As described in The Supreme Court Won't Strike Health Reform - Part I, the forecast for the entire Affordable Care Act, or "Obamacare," is partly sunny. Here in Part II is the forecast for the Act's Medicaid expansion and an analysis of whether the individual mandate's penalty is a tax. If it is, then under the Anti-Injunction Act, the Supreme Court cannot review the constitutionality of the mandate at all right now. But again, the prediction is that lightning is not likely to strike down health reform.
The Medicaid Expansion: Why It Will Survive & the Potential for New Federalism Winds
Fair weather is expected for health reform's Medicaid expansion. But, the legal relationship between the state and federal governments -- what scholars dub "federalism" -- may need to be closely watched as the Supreme Court considers the expansion. New federalism winds appear likely to blow.
First, what exactly is Medicaid? Medicaid is the country's medical "welfare" for eligible low-income persons. It grew out of social movements that provided assistance to some, but not all the poor, primarily those believed to be "deserving." Typically, those eligible for Medicaid include low-income children, pregnant women, the elderly, blind or disabled persons, and those in need of nursing home care. The 2010 health reform act expands Medicaid eligibility to anyone below the age of 65 with income less than 133% of the federal poverty line.
Medicaid differs from Medicare, which is a fee-based medical insurance program for the elderly run wholly by the federal government. Medicaid is state-run but funded with both state and federal dollars. Federal Medicaid funding is substantial -- between 50% and 83%, depending on varying factors in each state -- plus, federal funds cover about half of the states' administrative costs.
Medicaid epitomizes congressional spending for what the Constitution calls our "General Welfare," and exemplifies "cooperative federalism" between the state and federal governments. The federal purse provides an incentive for states to agree to provide medical assistance to their poor, but when they accept federal dollars, they must comply with federal Medicaid requirements.
After Obamacare, 26 states are claiming before the Supreme Court that they do not agree with the expansion of Medicaid. They attack these reforms as "unaffordable," since they must administer Medicaid and share in some of its costs.
The states claim that they're incapable of quitting Medicaid because they've become so dependent on its substantial federal funding, and that if they refused federal dollars, they could not possibly absorb the entire cost of their poor's medical needs. They attack this dilemma -- the unaffordability of Medicaid's expansion, yet their incapability of quitting Medicaid -- as unconstitutional "coercion."
Their attack could spur the Supreme Court to specify new federalism constraints on Congress' spending power.
In 1987's South Dakota v. Dole and 1992's New York v. US, the Court restricted Congress' use of the spending power by forbidding the national government from compelling or "coercing" the states. The Court never explained where this restriction came from, and failed to explicitly attach it to the 10th Amendment, which reserves powers not delegated to the federal government "to the states...or to the people."
However, in more recent cases (2006's Arlington Central Sch. Dist. Bd. of Ed. v. Murphy, 2010's US v. Comstock, and 2011's Bond v. US), several Justices have written further on the 10th Amendment and its limitations, and dropped clues that the "coercion" restriction may actually stem from that amendment.
The Court may use the Medicaid expansion as an opportunity to announce a new doctrine of federalism that explicitly roots the coercion limitation in the 10th Amendment, and spell out a new inter-relationship between the state and federal governments. This could impact a number of federal programs that depend on the provision of federal funds to the states, and could become a major doctrinal shift in favor of the states.
Even so, the Court is not predicted to topple the expansion as "coercive," and here's why: Congress increased federal funding to cover the total cost of Medicaid's expansion until 2016, then gradually tapering to cover 90% of its costs by 2020 and beyond, to ease the expansion's fiscal impact on states. And, Congress is giving states ample time to adapt to the change -- until 2014.
In light of these mitigating actions, the "coercion" argument loses its force. Indeed, a number of other states have disagreed with the 26 challengers, embracing the reform act's expansion of Medicaid precisely because they appreciate the additional federal funding.
Given that no court has found "coercion" to date, the headwinds of judicial restraint will likely deter the Court from announcing a brand new federalism doctrine and using it to strike health reform's Medicaid expansion. Worth watching, however, will be how blustery any new constraining winds on the spending power gust for federalism in the future.
The Anti-Injunction Act (AIA): Strange Bedfellows on Whether the Mandate's Penalty is a "Tax"
One key thing to remember is that the Anti-Injunction Act (AIA) could block all legal attacks on the individual mandate. Two judges of the Fourth Circuit Court of Appeals and one judge of the D.C. Circuit concluded that all challenges to the mandate must be dismissed due to the AIA. In their view, the monetary penalty for failing to comply with the mandate equates to a tax, and if they're right, the AIA will knock the wind out of all the attacking storms.
First, what does the AIA do? The AIA is a Reconstruction-era statute that bars any lawsuit challenging "taxes" or monetary penalties legally equivalent to taxes.
The AIA is jurisdictional, which means it concerns whether the Supreme Court even has the power to review the constitutionality of the individual mandate. The Court must decide the AIA issue before anything else, because if it applies, the Court has no authority to strike or uphold the mandate.
Why does the AIA matter? Supporters of Obamacare often justify the constitutionality of the individual mandate based on Congress' nearly unquestioned power to tax. Yet ironically, the Obama Administration cannot argue the penalty is a tax supported by the taxing power. To do so runs smack into the AIA bar.
In a perfect demonstration of "strange bedfellows," both Obama's Justice Department and the challengers to the mandate have joined forces before the Supreme Court to argue that the AIA does not apply. Because they've aligned, the Court has appointed veteran legal counsel to argue the opposing view that the AIA does apply.
If the Court holds that the penalty equates to a tax, no legal challenge can be heard until after someone pays the penalty in 2015. Rather than wait until then, both the Administration and health reform's challengers seek a ruling now on whether the mandate is constitutional under Congress' "commerce" and "necessary and proper" powers, as discussed in Part I. But, by seeking a ruling in 2012, the Administration forgoes another constitutional support for the mandate's penalty -- Congress' taxing power.
So, is the penalty a "tax" that bars review? The health reform act charges the IRS with "assessing and collecting" the mandate's penalty. Arguably:
- The penalty is not a tax because Congress did not arm the IRS with every available tax enforcement tool to collect it. (The IRS' primary enforcement of the penalty will be withholding from individual tax refunds.)
- The penalty is a tax because the statute's text plainly refers to it as being "assessed and collected" by the IRS, like any other tax penalty.
Which argument will win is difficult to predict, but the Court's nine Justices have repeatedly expressed a penchant for strict reading of simple statutory text.
The Court has also interpreted the AIA very broadly, holding in three cases, Bob Jones Univ. v. Simon, Alexander v. Americans United, and U.S. v. American Friends Serv. Committee, that the AIA bars suits related in any way to a tax-related matter until payment of the tax is made.
For this reason, both sides had better brace themselves: the AIA could very well become a formidable barrier to a constitutional review of the mandate at all (or at least until 2015).
And, if the AIA does bar review, health care reform will proceed on schedule toward full implementation by 2015. If the mandate is challenged again then, its attackers could find it much harder to dislodge. According to some, a bar to Supreme Court review in 2012 might be a "good solution" in a politically charged election year. Overall, therefore, Obamacare appears to be facing fair skies, despite a few clouds in the distance.
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