Supreme Court Upholds ACA's Individual Mandate, But Limits Scope Of Medicaid Expansion

In a heavily anticipated landmark ruling, the Supreme Court has upheld the constitutionality of the so-called "individual mandate" of the Affordable Care Act – i.e., the requirement that those not insured privately, through their employer or through a governmental program, must either purchase minimum essential health insurance coverage or pay a "penalty" for failing to do so. The majority opinion was authored by Chief Justice Roberts and joined in part by Justices Breyer, Ginsburg, Kagan and Sotomayor.

Like the four dissenting Justices (Scalia, Thomas, Kennedy and Alito), Chief Justice Roberts concluded that the individual mandate exceeded the "outer bounds" of Congress' regulatory authority under the Commerce Clause because the mandate essentially regulates economic "inactivity" – i.e., the failure to purchase insurance. Nonetheless, a five-member majority sustained the individual mandate as a legitimate exercise of Congress' Article I "Taxing Clause" powers. Under this rationale, Congress is entitled to "encourage" the purchase of a product that it could not mandate through the imposition of a reasonable tax.

Applying longstanding rules of constitutional "avoidance" (i.e., that the Court must "save" a federal law from unconstitutionality on any reasonable ground available), the majority found that the mandate passes muster when construed under Congress' taxing authority as a measure that effectively "encourages," rather than absolutely "commands," a desired conduct (i.e., the purchase of health insurance coverage). As examples, the opinion references accepted use of taxes to discourage cigarette use and foreign product purchases, and of tax incentives to encourage purchases of homes. Although the payments in lieu of purchasing health insurance were (for obvious political reasons) "labeled" a penalty by Congress, the five-member majority applied a form-over-substance analytical approach and found the payment to be a tax for a variety of reasons. These included the fact that the payments are collected by the IRS, the "penalty" does not turn on any "mens rea" (intent) requirement, is graduated and subject to exemptions based on income, and is not punitive because the maximum penalty was less than the cost of purchasing insurance.

Four Justices (Ginsburg, Breyer, Sotomayor and Kagan) also would have upheld the mandate based on the Commerce Clause in view of the enormous economic impact on commerce attributable to "cost shifting" by the...