Thoughts on the New Constitutional Case Against Obamacare

20 states are right to claim that the mandate is now unconstitutional, but wrong to argue that this requires invalidating the entire Affordable Care Act.

On Monday, twenty Republican-controlled states filed a lawsuit challenging the constitutionality of the Affordable Care Act's individual mandate, which requires most Americans to purchase government-approved health insurance. The full text of the complaint is available here. The lawsuit contends that, if the mandate is invalidated, the Court must also strike down the entire Affordable Care Act, because the rest of the ACA cannot be "severed" from the mandate. The red state plaintiffs are right to argue that the mandate is unconstitutional. But they are probably wrong to conclude that a ruling against the mandate requires the court to eliminate the rest of Obamacare along with it.

Back in 2012, Supreme Court ruled that the mandate is constitutional in its highly controversial decision in NFIB v. Sebelius. But Chief Justice John Roberts' controlling opinion for the Court only reached this conclusion by reinterpreting the mandate as a tax, thereby saving it from being declared unconstitutional. Roberts concluded that the mandate was not authorized by Congress' power to regulate interstate commerce, or by the the Necessary and Proper Clause, which gives Congress the authority to enact legislation that is "necessary and proper" for the execution of other federal powers granted by the Constitution. Thus, it could only be saved by ruling that it qualifies as a tax, authorized by the Tax Clause of the Constitution. Roberts listed several factors that led him to conclude that the mandate can be considered a tax. But a crucial one is that the violators were subject to a fine collected by the IRS. As Roberts put it, "the essential feature of any tax [is that] it produces at least some revenue for the Government."

In December 2017, the GOP Congress enacted a tax bill that, among other things, abolished the fine previously imposed on people who disobeyed ACA health insurance mandate. The mandate itself remains on the books. But violators are no longer subject to any penalty. For this reason, the 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 the 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.

While the state plaintiffs are right to argue that the individual mandate can no longer be considered a tax, they are wrong to claim that the fall of the mandate should take the rest of Obamacare down with it. The states do not assert that any other part of the ACA is unconstitutional; they argue, rather, that the rest must be struck down because the individual mandate cannot be "severed" from it. If one part of a law is declared unconstitutional, and that part cannot be severed from the rest, then the whole thing must fall.

The Supreme Court's severability jurisprudence is far from a model of clarity. But the Court has held that if the unconstitutional part of a law is so important to the rest that the statute as a whole cannot work as intended, then the latter falls along with the former. Otherwise, the residual law is no longer what Congress had intended to set up. In NFIB, four conservative justices who concluded that the individual mandate is unconstitutional also contended that it could not be severed from the rest of the ACA, because of the ways in which the mandate was essential to the overall regulatory scheme.

But there is a big difference between a court choosing to sever a part of a law, and Congress doing so itself. And in this case, Congress has already effectively neutered the individual mandate, while leaving the rest of the ACA in place. It was Congress that removed the monetary penalty imposed on violators of the individual mandate, thus rendering it ineffective. And it was also Congress which chose to leave the rest of the law in place, nonetheless (largely because President Trump and the GOP leadership repeatedly failed to round up enough votes in the Senate to repeal any more of Obamacare). Unlike in NFIB, a court could not conclude that Congress' design for the ACA would be fatally undermined without an effective individual mandate. The four dissenting justices in that case argued that, without the mandate, the other parts of the law could not "operate as Congress designed them." In this case, Congress itself has concluded that a mandate-less ACA is acceptable (or at least a lesser evil than the available alternatives).

The state plaintiffs also claim that a mandate-less law is so badly flawed that it flunks even minimal "rational basis" review to which virtually legislation is subject. But given that almost anything can pass rational basis review, so long as it has some remotely plausible rationale (Justice Antonin Scalia famously called the rational basis test "a test of whether the legislature has a stupid staff"), that argument is unlikely to succeed. A recent Congressional Budget Office analysis predicts that a mandate-less ACA would be worse than the status quo in some ways, but also that it would not collapse completely. The ACA is a badly flawed law with or without the mandate. But it's good enough for rational basis government work.

In sum, the states deserve to win on the issue of the constitutionality of the individual mandate. But they should lose on severability.

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.

The main goal of the red states who filed this lawsuit is to get rid of Obamacare entirely. That outcome is unlikely. But they could potentially secure a modest, but still valuable victory for constitutional federalism.

In addition to the substantive issues at stake in this case, some procedural ones may come up, such as whether the states (or anyone else) has standing to file a lawsuit against the now-neutered individual mandate. It is also possible that the Trump administration (which is no fan of Obamacare) will choose not to defend the constitutionality of the mandate, in which case the court might appoint an independent lawyer to defend the statute (as it did in the 1982 Bob Jones case) or allow blue states to step in to defend (as lawyers hired by mostly Republican members Congress were allowed to step in to defend a provision of the Defense of Marriage Act, which the Obama administration refused to defend in United States v. Windsor). I may address these procedural questions in a future post. For now, I tentatively predict that they probably won't prevent the courts from deciding the case on the merits.

The history of ACA-related litigation is filled with surprises and failed predictions by experts. So I have to admit it is possible this case will turn out in a way very different from what I hope and expect to happen. Having long argued that the individual mandate is unconstitutional, and authored an amicus brief advocating that position in the original Obamacare case, I cannot claim to be a completely neutral and objective observer.

For what it is worth, my own predictions about the original individual mandate case were on target about several key issues, but wrong on others. It will be interesting to see what happens this time.