6th Cir: Individual Mandate Within Congress’s Commerce Clause Power

The Court of Appeals for the Sixth Circuit affirmed a district court ruling that the minimum coverage provision of the Affordable Care Act is a valid exercise of Congress’ authority under the Commerce Clause. Thomas More Law Center v. Obama, Case No. 10-2388, 2011 WL 2556039  (6th Cir. June 29, 2011).  The three judges agreed that the plaintiffs have standing, and Judge Martin (nominated by President Carter) wrote that part of the opinion.  While Judge Martin and Judge Sutton (nominated by President George W. Bush) both concluded that the individual mandate is a valid exercise of Congress’s power under the Commerce Clause, the two judges wrote separate opinions on this issue.  With more seniority, Judge Martin got to write the opinion of the court; Judge Sutton concurred in the judgment.  Judge Graham (nominated by President Reagan) dissented on the Commerce Clause issue.  Martin did not reach the issue of the constitutionality of the individual mandate under the taxing power.  Sutton wrote for himself and Graham an opinion of the court holding that the individual mandate could not be upheld under Congress’s power to tax.

Martin, speaking for all three judges, addressed the issue of standing, which requires plaintiffs to demonstrate actual, present harm, causation and redressability.  The court easily found causation and redressibility, explaining that the United States caused the alleged harm by enacting the minimum care provision and that invalidating the provision would redress the harm.  Turning to the issue of injury, the court accepted the plaintiff’s declarations that the pending implementation of the mandate has changed their present spending and savings habits.  The court was satisfied that the injury was imminent, because the only events that would prevent the harm (“[p]laintiffs…could leave the country or die, and Congress could repeal the law”) are improbable or highly speculative.

Martin also wrote for the court that the Anti-Injunction Act, which states that “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court” does not bar the suit. 26 U.S.C. § 7421(a).  The Anti-Injunction Act only applies to taxes, while the ACA refers to the coverage provision as a penalty.  Although “tax” and “penalty” are sometimes used interchangeably, the court found meaningful variation in Congress’ choice of words, which barred litigation over “taxes” in one section, while imposing a “penalty” in another.  Sutton also pointed to the ACA’s prohibition on the IRS using its customary tools available for collecting taxes and penalties, the tools the Anti-Injunction Act was enacted to protect, to support the conclusion that the minimum coverage provision is a penalty, not a tax.

There are three separate opinions on the Commerce Clause issue.  Martin argued that the individual mandate is constitutional because it falls under Congress’ power to regulate activities that substantially affected interstate commerce.  He began by defining the type of activity the provision sought to regulate.  Martin remarked that, while in a narrow sense the provision might be said to regulate the health insurance market by requiring individuals to maintain minimum coverage, Congress was actually concerned with the economic implications of the broader health care market.  In addition, self-insurance is an activity because it involves an individuals’ assessment of their own risk of harm and the extent to which they must set aside funds or arrange their affairs in accordance with that assessment.

Citing Gonzalez v. Raich, 545 U.S. 1, 22 (2005) Martin emphasized that the court only needed to find that self-insuring was an economic activity and that Congress had a rational basis for concluding that, in the aggregate, self-insurance had a substantial affect on interstate commerce.  In Raich, the Court defined “economics” as “the production, distribution, and consumption of commodities.” Id. at 25.  Martin found, considering virtually every individual in the country consumes health care services and the backdrop of free services required by law, foregoing medical assistance and attempting to cover the cost of health needs by self-insurance was just as much an economic activity as purchasing an insurance plan.  In addition, evidence shows that 50 million non-elderly Americans are uninsured, accounting for billions of dollars ($43 billion in 2008) in uncompensated health care costs that are passed from private insurers onto family premiums.  Because the practice of self-insurance drives up the cost of private insurance and shifts the costs to third parties, Congress had a rational basis to believe that self-insurance substantially effects interstate commerce.

Martin argued that even if self-insurance did not substantially affect interstate commerce, the provision would still be constitutional because it was essential to a broader regulatory scheme.  The plaintiffs conceded the Congress had authority, under the Commerce Clause, to regulate the interstate markets in health care delivery and insurance.  Moreover, no one denied that Congress had the authority to enact reforms that barred insurance companies from denying coverage to individuals with pre-existing conditions or from charging higher rates based on an individual’s medical history.  The legislative record showed that seven states enacted similar reforms without a minimum coverage provision and their insurance markets suffered detrimental effects which escalated costs and caused insurance companies to leave the market.  Given this evidence, Martin concluded that Congress had a rational basis for believing that excluding the self-insured from its reforms would undercut the broader regulatory scheme.

Martin rejected the argument that the minimum coverage provision impermissibly regulated inactivity.  Neither the text of the Commerce Clause nor the Supreme Court has ever addressed the difference between activity and inactivity.  The Court has reiterated that Congress’ authority under the Clause is guided by “broad principles of economic practicality.” United States v. Lopez, 514 U.S. 549, 571 (1995).  In addition, Martin found that the health market is special, in that virtually every American actively participates in it because of “two unique characteristics of the market: (1) virtually everyone requires health care services at some unpredictable point; and (2) individuals receive health care services regardless of ability to pay.”  Thus, even if self-insurance is considered inactivity, there is no constitutional bar to its regulation.

Sutton concurred in the judgment reached in Martin’s opinion, but did not join it.  After a short recital of the Court’s Commerce Clause history, Sutton considered two questions: whether the individual mandate passes the substantial-effects test, and if so, whether some novelty in the law warrants striking it down nonetheless.  Reiterating Congress’ findings on the cost of uncompensated care for the uninsured, Sutton concluded that the decisions and actions of the self-insured substantially effect interstate commerce.  Congress did not exceed its power in deciding how to regulate this group because the basic idea of the policy is to compel individuals to pay for their health care now, as opposed to later.  Faced with $43 billion in uncompensated care, it is reasonable for Congress to require all covered individuals to pay now so that the money will be available to pay for all care as the need arises.

Sutton found that the mandate is consistent with Court precedent and is no more intrusive than other government invasions into traditional state police power.  In Wickard, the Court upheld a decision to regulate wheat that would never leave an individual’s farm and in Raich the court upheld a prohibition on growing medical marijuana that would never enter a local or national market.  Sutton found that, unlike Congress’ attempts to regulate guns near schools in Lopez or domestic violence in Morrison, regulation of the healthcare industry is quintessentially economic.  Congress did not need to pile “inference upon inference,” Lopez, 514 U.S. at 567, to find that the $2.5 trillion health care industry, which is largely financed through insurance companies, is economic in nature.

Sutton considered the argument that Congress has only ever regulated the conduct of individuals who have voluntarily entered commerce, and the Commerce Clause does not grant the authority to regulate the activities of “inactive” individuals.  He rejected this theory, noting that Congress does have the authority to compel people to undertake tasks under other enumerated powers not under the commerce power; the government has the authority to make people pay taxes and conscript individuals into the army.  Moreover, regulating inactivity does not obliterate the limits of Congressional power, because courts still recognize the line between economic and non-economic conduct.

Sutton found that, even though the plaintiffs bring a theory of constitutional validity that the Court has never heard before, this only shows that the Court has considerable discretion to resolve the dispute; appellate courts do not have similar discretion, as they have the duty to respect and rely on the language of Court precedent.

Sutton also rejected the claim that the Commerce Clause contains an action/inaction dichotomy.  Nothing in the language of the statute implies such a limit and the level of generality in which the plaintiffs present the argument does not make it clear what is action versus inaction or whether a workable distinction exists. For example, it is not clear whether requiring an individual who voluntarily purchased insurance prior to the mandate to maintain that coverage is activity or inactivity.  In addition, in the Lottery Cases, the Court held that the power to regulate included the power to proscribe and prescribe.  In Wickard and in Raich, the Court allowed regulation of commodities that never entered any commercial market.

In his conclusion, Sutton emphasized that while the Act was not facially unconstitutional, nothing in his opinion meant that individuals could not bring as-applied challenges to the mandate as the relevant agencies implement it, should Congress cross a constitutional line.

Martin did not reach the question of whether the individual mandate can be sustained under Congress’ Tax Power.  Sutton wrote the court’s opinion on the taxation power, joined by Graham.  The court found that the mandate was a regulatory penalty, not a revenue-raising tax.  Sutton relied on the words of the mandate, which used the term “penalty,” not “tax” and legislative findings that Congress intended to invoke its commerce power, rather than its taxing power.  In addition, the central function of the provision was not to raise revenue.  Congress clearly intended to change individual behavior, evidenced by the general requirement to buy private insurance, which would not raise any revenue for the government, and the cap on the penalty being set at the price for private health insurance.  Evidence that the penalty will cause revenue does not turn it into a tax, as that would make every monetary penalty, regardless of intent, a tax.  Further, placing the responsibility of enforcement on the IRS does not imply a tax, because the IRS has historically been placed in charge of other penalties and the act prohibits the IRS from using many of its enforcement tools to collect the revenue.

Sutton noted that because of Congress’ plenary power under the taxing power, if the legislature had tried to enforce the mandate as a tax, it likely would have been constitutional.  No matter how blurred the line between “penalties” and “taxes” may be because of similar traits, the court rejected the government’s claim that there is no longer a distinction between Congress’ taxing power and Commerce Clause power.  Sutton concluded that it is up to the Supreme Court to formally abandon the distinction between taxes and penalties, refusing to accept the government’s argument that the Court had previously done so in Bob Jones Univ. v. Simon, 416 U.S. 725, 741 n.12 (1974); Sutton called the language pure dicta, because it was not necessary to the holding and the case involved the Anti-Injunction Act rather than the taxing power.

Graham dissented on the Commerce Clause issue.  Graham argued that the mandate does not regulate the commercial activity of obtaining health insurance; instead, the mandate regulates the status of being uninsured.  While Graham conceded that forcing all individuals to obtain health insurance would have a substantial effect on commerce, he contended that the government cannot justify its use of power through the substantial effects that it creates.  The Courts must look to the existing commercial market Congress seeks to regulate, not the impact those regulations will have.  Graham agreed with the plaintiffs that the mandate essentially forces a non-participant into a commercial market.  While conceding that the decision not to buy insurance can be an economic decision, Graham points to Lopez and Morrison where the Court did not allow Congress to use causation (the legislature found that the cost-shifting to society caused by violent conduct created a substantial effect to commerce) to satisfy the substantial effects test.  Graham concluded that the mandate is akin to the type of general police power reserved to the States and the people, and that if the mandate is upheld, it will be hard to find a limit to Congress’ power under the Commerce Clause.

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