Cheat Sheet

06.28.12

Explaining the Supreme Court Ruling on Obamacare

An insider’s guide to the Supreme Court’s dramatic ruling upholding the Affordable Care Act. By Jesse Wegman.

What exactly did the Supreme Court rule?

By a 5–4 margin, in a decision (surprisingly) written by traditionally conservative Chief Justice John Roberts, the court ruled that the health-care law is constitutional.

The law’s most controversial component, known as the “individual mandate,” requires all Americans to purchase health insurance or pay a “shared responsibility payment” to the government.

On the day the law was enacted, 26 states, several individuals, and others sued to have the law struck down as a violation of the Constitution’s Commerce Clause, which gives the federal government the power to regulate commerce between the states.

In its ruling, the court held that the law could not be upheld under the Commerce Clause, which was the government’s primary argument in its support. “The Federal Government does not have the power to order people to buy health insurance,” Roberts wrote for the majority.

But wait—doesn’t that mean the law should’ve been struck down?

The Commerce Clause argument was only one of three the government made in support of the law. It also argued that the law could be considered a tax, and this is the argument the court bought.

Specifically, the court held that the individual mandate is not a “penalty,” as the health-care law identified it, but a tax, and therefore a constitutional application of Congress’s taxation power.

In deciding to accept the government’s tax argument, the court wrote that “the question is not whether that is the most natural interpretation of the mandate, but only whether it is a ‘fairly possible’ one.”

In accepting the tax argument, the court relied on the “well-established” principle that “if a statute has two possible meanings, one of which violates the Constitution, courts should adopt the meaning that does not do so.”

The court then noted that the government’s argument—that the mandate represented a tax on people who choose not to buy health insurance—“makes going without insurance just another thing the Government taxes, like buying gasoline or earning income.”

In deciding to accept the government’s tax argument, the court wrote that “the question is not whether that is the most natural interpretation of the mandate, but only whether it is a ‘fairly possible’ one.”

How can the court call the mandate a tax if the law itself didn’t call it that?

The court is not bound to interpret laws exactly as they are written, but uses what it calls a “functional approach”—considering the substance of a law in addition to its formal language.

Under this approach, the court ruled that the penalty the law imposes on people who don’t buy health insurance “looks like a tax in many respects,” and that it is permissible under the court’s previous case law for several reasons: the amount of money due is “far less than the price of insurance” and it is collected by the IRS under normal means of taxation.

The court acknowledged that the mandate “is plainly designed to expand health insurance coverage,” and noted that “taxes that seek to influence conduct are nothing new”—for example, the taxing of cigarettes to discourage smoking.

Finally, the court reasoned, the mandate does not make the failure to buy health insurance unlawful. Beyond the payment to the IRS, the court explains, “neither the Act nor any other law attaches negative legal consequences to not buying health insurance.”

So am I going to have to pay more tax now?

Starting in 2016, when the “shared responsibility payment” is fully in place, the amount you would owe for not having health insurance is the greater of 2.5 percent of your income or $695. There is currently no means to criminally prosecute those who do not have health insurance and also refuse to pay the shared responsibility payment.

What’s that part about the Medicaid expansion?

The health-care law also expanded Medicaid to cover all nonelderly people with an income below 133 percent of the poverty line, and gave the government the authority to penalize states that choose not to participate in this expansion by taking away their existing Medicaid funding.

The court called this “economic dragooning” that leaves states with no option but to accept the expansion, and found that it violated the Constitution because states could not have anticipated such a dramatic restructuring of Medicaid.

However, the court found that the Medicaid expansion could be saved by removing the government’s authority to remove all of a state’s Medicaid funds if it chooses not to accept the expansion.

What will happen next?

Politicians have been falling over each other to respond to the ruling.

House Majority Leader Eric Cantor immediately called for a vote to repeal the law. The vote is scheduled for July 11.

“The Supreme Court’s decision to uphold Obamacare is a crushing blow to patients throughout the country,” Cantor said. “Obamacare has failed to keep the president’s basic promise of allowing those who like their health care to keep it, while increasing costs and reducing access to quality care for patients.”
In remarks Thursday morning, Mitt Romney told reporters, “What the court did not do on its last day in session, I will do on my first day if elected president of the United States. And that is I will act to repeal Obamacare.

“Our mission is clear,” Romney said. “If we want to get rid of Obamacare, we’re going to have to replace President Obama. My mission is to make sure we do exactly that.”

Ahead of a closed-door meeting of Republicans, House Speaker John Boehner issued a statement: “Today’s ruling underscores the urgency of repealing this harmful law in its entirety. “What Americans want is a common-sense, step-by-step approach to health-care reform that will protect Americans’ access to the care they need, from the doctor they choose, at a lower cost. Republicans stand ready to work with a president who will listen to the people and will not repeat the mistakes that gave our country Obamacare.”