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Awful Eight #6: The Power to Regulate Everything Becomes Reality

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Justice John Roberts

Background

On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act or “Obamacare.” The law required virtually everyone in the country to purchase healthcare insurance or pay a penalty, a clause known as the “individual mandate”. Fourteen states immediately filed suit and by January 2011 that number had swelled to twenty seven states. The various cases, after wending their way through conflicting circuit court opinions, ended up in the Supreme Court in 2012.

NFIB is peculiar in that, while a contested majority basically overturned it, the law remains in effect. It produced an unusually fractious result with multiple separate opinions.

The Case- NFIB v Sibelius (2012)

The first question before the Court was could the federal government cut off all of a state’s Medicaid funding if that state failed to sign up for expanded Medicare.

On this point the Court ruled 7-2 against the government. Sort of. The four conservative Justices argued to strike down the expansion entirely. Justices Ginsberg and Sotomayor, in dissent, would have upheld the provision entirely. The remaining three were somewhere in the middle. Chief Justice Roberts found the Medicaid “gun to the head” of uncooperative states as being unduly coercive. (The Court never delineated what constitutes “coercion.”) Justices Kagan and Breyer joined Roberts’ opinion after he wrote a clause that the Medicaid expansion could survive if the provision to eliminate a state’s Medicaid funding was removed. The clause was not part of the original law and this was not the last instance of legislating from the bench, as we shall see in a moment.

Constitutional scholars argue whether Robert’s opinion constitutes a holding of the Court since it was held by only three members and the four conservatives Justices never joined Robert’s opinion. Today, of course, it remains in effect.

The second question before the Court- did the individual mandate fall within the Commerce Clause- produced three separate opinions.

The minority opinion, held by the four liberal Justices, argued that it did. In her dissent Justice Ginsberg argued that the uninsured, as a class, affected interstate commerce: “those without health insurance consume billions of dollars of healthcare products and services each year.” The Commerce Clause applies “since those goods are produced, sold and delivered largely by national and regional companies who routinely transact business across state lines.”

Of course, individually “the uninsured” are not the ones spending billions of dollars across state lines, but we learned in Wickard that individual actions, no matter how minuscule, can be considered in aggregate and therefore subject to regulation. However, the only common trait “the uninsured” have as a “class” is that they failed to purchase a service. If the Court creates classes of persons on flimsy pretexts like these, every law ever passed would adversely affect a “class,” and the Court could strike or uphold laws at their whim.

Also, like we have seen with Wickard, this line of reasoning grants Congress virtually limitless regulatory powers. Ginsberg stated as much by saying, “it is Congress’ role, not the Courts, to delineate the boundaries the Legislature seeks to regulate.” In Ginsberg’s world, the government not only has the power to regulate but also has the power to decide what it would like to regulate. This concept, known as judicial deference, is usually a conservative value. Here it is taken to the extreme to support a liberal opinion.

Fortunately a majority (albeit disturbingly slim at 5-4) found that reasoning unpersuasive. Writing for the majority, Roberts said regulating individuals precisely because they are doing nothing would open the door to a vast domain of congressional authority. The Framers, he noted, gave Congress the power to regulate commerce, not compel it.

So the court found PPACA violated the Commerce Clause and therefore the Constitution. The majority also ruled it violated the Necessary and Proper Clause because even if PPACA’s reforms were “necessary”, the unlimited expansion of federal power was not the “proper” means to achieve those reforms.

But Roberts wasn’t done.

At issue was if the individual mandate, with its requirement to purchase insurance or pay a fine, could be construed as a penalty or a tax. The former, of course, would fall under regulating inactivity, and Roberts had just found to that be unconstitutional. But the Constitution grants Congress broad powers of taxation. Therefore, if the “penalty” could instead be re-characterized as a tax, the statue could be upheld.

Roberts noted if a statute had two conflicting interpretations and one of those interpretations violated the Constitution, the Court should adopt the interpretation that upholds the statute. This well-established concept, called “constitutional avoidance,” is intended to apply if there is ambiguity in the law.

Roberts used the example of a law stating “no vehicles in the park.” Does that include bicycles? Let’s say including bicycles would violate the Constitution. Therefore, the court would adopt an interpretation that precludes bicycles. In his example, the meaning of “vehicles” is unclear and hence open to interpretation.

But PPACA is crystal clear: buy insurance or pay a penalty to the IRS. The statute even refers to the payment as a “penalty.”

Disregarding this and paddling out to his own legal island, Roberts embarked on a tactic to save PPACA by what he termed a “saving construction”: despite the statutory language, the “penalty” was actually a “tax.”

Roberts justified his decision with four reasons. The payment is a “tax”, not a “penalty” because (with my simple-minded comments in parentheses):

* It is “far less than the price of insurance”; (Except the “tax” is calculated to equal the average price of a Bronze plan! It says so on the government’s website.)

* It is not triggered by a willful violation- there is no scienter requirement; (Except penalties apply to non-willful violations all the time. If I forget to file and pay my taxes on time, I pay a hefty penalty. Or is that now a tax?)

* It is “collected by the IRS through the normal means of taxation;” (I really don’t know what to say about this one.)

* and, since it is collected by the IRS, and they are prohibited from enforcing punitive sanctions or penalties, it must be tax ; (Circular logic aside, does this mean late fees and interest paid to the IRS are really “taxes” too?)

Implications

Roberts agreed the individual mandate most naturally reads as a penalty. So, absent the canon of constitutional avoidance the law should have been struck down. Instead the Court upheld a law that the majority agreed could open the door for virtually unlimited government regulation, was not the proper means to achieve the statute’s desired reforms, and violated the Commerce Clause.

If there is any upside to this ruling, it is the Court took a mini-step back from Wickard. The government can regulate everything (or nothing) but for extreme cases like regulating inactivity they must do so using taxation powers. It is a miniscule victory for liberty but a victory nonetheless.

Of course we are only a few years removed from this so the legacy of NFIB v Sibelius is unclear. It has ushered in a billion dollar website that initially flopped and a good deal of uncertainty around a huge sector of the nation’s economy. Millions now receive a government subsidy, and any government subsidy, once rendered, immediately becomes “essential.” Yet the permanent status of those subsidies remains in doubt. Where the Court is charged with providing clarity and direction, in this instance they failed.

As we’ll see in examining future cases a poorly rendered decision invites challenge, and the continuing onslaught of litigation against NFIB certainly indicates that to be the case. King v Burwell, challenging whether the federal government can step in and establish an exchange, is the latest.

It also seems to signal Roberts’ willingness to perform legal origami in order to uphold a statute which, in one sense, is typical of judicial conservatism. Ironically, one of the most liberal Justices (Ginsberg) employed that same tactic, as we’ve mentioned previously. With the myriad issues facing the Court and this judicial philosophy employed by the Chief Justice and liberal Justices when it suits their purpose, the future promises to be interesting.

But more than that, for the first time in our nation’s history the government can now force us to purchase a service from a private company. Astoundingly, the government can now compel an entirely private transaction. The erosion of liberty is staggering. This, for now, is the law in the “land of the free,” and the Court’s ruling on NFIB is to blame.

Up next: Foundations of Sand

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