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Supreme Court Considers Healthcare Law - Day One

Publisher: Day Pitney Alert
March 26, 2012
Day Pitney Author(s) J. Bruce Boisture

This is a dispatch prepared by Day Pitney's Bruce Boisture, who attended today's Supreme Court session concerning the constitutionality of key provisions of the Patient Protection and Affordable Care Act.

The U.S. Supreme Court today held the first of three days of hearings to consider the constitutionality of two key provisions of the Patient Protection and Affordable Care Act ("ACA"). In this and three subsequent dispatches, we will summarize the issues under consideration and share the observations of our colleague in attendance at the hearings about the issues and themes that come to the fore during the oral arguments to the Court.

Overview

The ACA makes fundamental changes in the health insurance market, aiming, in the words of one of its provisions, at "near-universal health insurance coverage." Among other changes, it compels guaranteed issuance and community rating in the markets for individual coverage. It also requires (with some exceptions and some subsidies) that, beginning in 2014, all people who file a federal income tax return obtain health insurance coverage for themselves and their dependents or pay a penalty -- the controversial "minimum-coverage requirement."

Beginning in 2014, the ACA extends Medicaid coverage to able-bodied single adults without dependents. Although Medicaid is a state-administered program, the federal government will bear nearly the entire cost of Medicaid benefits for these newly eligible recipients, as well as most of the associated administrative costs. The resulting costs to the states are variously estimated at $20 billion to $40 billion over the next 10 years. States must implement this eligibility expansion (and other related program changes) or lose their eligibility for all federal Medicaid payments. Under the ACA, however, Medicaid remains a cooperative federal-state partnership, with states free to elect not to participate.

The U.S. Supreme Court has agreed to consider challenges to the constitutionality of these two ACA provisions after several federal courts reached divergent conclusions. In the three cases it has under consideration,[1] individuals, business organizations and 26 states assert these statutes exceed Congress' constitutional authority, while the U.S. Solicitor General maintains the contrary position on behalf of the federal government.[2] In an unprecedented three days of oral argument, the Court will take under consideration four fundamental issues:

Jurisdictional Issues: Whether the federal courts even have authority (technically, "jurisdiction") to decide the challenge to the minimum-coverage requirement at this time or whether such jurisdiction is denied by the federal statute that generally bars lawsuits challenging tax impositions until after the taxes are paid. Also, do the states have the right to invoke the Court's authority to decide the minimum-coverage issue?

Article I Issue: Whether Congress, when it enacted the minimum-coverage requirement, exceeded its legislative authority under the commerce clause and its taxing power, both of which are contained in Article I of the Constitution?

Severability Issue: If Congress did exceed its authority, what is the appropriate remedy: Should the Court declare only the minimum-coverage requirement constitutionally invalid, or should it declare some broader set of ACA provisions -- or even the entire ACA -- invalid?

Spending Powers Issue: Did Congress exceed its taxing and spending powers under Article I when it conditioned each state's right to future federal Medicaid funding on the state's participation in the ACA's Medicaid-eligibility expansion?

Hearing -- day one -- the jurisdictional issue

The federal Anti-Injunction Act ("AIA") prohibits any persons from suing in the federal courts to restrain the assessment or collection of federal taxes. Instead, as a general rule, one must pay the assessed tax and then bring any challenges to the tax before the courts in a lawsuit seeking a refund. In the words of the Supreme Court, the primary purpose of the AIA is "the protection of the Government's need to assess and collect taxes as expeditiously as possible with a minimum of pre-enforcement judicial interference, 'and to require that the legal right to the disputed funds be determined in a suit for refund.'"[3]

The ACA enacts the minimum-coverage requirement by providing that, beginning in 2014, nonexempted federal income taxpayers who fail to maintain a minimum level of health insurance coverage will owe an annual penalty payment. The amount of the penalty will be calculated (within certain limits) as a percentage of household income for federal income tax purposes. The penalty will be self-reported on the taxpayer's federal income tax return and assessed and collected by the Internal Revenue Service in the same manner as "assessable penalties" under the Internal Revenue Code ("IRC"). Individuals who are not required to file federal income tax returns will be exempted from the penalty.

All the parties to the cases before the Court (as well as the lower federal courts that considered the issue) agree that the AIA is inapplicable here, even though the penalty associated with the minimum-coverage requirement is collected through the income tax system. Because the AIA may affect the fundamental authority of the Court to hear and decide the case, however, the Court is bound to make its own review of the question. In fact, to assist it in doing so, it appointed its own amicus curiae (friend of the court) to brief the arguments supporting the view that the AIA bars the Court's consideration of the cases. In the briefs filed with the Court, the parties to the case and the amicus curiae defined the following AIA questions and issues for the Court's consideration:

  • Even if the AIA would otherwise apply to bar this suit, have the parties (particularly the federal government) effectively waived the AIA restriction, relieving the Court of any AIA restriction otherwise applicable to it?
  • The AIA, by its terms, bars lawsuits that seek to restrain the assessment and collection of "taxes." Does a close reading of the ACA and the IRC indicate that the minimum-coverage penalty is not a "tax" for purposes of the AIA? If so, and if the minimum-coverage requirement is upheld, will individual taxpayers in the future be able to contest their individual liability for the minimum-coverage penalty in prepayment litigation such as this?
  • If the minimum-coverage penalty is a "tax" for AIA purposes, does this case fall into a limited category of cases that may nonetheless be maintained because the challenged tax is manifestly unsustainable or infringes the sovereign prerogatives of a litigant state that is otherwise without a remedy?
  • If the AIA bars a present challenge to the minimum-coverage penalty, may this lawsuit proceed anyway because it is, in essence, a challenge to the insurance mandate, not the penalty? 
  • Does the AIA even apply to the states that are challenging the minimum-coverage requirement, or are they not "persons" within the meaning and scope of the AIA?

Separately from the AIA, the federal government has questioned the legal right (known as "standing") of the states (but not the private parties) to challenge the constitutionality of the minimum-coverage requirement. As a general rule, a plaintiff seeking to invalidate a federal statute must show that it has suffered an injury in fact caused by the challenged statute and fairly redressable by a decision in its favor. It may not rely on rights of or damages to third parties. As the Supreme Court noted as recently as last year, this rule operates as an important check on using litigation as a forum for airing policy or political disagreements. Here, the government argues, the states are not affected by the minimum-coverage requirement and therefore have no standing to challenge its constitutionality in court.

Today's oral argument

The Court devoted almost the entire one and one-half hours of oral argument today to the discussion with counsel of three alternative resolutions of the AIA issue:

  • The AIA is a jurisdictional issue and bars judicial consideration of this lawsuit.
  • The AIA is a jurisdictional issue but does not apply to this lawsuit, either because the penalty associated with the individual mandate is not a "tax" or because it is not even challenged here.
  • The AIA is not a jurisdictional statute at all and has been properly waived by the parties, so the Court may proceed to hear and decide the case.

A very active and well-prepared bench barraged all three counsel with non-stop questions, sometimes not even waiting for full answers before moving to the next inquiry.

Robert A. Long Jr., as amicus curiae, argued the proposition that the AIA is jurisdictional and bars this lawsuit. He pointed out that in a number of the Court's prior decisions, it had characterized the AIA as "jurisdictional." He suggested that prior cases in which apparent exceptions had been made were either ones in which the AIA had not been applicable at all or dated to an earlier era when the Court's understanding of the AIA's constraints on its jurisdiction has been less clear.

Chief Justice Roberts and Justice Kagan, pointing to prior Court decisions, suggested to the contrary that the Court had previously treated the AIA not as defining the Court's jurisdiction but as a procedural rule to which exceptions may be made by the Courts, especially when the parties agree. Justice Alito similarly questioned whether any of the Court's prior AIA cases would have been differently decided if the AIA had been described not as "jurisdictional" but as a "mandatory claims processing rule." Justice Sotomayor pointed out that Congress, despite frequent amendments to the AIA, has never countermanded those instances in which the Court had permitted an anticipatory challenge to a tax. Mr. Long answered all of these points generally as he had in his brief. Justice Scalia summarized this part of the argument with his observation that the law on this point is at best unclear, and that "ouster of jurisdiction," that is, closing the courts to would-be litigants, is generally not favored in the face of such uncertainty.

Justice Breyer directed Mr. Long's attention next to the second wing of his argument. Stating that he is inclined to agree that the AIA is jurisdictional, Justice Breyer questioned whether the penalty associated with the individual mandate should be regarded as a "tax" that would call the AIA into play. The penalty, Justice Breyer observed, enforces a healthcare regulation, is rooted outside of the IRC, never terms itself a "tax," does not specifically refer to the AIA, simply borrows the collection provisions of the IRC, and does not call into play the policy underlying the AIA of non-interference with revenue collection.

Mr. Long responded that "tax" is not defined explicitly in the AIA (or the IRC, for that matter), but that the ACA directs that the penalty be "assessed and collected" under the provisions of the IRC, indicating that the penalty should be regarded as a "tax" for this purpose. He urged that because the penalty is predicted to raise significant revenue due to non-compliance with the individual mandate and therefore to avoid interference with this revenue raising, this "exaction" should be deemed a tax for purposes of the AIA.

These arguments got short shrift from several Justices, who pointed out that the "assessment and collection" section is an instruction to the Secretary of the Treasury to collect the penalties and not a jurisdictional constraint on the courts (Justice Scalia), that if the individual mandate is honored, there will be no penalty revenue anyway, so the government cannot be counting on the penalty payments (Justice Ginsburg), that the ACA had made other provisions (but not this one) explicitly subject to the AIA (Justice Kagan), and that the ACA does not ever denominate the penalty as a "tax" for purposes of the AIA (Justice Sotomayor).

Justice Sotomayor brought the questioning of Mr. Long to a conclusion by asking him to point out the harm that would follow if the Court were to find the AIA inapplicable to the individual-mandate penalty. Mr. Long conceded that only a handful of other tax-related penalties, by the same reasoning, would likely escape the AIA. Individuals subject to the penalty, however, might file pre-payment lawsuits challenging the validity, applicability, or amount of the penalties that they might be required to pay, he suggested.

Solicitor General Donald B. Verrilli Jr., appeared on behalf of the federal government in support of the proposition that although the AIA is jurisdictional, it does not bar this lawsuit because the individual-mandate penalty is not a "tax" for purposes of the AIA. In response to an initial question from Justice Alito, he explained that the government's conclusion about the AIA rests on a close reading of the statutes involved (AIA and ACA) and the conclusion that when it enacted the ACA, Congress did not make the AIA applicable to the individual-mandate penalty. In contrast, in considering the separate question of congressional authority to enact the penalty, the government will argue tomorrow that the taxing power granted to Congress by the Constitution broadly supports levying both taxes and penalties, whether or not they are made subject to the AIA.

Returning to the AIA question, he stated that it is the considered view of the federal government that the AIA should be held by the Court to be a jurisdictional statute that leaves no discretion to the courts to craft equitable exceptions. He pointed out in response to Justice Ginsburg's questions, however, that if the Court accepts the government's position that the AIA is inapplicable to the penalty, it need not decide the question of whether the AIA is jurisdictional or not. (Justice Kennedy's nicely timed and delivered "Don't you want to know anyway?" brought laughter all around.) Chief Justice Roberts pressed this point, however, asking whether one of the Court's earlier decisions had not already settled the question of the jurisdictional character of the AIA. This led to various suggestions about distinguishing that earlier case - as an outmoded view of the law (SG Verrilli), litigation between private parties rather than against the government (Justice Breyer), or an attempt to enjoin the payment, not the collection, of a tax (Justice Scalia).

The Justices used the balance of SG Verrilli's argument time mostly to explore the proposition that the AIA is inapplicable to this case because it challenges the individual mandate, not the penalty. An individual exempted from the penalty but not the individual mandate will not be considered a lawbreaker, the Solicitor General stated, if he does not obtain insurance. To the question whether he has ever violated the law, such an individual will be justified in answering "No," said the Solicitor General. In closing, in response to Justice Alito's question, the Solicitor General stated that the government does not anticipate a "flood" of pre-payment lawsuits from individuals challenging the application of the penalty because these individual cases will go to the amount of the penalty due and all of the normal doctrines of exhaustion of administrative remedies will apply.

Gregory G. Katsas, appearing on behalf of the challengers of the individual mandate, argued that the AIA is not a jurisdictional statute, has properly been waived by the parties, and therefore is not a bar to the Court's consideration of the case. As a procedural statute about litigation, freighted with exceptions, he suggested, it is not unlike a trademark-related law that the Court held non-jurisdictional in an earlier case. Justice Breyer suggested that the purpose of the AIA - to protect the revenue lifeblood of the government - made it completely different from the trademark-claims statute, and quite unlikely that Congress would have meant it to be subject to waiver by the parties. In response to a question from Justice Kagan, Mr. Katsas conceded that a statute (such as the AIA) does not need to describe itself as "jurisdictional" to be regarded as such, but should at least be clearly directed to the courts, he suggested, to achieve that status.

Justice Kagan led the Court's brief questioning regarding the proposition that the states have standing to challenge the individual-mandate. Mr. Katsas asserted (as he had in his brief) that the states will be harmed by the large increase in the number of Medicaid enrollees if the individual mandate goes into effect. Justices Ginsburg and Kagan pressed Mr. Katsas on this point, obtaining his concession that most of the anticipated new enrollees are already eligible for Medicaid under current state Medicaid eligibility rules, and all would be eligible at the time of their anticipated (and apparently unwelcome) enrollment. Justice Kagan observed that it would be odd to conclude that enrollment of eligible individuals into a government-sponsored program would constitute "harm" giving rise to standing to challenge a separate statute arguably encouraging such enrollment.

Summary

It is notoriously impossible to predict the Court's eventual decision in a case from the questions it asks in oral argument, and such a prediction will not be attempted here. Nonetheless, it does appear that a fair amount of brush got cleared in the oral argument. It seems quite unlikely that the AIA will be deemed inapplicable because the lawsuit is characterized as a challenge to the individual mandate, not the penalty - this hairsplitting seemed to be met with universal skepticism. It also seems fairly likely that the states will be denied standing to challenge the individual mandate. There remain, then, the core questions: is the AIA jurisdictional or procedural and, if the former, is the individual-mandate penalty a "tax" for purposes of the AIA?



[1] National Association of Individual Businesses v. Sebelius, Docket No. 11-393; Dept. of Health and Human Services v. Florida, Docket No. 11-398; and Florida v. Dept. of Health and Human Services, Docket No. 11-400.

[2] The briefs filed by the parties to the cases, along with more than 150 briefs filed by others, are available for review at http://www.americanbar.org/publications/preview_home/alphabetical.html.

[3] Bob Jones Univ. v. Simon, 416 U.S. 725, 736 (1974).

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