The reach of the Federal Government’s (Defendant) many powers is even broader because the Constitution authorizes Congress to “make all Laws which shall be necessary and proper for carrying into Execution the foregoing powers.” However, our respect to matters of policy cannot become abdication in matters of law. “The powers of the legislature are defined and limited; and that those limits may not be mistaken, or forgotten, the constitution is written.” We cannot extend our respect for the policy judgments of Congress so far that we disregard the restraints on federal power that were constructed by the Constitution. And it must be clear that it is this Court’s responsibility to enforce limits on federal power by striking down acts of Congress that violate those limits.
The Federal Government’s (Defendant) first argument is that the individual mandate is a legitimate exercise of Congress’s power under the Commerce Clause and the Necessary and Proper Clause. According to the Government, the health care market is characterized by a significant cost-shifting problem. Eventually everyone will need health care, the time and extent cannot be predicted, but if they do not have insurance, they will often not be able to pay for it. However, state and federal laws require hospitals to provide a certain degree of care to individuals regardless of their ability to pay, and the hospitals end up receiving compensation for only a portion of the services they provide. In order to recover the losses, hospitals pass on the cost to insurers through higher rates, and insurers then pass on the cost to policyholders by charging higher premiums. Congress estimated that the cost of uncompensated care causes family health insurance premiums, on average, to rise by over $1,000.00 per year.
Congress addressed the problem of those unable to obtain insurance coverage due to preexisting conditions or other health issues in the Affordable Care Act. It did so through the Act’s “guaranteed-issue” and “community-rating” provisions. Together these provisions prohibit insurance companies from denying coverage to those with such conditions or charging higher premiums to unhealthy individuals than healthy individuals. However, the guaranteed-issue and community-rating reforms do not address the issue of healthy individuals who decide not to purchase insurance to cover potential health care needs. In fact, that problem is sharply worsened by the reforms because they provide an incentive for individuals to delay purchasing health insurance until they become sick, relying on the promise of guaranteed and affordable coverage. Also, the reforms threaten to impose massive new costs on insurers, who are required to accept unhealthy individuals but are prohibited from charging them the rates necessary to pay for their coverage. This will lead insurers to increase premiums for everyone significantly.
The individual mandate was Congress’s solution to those problems. By requiring that individuals purchase health insurance, the mandate prevents cost-shifting by those who would otherwise go without it. Additionally, the mandate forces more healthy individuals into the insurance risk pool, whose premiums on average will be higher than their health care expenses. This allows insurers to subsidize the costs of covering the unhealthy individuals they are required to accept due to the reforms.
The Federal Government (Defendant) contends that the individual mandate is within the power of Congress because failing to purchase insurance “has a substantial and deleterious effect on interstate commerce” by creating the cost-shifting problem. The path of our Commerce Clause decisions has not always run, but it is now well established that Congress has broad authority under the Clause. For example, this Court has recognized that “[t]he power of Congress over interstate commerce is not confined to the regulation of commerce among the states,” but extends to activities that “have a substantial effect on interstate commerce.” Moreover, the power of Congress is not limited to regulating an activity that by itself substantially affects interstate commerce, but also extends to activities that do so only when combined with similar activities of others.
Congress was granted power to “regulate Commerce” by the Constitution. The power to regulate commerce presumes the existence of commercial activity to be regulated. As expansive as our cases construing the scope of the commerce power have been, they all have one thing in common: They uniformly describe the power as reaching “activity.” However, the individual mandate does not regulate existing commercial activity. It instead compels individuals to become active in commerce by purchasing a product, on the grounds that by failing to do so, they affect interstate commerce. Construing the Commerce Clause to allow Congress to regulate individuals precisely because they are doing nothing would open a new and potentially vast domain to congressional authority. Each day individuals do not do any number of things. In some cases they decide not to do something and in other cases they simply fail to do it. Allowing Congress to justify federal regulation by pointing to the effect of inaction on commerce would bring limitless decisions an individual could potentially make within the scope of federal regulation, and”under the Federal Government’s (Defendant) theory”give Congress power to make those decisions for him.
The Federal Government’s (Defendant) logic would justify a mandatory purchase to solve almost any problem. Another example to consider in the health care market is that many Americans do not eat a balanced diet. That group makes up a larger percentage of the total population than those without health insurance. The failure of that group to heave a healthy diet increases health care costs, to a greater extent than the failure of the uninsured to purchase insurance. Americans are the ones who must bear those increased costs and pay more, just as the uninsured shift costs to the insured. Congress addressed the insurance problem by ordering everyone to purchase insurance. Under the Federal Government’s (Defendant) theory, Congress could order everyone to buy vegetables to address the diet problem. For reasons of their own, people often fail to do things that would be good for them or good for society. Interstate commerce can readily be substantially affected by those failures, joined with the similar failures of others. Under the logic of the Federal Government (Defendant), that authorizes Congress to use its commerce power to compel citizens to act as the Federal Government (Defendant) would have them act.
That is not the country envisioned by the Framers of our Constitution. While the authority of Congress has expanded under the Commerce Clause with the growth of the national economy, our cases have “always recognized that the power to regulate commerce, though broad indeed, has limits.” The Federal Government’s (Defendant) theory would erode those limits, permitting Congress to reach beyond the natural extent of its authority, “everywhere extending the sphere of its activity and drawing all power into its impetuous vortex.” Congress already has vast power to regulate much of what we do. Accepting the Federal Government’s (Defendant) theory would give Congress the same license to regulate what we do not do, which would fundamentally change the relationship between the Federal government and the citizen.
There is no link between existing commercial activity and the individual mandate’s regulation of the uninsured as a class. The mandate primarily affects healthy, often young adults who have less chance of needing significant health care and can spend their money on other priorities. It is exactly because these people, as an actuarial class, experience relatively low costs for health care, that the mandate helps offset the effect of forcing insurance companies to cover others who impose greater costs than their premiums are allowed to reflect. If the individual mandate is targeted to a specific class, it is a class whose commercial inactivity is its defining feature, rather than its activity. The Commerce Clause is not a general license to regulate a person from birth to death, just because he will predictably engage in particular transactions. Only the states have the right of police powers to regulate individuals’ inactivity, rather than their activity.
The Federal Government (Defendant) next argues that Congress has the power under the Necessary and Proper Clause to enact the individual mandate because the mandate is an “integral part of a comprehensive scheme of economic regulation” the guaranteed-issue and community-rating insurance reforms. Under this argument, it is not necessary to consider the effect that a person’s inactivity may have on interstate commerce; it is sufficient that Congress regulate commercial activity in a way that requires regulation of inactivity to be effective.
The power to “make all Laws which shall be necessary and proper for carrying into Execution” the powers enumerated in the Constitution, vests Congress with authority to enact provisions “incidental to the [enumerated] power, and conducive to its beneficial exercise.” The Clause may give Congress authority to “legislate on that vast mass of incidental powers which must be involved in the constitution,” but it does not license the exercise of any “great and substantive and independent power[s]” except for those specifically enumerated. Instead, the Clause is “‘merely a declaration, for the removal of all uncertainty, that the means of carrying into execution those [powers] otherwise granted are included in the grant.’”
The individual mandate cannot be sustained under the Necessary and Proper Clause as an essential component of the insurance reforms. Each of our prior cases upholding laws under that Clause involved exercises of authority the same as, and in service to, a granted power. For example, we have upheld provisions permitting continued confinement of those already in federal custody when they could not be safely released, criminalizing bribes involving organizations receiving federal funds, and pronouncing state statutes of limitations while cases are pending in federal court. By contrast, the individual mandate gives to Congress the extraordinary ability to create the necessary predicate to the exercise of an enumerated power. Just as the individual mandate cannot be sustained as a law regulating the significant effects of failing to purchase health insurance, neither can it be upheld as a “necessary and proper” component of the insurance reforms. The commerce power therefore does not authorize the mandate.
The matter does not end there. Because the Commerce Clause does not support the individual mandate, it is necessary to turn to the Federal Government’s (Defendant) second argument: that the mandate may be upheld as within Congress’s enumerated power to “lay and collect Taxes.” The Federal Government’s (Defendant) tax power argument asks us to view the statute differently than this Court did in considering its theory on commerce power. In making the Commerce Clause argument, the Federal Government (Defendant) defended the mandate as a regulation requiring individuals to purchase health insurance. The Federal Government (Defendant) does not claim that the taxing power allows Congress to issue such a command. Rather, the Federal Government (Defendant) asks that we read the mandate as imposing a tax on people who do not buy insurance, rather than an order requiring them to do so.
Under the mandate, if a person does not maintain health insurance, the only consequence is that he must make an additional payment to the Internal Revenue Service (IRS) when he pays his taxes. According to the Federal Government (Defendant), that means the mandate is not a legal command to buy insurance. Instead, it makes going without insurance just another thing the Federal Government (Defendant) taxes, such as buying gasoline or earning income. And if the mandate is in effect just a tax hike on specific taxpayers who do not have health insurance, it may be within the constitutional power of Congress to tax.
In many respects, the fine the Affordable Care Act imposes on individuals without health insurance looks like a tax. The “[s]hared responsibility payment,” as the statute entitles it, is paid into the Treasury by “tax-payer[s]” when they file their tax returns. It does not apply to those who do not pay federal income taxes because their household income is under the filing threshold in the Internal Revenue Code. For taxpayers who do owe the payment, the amount is determined by such familiar factors as taxable income, number of dependents, and joint filing status. The requirement to pay is found in the Internal Revenue Code and is enforced by the IRS, which, as we previously explained, must assess and collect it “in the same manner as taxes.” This process yields the essential feature of any tax: it produces at least some revenue for the Federal Government (Defendant).
For constitutional purposes, this analysis suggests that the shared responsibility payment be considered a tax, not a penalty. First, for most Americans the amount due will be much less than the price of insurance, and, according to statute, it can never be more. It may often be a reasonable financial decision to make the payment rather than purchase insurance, unlike the “prohibitory” financial punishment. Second, the individual mandate does not contain a scienter requirement. Third, the payment is collected by the IRS alone through the normal means of taxation”except that the IRS is not allowed to use those means most suggestive of a punitive sanction, such as criminal prosecution.
In distinguishing penalties from taxes, this Court has explained that “if the concept of penalty means anything, it means punishment for an unlawful act or omission.” While the individual mandate clearly aims to encourage the purchase of health insurance, it does not need to be read to declare that failing to do so is unlawful. Neither the Act nor any other law attaches negative legal consequences to not buying health insurance, beyond requiring a payment to the IRS. The Federal Government (Defendant) agrees with that reading, confirming that if someone chooses to pay instead of obtaining health insurance, they have complied fully with the law.
The Act requires that certain people pay a financial penalty for not purchasing health insurance and may reasonably be characterized as a tax. Because the Constitution allows such a tax, it is not our role to forbid it, or to judge its fairness or wisdom. The Federal Government (Defendant) does not have the power to order people to buy health insurance. The Federal Government (Defendant) does have the power to impose a tax on those who do not do so. Therefore, the Act is constitutional, because it can reasonably be read as a tax. The decision of the Eleventh Circuit is affirmed in part and reversed in part.