Texas v. U.S.: Why the Individual Mandate is Still Unconstitutional

Understanding NFIB v. Sebelius

[Note: This post was coauthored with Professor Josh Blackman.] Last December, in Texas v. United States, Judge Reed O'Connor found that the entire Affordable Care Act was unconstitutional. (One of us, Josh Blackman, wrote about the decision here and here). The Court concluded that the Tax Cuts and Jobs Act of 2017 (TCJA)–which reduced the ACA's shared responsibility payment to $0–rendered the individual mandate unconstitutional. 

We have our own quibble with how Judge O'Connor framed both the issue and his conclusion, which we will develop below. But, when properly reframed, we agree with his holding that the individual insurance requirement is unconstitutional. (What follows from that conclusion is a distinguishable issue.) 

In our view, the individual insurance mandate in § 5000A(a) did not become unconstitutional when the penalty was reduced to zero; it had already been held to be unconstitutional by five justices in NFIB v. Sebelius (2012). Chief Justice Roberts wrote: "Just as the individual mandate cannot be sustained as a law regulating the substantial effects of the failure to purchase health insurance, neither can it be upheld as a "necessary and proper" component of the insurance reforms. The commerce power thus does not authorize the mandate." (Our emphases added.)

Instead, by adopting a "saving construction" of the "penalty" as a tax, Chief Justice Roberts upheld the "penalty" in § 5000A(b)–now zeroed out by the TCJA–and § 5000A as a whole–not the insurance mandate in § 5000A(a). Roberts alone was the swing vote, combined with the reasoning of the block of four progressive justices who saw no constitutional problem with the individual insurance mandate itself. Only Roberts rested his reasoning on a saving construction of the "penalty" as a tax. He, and he alone, justified adopting this construction on the ground that the insurance "requirement" or mandate was unconstitutional. As he wrote:

[T]he statute reads more naturally as a command to buy insurance than as a tax, and I would uphold it as a command if the Constitution allowed it. It is only because the Commerce Clause does not authorize such a command that it is necessary to reach the taxing power question. And it is only because we have a duty to construe a statute to save it, if fairly possible, that §5000A can be interpreted as a tax. Without deciding the Commerce Clause question, I would find no basis to adopt such a saving construction. (emphases added.)

So the "requirement" or "command" in § 5000A(a)–that is, the mandate–was dead. Long live the "penalty" in § 5000A(b) and § 5000A as a whole as a tax. However, if the "penalty" in § 5000A(b) can no longer be read as a tax, then neither can § 5000A as a whole. And, because of the holding of Chief Justice Roberts and the four other conservatives the mandate in § 5000A(a) was, and still is, unconstitutional. The mandate was declared constitutionally dead in 2012 and, like the parrot in Monty Python, the mandate remains dead to this day. To paraphrase John Cleese: The Mandate is "bleedin' demised. It's passed on. This [mandate] is no more. It has ceased to be. It's expired…. This is an" ex-mandate.

Critics of Judge O'Connor's, however, contend that he fundamentally misread NFIB v. Sebelius. They argue, first, that Chief Justice Roberts upheld the insurance mandate as a tax because the mandate itself imposed "no legal consequences" other than the payment of the penalty. That is, people merely had a choice between buying insurance, or paying a non-coercive penalty cum tax Those who choose either path have "fully complied with the law." Second, the tax is now zero, which eliminates the only legal consequence of failing to purchase insurance.  Now, the only choice left is to not buy insurance, in which case a person has still "fully complied with the law." Third, the rest of the ACA is unaffected by lowering the tax to zero. 

We think the critics, rather than Judge O'Connor are misreading NFIB. Their reading of NFIB is all-too-common, and is one that we have both encountered repeatedly over the past seven years since the case was decided. However, this reading of the case fails to account for the precise framework of the saving construction. Judge O'Connor stated it well:

It is critical to clarify something at the outset: the shared-responsibility payment, 26 U.S.C. § 5000A(b), is distinct from the Individual Mandate, id. § 5000A(a). For one thing, the latter is in subsection (a) while the former is in subsection (b).

Judge O'Connor added:

[T]he Supreme Court's reasoning in NFIB, all hinge on an understanding that the Individual Mandate and the shared-responsibility payment are two very different creatures. The saving construction in NFIB [of § 5000A] was available only because § 5000A(a) triggered a tax. And § 5000A(b) was a tax because it produced some revenue for the Government.

Our analysis, which supports Judge O'Connor's holding, can be summarized with three premises. 

First, Chief Justice Roberts determined that the individual mandate in § 5000A(a)–standing by itself–imposed a legal obligation to purchase insurance. He then held that this "command" or mandate was unconstitutional–without regard to the penalty in § 5000A(b). Specifically, he held that an individual purchase "requirement" cannot be supported by Congress's powers under the Commerce and Necessary and Proper Clauses. Roberts's holding on § 5000A(a) was a crucial step that enabled him to adopt the "fairly possible" reading of the penalty in § 5000A(b)–and § 5000A as a whole–over its natural meaning. 

In this crucial respect, Chief Justice Roberts swing opinion was in agreement with the four conservative justices (Scalia, Kennedy, Thomas, and Alito) to form a five justice majority on this issue. The conclusion that the individual insurance "requirement" is unconstitutional was true in 2012, and remains true following the TCJA. 

Second, invoking the doctrine or "duty" of judicial deference to Congress, Chief Justice Roberts tried to avoid a finding that the core of the ACA was unconstitutional. To do so, he held that the "penalty" in § 5000A(b), which enforces the insurance "requirement" in § 5000A(a), could be read as a tax because it resembles a tax–namely it raises revenue as part of the usual income tax process, and it was not set at a punitive or coercive level. For these reasons, the "penalty" can be treated as a tax "incentive" rather than as an actual penalty enforcing a requirement or command (which would be unconstitutional). 

In other words, due to his "saving construction," there is no longer an actual mandate in the ACA. (As we discuss below, Roberts's opinion is not always precise in using the term "the mandate," which muddied this point.) Rather, he held that § 5000A as a whole can be read, not as a command, but as merely giving a person a choice between buying private insurance or paying the (noncoercive) tax. 

Roberts' decision to treat the penalty as a tax was bolstered by the government's representation that there were no "negative legal consequences" for going uninsured, beyond paying the penalty. As Roberts wrote, "[n]either the Act nor any other law attaches negative legal consequences to not buying health insurance, beyond requiring a payment to the IRS." Roberts's reasoning makes a critical distinction between an insurance requirement which makes it unlawful to go uninsured, and a tax, which need only be paid. However, because of the TCJA there is no longer any payment due to the IRS. This raises the critical question: can the penalty and § 5000A still be read as a tax? 

Third, in NFIB, Chief Justice Roberts held that it was "fairly possible" to read the penalty imposed on the uninsured as a tax. After the penalty was set to zero, is it still "fairly possible" to read it as a tax? Along with Judge O'Connor, we think not. Because the exaction no longer raises revenue–one of the two key components of Chief Justice Roberts' analysis–the saving construction topples.

Because the $0 exaction can no longer be construed as a tax, we are left with the conclusion of our first premise: the individual mandate in § 5000A(a)–standing by itself–was held in NFIB to be an unconstitutional command to purchase insurance. Five justices agreed that this authority cannot be supported by Congress's powers under the Commerce and Necessary and Proper Clause. 

Crucially, in NFIB, Chief Justice Roberts did not rest his Article I analysis of § 5000A(a) on whether the mandate carried with it legal consequences. The enforceability of the mandate did not enter into this stage of his analysis. Congress lacks the power to require someone to buy insurance, regardless of what other legal consequences follow–or don't follow–from such a legal requirement. Judge O'Connor reached this exact conclusion about the mandate. And we think he was correct to do so, if for no other reason than that NFIB is binding precedent on inferior court judges.

There is one more argument we need to address. The language in Chief Justice Roberts's opinion does not always precisely track his reasoning. This disparity may be attributed to the hasty manner in which the opinion was drafted. According to several reports, Roberts switched his position sometime after oral argument. We surmise that he had to write large portions of the opinion rather quickly, and without the benefit of constructive feedback from any of the eight other justices–none of whom joined this portion of his reasoning. 

At any rate, in his opinion, the Chief Justice writes: "The question is not whether [the Solicitor General's reading of the mandate] is the most natural interpretation of the mandate, but only whether it is a 'fairly possible' one. . . . The Government asks us to interpret the mandate as imposing a tax, if it would otherwise violate the Constitution. Granting the Act the full measure of deference owed to federal statutes, it can be so read. . . ." (emphases added). Nor is this a mere slip of the pen. Later he writes, "Sustaining the mandate as a tax depends only on whether Congress has properly exercised its taxing power to encourage purchasing health insurance, not whether it can. Upholding the individual mandate under the Taxing Clause thus does not recognize any new federal power. It determines that Congress has used an existing one."

We concede that "the most natural interpretation" of this language is that Chief Justice Roberts held that "the mandate" was constitutional as a tax, but that is not the only "fairly possible" reading of the reasoning of his opinion. When that reasoning is taken into account, we think the Chief Justice's opinion is best read to hold that the mandatory "requirement" in § 5000A(a) is unconstitutional (see above). By "the mandate," we think the Chief Justice is referring to § 5000A as a whole, which he concludes is "fairly possible" to construe to be providing covered taxpayers with an option to buy health insurance or pay a modest, noncoercive tax. 

Roberts explained: "Upholding the individual mandate under the Taxing Clause thus does not recognize any new federal power." Had the Court upheld an actual requirement or command to buy private health insurance, Roberts would have needed to recognize such a "new federal power." Instead the Court "determine[d] that Congress has used an existing one"–in particular the power to provide noncoercive tax incentives. "Congress's use of the Taxing Clause to encourage buying something is, by contrast, not new. Tax incentives already promote, for example, purchasing homes and professional educations." Tax incentives are options, not requirements or commands, which is what made them constitutional for the Chief Justice.

Throughout his opinion, the Chief Justice referenced the constitutionality of § 5000A. For example, he wrote "Our precedent demonstrates that Congress had the power to impose the exaction in §5000A under the taxing power, and that §5000A need not be read to do more than impose a tax." (Emphasis added.) We read this citation as a reference to § 5000A as a whole.

But even if we are wrong about the terminology, at worst, the Chief Justice modified the meaning of "the mandate." Indeed, § 5000A(a) of the ACA only uses the term "requirement," and not "mandate." It is, therefore, fairly possible to read him as saying that the existence of a noncoercive "penalty" cum tax in § 5000A(b) transforms an unconstitutional mandatory "mandate" into a constitutional optional "mandate." The logic of his argument suggests that "the mandate" he says he upheld refers to §5000A as a whole and not to §5000A(a).

Reading the Chief Justice this way also explains why Judge O'Connor adopted the terminology he did: because the penalty cum "tax" converted the mandatory "requirement" into an optional "mandate," if the penalty cum "tax" is removed from the ACA, we are now left with the mandatory requirement of § 5000A(a). And five Justices have already held that this true mandate was unconstitutional under any of Congress's powers: the Commerce, Necessary and Proper and Tax Powers.

Terminology aside, we think that a close reading of Chief Justice Roberts's opinion in NFIB strongly supports Judge O'Connor's opinion on the unconstitutionality of the insurance mandate. This is the key: Chief Justice Roberts–together with the four conservative justices–has already held in NFIB that the standalone mandate in § 5000A(a) is unconstitutional, even though it imposes no collateral legal consequences. The Chief Justice–and only he–then relied on this holding to justify his invocation of the doctrine of "constitutional avoidance" to adopt a "saving construction" that was not the natural reading of the statute. He "avoided" the consequence of declaring unconstitutional the core of the Affordable Care Act only because the penalty in § 5000A(b) could be read as a tax (and thus so too could "the mandate" of § 5000A). 

The precise issue that Judge O'Connor decided was resolved in NFIB. Standing alone, the individual insurance "requirement" in § 5000A(a) of the statute is unconstitutional, and was so held in 2012. But in 2012, the requirement did not stand alone. It was followed by the penalty in § 5000A(b), which the Chief Justice found could be characterized as a tax. Today, § 5000A(b) no longer fits that characterization. In sum, because the unconstitutional "requirement" of § 5000A(a) now stands alone, Judge O'Connor was correct to follow the Court's holding in NFIB that this requirement is unconstitutional.  

We also think a close reading of oral argument reinforces this conclusion and assists in understanding the second issue raised by Texas v. United States: standing to challenge the ACA. We will turn to this topic in our next post.