June 29, 2012
On June 28, 2012, the Supreme Court issued its decision on the constitutional challenges to two components of the Patient Protection and Affordable Care Act of 2010 ("ACA"). The plaintiffs in National Federation of Independent Business v. Sebelius sought to invalidate both (1) the individual mandate, which requires most persons to purchase health insurance beginning in 2014 or pay a penalty for failure to do so; and (2) the expansion of the Medicaid program, which, among other things, requires States to expand Medicaid coverage and threatens the loss of all federal Medicaid funding for States that do not comply. In a 5-4 decision written by Chief Justice Roberts, the Supreme Court held that although the individual mandate is not a proper exercise of Congress’s power under the Commerce Clause, it is nonetheless valid under the Taxing Clause. With respect to the Medicaid expansion, the Court held that Congress violated the Spending Clause and therefore prohibited the Government from withholding existing funds from States that choose not to participate in the Medicaid expansion.
The Individual Mandate
The Taxing Clause. The Supreme Court’s opinion upholding the individual mandate as a valid exercise of Congress’s power under the Taxing Clause was written by Chief Justice Roberts and joined by Justices Ginsburg, Breyer, Sotomayor, and Kagan. The Court reasoned that the penalty can reasonably be construed as a tax because the Act does not make failure to purchase health insurance unlawful, but rather requires Americans to either purchase health insurance or pay a monetary exaction to the IRS for failing to do so. Although Congress labeled the exaction a "penalty," labels are not controlling for purposes of constitutional analysis. Writing only for himself, Chief Justice Roberts said the Court had an obligation to construe the individual mandate as a tax in order to uphold the provision as constitutional.
Justices Scalia, Kennedy, Thomas and Alito jointly wrote a scathing dissent on the Taxing Clause issue, arguing that the penalty imposed for failure to comply with the individual mandate cannot reasonably be construed as a tax. They reasoned that since Congress expressly framed the mandate as including a penalty, and not a tax, the provision could not be sustained as a valid exercise of Congress’s power under the Taxing Clause.
The Commerce Clause and the Necessary and Proper Clause. Chief Justice Roberts joined Justices Scalia, Kennedy, Thomas and Alito on the Commerce Clause issue, holding that the individual mandate is not a valid exercise of Congress’s power under the Commerce Clause or the Necessary and Proper Clause. The Commerce Clause grants Congress the authority to regulate commerce, not to compel commerce into existence, meaning that Congress can regulate activity but not inactivity. According to the majority, the individual mandate regulates inactivity by imposing a penalty for failing to purchase health insurance. Further, the individual mandate cannot be considered "proper" under the Necessary and Proper Clause because it unduly expands the scope of Congress’s power.
On this issue, Justice Ginsburg wrote a dissenting opinion, which Justices Breyer, Sotomayor, and Kagan joined. They would have held that the individual mandate is valid under the Commerce Clause and the Necessary and Proper Clause because it is rationally related to regulating the interstate healthcare market. They argued that the majority’s distinction between regulating activity and inactivity is both unprecedented and unwise.
The Anti-Injunction Act. The Court was unanimous in rejecting the claim that the federal courts lacked jurisdiction to consider the constitutional challenge to the individual mandate because of the Anti-Injunction Act, which prohibits pre-enforcement challenges to tax provisions. Chief Justice Roberts, together with Justices Ginsburg, Breyer, Sotomayor, and Kagan, held that, although the Act imposes a "tax" for constitutional purposes, Congress’s decision to label the exaction a "penalty" is controlling for Anti-Injunction Act purposes because Congress has the power to circumvent that law. In their joint opinion, Justices Scalia, Kennedy, Thomas, and Alito also took the view that the individual mandate does not impose a tax for purposes of the Anti-Injunction Act, and that the Court therefore had jurisdiction.
The Medicaid Expansion
Spending Clause. By a 7-2 vote, the Court held that the ACA’s Medicaid expansion violates the Spending Clause because it is unconstitutionally coercive. In the controlling plurality opinion joined by Justices Breyer and Kagan, the Chief Justice wrote that Congress had failed to afford the States a realistic choice whether to participate in the ACA’s Medicaid expansion by threatening the loss of all federal Medicaid funding, including existing funding. As Chief Justice Roberts explained: "In this case, the financial ‘inducement’ Congress has chosen is much more than ‘relatively mild encouragement’–it is a gun to the head." Slip op. 51. For similar reasons, Justices Scalia, Kennedy, Thomas, and Alito wrote that the Medicaid expansion is unconstitutional.
In a dissenting opinion joined by Justice Sotomayor, Justice Ginsburg explained that she would have held that the Medicaid expansion is valid under the Spending Clause. She took the view that Congress has the power to expand the Medicaid program and has done so repeatedly in the past, and found the ACA’s expansion to be consistent with Congress’s authority under the Spending Clause to place conditions on federal funding provided to the States.
Remedy. The Court split 5-4 on the remedy to be imposed for the Spending Clause violation. The majority, consisting of Chief Justice Roberts and Justices Ginsburg, Breyer, Sotomayor, and Kagan, ruled that the appropriate remedy is to prohibit the Government from withholding existing Medicaid funds from States that do not comply with the ACA’s Medicaid expansion provisions. Thus, the Medicaid expansion provisions remain intact, with States risking only the loss of the ACA’s additional funding should they decline to participate in the expansion.
Justices Scalia, Kennedy, Thomas, and Alito dissented with respect to the remedy, explaining that they would have struck down the ACA in its entirety. They reasoned that, because they deemed both the individual mandate and the Medicaid expansion to be unconstitutional, and because those provisions are central to the ACA, the remainder of the statute would not operate as Congress intended if those provisions alone were invalidated.
Gibson, Dunn & Crutcher’s lawyers are available to assist in addressing any questions you may have about this development. Please contact the Gibson Dunn lawyer with whom you work, or any of the following practice group co-chairs:
Appellate and Constitutional Law Practice Group:
Theodore B. Olson – Washington, D.C. (202-955-8500, [email protected])
Theodore J. Boutrous, Jr. – Los Angeles (213-229-7000, [email protected])
Daniel M. Kolkey – San Francisco (415-393-8200, [email protected])
Thomas G. Hungar - Washington, D.C. (202-955-8500, [email protected])
Miguel A. Estrada – Washington, D.C. (202-955-8500, [email protected])
Health Care Practice Group:
Robert B. Krakow – Dallas (214-698-3124, [email protected])
Kevin S. Rosen – Los Angeles (213-229-7635, [email protected])
Life Sciences Practice Group:
Mark A. Perry – Washington, D.C. (202-887-3667, [email protected])
Daniel J. Thomasch – New York (212-351-3800, [email protected])
© 2012 Gibson, Dunn & Crutcher LLP
Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.