Analysis of the Supreme Court Case on the Constitutionality of the Affordable Care Act

1. Analysis of the Supreme Court Case on the Constitutionality of the Affordable Care Act Law 603 Howard Bunsis June 24, 2012

2. Roadmap • Healthcare Facts • What the law does and when • Arguments arguments law - broccoli • Arguments for law • Possible outcomes of the case

3. Healthcare Facts: The Uninsured • According to Gallup (1/24/12), 17.1% of Americans do not have health insurance. This is an increase from 16.4% in 2010, 16.2% in 2009, and 14.8% in 2008 • More than 40% of Hispanic Americans were uninsured in 2011 • People aged 18-25 saw a decline in the percent who are uninsured, due to the new provision in the health care law.

5. Health Outcomes in the U.S.Source: http://www.healthofnations.com/countries/profile/united-states#diseases-overview • U.S. spends more than any country, at 16.3% of GDP in 2009 • Government spending is about 45% of total spending, compared to 70% average in OECD countries • Medicare and Medicaid are about 20% of all expenditures • Average life expectancy at birth stood at an estimated 78 years in 2009, which ranks the US in 20th position out of 27 OECD countries and well below the average life expectancy level of 82 years for Japan • 1/3 of adults are obese, higher than most OECD countries • Smoking rate is lower than OECD countries • Main causes of death: • Heart disease • Cancer • Stroke

6. Healthcare Reform Will Reduce the Number of Uninsured: Source: Kaiser Family Foundation

7. What the Health Care Law Does: 2010 • Provided tax credits to small employers (<25 workers) if they purchase health insurance for their workers • Creates a re-insurance program for retirees > 55 who are not eligible for Medicare • Establishes a national high-risk pool to provide health coverage to individuals with pre-existing medical conditions • Requires that all individual and group policies offer dependent coverage for children up to age 26 • Prohibits plans from placing lifetime limits on the dollar value of coverage • Requires plans to provide coverage – without cost sharing – for preventative services and recommended immunizations

8. What the Health Care Law Does: 2011 • Requires employers to disclose the value of health benefits on workers’ W-2 • Free preventive services to Medicare beneficiaries, such as screenings for colon, prostate, and breast cancer • Sharply cuts government payments to Medicare Advantage private plans • Requires chain restaurants and vending machines to disclose the nutritional content of each item available for sale • Bars HAS, FSA, and HRA accounts from reimbursing for over-the-counter drugs unless they are prescribed by a physician

9. What the Health Care Law Does: 2013 • Increases the threshold, from 7.5% to 10.0%, of AGI for medical deductions on Schedule A. Taxpayers > 65 are exempt through 2016 • Limits contributions to an FSA to $2,500, then increases annually at the cost of living • Raises the Medicare tax on wages by 0.9% (it is currently 1.45%) on earnings over $200,000 (single) and $250,00 (MFJ). • A 3.8% assessment on unearned income of high-income taxpayers • An excise tax on the sale of medical devices, except for items purchased at the retail level by the public.

10. What the Health Care Law Does: 2014 • Mandates that all U.S. citizens and legal residents have health insurance. There will be a phased-in tax penalty for those without coverage, starting at the greater of $95 or 1% of income, in 2014, and rising to the greater of $695 or 2.5% of income in 2016 • Mandates the start of state-based Health Insurance Exchanges to serve as a marketplace where individuals and small businesses can buy health insurance • Imposes fines on employers with > 50 employees that do not offer coverage. The fine is $2,000 per worker (after the first 30 workers) • Limits any waiting period for coverage to 90 days

11. What the Law Does in 2014 (continued) • Provides a refundable tax credit to help low-income folks buy coverage. To be eligible, HH income b/w 100% and 400$ of the federal poverty level ($11k to $44k for singles; $22k to $88k for families) • Expands Medicaid to all individuals < 65 with incomes up to 133% of the poverty level • Allows employers to offer employees up to 30% of the cost of coverage for participating in a wellness program and meeting certain health related standards • Establishes an independent Payment Advisory Board made up of 15 members to submit recommendations to Congress to reduce the growth of Medicare spending if spending exceeds a target growth rate. • Requires health insurance companies to start paying fees to the government based on market share.

12. What the Health Care Law Does: 2018 • Imposes an excise tax on high-cost plans, defined as those providing coverage in excess of $10,200 for individuals and $27,500 for families. • Often called the “Cadillac Tax”

13. The Healthcare Law Will Reduce the DeficitSource: Kaiser Family Foundation

14. Why the Law is Unconstitutional per the Commerce Clause:Source: Wall Street Journal op-ed • First, the Constitution does not give Congress the power to require that Americans purchase health insurance. Congress must be able to point to at least one of its powers listed in the Constitution as the basis of any legislation it passes. None of those powers justifies the individual insurance mandate. Congress's powers to tax and spend do not apply because the mandate neither taxes nor spends. The only other option is Congress's power to regulate interstate commerce. It is one thing, however, for Congress to regulate economic activity in which individuals choose to engage; it is another to require that individuals engage in such activity. That is not a difference in degree, but instead a difference in kind. It is a line that Congress has never crossed and the courts have never sanctioned. • The Supreme Court in Lopez (1995) rejected a version of the commerce power so expansive that it would leave virtually no activities by individuals that Congress could not regulate. By requiring Americans to use their own money to purchase a particular good or service, Congress would be doing exactly what the court said it could not do. • Some have argued that Congress may pass any legislation that it believes will serve the "general welfare." Those words appear in Article I of the Constitution, but they do not create a free-floating power for Congress simply to go forth and legislate well. Rather, the general welfare clause identifies the purpose for which Congress may spend money. The individual mandate tells Americans how they must spend the money

15. More on Problems with the Commerce ClauseSource: CNN • The commerce clause gives Congress authority to regulate interstate commerce. Since the 1930s, Supreme Court decisions have interpreted the commerce clause broadly. • But every previous case expanding the commerce power involved some sort of "economic activity," such as operating a business or consuming a product. • Failure to purchase health insurance is neither commerce nor an interstate activity. Indeed, it is the absence of commerce. • If Congress could use that clause to regulate mere failure to buy a product on the grounds that such inaction has an economic effect, there would be no structural limits to its power.

16. Scalia and Broccoli • “Could you define the market — everybody has to buy food sooner or later, so you define the market as food, therefore, everybody is in the market; therefore, you can make people buy broccoli,” Scalia said. • The lower court stated that the government’s position “amounts to an argument that the mere fact of an individual’s existence substantially affects interstate commerce, and therefore Congress may regulate them at every point of their life.”

17. Why the Law is Unconstitutional per the Tax Clause • The government's tax-clause argument is similarly flawed. It asserts that the individual mandate isn't really a restriction on freedom, it's just a tax; violators are forced to pay a fine. • If this logic is correct, it would justify any mandate enforced by a monetary fine, whether it be for broccoli, a car or anything else. Every lower court to have considered this constitutional issue has ruled that the mandate is not a tax but a penalty

18. Why the Law is Unconstitutional Per the Necessary and Proper Clause • The government relies on the clause that gives Congress the power to "make all Laws which shall be necessary and proper for carrying into Execution" other powers the Constitution grants it. The federal government argues that the insurance mandate is a "necessary" element of its regulation of the health care market under the commerce clause.” • But even if the mandate is necessary, it is not "proper." The court has previously ruled that these are two separate requirements and both must be met. What makes a federal law "proper"? At the very least, a proper law cannot depend on a rationale that gives Congress virtually unlimited power. • If the "necessary and proper" clause allows Congress to adopt the individual mandate, the same logic would justify almost any other mandate. A broccoli mandate could be defended as an effort to regulate the market in food. • The threat to liberty raised by this case isn't just theoretical. Many industries would be happy to lobby for laws requiring people to buy their products, and Congress has a long history of enacting special-interest legislation.

19. Why the Law is Constitutional Per the Commerce Clause: Source: The Nation • Commerce Clause History: In the early twentieth century, after the Industrial Revolution had concentrated economic power in employers’ hands, Congress and the states passed many laws designed to protect workers from exploitation. Time and again, the Supreme Court invalidated these statutes. It deemed the federal laws beyond Congress’s power to regulate interstate commerce because they were said to regulate the terms of production, manufacture or mining, all of which were said to precede interstate commerce. And it invalidated state labor laws as infringements on the “freedom of contract” protected by the due process clause. • In the wake of the Depression and the New Deal, however, the Court overruled both lines of precedent. It abandoned altogether the due process notion that economic regulation infringes on “freedom of contract”; it has never since invalidated any law on that ground. And it ruled that in our integrated national economy, Congress is entitled to regulate on the presumption that all economic activity, no matter how local, affects interstate commerce. On this theory, the Court in Wickard v. Filburn upheld federal limits on home-grown wheat never intended to be marketed at all, because home production would reduce demand and thereby affect the price of wheat.

20. Recent Commerce Clause Case • in 2005, in Gonzales v. Raich, the Court upheld Congress’s power to ban home-grown marijuana even for personal medicinal use, on the theory that it furthered Congress’s regulation of the interstate marijuana market. Both Raich and Filburn sought to bypass the market by growing their own. Yet because their activity, when aggregated nationally, could have an effect on interstate commerce, it was within Congress’s regulatory authority. • The same holds true here. No one can guarantee that he or she will not need healthcare, and most people without insurance are unable to pay for the care they receive. As a result, they shift those costs to the rest of us, either because the government picks up the tab or because hospitals required to treat the sick regardless of ability to pay pass on the costs to others in higher fees. The uninsured thereby shift about $43 billion in costs each year to the rest of us, increasing the average premium for insured families by more than $1,000 a year.

21. More Support of the Law • Commerce Clause: Congress has the power to “regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” • It does not matter if Congress forbids or requires an activity • And politics prevents silly mandates, such as forcing people to buy electric cars or broccoli.

22. Why the Individual Mandate is Necessary • Although the challengers focus their attack on the individual mandate, that provision cannot be separated from the act’s prohibiting insurance companies from denying coverage or charging higher rates based on “pre-existing” medical conditions. No one contests Congress’s constitutional authority to enact that overwhelmingly popular protection from dubious insurance practices. • But without the individual mandate, the nondiscrimination protection would be unworkable. People would have a powerful incentive to wait until they get sick before they buy insurance, because they could not be penalized for doing so. • Such “free-riding” would defeat insurance’s purpose of spreading risk. As one expert told Congress, health insurance cannot work if people can delay buying it until they are on the way to the hospital.

23. Why Health Insurance is not like BroccoliSource: Paul Krugman, New York Times • When people choose not to buy broccoli, they don't make broccoli unavailable to those who want it. But when people don't buy health insurance until they get sick – which is what happens in the absence of a mandate – the resulting worsening of the risk pool makes insurance more expensive, and often unaffordable, for those who remain. As a result, unregulated health insurance basically doesn't work, and never has. • There are at least two ways to address this reality – which is, by the way, very much an issue involving interstate commerce, and hence a valid federal concern. One is to tax everyone – healthy and sick alike – and use the money raised to provide health coverage. That's what Medicare and Medicaid do. The other is to require that everyone buy insurance, while aiding those for whom this is a financial hardship.

24. Support for the Law: The Power to Tax • Finally, Congress has the power to tax for the general welfare and need not tie its taxing provisions to any other enumerated power. As those who fail to purchase health insurance need only pay more income tax, the new law is an exercise of the taxing power and would be valid even if it were not authorized by the necessary and proper or commerce clauses. • This is not about liberty to be free of regulation but about whether states or the federal government should have the power to regulate insurance.

25. Possible Outcomes of the Case • The Affordable Care Act is upheld as constitutional in all of its provisions • Only the individual mandate is struck down, and it is deemed severable from the rest of the act • Title 1 (Insurance reform and subsidies) of the act is struck down, but the rest of the act is upheld • Both Titles 1 and 2 (title 2 = public programs, including the expansion of Medicaid) are struck down, but the rest of the act is upheld • The entire Act is struck down, on the grounds that clause covering the individual mandate, deemed to be not authorized by the Commerce Clause, is deemed not severable from the rest of the bill.