I've finally had a chance to read through the decision, and it's a good read in general; a particularly good read when you consider that it's a court decision. If you ever need a primer on the history and evolution of Commerce Clause jurisprudence, this is a great place to start.
Judge Vinson fully accepts the "inactivity" argument against the "mandate", which is the rather myopic—and perhaps legally correct, albeit not economically correct—view that because someone makes a present decision not to purchase health insurance, this is economic "inactivity", and the future economic impact of potentially uncompensated care can only be regulated once it actually occurs or is imminent. That is, it appears that Judge Vinson would have no legal problem with a law that financially penalizes an uninsured person who goes to the hospital and can't afford to pay, but there is a big legal problem with prospectively penalizing that person.
Clearly, this stance does not work for an insurance system, which relies on people paying into the system before they get sick or injured, but that is really not the judge's concern: His concern is whether Congress has the power to compel people to do this or face immediate financial consequences (his answer is no, at least not the way they did it here). Judge Vinson also firmly rejects the notion that health insurance and health care are in any way "unique", and thus the same rules that apply to any other activity (or "inactivity") should apply here; the rules being that Congress can regulate only "activity", and this is not it, no matter how "unique" it might be.
(Whatever the merits of his Commerce Clause analysis, Judge Vinson is 100% wrong in footnote 14 about young people not being able to buy scaled-down "catastrophic" insurance plans: PPACA § 1302(e) (124 STAT. 168) explicitly provides for this; this mistake is certainly not a dealbreaker in terms of the opinion's overall validity, but it certainly reveals that we all make mistakes, as I'll discuss a bit below.)
Of course, this decision will be appealed, but there are some other important issues worth noting:
A tax is a tax is a tax. Unless it's not....
As much as it pains me to admit it, I may have been wrong about there being a lack of Constitutional issues with the "mandate." As Mr. Shapiro and Judge Vinson have noted, courts have so far universally rejected the assertion that the PPACA § 1501 penalty provision (as amended by PPACA § 10106 and HCERA § 1002) is a "tax" (see also p. 4, n. 4 of Judge Vinson's decision). So what, exactly, is wrong with calling this thing a "tax"?
As I have freely admitted, I am by no means a tax scholar, but some researchers have very cogently and convincingly explained that the "penalty" imposed by the law acts more like a "capitation tax" than an income tax because it potentially imposes an obligation upon a taxpayer to pay per-person dollar amounts, and as such, the Constitution demands that it must be "apportioned" among the States, which it isn't (i.e., the amount of total tax collected from residents of any given State is not related to the State's population as a proportion of the national population). Thus, if the government successfully argued that the "penalty" were a tax, it would be almost necessarily conceding its unconstitutionality.
However it seems that Congress would be fully within its rights to levy a 100% income tax, then refund it to people to reward behavior that it deems desirable. This already happens to some extent with the mortgage interest deduction, hybrid car credits, and child tax credits. Of course, a 100% income tax would be politically ruinous and people would storm the Capitol with
Thus, if Congress had, for example, enacted an across-the-board income tax increase (not very popular in an election year) or imposed a new "excise tax" (like Medicare or Social Security) then offered refundable tax credits roughly equivalent to—or perhaps even identical to or exceeding—the amount of the new tax paid, less the penalty amounts currently in the Act, this would almost certainly be a "tax". For example, the following would probably be legally (if not politically) acceptable: enact a 2.5 percentage-point income tax increase for every taxpayer in every bracket, refund all of it to everyone as a tax credit, but reduce the credit by the greater of $[X] per person in the household who does not have qualifying insurance or the entire 2.5 percent.
This is functionally almost indistinguishable from the Act as it is currently written, but formally, the difference is enormous. The bottom line seems to be this, based on the materials I've read on the topic: Congress can tax your income and give the money back for whatever reason it wants, e.g., if you buy a hybrid car, a home, or health insurance, or you have a child; Congress cannot, however, simply take money from you if you choose not to buy a hybrid car, a home, or health insurance, or have a child. This latter bit seems to be what is happening here, and I'm coming around to the idea that Congress should not be able to do this outside the income tax regime.
A major benefit of requiring this sort of coercive regulation—and I do mean that in the nicest possible way—to go through the income tax wringer is that not only does this give Congress the clear authority to act, but Congress will likely think very, very carefully about it before doing anything. Few constituents would ask their Representative or Senator to support a tax hike. Which leads us to....
Political Compromises?
Earlier versions of the Act contained a "severability" clause, meaning that if a court struck down any portion of the law, Congress would intend for the rest of it to go forward, but Congress dropped this clause before passing the law. See pp. 66-68 of Judge Vinson's opinion.
Why drop the clause? The bill likely could not have gotten endorsement from key supporters unless linked to the "mandate", e.g., insurers would never have gone along with the bill without the "mandate," which makes perfect sense.
In any event, the government in this case argued—quite honestly—that large portions of the Act could not function as intended without the individual mandate. Judge Vinson therefore reasoned that if the individual mandate is unconstitutional as written, all the portions of the Act that rely upon it must therefore be discarded; because the Act is so big and complicated, he reasoned, it goes beyond the judge's role to pick and choose which provisions are inextricably bound to the "mandate" and which are not, so he threw out the whole thing. Yes, that's right, all of it.
Was this the best way to go? That depends what he was trying to accomplish, but you have to admit that this is one surefire way to bump this controversy to higher courts.
How to fix it
Now that the midterm elections are over, Congress could likely head off the leading potential Constitutional problem (although I'm sure that people vehemently opposed to the bill will look for others) with a comparatively simple bill to do the following:
1) Amend the Act to add a severability clause. This is not foolproof, but it could help prevent the whole law from being thrown out if courts find another problem with one of its provisions.
2) Repeal the "individual responsibility" penalty provisions (PPACA § 1501 and amendments thereto). Despite my earlier argument that these are functionally equivalent to Constitutionally-permissible taxes, after becoming more familiar with the case law and scholarly research, the formal difference is dramatic, and possibly even insurmountable.
3) The hard part (politically): Institute a new income or excise tax, say, a flat rate of 2.5 percentage points of taxable income (i.e., the maximum current "penalty" as of 2014), and set aside the proceeds in a trust fund that helps subsidize uncompensated care or the purchase of insurance for those otherwise unable to afford it.
4) The slightly easier part: Amend PPACA § 1401 (26 U.S.C. § 36B) to expand the existing refundable tax credits for qualifying insurance coverage to completely wipe out taxpayer's tax liability under the new tax if they purchase qualifying insurance or are unable to afford qualifying insurance. For those able, but unwilling, to get insurance, reduce the refundable credit by an amount equal to what the § 1501 penalty (as amended) would have been, not to exceed the amount of the new tax. This is analogous to the mortgage interest deduction or the child tax credit, the only possible twist being that instead of receiving an larger deduction or credit for engaging in desired behavior, someone would be receiving a smaller credit for engaging in undesired behavior. This would likely still be controversial, but substantially less so than the current situation.
Conclusion
There is no guarantee that any of this would be politically or legally feasible, but in my view these fixes would moot the Commerce Clause issue upon which this and other "mandate" cases are based, putting the Act on considerably more solid footing and allowing implementation to go forward.
Why should implementation go forward? The Act is far from an ideal solution to the complete market failure we have had in the health care/health insurance industries, but it is a step towards some meaningful reform. Hopefully politics will not continue to impede progress in that direction.
© 2011 Alex M. Hendler. All Rights Reserved.
