The Supreme Court upholds Obamacare! Here’s why they did

By now we’re sure you’ve heard that the Supreme Court ruled to uphold the Affordable Care Act— Chief Justice John Roberts joined the four liberal justices who found that the individual mandate is Constitutional. It was a good day for the Obama administration, but more importantly it was a good day for the 33 million Americans expected to get health coverage under the new law.

Still, it’s worth looking at why the Court upheld the law, and what it means for health reform going forward.  

Remember, as we wrote during the hearings back in March, there were four questions before the Court:

1. Does the Anti-Injunction Act prevent the Court from ruling on the individual mandate until 2015?
2. Is the individual mandate constitutional?
3. If the mandate is unconstitutional, should the Court throw out just that part or should it throw out the entire law?
4. Does the new law’s Medicaid expansion unfairly force states to participate?

Let’s see how the Court ruled on all four questions.

1. The Anti-Injunction Act

The Anti-Injunction Act (AIA) is a law passed in 1867, which says that a tax can’t be challenged in court until someone has actually had to pay it. Since no one will have to pay the tax/penalty for not having health insurance until 2015, the question was whether the Supreme Court should even hear the case now.

During the hearings, Solicitor General Donald Verrilli, took what at the time sounded like a weird position. The government wanted the Court to make a decision now, so he argued that the mandate’s penalty was not a tax for the purposes of the Anti-Injunction Act, but the very next day he argued that it was a tax for the purpose of deciding whether the mandate is constitutional.

It didn’t make a ton of sense to us, but I guess that’s why we’re not lawyers, because it worked. Justice Roberts wrote in the Court’s decision:

“Congress did not intend the payment to be treated as a “tax” for purposes of the Anti-Injunction Act.  The Affordable Care Act describes the payment as a “penalty,” not a “tax.”  That label cannot control whether the payment is a tax for purposes of the Constitution, but it does determine the application of the Anti-Injunction Act. The Anti-Injunction Act therefore does not bar this suit.”

2. Is the mandate constitutional?

[For an explanation of why the mandate “penalty” is really a “tax” (and thus constitutional), we highly highly recommend checking out our earlier post: Why one word could determine the fate of health reform.]

In its defense of the mandate, the government cited two distinct powers under the Constitution:

• the power to regulate commerce; and
• the power to enact taxes

Most people expected that the Court’s decision would be based on the first power: either it would agree that the mandate is a valid use of Congress’ power to regulate commerce and uphold the law, or it would side with the challengers, who argued that the mandate goes beyond regulation by forcing people to engage in commerce, and strike it down. And in fact, on this point Justice Roberts did side with the conservative justices, stating that the Framers of the Constitution “gave Congress the power to regulate commerce, not to compel it.”

This is apparently where CNN and Fox News stopped reading the decision and started reporting that the Court had struck down the mandate. But there was more.

The government’s backup argument was that the penalty for not having  insurance is really a tax. Congress has broad powers to tax under the Constitution– even the lawyers challenging the law admitted that it’s constitutional for Congress to tax people without health coverage. Their argument was that the mandate isn’t a tax though, because Congress didn’t call it a “tax” in the bill– they called it a “penalty.”

However, just because Congressional Democrats got cute with the language in the bill (they wanted to avoid charges from Republicans that they were raising taxes) doesn’t mean that it’s not actually a tax. Jack Balkin, a professor of constitutional law at Yale, lays out the rules for something to be considered a constitutional tax:

“The rules for the taxing power are well settled since the New Deal. The tax (1) must promote the general welfare, (2) must raise revenue; and (3) and it must not be a criminal penalty in disguise. The individual mandate passes this test with flying colors.”

Chief Justice Roberts and the four liberal justices agreed with this interpretation and the mandate was upheld.

3. Severability

The Court spent an entire hearing looking at the question of whether the mandate was “severable”– that is, if the mandate was struck down, could the rest of the law still stand? Since the mandate was not struck, the Court didn’t have to decide this question… although it is worth noting that the four justices who ruled against the mandate say that they would have struck down the entire Affordable Care Act.

4. The Medicaid Expansion

Part of the health reform law expanded Medicaid to cover anyone making less than 133% of the poverty line. So while before, only certain categories of poor people could get Medicaid, starting in 2014, anyone who makes less than $14,856 (or $29,000 for a family of four) will be eligible. The Congressional Budget Office estimated that 15 million more people would now be covered by the program, under the new law.

Now, remember that the cost of Medicaid is split between the federal government and the states. The federal government can’t force states to participate in new spending programs, so the Affordable Care Act contained a carrot and a stick to encourage states to go along with the expansion:

• Carrot: The government is picking up almost the entire tab: in the first three years they’ll cover 100% of the expansion, and then eventually that will phase down to 90%. In the end, for every $1 states spend covering those who are newly eligible for Medicaid, they’ll get $9 from the feds.
• Stick: If states don’t go along with the Medicaid expansion, they could risk losing ALL of their Medicaid funding from the federal government.

The states argued that the “stick” is unfairly coercive— that they already get so much money from the federal government for Medicaid that they’re now totally dependent on it. That leaves them no choice but to accept the new terms imposed by Congress.

The Supreme Court agreed and took away the stick, saying that if states choose not to participate in the Medicaid expansion, the federal government can’t threaten to withhold the rest of their federal Medicaid funding.

Where does this leave some of the poorest Americans? Well, it seems unlikely that states would not expand Medicaid– it’s too good a deal for them, and there would be too much pressure from doctors and hospitals (who otherwise would get no reimbursement for treating patients without insurance) to go along with it.

However, if a state does decide not to expand Medicaid coverage, people making less than the federal poverty level are basically stuck without coverage. Jared Bernstein, former economic adviser to Vice President Biden, explains:

“Because the law was written assuming that the uninsured poor would be covered by Medicaid, subsidies to purchase health insurance in the exchanges don’t kick in until higher income levels.  The poor won’t have to pay the tax penalty formerly known as the mandate because of a hardship exemption in the law, but neither will they get the subsidy until their incomes go up enough.

It’s a very weird reversal of the usual means-test for government benefits.  Typically, as your income rises you become ineligible for benefits.  Here, you become eligible.”

House Minority Leader Nancy Pelosi did hint that if states opt out of the Medicaid expansion, the federal government could step in and continue covering 100% of their costs beyond the first three years. That would take a new act of Congress though.

That’s it for now. We’ll have more coverage of the Supreme Court decision over the next few days so check back soon!