This morning, the United States Supreme Court held that the Patient Protection and Affordable Care Act (PPACA) does not violate the Constitution of the United States. KKAL will be preparing a more thorough evaluation of this landmark decision. For now, we are providing this short, quick summary of the decision.
This was a 5-4 decision, in which Chief Justice Roberts was the surprising swing vote – many legal pundits had predicted Judge Kennedy would tip the balance one way or the other. The Court affirmed in part, and reversed in part, the decision of the 11th Circuit Court of Appeals that had upheld the constitutionality of PPACA.
There were three issues before the Court:
1. Does the Anti Injunction Act preclude the Court from hearing or deciding the case at this time?
2. Did Congress act within its constitutional powers when it enacted section 5000A(c) and (g) of PPACA, which requires individuals who do not comply with the mandate to purchase healthcare insurance to pay a “penalty” to the IRS?
3. Did Congress act within its powers under the Spending Clause of the Constitution when it enacted section 1396 of PPACA, which expands the scope of individuals eligible for Medicaid assistance and threatens to revoke the federal Medicaid funding to states who do not comply with the expanded coverage provision?
As to the first issue, the Anti Injunction Act provides that “no suit for the purposes of restraining the assessment or collection of any tax shall be maintained in any court by any person.” 26 U.S.C. 7421(a). Rather, an aggrieved person must first pay the tax and then sue for a refund. Accordingly, if the “penalty” for failing to purchase healthcare insurance is a “tax” within the meaning of the Anti Injunction Act, the Court would not be able to hear the case until after the 2014 effective date of the penalty provision.
The Court concluded that “penalty” is not a “tax” within the meaning of the Anti Injunction Act. The Court held that Congress did not intend it as a tax, and legislative intent is dispositive when the Court interprets legislation like the Anti Injunction Act. Accordingly, the Anti Injunction Act did not bar this suit.
Turning to the second issue, the Court held that the “penalty” for violation of the individual mandate was a constitutional exercise of Congress’ authority under the Article I of the Constitution, which empowers Congress to “lay and collect taxes.” The Court reasoned that although Congress did not intend the “penalty” to be a “tax,” the nature and character of the penalty “can be read as imposing a tax on those who go without health insurance.” Unlike its decision interpreting the Anti Injunction Act, where the Court held that the intent of Congress regarding legislation controls (and thus the penalty was not a tax under the Anti Injunction Act), the Court held that in its interpretation of the Constitution, the intent of Congress does not control (and thus the penalty is a tax under Article I of the Constitution). The Court thus ruled that the penalty is a lawful tax under Article I, even thought it was not a lawful exercise of Congress’s authority under the Commerce Clause of Article I.
Regarding the third issue, the Court held that Congress exceeded its authority under the Spending Clause of Article I of the Constitution, by threatening States with loss of existing federal Medicaid funding if the States decline to comply with section 1396 of PPACA, which requires expansion of the scope of individuals eligible for Medicaid assistance. However, the Court held that this Constitutional violation was easily remedied, by precluding the Secretary of Health and Human Services from withdrawing funding from those States that do not comply with the expanded coverage provision. This remedy, according to the Court, saved section 1396 from being declared entirely invalid.
We will be providing a more detailed analysis of the Supreme Court’s opinion in a follow up communication. In the meantime, please do not hesitate to contact any member of our Labor and Employment Group with questions.