ObamaCare in Critical Condition

Why opponents of the health care bill are cautiously optimistic.

[](/sites/default/files/uploads/2012/03/obama-healthcare-public-option.gif)President Obama’s signature legislation, the Patient Protection and Affordable Care Act (better known as Obamacare), has been debated in the political arena and all across the country for over two years. Obamacare’s individual mandate, requiring most Americans to purchase private health insurance or face a penalty, remains particularly unpopular. Public opinion aside, however, the question of whether the individual mandate is constitutional is finally before the Supreme Court. A decision is expected by this June. The Supreme Court decided to devote an unusually long six hours over three days to hear oral arguments.

The central issue boils down to the scope of federal government power over individual purchase decisions. Will the constitutional scheme of limited enumerated powers granted to the federal government have any meaning if the Obamacare individual mandate is held to be constitutional?

The answer to this question revolves mostly around two key provisions of the Constitution. They are: the Interstate Commerce Clause, which specifically authorizes Congress “to regulate commerce… among the several states” (Art. I, § 8, cl. 3), and the “Necessary and Proper Clause,” which authorizes Congress to “make all laws which shall be necessary and proper for carrying into execution” its other enumerated powers (Art. I, § 8, cl. 18).

The Obama administration also made the additional argument that the penalty imposed in Obamacare on individuals who do not comply with the mandate to purchase health insurance is a tax, which Congress has the separate enumerated authority to impose (Art. I, § 8, cl. 1).

However, before the Supreme Court could proceed to address the merits of the constitutional challenge to Obamacare, it had to deal with the threshold question of whether it has jurisdiction to decide the constitutional issues at this time. Thus, the first day of oral arguments involved the technical question of whether it was too soon for the Court to consider the constitutional issues because of a congressional statute, the federal Anti-Injunction Act, which prohibits courts from even hearing a lawsuit challenging a tax before the tax is paid.

Both the Obama administration and the parties challenging Obamacare dismissed the relevance of the Anti-Injunction Act to this case. Indeed, in a demonstration of the legal advocate’s version of “having one’s cake and eating it too,” Solicitor General Donald Verrilli Jr. argued on behalf of the Obama administration that the Obamacare penalty should not be considered a “tax” for the purposes of determining whether the Anti-Injunction Act is applicable, but is nevertheless nothing but a “tax” when considering Congress’s constitutional power to impose a penalty on non-complying individuals via the IRS. The Solicitor General’s attempt to put a square peg in a round hole came back to haunt him the next day when the Supreme Court heard his arguments that the penalty, which both Congress and President Obama said was not a tax when Obamacare was being crafted, was indeed a tax after all. His argument on the tax issue was met with skepticism even by the most liberal members of the Court.

In any event, the Supreme Court wanted the Anti-Injunction Act issue argued for the record before proceeding to the merits of the case and enlisted for that purpose an independent advocate to make the argument for invoking the Anti-Injunction Act in this case. After listening to the arguments and raising questions about the jurisdiction of the Court to hear the case at this time and whether the Anti-Injunction Act could be waived, most justices seemed inclined to find a way around this hurdle so that they could rule definitively on the constitutionality of Obamacare.

The second day of oral arguments was devoted to the main event - the issue of whether Congress had the constitutional authority under the Constitution’s Commerce Clause and Necessary and Proper Clause to require individuals to purchase private health insurance as part of Congress’s authority to address and regulate the national interstate health service market. The tax authority issue, for the reasons mentioned above, did not get much traction with the Court.

Supreme Court decisions going back more than a half century have concluded that Congress may regulate not only those intrastate activities that substantially affect interstate commerce, but also, where necessary to make a regulation of interstate commerce effective, Congress may regulate even those intrastate activities that do not themselves substantially affect interstate commerce. The most classic case establishing this principle involved Congress’s authority to even limit how much wheat may be grown on a family farm. Does the Obamacare individual mandate fall within established Supreme Court precedents or does it push the boundaries of congressional constitutional authority beyond recognition?

The Obama administration’s argument begins with the premise that everyone has to consume health services sooner or later as an inherent part of the human condition. The question is how individuals can most efficiently finance their health service needs without unduly shifting the costs of such services to others. It is fundamentally unfair, the argument goes, to let some people forego purchasing any health insurance for themselves in advance of needing health services because they will end up shifting the cost burden to the rest of society for the health services they will inevitably consume some day but may not be able to afford at that time. Congress, the Obama administration contends, has ample authority to regulate the means and timing of individual financing decisions through the health insurance mandate. This is because individuals’ health service financing decisions in the aggregate affect the viability and scope of the national health services market over which Congress has undisputed regulatory power.

Here is an excerpt from the Obama administration brief, which refers to the individual mandate as the “minimum coverage provision.” It provides a roadmap to the administration’s oral argument to the Supreme Court on the individual mandate issue:

The Affordable Care Act expands access to health care services and controls health care costs by reforming the terms on which health insurance is offered and rationalizing the timing and means of payment for health care services…The minimum coverage provision is within Congress’s power to enact not only because it is a necessary component of a broader scheme of interstate economic regulation, but also because, within that scheme, the provision itself regulates economic conduct with a substantial effect on interstate commerce, namely the way in which individuals finance their participation in the health care market. Individuals without insurance actively participate in the health care market, but they pay only a fraction of the cost of the services they consume…In sum, the uninsured as a class presently externalize the risks and costs of much of their health care; the minimum coverage provision will require that they internalize them (or pay a tax penalty). This is classic economic regulation of economic conduct.

In trying to appeal to Justice Kennedy, often the swing vote on close decisions, and possibly even to Justice Scalia who has taken an expansive approach to the Necessary and Proper Clause, the Obama administration’s brief referred frequently to a relevant Supreme Court decision both justices supported. The decision upheld the authority of Congress to prohibit individuals from engaging in a very localized activity. What Congress prohibited involved the growing, possession and use by individuals of their own marijuana for medicinal purposes even in a state where it was legal to do so (_Gonzales v. Raich_545 U.S. 1 (2005)). Justices Kennedy and Scalia agreed with the majority decision.

In his concurring opinion, Justice Scalia relied heavily on the Necessary and Proper Clause of the Constitution, which he said “empowers Congress to enact laws in effectuation of its enumerated powers that are not within its authority to enact in isolation.” He said that the relevant question was whether the means chosen were “reasonably adapted” to the attainment of a legitimate end under Congress’s interstate commerce power. The Obama administration’s argument applied Justice Scalia’s language in the Raich case to Congress’s decision to require virtually all individuals to purchase health insurance, no matter their present state of health.

The parties challenging the constitutionality of Obamacare - including twenty-six states - argued that the individual mandate goes further than any previous invocation of the Commerce Clause. For the first time Congress was attempting to regulate inactivity by requiring individuals to purchase a product in the private sector market just because they are alive and reside in the United States. Congress did not just prescribe the rules for commerce that already exists but claimed the power to compel people to enter into commerce in the first place.

As Paul D. Clement, the attorney representing the twenty-six states challenging Obamacare put it:

The mandate represents an unprecedented effort by Congress to compel individuals to enter commerce in order to better regulate commerce.

Congress is creating an affirmative duty for individuals to go into commerce, according to this argument, and buy a product at such time as Congress determines and with, at minimum, the specific features that the government dictates, whether or not the individual will ever need all these features. The parties challenging Obamacare questioned where the limits on congressional power would be if such an individual mandate were held to be constitutional. Clement highlighted this point when he said that the government’s justification of the mandate as a regulation of the economic decision to forego the purchase of health insurance is “a theory without any limiting principle.”

A number of justices zeroed in on this “limiting principle” issue during the oral argument.

Both Justices Kennedy and Scalia questioned Solicitor General Verrilli on what exactly was being regulated. For example, Justice Kennedy asked whether the government can “create commerce in order to regulate it.” The Solicitor General rejected the premise of the question and responded that “what is being regulated is the method of financing health, the purchase of health care.”

Justice Kennedy also asked Verrilli whether or not there are any limits on the Commerce Clause  and to identify such limits. The Solicitor General did not give a direct answer. Instead, he responded that Congress is merely “regulating existing commerce, economic activity that is already going on, people’s participation in the health care market, and is regulating to deal with existing effects of existing commerce.”

Justice Scalia characterized the issue as whether “failure to purchase something in that market subjects me to regulation.” The Solicitor General answered, “No. That’s not our position at all, Justice Scalia.”

Verrilli argued that sooner or later virtually everyone is in the health services market and that “the distinguishing feature of that is that they cannot, people cannot generally control when they enter that market or what they need when they enter that market.” This line of reasoning brought Chief Justice Roberts into the discussion. He noted that the same argument could apply to emergency services provided by the police or fire departments as well as to ambulance services.

“So can the government require you to buy a cell phone because that would facilitate responding when you need emergency services?” Chief Justice Roberts asked. Without offering any real explanation, Verrilli answered that such emergency services did not constitute a market subject to regulation.

Then Justice Alito, for the sake of argument, got the Solicitor General to concede that burial services did constitute a market. He pointed out that the same argument the Obama administration was making regarding cost-shifting in the health services market could be made in the burial services market if someone did not have burial insurance and did not pre-pay for his or her funeral before passing away. “Isn’t that a very artificial way of talking about what somebody is doing?” Justice Alito asked.

Solicitor General Verrilli tried to distinguish between the health services and burial service markets on the grounds that, in the case of burial services,  “you don’t have the cost shifting to other market participants.” Justice Alito disagreed with that assumption.

But while the conservative Justice Alito was concerned about where to draw a line around congressional power if Obamacare were upheld, the liberal Justice Breyer disagreed with Verrilli’s distinction for a very different reason. He appeared to support an extremely broad reading of the Commerce Clause, an interpretation beyond what Verrilli was arguing in this case. Congress, Justice Breyer said, could set up the same type of uniform regulatory and financing scheme for burial services as well as emergency services. Verrilli said that was a possibility but added “that we are advancing a narrower rationale.”

Moving on from whether health services constituted a unique national market with special cost-shifting issues that Congress could address without necessarily creating a precedent for other markets, Justice Alito turned to a different aspect of the cost-shifting issue within the health insurance and health service markets themselves. He pointed out that young healthy people would be forced under Obamacare to buy health insurance at a government-mandated level of coverage. Thus, they will have to pay more expensive premiums than if they were only financing their own expected needs.

Then Justice Alito asked Solicitor General Verrilli a question that exposed a critical weakness in the Obama administration’s economic rationale for upholding the constitutionality of the individual mandate:

[I]sn’t it the case that what this mandate is really doing is not requiring the people who are subject to it to pay for the services that they are going to consume? It is requiring them to subsidize services that will be received by somebody else.

Chief Justice Roberts also touched on this issue. He noted that, under the individual mandate, individuals are being required to purchase and pay premiums to cover health services they are unlikely to ever need such as maternity and newborn care, pediatric services, and substance use treatment.

Justice Kennedy - whom both sides are seeking to swing in their direction - raised the question whether in this case the government has “a heavy burden of justification to show authorization under the Constitution” when it is “changing the relation of the individual to the government in this, what we can stipulate is, I think, a unique way.” Later on during the oral argument, he returned to this point:

And here the government is saying that the Federal Government has a duty to tell the individual citizen that it must act, and that is different from what we have in previous cases and that changes the relationship of the Federal Government to the individual in the very fundamental way.

Justice Kennedy did indicate a willingness to consider whether the government has met the higher burden he posited. “I think it is true that if most questions in life are matters of degree,” he said, “in the insurance and health care world, both markets – stipulate two markets – the young person who is uninsured is uniquely proximately very close to affecting the rates of insurance and the costs of providing medical care in a way that is not true in other industries.”

Michael Carvin, representing the private party challengers, responded that the government is not only compelling people to enter the market for health insurance. The government is also “prohibiting us from buying the only economically sensible product that we would want. Catastrophic insurance.”

In other words, if the problem Congress was trying to address was how to fairly pay for big, unaffordable catastrophic health costs that could hit someone without insurance unexpectedly, Congress could have narrowly tailored the health insurance purchase requirement to just catastrophic insurance. Instead, it imposed a far more intrusive requirement.

The four liberal-leaning justices - Justices Breyer, Sotomayor, Ginsburg and Kagan - not surprisingly articulated rationales that would buttress the case for upholding the individual mandate. Justice Ginsburg, for example, emphasized the government’s principal argument that the people who don’t participate in the health insurance market until the point where they actually consume health services that they cannot afford are making it much more expensive for the people who participate in the health insurance market all along. “The problem is that they are making the rest of us pay,” she said.

Justice Breyer provided an historical discourse to demonstrate that Congress had the authority to address problems in the delivery of health care in the manner it chose, since it was dealing with substantial effects on interstate commerce. Congress, he said, could even create a market to regulate. He gave as an example “the national bank, which was created out of nothing to create other commerce out of nothing.” But the national bank example backfired when Clement, the states’ attorney, pointed out that in establishing a national bank Congress did not also decide that “we are going to force the citizenry to put all of their money in the bank, because, if we do that, then we know the Bank of the United States will be secure.”

Justice Sotomayor indicated a lack of concern about the constitutional implications of the health insurance mandate since there is “government compulsion in almost every economic decision because the government regulates so much.” She also said that since Americans would not stand for a system in which children whose parents did not have health insurance could be turned away and possibly die, Congress could legitimately deal with the problem of how to fairly distribute the costs. Carvin, the private party challengers’ attorney, responded that there were alternative ways to ensure that children would not be turned away because of lack of money. Congress, for example, could have enacted a general tax to help subsidize such care or mandated insurance at the point at which somebody actually goes to an emergency room and asks for care.

Justice Kagan had alluded to this issue of whether there were alternative ways of dealing with the problems that the individual mandate was enacted to address. Nevertheless, Justice Kagan clearly sided with the government’s arguments - not surprising, considering her role as Solicitor General when she was in charge of defending Obamacare, which should have disqualified her from participating as a justice in this case. She remarked, in response to the arguments challenging the mandate by the states’ attorney, Paul Clement, that “Congress surely has within its authority to decide, rather than at the point of sale, given an insurance-based mechanism, it makes sense to regulate it earlier.” Clement begged to differ, saying, “We don’t think it’s a matter of timing alone, and we think it has very substantive effects.”

On balance, the Obama administration did not come out very well during the oral argument on the individual mandate issue. The more conservative justices whom the administration’s lawyers were trying to sway in order to ensure a majority upholding Obamacare - Justices Kennedy and Scalia - did not appear to be persuaded. Their questions indicated a deep concern that there would be no clearly defined limiting principle to apply in determining the boundaries of congressional power in future cases if the individual mandate were approved. If Congress has the power to compel individuals to buy a government-defined health insurance package in order to more efficiently and fairly support the costs of a national health service market, then on what rationally defined basis would Congress be prohibited from compelling individuals to buy any product where the purchase is going to benefit interstate commerce that Congress deems important enough to promote?

During the final day of oral arguments, the justices turned to the question of whether any portion of the Obamacare law could survive if the individual mandate were to be declared unconstitutional. There is no severability clause in the law that would indicate Congress’s intent to keep the remaining portions intact. Moreover, the individual mandate’s financing mechanism is so integral to funding other key provisions of Obamacare, such as the prohibition on denying coverage for pre-existing conditions, that it may not be practical to take out the heart of the law and leave the rest intact. Nevertheless, the Court of Appeals for the 11th Circuit had upheld the lower court’s invalidation of the individual mandate but did not invalidate the rest of the law.

Much of the discussion focused on whether the Obamacare law is an all-or-nothing proposition. While Clement, the states’ attorney, argued for invalidating the entire law, he conceded that there may be peripheral portions of the law that could be retained because they had no connection to the individual mandate. The government rejected the argument that all other provisions should fall if the individual mandate falls, indicating that it should be the prerogative of Congress, not the courts, to decide what Congress wanted to preserve in the remainder of the law. However, the government did concede that there were a few provisions such as non-discrimination, guaranteed issuance and community rating irrespective of an individual’s own health status that were tied very closely to the individual mandate. For that reason, they “rise or fall in a package.”

Conservative members of the Supreme Court expressed concern with allowing the rest of Obamacare to stand if the individual mandate – the heart of the law – were to be struck down. They were also uncomfortable with the notion of the Court trying to divine Congress’s intent as to which subset of provisions could remain without being adversely affected by the removal of the individual mandate provision. Justice Kennedy, for example, said that without the individual mandate provision Congress would be left with “a new regime that Congress did not provide for, did not consider.”

The more liberal members thought it would be preferable to perform what Justice Ginsburg called a “salvage job” rather than “wrecking operation.”

It is always a tricky business to try and predict the final outcome of a Supreme Court decision on a matter as controversial and far-reaching as the constitutionality of Obamacare. However, based on the line of questioning and comments made during the oral arguments, in particular by Justice Kennedy, it looks increasingly likely that the individual mandate – if not all of the provisions of Obamacare with which the individual mandate are interdependent – will be struck down as unconstitutional by a 5-4 vote.

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