

    It has been a delight to see amidst the Biden scandal, the connections being made between seriously significant fraudulent activity that broke campaign laws involving campaign donations to McCain in 2008. (Of course, he may have been unaware of these violations, as someone else might have been embezzling.)

    Keating 5

     

    • #13