National Federation of Independent Business v. Sebelius, 567 U.S.

519
(2012), was a landmark[2][3][4] United States Supreme Court decision in which
the Court upheld Congress' power to enact most provisions of the Patient
Protection and Affordable Care Act (ACA), commonly called Obamacare,[5]
[6]
 and the Health Care and Education Reconciliation Act (HCERA), including a
requirement for most Americans to have health insurance by 2014. [7][8] The
Acts represented a major set of changes to the American health care system
that had been the subject of highly contentious debate, largely divided
on political party lines.
The Supreme Court, in an opinion written by Chief Justice John Roberts, upheld
by a vote of 5 to 4 the individual mandate to buy health insurance as a
constitutional exercise of Congress's taxing power. A majority of the justices,
including Chief Justice Roberts, agreed that the individual mandate was not a
proper use of Congress's Commerce Clause or Necessary and Proper
Clause powers, though they did not join in a single opinion. A majority of the
justices also agreed that another challenged provision of the Act, a significant
expansion of Medicaid, was not a valid exercise of Congress's spending
power as it would coerce states to either accept the expansion or risk losing
existing Medicaid funding.

Background

In March 2010, President Barack Obama signed the Patient Protection and

Affordable Care Act into law. A number of parties sued, including the National
Federation of Independent Business, claiming that the sweeping reform law
was unconstitutional for various reasons.[9][10][11] The Supreme Court
granted certiorari to three cases, totaling 5½ hours of oral
arguments: National Federation of Independent Business v. Sebelius (which
consolidated a part of Florida v. Dept. of Health and Human Services) on the
issues of the constitutionality of the individual mandate and the severability of
any unconstitutional provisions, Dept. of Health and Human Services v.
Florida on the issue of whether review was barred by the Anti-Injunction Act,
and Florida v. Dept. of Health and Human Services on the matter of the
constitutionality of the Medicaid expansion.[12]
District Court proceedings[edit]
The state of Florida filed a lawsuit against the United States Department of
Health and Human Services, challenging the constitutionality of the law. On
January 31, 2011, Judge Roger Vinson ruled that the mandatory health
insurance "individual mandate"—the provision of Internal Revenue
Code section 5000A imposing a "shared responsibility penalty" on nearly all
Americans who fail to purchase health insurance—was outside the power
of Congress. Vinson also held that the mandate could not be severed from the
rest of the Affordable Care Act and struck down the entire Act. [13]
The Department of Health and Human Services appealed to the 11th Circuit
Court of Appeals. A three-judge panel issued a 2–1 ruling affirming Judge
Vinson's findings in part and reversing in part.[14] The court affirmed the District
Court's holding that the individual mandate was unconstitutional, but, contrary
to the District Court's view, it held that the individual mandate could be
severed, leaving the rest of the law intact.[15] The government decided to not
seek en banc review from the full Circuit and instead petitioned the United
States Supreme Court to review the Eleventh Circuit's rulings.[16]
Related cases[edit]
Other federal courts heard cases related to the Affordable Care Act that were
not directly reviewed by the Supreme Court, but caused a divide regarding the
constitutionality of the law. Two federal judges appointed by President Bill
Clinton upheld the individual mandate in 2010. Judge Jeffrey Sutton, a member
of the Sixth Circuit Court of Appeals appointed by George W. Bush, was the
first Republican-appointed judge to rule that the law is constitutional in June
2011, as part of a divided three-judge panel that upheld the constitutionality of
the law.[17][18]

Oral Arguments

On November 14, 2011, the Supreme Court granted certiorari to portions of

three cross-appeals of the Eleventh Circuit's opinion: one by the states (Florida
v. U.S. Dept. of Health and Human Svcs.), one by the federal government
(U.S. Dept. of Health and Human Svcs. v. Florida); and one by the National
Federation of Independent Business (Nat'l Fed. of Independent Bus. v.
Sebelius).[19]
The Court announced in December 2011 that it would hear approximately six
hours of oral argumentation over a three-day period, from Monday, March 26,
to Wednesday, March 28, 2012, covering the various aspects being questioned
by the principal parties involved in this and other related cases concerning the
ACA.[20][21][22]
The court first heard argument on whether the Anti-Injunction Act, which limits
suits "for the purpose of restraining the assessment or collection of any tax",
[23]
 barred a decision before the ACA fully entered into force in 2014. [24] Since
neither the government, represented by Solicitor General Donald Verrilli, nor
the states, represented that day by Gregory G. Katsas of the law firm Jones
Day, were willing to defend that position (which had been accepted by three of
the twelve appellate court judges that heard the cases)[25] the Court appointed
Robert Long of the law firm Covington & Burling as amicus curiae to defend
that position.
On the second day, the court heard arguments over whether the "individual
mandate" component of the ACA fell under the constitutional powers
of Congress. The states (Florida et al.) were represented during the hearings
by former Bush administration Solicitor General Paul Clement while the
government was represented by current Solicitor General Donald Verrilli.[26]
On the morning of the third day, the Court considered the issue of severability
—whether the Affordable Care Act could survive if the Court struck down the
individual mandate.[27] Paul Clement, Deputy Solicitor General Edwin Kneedler,
and Court-appointed amicus curiae H. Bartow Farr, III of the law firm Farr &
Taranto argued their various positions before the Court. [28]
On the afternoon of the third day, the Court considered whether the Medicaid
expansion the Affordable Care Act instituted was coercive. Both Paul Clement
and Donald Verilli again argued before the Court. Chief Justice Roberts
extended the time limit for both parties by 15 minutes during the arguments.
[29]

Solicitor General Verrilli's performance during the hearings was widely criticized
by analysts.[30][31]

Outcome

The case generated a complex division on the bench. With respect to the Anti-
Injunction Act and individual mandate penalty, judgment was for the Secretary
of Health and Human Services. With respect to the Medicaid expansion,
judgment was for the challenging states.

1. All the justices were in rough agreement that the Anti-Injunction Act did
not apply. Five justices (Roberts, Ginsburg, Breyer, Sotomayor, and
Kagan) joined an opinion as to this.
2. One combination of five justices (Roberts, Scalia, Kennedy, Thomas, and
Alito) were of the opinion that the individual mandate was within the
scope of neither Congress's Commerce Clause nor Necessary and Proper
Clause powers. But as four of them did not concur in the judgment, their
votes could not count toward a controlling opinion.
3. A separate combination of five justices (Roberts, Ginsburg, Breyer,
Sotomayor, and Kagan) held the individual mandate was a valid exercise
of Congress's taxing power. As these five justices concurred in judgment
and agreed to the same parts of Chief Justice Roberts's opinion, this was
the binding and controlling majority as to this aspect of the case.
4. As the individual mandate was upheld, the issue of its severability from
the rest of the Affordable Care Act was not reached.
5. A final combination of seven justices (Roberts, Scalia, Kennedy, Thomas,
Breyer, Alito, and Kagan) concurred in judgment that the Medicaid
expansion of the Affordable Care Act, in combination with existing
statutes, amounted to an unconstitutionally coercive use of Congress's
spending power. However, those seven justices were divided as to the
appropriate legal remedy.
Opinion of the Court[edit]
Chief Justice Roberts authored an opinion, of which three parts gained the
assent of five justices (Roberts, Ginsburg, Breyer, Sotomayor and Kagan) and
became the opinion of the Court, and one part which gained the assent of a
plurality (Roberts, Breyer, and Kagan) and became part of the holding. Those
parts of Roberts's opinion that gained the assent of five justices were Parts I,
II, and III-C. Part I recounted the facts and procedural history of the cases.
Part II concerned the applicability of the Anti-Injunction Act to the individual
mandate penalty. Part III-C held that, for constitutional purposes, the
individual mandate penalty was a valid exercise of Congress's taxing power.
Tax Anti-Injunction Act[edit]
The Anti-Injunction Act prohibits federal courts from enjoining agencies of the
federal government from collecting a tax while a challenge to the tax is
pending. Congress's motivation in passing the act was to prevent the
starvation of the federal treasury while tax issues are being litigated before the
courts. Instead, Congress requires a taxpayer who challenges any tax to first
pay that tax, and only afterwards is the taxpayer allowed to bring suit and seek
a refund. Challengers of the Affordable Care Act maintained that the individual
mandate's enforcement mechanism was not a tax. The Court agreed. Because
the Affordable Care Act labels the individual mandate's shared responsibility
payment as a "penalty" instead of a "tax," it prevents the penalty from being
treated as a tax under the Anti-Injunction Act.[15]
Congress's taxing power[edit]
Further information: Taxing and Spending Clause

Taking a functional view to the individual mandate penalty, the Court held that
it was a tax for constitutional purposes.[32] The Court noted that the label of the
individual mandate shared responsibility payment as a penalty for the purposes
of the Anti-Injunction Act did not control whether it was a tax for purposes of
constitutional analysis.[33] The Court asserted that the individual mandate
penalty, in its practical operation, exhibited all the characteristics of a tax—the
penalty "looks like a tax in many respects." [33] That is, the individual mandate
penalty had all of the following features of a tax:

1. payment went to the U.S. Treasury when taxpayers filed their tax
returns;[33]
2. the amount of the penalty was determined by factors such as the
individual's taxable income, number of dependents, and joint filing
status;[33]
3. the penalty was found in the Internal Revenue Code, and enforced by
the Internal Revenue Service in the same manner as taxes are collected;
[33]
 and
[33]
4. the penalty produced some revenue for the government.
Further, the Court reasoned, while the penalty is treated as a tax for
constitutional purposes, it is not a direct tax, and therefore is not required to
be apportioned among the states according to population.[34] Here the Court
concluded that "[a] tax on going without health insurance does not fall within
any recognized category of direct tax ... The shared responsibility payment is
thus not a direct tax that must be apportioned among the several States." [34]
Finally, the individual mandate penalty operated within the constraints of even
the narrowest reading of the taxing power, which disallows punitive taxation:
 1. the upper limit of the penalty was not so high as to become coercive
since it was capped by statute to never be more than the cost of
obtaining insurance;[35]
[36]
2. the penalty had no scienter element typical of punitive statutes;  and
3. while the penalty was collected by the IRS, any failure to pay the penalty
would not result in criminal prosecution.[36]
As Chief Justice Roberts concluded for the Court:
The Affordable Care Act's requirement that certain individuals pay a financial
penalty for not obtaining health insurance may reasonably be characterized as
a tax. Because the Constitution permits such a tax, it is not our role to forbid
it, or to pass upon its wisdom or fairness.[37]
Plurality holding[edit]
As stated above, seven justices agreed in judgment for the states against
the Department of Health and Human Services on the issue of the Medicaid
expansion, but no opinion among them obtained the assent of five justices. At
issue were amendments to the Social Security Act contained in Title X of the
Affordable Care Act. These amendments, in expanding Medicaid coverage,
made changes to the plan requirements states must meet in their Medicaid
plans. The 1965 amendments to the Social Security Act that created Medicaid
authorized the Secretary of Health and Human Services to withhold federal
payments to state Medicaid plans that were not in compliance with statutory
requirements.
The seven justices were in agreement that the Secretary's existing ability to
withhold all funds from non-compliant plans, coupled with the substantial
coverage changes enacted by the Title X amendments, amounted to an
unconstitutionally coercive use of Congress's spending power, given that
Congress was not going to cover the full cost of the Medicaid expansion after
2016. Where the justices differed was in what they thought constituted the
appropriate legal remedy. Four justices (Scalia, Kennedy, Thomas, and Alito)
believed the Title X amendments should be struck down due to their
impermissibly coercive nature. The remaining three justices (Roberts, Breyer,
and Kagan) instead opted to exercise the existing severability clause (codified
at 42 USC §1303) in the Social Security Act, as amended, holding that the
ability given to the Secretary by statute to withhold federal payments could not
be applied to the Title X amendments for those states refusing to participate in
the Medicaid expansion.[38] Since this latter opinion concurred in the judgment
on the narrowest ground (i.e., severing only part of the application of the law
instead of striking all of the amendments), the three-justice plurality became
the controlling opinion under the rule set out by Marks v. United States (1977).

RULE:
The exaction the Patient Protection and Affordable Care Act of 2010 imposes on
those without health insurance looks like a tax in many respects. The “shared
responsibility payment,” as the statute entitles it, is paid into the Treasury by
“taxpayers” when they file their tax returns. 26 U.S.C.S. § 5000A(b). It does
not apply to individuals who do not pay federal income taxes because their
household income is less than the filing threshold articulated in the Internal
Revenue Code. § 5000A(e)(2). 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. § 5000A(b)(3), (c)(2), (c)(4). The
requirement to pay is found in the Internal Revenue Code and enforced by the
Internal Revenue Service, which 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 government. It is, of course, true that the Act
describes the payment as a "penalty," not a "tax," but while that label is fatal
to the application of the Anti-Injunction Act, 26 U.S.C.S. § 7421, it does not
determine whether the payment may be viewed as an exercise of Congress's
taxing power. 

FACTS:

In 2010, Congress enacted the Patient Protection and Affordable Care Act in
order to increase the number of Americans covered by health insurance and
decrease the cost of health care. One key provision is the individual mandate,
which requires most Americans to maintain “minimum essential” health
insurance coverage. 26 U.S.C. §5000A. For individuals who are not exempt,
and who do not receive health insurance through an employer or government
program, the means of satisfying the requirement is to purchase insurance
from a private company. Beginning in 2014, those who do not comply with the
mandate must make a shared responsibility payment to the Federal
Government. Twenty-six states, several individuals, and the National
Federation of Independent Business brought suit in Federal District Court,
challenging the constitutionality of the individual mandate and the Medicaid
expansion. The Court of Appeals for the Eleventh Circuit upheld the Medicaid
expansion as a valid exercise of Congress's spending power, but concluded that
Congress lacked authority to enact the individual mandate. Finding the
mandate severable from the Act's other provisions, the Eleventh Circuit left the
rest of the Act intact.

ISSUE:

Whether the individual mandate provision of 26 U.S.C.S. § 5000A, which

imposed a “shared responsibility payment” on individuals who failed to
maintain health insurance should be upheld.
ANSWER:

No.

CONCLUSION:

The Court declined to uphold the individual mandate under the Commerce

Clause, U.S. Const. art. I, § 8, cl. 3, or the Necessary and Proper Clause, U.S.
Const. art. I, § 8, cl. 18. However, the mandate was a valid exercise of the
taxing power under U.S. Const. art. I, § 8, cl. 1. Although § 5000A’s
characterization of the shared responsibility payment as a “penalty” prevented
the Anti-Injunction Act, 26 U.S.C.S. § 7421(a), from barring the suit, that
description was not binding for constitutional purposes. Factors such as the
manner of collection indicated that the payment was a tax rather than a
penalty. Moreover, the Court held that 42 U.S.C.S. § 1396c could not
constitutionally be applied to withdraw existing Medicaid funds from a state for
failure to comply with the expanded coverage requirements. The remedy was
to bar the federal government from imposing such a sanction, without striking
down other portions of the Act.