The Volokh Conspiracy
Mostly law professors | Sometimes contrarian | Often libertarian | Always independent
Part I of this series placed Texas v. U.S. in the broader context of the eight years of Obamacare litigation. This second installment will analyze the technical aspects of Judge O'Connor's opinion concerning the individual mandate by responding to five common criticisms about the case.
[1.] How can the district court declare the individual mandate unconstitutional? Congress already repealed the mandate through the Tax Cuts and Jobs Act of 2017 (TCJA).
In December 2017, following the enactment of the TCJA, President Trump and congressional Republicans boasted that they repealed Obamacare's individual mandate. They didn't. Rather, the law reduced the ACA's "shared responsibility payment" to $0. Section 5000A(a) of the ACA provides that "[a]n applicable individual shall for each month beginning after 2013 ensure that the individual, and any dependent of the individual who is an applicable individual, is covered under minimum essential coverage for such month." Starting in 2019, individuals qualified individuals who fail to maintain a certain level of health insurance—known as "minimum essential coverage"—will no longer be assessed a penalty. This first point is not controversial.
[2.] The individual mandate, with a $0 penalty, is not a mandate at all. What is there left to challenge?
This criticism is intuitive: how can a mandate continue to exist if there are no legal consequences for disobeying? This argument fails as a matter of law and policy.
First, the federal government has long taken the position that a mandate, in the absence of a penalty, will still compel some people to purchase insurance. For example, a 2008 Congressional Budget Report—before the ACA was enacted—considered how "[p]ersonal [v]alues and [s]ocial [n]orms," apart from a monetary penalty, also enforce compliance with a requirement to purchase insurance. CBO recognized that "compliance [with the mandate] is generally observed, even when there is little or no enforcement of mandates." Why would a person comply with a legal mandate that is not enforced? CBO observed that "[c]ompliance, then, is probably affected by an individual's personal values and by social norms." For example, "[m]any individuals and employers would comply with a mandate, even in the absence of penalties, because they believe in abiding by the nation's laws."
In Texas, Judge O'Connor observed:
Law therefore has an enormous influence on social norms and individual conduct in society…. But the fact that many individuals will no longer feel bound by the Individual Mandate does not change either that some individuals will feel so bound—such as the Individual Plaintiffs here—or that the Individual Mandate is still law.
Indeed, the two Plaintiffs in this case have taken this exact position. John Nantz declared, "I value compliance with my legal obligations … [t]he repeal of the associated health insurance tax penalty did not relieve me of the requirement to purchase health insurance." Neill Hurley added, "I continue to maintain minimum essential health coverage because I am obligated to comply with the [ACA's] individual mandate."
Second, enrollment numbers support Judge O'Connor's conclusion. In November 2017, CBO and the Joint Committee on Taxation observed "with no penalty at all, only a small number of people who enroll in insurance because of the mandate under current law would continue to do so solely because of a willingness to comply with the law." The number is no doubt "small," but it is not zero. No matter how small this class is, such virtuous individuals do exist. Therefore, a certain number of individuals are still affected by a penalty-less mandate.
The mandate still has legal force, even if no penalty accompanies it. (This inquiry is separate from the standing question, which will be addressed in Part #5 below).
[3.] It's true that in 2019, the penalty will be reduced to $0. But not everyone pays their taxes right away. As a result, the penalty will continue to generate revenue for the foreseeable future. Therefore, the saving construction still holds.
Many Americans do not pay their tax bills on time, if ever. It is possible, indeed probable, that some taxpayers will defer the payment of shared responsibility payments assessed in 2018 until 2019, 2020, or even later. Moreover, the IRS can collect unpaid penalties on those late payments for years to come. And this theory is not limited to penalties assessed in 2018. Any penalty assessed from 2014 through 2018 could remain outstanding in perpetuity. Under this theory, every repealed tax—not just the ACA—could produce at least some revenue for the government indefinitely.
Initially, I found this argument persuasive, but ultimately, could not reconcile it with Chief Justice Roberts's saving construction. In NFIB, he explained that "[t]he exaction the Affordable Care Act imposes on those without health insurance"—that is, the penalty that was not actually a tax—"looks like a tax in many respects." The Chief Justice then listed three guardrails in which the "exaction"—that is, the shared responsibility payment—can be construed as a tax. First, "[t]he '[s]hared responsibility payment,' as the statute entitles it, is paid into the Treasury by 'taxpayer[s]' when they file their tax returns." Second, "[f]or taxpayers who do owe the payment, its amount is determined by such familiar factors as taxable income, number of dependents, and joint filing status." Third, "[t]his process" of making the payments, "yields the essential feature of any tax: It produces at least some revenue for the Government… . Indeed, the payment is expected to raise about $4 billion per year by 2017."
Each of the three guardrails relies an import presumption: the relevant timeframe is the year in which the penalty is assessed, and more likely than not, paid. Next year, the ACA will no longer satisfy the three guardrails. (1) Starting in 2019, 0% of Americans have to pay a penalty; (2) therefore, taxpayers will not owe any penalty when they file their tax returns in 2019; and (3) as a result, the penalty will no longer produce any revenue for the government.
The first guardrail considered whether the "shared responsibility" is "paid into the Treasury by 'taxpayer[s]' when they file their tax returns." The opinion presumed that the payment is made at the same time as the filing of the tax return. It is a fair reading of Chief Justice Roberts's opinion that he did not have in mind a situation where the payments are made at a different time than the filing of the tax return—perhaps even years later.
The second guardrail referenced the complicated formula used to calculate the penalty. That provision turns on whether a taxpayer lacks qualified insurance "for any month" in a "taxable year." Once again, the controlling opinion focuses on the timeframe when the tax is assessed. In 2019, and beyond, this inquiry becomes irrelevant.
The third guardrail likewise supports NFIB's rule against perpetual payments. Chief Justice Roberts wrote that the collection "process yields the essential feature of any tax: It produces at least some revenue for the Government." And that "process" is premised on how the payment is "assess[ed] and collect[ed]," not when (if ever) it is ultimately paid. No tax has perfect enforcement rates.
In Texas, Judge O'Connor reached a similar conclusion: "It is a well-accepted practice that tax revenue is attributable to the tax year in which it is assessed, not the one in which it is paid." He added, "When individuals file tax returns in April 2019, for example, the taxes they pay and the returns they receive will affect the government's 2018 tax-year revenue." Any "future monies that come in" after 2019 "in will be because the provision once produced revenue for the Government" before 2019.
Chief Justice Roberts's saving construction was not a mere accounting exercise. Rather, it was a constitutional framework based on certain reasonable assumptions and not an intricate balance sheet. Even with delayed payments, the saving construction no longer holds.
[4.] Didn't Chief Justice Roberts conclude that the ACA merely offers people a choice: go uninsured, or pay a tax? If the penalty is now $0, people can simply go uninsured, without any consequence.
In NFIB, Solicitor General Verrilli argued that Section 5000A(a) does not contain a mandate to purchase insurance. Rather the law imposes a tax on those who choose to go uninsured. Marty Lederman articulated this position in a recent Balkinization post.
Chief Justice Robert's rejected Verrilli's argument in Part III.B of NFIB. He observed that "[t]he most straightforward reading of the mandate is that it commands individuals to purchase insurance. After all, it states that individuals 'shall' maintain health insurance." In other words, no such choice exists.
However, in Part III.C, Chief Justice Roberts was willing to accept Verrilli's argument for purposes of the saving construction:
While the individual mandate clearly aims to induce the purchase of health insurance, it need not be read to declare that failing to do so is unlawful. Neither the Act nor any other law attaches negative legal consequences to not buying health insurance, beyond requiring a payment to the IRS. The Government agrees with that reading, confirming that if someone chooses to pay rather than obtain health insurance, they have fully complied with the law. Brief for United States 60–61; Tr. of Oral Arg. 49–50 (Mar. 26, 2012).
The ACA never imposed "negative legal consequences" for the uninsured; not in 2010, when the law was enacted, and not in 2019 after the TCJA goes into effect. Chief Justice Roberts found this fact essential to support his saving construction. (I discuss the importance of the Solicitor General's representation on pp. 179-181 of Unprecedented.)
However, the predicate of the saving construction no longer holds because each of the three guardrails are violated. It is still true, but no longer material, that the law fails to impose "negative legal consequences" for the uninsured. (This question is separate from the standing inquiry which will be discussed in Part #5.) That fact was important to the extent it enabled the Chief Justice to justify the alternative reading of the statute. Now, that reading can no longer be justified, and we are left with an individual mandate that "clearly aims to induce the purchase of health insurance." Such a mandate cannot be supported by Congress's powers under the Commerce and Necessary and Proper Clauses.
[5.] How does anyone have standing to challenge a mandate without a penalty?
The second question—whether the mandate has legal force—is often conflated with this fifth question concerning standing. These interrelated inquiries are doctrinally distinct.
In NFIB v. Sebelius and King v. Burwell, the Plaintiffs claimed an injury because the ACA forced them to pay some additional amount of money they did not otherwise wish to pay. However, Plaintiffs Nantz and Hurley will suffer no financial penalty for going uninsured. Indeed, even before the TCJA, the ACA imposed no legal consequence—criminal of civil—for going uninsured, beyond the assessment of the penalty. (Solicitor General Verrilli made this important representation in NFIB; see Part #4.)
The so-called pocket-book injury provides the quintessential case for standing under Article III. But it is not the only way. Consider the Establishment Clause. Arizona Christian School Tuition Organization v. Winn recognized that standing "may be shown in various ways," even when no financial cost is incurred is assessed. For example, what was the basis for standing in Van Orden v. Perry? The Plaintiff, according to the District Court, asserted that frequent visits to the law library at the Texas State Capitol brought him in "unwelcome, contact with the Ten Commandments monument." Van Orden found that "the existence of the Ten Commandments monument on the grounds of the State Capitol symbolizes a state policy to favor the Jewish and Christian religions over other religions and over non-believers." This basis for standing was so noncontroversial that neither the Fifth Circuit, nor the Supreme Court bothered to discuss it.
In the Equal Protection Clause context, "the stigmatizing injury often caused by racial discrimination" can give rise to standing, even where there is a "noneconomic injury," so long as that injury is personally suffered by the individual. For example, a Plaintiff cannot challenge a club's racially discriminatory admission policy unless he applied.
These lines of cases bolster the standing argument in Texas. Section 5000A(a) imposes a legal obligation on Nantz and Hurley by virtue of their income: they "shall" maintain insurance. Moreover, they are not subject to any exemptions under the law. That injury is just, if not more concrete than the sort of injury claimed in Van Orden and in the Equal Protection Context.
In Texas, an Amicus argued that any injury is self-inflicted: it is their fault they feel compelled by an unenforceable mandate. The same argument could have been made about Van Orden: he could have simply avoided the state Capitol, or averted his eyes when he passed the monument, or perhaps not taken umbrage at the monument. Nantz and Hurley insist that they are still bound by the mandate, and are directly affected by it. That pleading is enough to cross the standing threshold.
Admittedly, I was unable to find any cases where a non-economic injury was asserted in cases concerning the Commerce and Necessary and Proper Clauses. In the normal case, a federal regulation will impose a financial cost which would give rise to pocketbook standing. But, once again, the legal challenge to the ACA is without precedent. This absence doesn't trouble me. The restrictions of Article III constrain all exercises of the judicial power, whether a given case involves a challenge based on the doctrine of enumerated powers, rather than the First or Fourteenth Amendment. Indeed, this distinction ought to be without a difference: NFIB recognized that the structural protections of the constitutional are essential to the protection of individual liberty.
Critics will counter that Nantz and Hurley are wrong—no matter what they think—because there is no actual mandate. Such an argument conflates the standing inquiry with the merits analysis. In Meese v. Keene, the Supreme Court recognized that whether a given law violates the Constitution is "irrelevant to the standing inquiry." Moreover, the lower courts have been "careful not to decide the questions on the merits for or against the plaintiff, and must therefore assume that on the merits the plaintiffs would be successful in their claims." Whether Nantz and Hurley ultimately succeed on the merits is separate from whether they have articulated enough facts at this juncture to identify an injury.
In any event, there may be an additional injury that Judge O'Connor did not mention. The current iteration of IRS Form 1040 asks an individual if he had minimum essential coverage for all twelve months of the year. If the taxpayer checks "no," he is then required to perform several other calculations. There is no indication yet whether these forms will be amended for 2019. Though, there is reason to suspect that the IRS may still request information about individual coverage, even if there is no penalty associated with it. Such information is essential to calculate penalties under the employer mandate. The time and resourced need to complete these forms may be adequate to articulate an injury for Article III.
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The third installment will focus on the severability issues in Texas v. U.S.