Why the Individual Mandate Part of the New Obamacare Case Matters

Most of the attention on the twenty state lawsuit against Obamacare understandably focuses on the "severability" issue, which could lead to the demise of the entire Affordable Care Act. But the individual mandate part could also set an important precedent.

|The Volokh Conspiracy |

Most of the commentary on the new anti-Obamacare lawsuit filed by twenty "red" states focuses on the severability issue, and the Trump administration's refusal to defend the the Affordable Care Act against the lawsuit. But the part of the suit challenging the constitutionality of the newly revised individual health insurance mandate is also significant. It could set an important precedent, even if its elimination would have little impact on health care policy.

The states argue that the individual mandate requiring most Americans to purchase health insurance can no longer qualify as a "tax"—as Chief Justice John Roberts ruled in the first Obamacare case in 2012, because, in the December 2017 tax reform act, Congress zeroed out the monetary fine imposed on violators. But their main goal is to use the mandate as a lever to eliminate the entire ACA, which they argue is so closely connected to the mandate that the two cannot be "severed." Like the vast majority of legal academics, I believe the states' severability argument (now, in large part, backed by the Trump administration), is weak, and might well have dangerous implications for future cases. For that reason, I joined an amicus brief signed by a cross-ideological group of law professors, including Volokh Conspiracy co-blogger Jonathan Adler, which urges the court to reject the states' position on that issue. I authored an amicus brief against the Obamacare individual mandate, and also wrote a coauthored book and various articles arguing that it and some other parts of the law are unconstitutional. But that is no reason for the courts to botch the severability issue in the present case.

But unlike most other commentators, I believe the individual mandate part of the states' lawsuit is significant entirely apart from its potential impact on the rest of the ACA. If they prevail on this issue, they would set a valuable precedent. I explained why in my initial post about the case, back in February. While the post was cited by a number of scholars and media commentators, all of them focused on my critique of the severability argument, while ignoring the points about the mandate itself. So I am reprinting the latter here, in hopes of generating more interest in this aspect of the litigation:

[T]he state plaintiffs in the newly filed case argue that the mandate can no longer be considered a tax. In the absence of a financial penalty, it no longer "produces" any "revenue for the Government." Indeed, it no longer even tries to do so. And if the mandate is not a tax and is not authorized by the Commerce Clause or the Necessary and Proper Clause (as the Court ruled in NFIB), then it is no longer within the proper scope of federal power authorized by the Constitution.

The plaintiffs are absolutely right on this point. A tax that does not require anyone to pay anything is like a unicorn without a horn. It is pretty obviously not a tax at all. In fairness, the requirement of a monetary payment was not the only circumstance that Chief Justice Roberts considered in determining that the mandate qualifies as a tax. He also claimed that several other factors were relevant, such as that the mandate did not include a scienter requirement, that the penalty was not so high as to be "prohibitory," and that those who violate the mandate were not considered to be lawbreakers if they paid the fine. But, while the requirement of a monetary payment may not have been sufficient to prove that the mandate was a tax, it surely was necessary. You don't have to be a constitutional law scholar to understand that there can be no taxation without some kind of payment.

In my view (see here and here), Roberts was wrong to conclude that mandate qualifies as a tax, even when it did impose a fine on violators. It was more akin to a penalty imposed for violation of a law, similar to fines imposed for violating any number of other laws, such as those banning speeding or jaywalking. But it is even more clear that the mandate cannot be considered a tax once the fine is removed and violators no longer have to pay anything….

If all this lawsuit is likely to achieve is the removal of the already essentially neutered individual mandate, one might ask whether there is any point to it. It is indeed true that such an outcome would have little or no impact on health care policy. But it would help establish an important constitutional principle: the federal government cannot use its tax power to impose mandates unless that mandate includes a monetary fine that raises some revenue for the government. Otherwise, the mandate is unconstitutional, unless it is authorized by one of Congress' other powers. Congress cannot enforce otherwise unconstitutional mandates by means other than financial penalties. Making that clear would limit the damage caused by Roberts' ill-advised ruling in NFIB, concluding that the ACA individual mandate (in its original form) qualifies as a tax. If courts conclude that the mandate qualifies as a tax even if there is no monetary fine, that might open the door to the imposition of mandates backed by other kinds of penalties.

If the mandate can qualify as a tax without requiring any payment or raising any revenue for the government, it could open the door to future mandates backed by nonmonetary sanctions, such as probation, community service, and various regulatory restrictions. Prison sentences are likely precluded by parts of John Roberts' NFIB opinion indicating that violation of a "tax" mandate cannot be backed by penalties so severe that they preclude a meaningful choice. But other types of sanctions might not be, so long as they are not considered criminal penalties (also clearly precluded by Roberts' opinion, which rules out "criminal sanctions"). In my view, Roberts' opinion should be interpreted as precluding nonmonetary "tax" penalties of any kind because it ruled that the mandate can be considered a tax at least in part because "neither the [ACA] nor any other law attaches negative legal consequences to not buying health insurance, beyond requiring a payment to the IRS." But the significance of this language would be gutted if the courts now rule that the mandate can be a tax, despite no longer requiring any kind of payment.

I hope—and very tentatively expect—that the twenty state-lawsuit will result in a decision invalidating the residual individual mandate, while also rejecting the plaintiffs' severability argument. That would be a victory for both proper severability analysis and constitutional limits on federal power.

NEXT: Obamacare Critics and Defenders Team Up Against the Trump Administration's Refusal to Defend the Health Law in Court

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  1. Once again?since the first challenge we have discovered the CBO scored the individual mandate as a $300 billion cost which means the drafters that classified the mandate as a “penalty” knew it wasn’t a tax.

    Btw, the fact the CBO scored the individual mandate as a cost makes it perhaps the dumbest provision in recent history because Obama could have had $300 billion more for subsidies!!

    1. The CBO estimated that, as you would expect from a tax, revenue would go down if the mandate were repealed. The reason that the deficit would also go down is fewer people who are eligible for Medicaid or the subsidies would carry insurance, thus reducing outlays.

  2. True. Way back when, in litigation over the National Firearms Act, the Supreme court declared that if Congress wanted to call something a tax, they weren’t going to take notice of it actually being a penalty.

    With the ACA litigation, Roberts declared that even if Congress came right out and said it was a penalty, right in the bill,, the Court would construe it to be a tax in order to save it.

    Yes, the next step is permitting Congress to impose other sorts of penalties on a refusal to buy a product. The mandate really needs to be struck down to kill this precedent, but by reducing it to zero Congress stupidly (or deliberately?) made it likely the Supreme court would deny anybody had standing to challenge it.

    1. “The mandate really needs to be struck down to kill this precedent, but by reducing it to zero Congress stupidly (or deliberately?) made it likely the Supreme court would deny anybody had standing to challenge it.”

      Well, fortunately, since they chose not to repeal the finding that the mandate was not serverable, people affected by the guaranteed issue and other provisions have standing to challenge it.

      1. I think you’re missing the point: With the fine set to zero, nobody is effected by the mandate.

        At least, that’s the line the Supreme court will take in denying anybody has standing.

  3. In the long run — or, more likely, the medium term — our single-payer system will resolve all of this.

    I hope it is called Obamacare.

    1. In much the same way as in the long run we’re all dead: Entropy triumphs in the end.

      That’s no reason to rush it along.

    2. What do you think would happen once Republicans gained control after single payer was implemented?? Republicans would repeal all of the taxes to pay for the program!! So single payer would end up being a huge windfall for people with good jobs that currently pay for and are satisfied with their health insurance.

      I agree Obamacare is suboptimal but that is 100% the fault of Obama and the Democrats for including the asinine individual mandate that cost over $300 billion according to the CBO. Hopefully Republicans realize that the only way to prevent single payer is to reform Obamacare so it doesn’t harm small business owners that don’t have access to the group market and are not receiving subsidies because they make a little too much to qualify for them.

      1. “Republicans would repeal all of the taxes to pay for the program!! So single payer would end up being a huge windfall for people with good jobs that currently pay for and are satisfied with their health insurance.”

        I think you don’t quite understand the concept of “single payer”. Under a single payer system people with good jobs who currently pay for and are satisfied with their health insurance would lose that health insurance. Because that health insurance is a competing payer, and under “single” payer there’s only one payer allowed: The government.

        1. Exactly, they would lose their overpriced health care for slightly worse health care paid for the deficit spending…that is a windfall for people with good jobs.

          The only people dumber than the liberals that promote single payer are the Republicans that want to keep the private health insurance market. Private health insurance is asinine but the UAW and New Deal Democrats carved out the most business friendly market in history with the group market that gives us a workable albeit unAmerican health insurance market.

          The reality is the American private health care market is the best in the world but it is waaaaaaaay too expensive and in the end doesn’t really provide outcomes superior enough to justify the extra expense.

          1. It’s a “windfall” until the single payer decides that it’s not cost effective to try to cure your cancer, or that chopping your leg off and giving you a peg is cheaper than a joint replacement.

            “He who pays the piper calls the tune.” and under single payer, you don’t get any choice about the tune that gets played.

            1. So Medicare doesn’t pay for cancer treatment?? If that is true some senators are going to lose their jobs!

        2. Don’t many (most?) single payer systems allow private insurance and allow providers to charge “private” patients/insurance companies rates higher than the public system would?

          A law that effectively bans private insurance and/or bans providers from charging private patients more than what they would get from single payer would be unlikely to pass. So, private insurance and “premium” health care would still exist.

          I doubt that companies like Facebook and Google would tell their employees after single payer became a reality: “Okay, since we have single payer, we’re no longer providing a group plan – enjoy waiting in line with the homeless drug addicts at the local clinic”. Doing so would damage morale too much and might not even make sense financially — when you’re paying someone $200,000 or more a year, you want them to have excellent and easily accessible healthcare so they are on the job and productive.

          If after several years the single payer system was proven to be effective and to allow as easy access to top facilities (such as UCSF, Stanford, UCLA, etc) as the good group plans do, these companies would eventually drop their group plans. However, it’s hard to see how a single payer system could ever do that on the same terms.

          1. Single payer in America would be just like Medicare which is increasingly Medicare Advantage. I am sure part of any single payer proposal would be to treat employer health care benefits as income and Republicans have promoted many plans that seek to end the group market and make the individual market the primary health insurance market.

            The group market is clearly unAmerican but after Obamacare I have concluded that the group market is the reason we even have a private health insurance market…so if you like your boss deciding your family’s health insurance plan you can thank the UAW! So single payer in America could be Medicaid and then if you want pay more you get a Medicare Advantage plan.

            I personally don’t support single payer because I like the private sector having some influence in the health insurance market so Medicare and Medicaid can determine prices.

          2. Again, you don’t seem to grasp what the “single” in “single payer” means.

            It means there’s only one payer. “Group plans” cease to exist. Doctors become, effectively, government employees.

            “Single payer” means a government monopoly on paying for health care. Sometimes it lets you pay privately for elective procedures, but the whole point of it is killing off private insurance, and giving the government monopoly bargaining power over health care providers.

            1. “. . . and giving the government monopoly bargaining power over health care providers.”

              I’m sure you’re trying to make it sound scary by calling it a ‘government monopoly bargaining power’ but, FYI, the government has ‘monopoly bargaining power’ over EVERYTHING it does because it’s the ONLY federal govt we have.

              It has ‘monopoly bargaining power’ with the defense, intelligence, cyber, transportation, and space industries–and those industries can be quite profitable.

              1. Profitable, yes. That’s the entire point of regulatory capture.

                Now assess those industries against innovation, rates of advancement, etc. None come even close to the pace of innovation, levels of service or cost competiveness of more competitive industries.

                By the way, cyber and transportation are NOT subject to the federal monopsony. While the federal government does buy some of that work, they’re not even a majority player, much less the only buyer. You could make an argument for some sectors (maybe rail? definitely roads) being monopsonies and I would strongly agree.

                1. “Now assess those industries against innovation, rates of advancement, etc. None come even close to the pace of innovation, levels of service or cost competiveness of more competitive industries.”

                  Are you kidding me?!?

                  Which industries or individual companies are more innovative or competitive than Boeing, Lockheed Martin, Northrop Grumman, SAIC, Raytheon, etc…?

                  McDonalds and Burger King? Hollywood? Trucking industry? Car industry? Agriculture?

                  I’ll grant there’s lot of stuff going on in cyber and IT–but a lot of that is driven by the feds.

                  And who has bigger pockets than the feds?

                  Which other industries are there that have a single, big-spending customer?

              2. I’m amused that you threw in space industries, which have seen enormous advances recently exactly because the private sector now predominates.

                And, yes, it IS scary when the government takes over something vital to your life. Decides your child needs to die, maybe, even if you’ve got the money to pay for treatment. Or runs out the clock so you die before they have to pay for your treatment.

                It is scary, and properly so, to be at the mercy of a monopoly that doesn’t even have to worry about the law, because it IS the law.

                1. “. . . space industries, which have seen enormous advances recently exactly because the private sector now predominates.”

                  Because the private sector predominates NOW?

                  Who do you think built, um, EVERYTHING in the 70s Apollo program?

                  Private businesses.

                  From the space suits, to the lunar modules, the moon cars, the ships and helicopters that picked them up, the communications equipment, EVERYTHING.

            2. Most single payer options don’t ban private health care. In most countries with single payer, if you want to go pay for it yourself you can get treatment by doctors who aren’t part of single payer.

            3. “Again, you don’t seem to grasp what the “single” in “single payer” means.”

              Brett, plenty of places have single payer systems but don’t make it illegal to sell or purchase other health insurance products, or pay money directly for health services. While I think there’s a real chance America goes single-payer in my lifetime, I think it’s highly unlikely the government would prohibit those.

            4. So all doctors would become like obstetricians and pediatricians?? Check out the % of Medicaid patients in those fields.

          3. Ontario banned private insurance until struck down by Canada’s Supreme Court. Many on the left think it’s “unfair” for wealthier people to get better medical care, and thus will advocate for a similar ban here.

      2. The individual mandate is an old conservative idea that sets forth a personal responsibility requirement to help resist free riding. Its inclusion in ACA was sane policy.

        If anything, it might have been too low, but realistically, since people demonized it, I could understand how it was set up as is it was. Plus, it was flexible & open to change over time as events and experience determined necessary and proper as expected by the flexibility of the constitutional provision in question.

        Expanding subsidies or the like is another thing that can be factored in. Single payer would be ideal (it can be set up in any number of ways) too. But, it would come over time, as things do.

    3. “In the long run — or, more likely, the medium term — our single-payer system will resolve all of this.”

      I have an idea. Let’s let the government prove itself by showing it can run a functional criminal justice or immigration system. Then we can talk about single payer.

      1. I have a far better idea, let’s stay on topic. The government already is a single payer for Medicare beneficiaries and the millions of federal employees who are covered through competitively bid insurance arrangements. Come to think of it, expanding either of those two existing mechanisms would have been preferable to adopting a ridiculous Rube Goldberg contraption dreamed up by the otherwise unemployable turds at Heritage.

  4. Just for funsies:

    The 20 states are essentially arguing that, given that the following 2 laws have passed:

    A — Affordable Care Act
    B — Tax reform act eliminating the tax

    then A must be found to be unconstitutional. But (under their argument), it’s simply the case that both laws can’t constitutionally co-exist. Since A has already been found to be constitutional, why wouldn’t that mean that B (rather than A) is unconstitutional? (In other words, while they say “you must resolve our stated concern by finding A to be unconstitutional,” wouldn’t their stated concern also be resolved by finding B to be unconstitutional instead?)

    1. Later laws can’t be unconstitutional on the basis of earlier laws. It just doesn’t work that way.

      1. I’m not so sure. For example:

        A — Death penalty for murder (defined term) on federal land.
        B (later) — Definition of “murder” in statute A is hereby expanded to include jaywalking.

        Would not B be unconstitutional on the basis of A? If not, is there a more specific reason than “it just doesn’t work that way”?

        1. The death penalty for jaywalking would be severable. No different than if Congress had passed a statute that defined murder, with the death penalty, to include jaywalking all in one shot.

      2. Actually I think Tinhorn has an interesting point, to modify the example.

        Assume the GOP modifies the death penalty so all sentences are mandated to be carried out within 10 years and at 10 years the victim’s family is allowed to carry out the sentence if they take an executioner training course.

        The Dems are outraged and sue that it’s cruel and unusual punishment but the SOC allows it because the training course means the family are still law enforcement.

        The Dems later get in power, they don’t have the votes to kill the whole law, but they can kill the training course requirement which no one really likes which in theory makes the law unconstitutional.

        Either way I’m not sure the example matters since the point it more basis. If I modify a law to make it unconstitutional my modification should be the thing thrown out, not the original law. Otherwise it’s just a weird game where legislators who don’t have the votes to kill a law entirely just need enough votes to make it unconstitutional (which is exactly what happened). It’s effectively granting congress powers it didn’t rightfully have.

        1. Point is, law A sets out the time limit and authorizes the family to do the execution with the training.

          If law B removes the training requirement, the Supreme court doesn’t, by your reasoning, overturn law B, reimposing the requirement. They overturn law A, authorizing the family to do the execution.

          So it’s not the later law that ends up unconstitutional.

          1. aluchko, that would mean that Congress can bind later Congressional action, and that’s not allowed.

            1. Brett, that’s the approach being suggested, but I’m not sure of the reasoning at to why that’s the correct action.

              Especially in this case, I don’t think you can argue the current congress had either the votes or the intent to repeal all of the ACA, but that is exactly what’s being proposed by some.

              Moreso when you consider the legislative constraints of reconciliation, even if those same legislators did want a full repeal they lacked the votes because a repeal would have required 60. In killing the law you’d effectively be giving legislators a mechanism with which to circumvent the will of congress.

              I don’t agree, the later congress still has the power to repeal the law entirely, or modify it in a way that leaves it constitutional.

      3. Actually, it works exactly that way. See Frost v Corporate Commission of Oklahoma, 278 U.S. 515 (1929).

        “A proviso added to an existing statutory provision by a subsequent legislature, and the effect of which if it were part of the original enactment would be to render the whole unconstitutional, may be treated as a separate nullity, allowing the original to stand.”

  5. That which is non-enforceable is non-justiciable. Federal courts have no jurisdiction over the hortatory statements Congress puts in its statute books for purposes of decoration.

  6. If the mandate can qualify as a tax without requiring any payment or raising any revenue for the government, it could open the door to future mandates backed by nonmonetary sanctions, such as probation, community service, and various regulatory restrictions.

    I don’t see how, and instead believe even if the mandate together with a $0 tax penalty is upheld as a constitutional tax, it could not lead to non-monetary sanctions under a proper reading of NFIB.

    As I read NFIB, non-monetary sanctions could only be placed on those who fail to pay the tax. If non-monetary penalties could be placed on those who pay the tax, then those penalties would be unconstitutional because they would have to rely on either the Commecre Clause or Necessary and Proper Clause powers. Of course, NFIB precludes relying on either of those powers.

    With a $0 tax penalty, everyone who chooses not to carry health insurance has paid the tax. Thus, under NFIB, they could not otherwise be sanctioned.

    1. What you’re missing is Congressional power creep. Step by step the Court first allows work-arounds where Congress does something by one means that it’s not allowed to do by another. And then, because it allowed Congress to do it by the one means, it decides to allow Congress to do it by another, and eventually any means it choses.

      So Congress can’t penalize owning something, but is allowed to tax it. The Court refuses to admit that a 5000% tax is actually a penalty, because SOMEBODY might pay it.

      Then Congress gets annoyed that people actually are willing to pay the penalty/tax, and keeps the tax in place, but refuses to accept payment of the tax. And the Court’s ok with that, because it’s still a tax, and Congress could just push the tax up so high nobody could afford it, so what’s the big dif?

      Then Congress decides not to bother with subterfuge, and just bans the thing, and the Court is ok with that, because it’s already agreed to let Congress ban something unless a tax is paid that they won’t accept payment of. Why quibble with the way Congress achieves something to Court is willing to let them achieve?

      So, don’t bet on the Court declaring non-monetary penalties unconstitutional. Once the Court allows one way to do something, they usually eventually get around to allowing it to be done in any way.

      1. Of course the Court could reverse NFIB and permit non-monetary penalties on people who don’t carry health insurance even though they have “paid” the $0 tax. But Ilya makes it sound like NFIB already permits this outcome.

      2. NFIB* directly addresses this issue. The opinion goes out of its way to say the relatively uncoercive nature of the “penalty” in the case is what justifies it under the tax power. The implication is a more coercive penalty would fail. But now the argument is a “penalty” so non-coercive as to impose no harm whatsoever is a penalty. This is the opposite of power creep here.

        * NFIB is a very underrated Black Sabbath song, btw.

  7. The fundamental point here is that hortatory statements are neither taxes nor penalties. Only if people have to pay money does either category, and hence the question of how to classify arise. No payment requirement, no tax and no penalty.

    I have a question for people who think otherwise. Is this blog, and Professor Somin’s post above in particular, a tax, or is it a penalty? When Professor Somim insists we do something, he is imposing a mandate. Is it a tax, or is it a penalty? After all, Professor Somin’s posts often contain hortatory statements in he form of mandates, so they too must be one or the other. Which is it?

  8. The second fundamental point is new law, new analysis. Statutory construction looks at laws as a whole and evaluated statements within the context of the whole. The first Sebellius case used this approach.

    Here we have a new whole, that contains most of the old parts but not all of them. So the old parts have to be relooked at, in their new context in the new whole.

    So statements that were true about particular parts in the context of the old whole are not necessarily true, and here aren’t true, in the context of the new whole.

    The tax/penalty dichotomy arises in the context of an obligation to pay money. Is the money paid classified as a tax or a penalty? Here the obligation to pay money was deleted. And because of this, the entire dichotomy disappears. There is neither a tax nor a penalty. What is left is a hortatory statement of the sort the Supreme Court has routinely declared non-justiciable.

    This matter is really simple. The efforts by highly paid people to pretend it’s complicated represent inefficiencies in our economy. These people could have been paid to do something of value.

  9. I don’t know if the mandate and the ban on considering pre-existing conditions are legally severable, but they aren’t economically severable. Both that ban and the limits on price difference by age make insurance a much worse deal for some than for others ex ante, which is a strong incentive for people who expect to be losers not to get insured, which pushes the price higher, which results in more people being losers who don’t get insured–a standard adverse selection problem. That was why the program included a mandate.

  10. It was cited in one of the briefs and blog discussions that there was some finding that even if the mandate is $0 that there is a likelihood it was provide some encouragement of the idea that there is an obligation to have insurance. People tend to think that when a law says they are required to do something, they have some obligation to do it. This might result in only a small number of additional people to be involved but in raw numbers the money involved is not “0.” But, apparently, this is not enough to be relevant from the commentary.

    The mandate is a form of tax. A strict definition there is curious in a a way for libertarians who I’d think might read such things broadly to avoid government pressures in various contexts. Oh well. Anyway, I think the majority was wrong to not think it was a proper exercise of the Commerce Clause. In some other context, the reach of the “penalty” (community service or whatever) will be more narrow & be upheld using some other enumerated power. The “message” being upheld here is as dubious as the burden of a $0 penalty.

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