Obamacare’s much-besieged individual mandate lived a short, contentious life. Requiring all Americans to purchase health insurance from 2014 through 2018, the mandate survived a direct Supreme Court challenge in 2012 before it even took effect, and then another indirect court attack in 2015. It survived a torrent of repeal attempts by congressional Republicans, only to finally be unceremoniously slain as a budgetary gimmick in the GOP’s 2018 reconciliation tax bill. Rest in peace, individual mandate.
But maybe that’s all wrong. Maybe the individual mandate remains secretly very much alive, in zombified form, coercing unwitting invincibles into the health insurance system, continuing to stealthily do the tax-and-transfer work supporting health reform. In a sense, that’s the inadvertent yet inescapable revelation from the latest off-the-wall, then-suddenly-very-much-on-the-wall contrived litigation challenge to Obamacare, known as Texas v. United States.
Not content with finally killing off Obamacare’s individual mandate, Republican lawyers are now determined to stomp on its grave hard enough to bring down the rest of the law. So a band of red state attorneys general brought yet another case, which has been endorsed by political appointees in the Trump administration Department of Justice. The legal argument in a nutshell is that because the Supreme Court narrowly upheld the mandate as a tax in 2012, it has been rendered unconstitutional by the 2017 tax bill zeroing out its penalty provision. The mandate is thus no longer a tax, draining it of its constitutional authority, and — the argument goes — taking the rest of the entire Affordable Care Act down with it, because the mandate was essential to the functioning of the whole statutory scheme.
There are, to put it mildly, glaring logical problems with this argument. (See here and here.) Yet a Republican district court judge already has bought into it, and a majority of a three-judge panel on the Fifth Circuit Court of Appeals seems poised to do the same any day now.
Much of the criticism of the Texas argument has centered on it’s second step: severability. The plaintiffs rely on the policy beliefs of the 2010 Congress, which enacted Obamacare, for ammo to argue that the mandate cannot be severed from the rest of the law. Yet that, of course, ignores the fact that a more recent Congress determined otherwise and did just that: effectively amending Obamacare to sever just the individual mandate. The rest of the law was left intact, and continues to function largely unimpeded.
Yet the plaintiffs’ first-step argument — that the individual mandate is no longer a tax — warrants deeper inspection. Specifically, there appears to be a contradiction at the very heart of their case. To have standing to bring the suit at all, the plaintiffs must establish that they’ve suffered harm under the law. The two individual plaintiffs in the lawsuit argue that they are compelled to purchase insurance they do not want because the mandate still has the force of law, even without the backing of any tax penalty.
Yet while the plaintiffs must establish standing by arguing that the mandate remains strong enough to coerce them against their will into the health insurance market, they must also simultaneously argue that the individual mandate is so impotent that it no longer functions as a tax.
Upon close inspection of the true role that the individual mandate plays in the Obamacare regulatory scheme, the plaintiffs’ tightrope walk collapses. That’s because if people like the plaintiffs are in fact being coerced on to the health exchanges by the mandate, then they are also paying the implicit taxes baked into the law’s structure. And if that’s so, then the individual mandate is still a constitutional exercise of Congress’s taxing power, just as Chief Justice Roberts declared it seven years ago.
All universal health care systems function by way of redistributing resources from people who can already afford private insurance to those who are priced out of the private market on account of poverty or sickness. Where a Medicare-for-All system would do this directly — by taking in tax revenue into government coffers and using it to fund insurance coverage — the Obamacare public-private partnership model attempts the same feat indirectly: by funneling what would otherwise be tax revenue to private insurers in the form of premiums.
Indeed, Obamacare was structured to avoid — at least on the surface — two supposed and related political third rails: tax increases and economic redistribution. The drafters took pains to frame the “shared responsibility payment” for going without health insurance as a penalty rather than a tax, because it was believed that anything that smacked of raising taxes on the middle class was politically deadly. The administration was also terrified of Obamacare being tagged as an act of “redistribution.” “Redistribution is a loaded word that conjures up all sorts of unfairness in people’s minds,” said William Daley, President Obama’s one-time chief of staff. Republicans wield it “as a hammer” against Democrats, he said, calling redistribution “a word that, in the political world, you just don’t use.”
So Democrats set out to deliberately submerge and obfuscate Obamacare’s taxes and redistributive mechanisms. Rather than pay taxes to the government, people would be compelled to purchase private insurance where pseudo-taxes would be baked into their monthly premiums to fund health care for others. This was accomplished in tandem with Obamacare’s community-rating rules, which required that insurers charge people the same premium regardless of their health.
This meant that healthy people would pay higher premiums than they normally would, and sick people would pay lower premiums. In other words, the healthy would subsidize the health care used by the sick — redistribution via government-regulated marketplaces.
Under Obamacare, premiums are a substitute for traditional taxes. “Health redistribution,” as law professor Allison Hoffman called it in a 2010 law review article, was a major objective of the individual mandate, which compelled those “uninsured who have arguably rationally opted out of the insurance market (because they are healthy and unlikely to need medical care) to buy health insurance nonetheless to finance care for those sicker or less lucky than themselves.” Hoffman roughly estimated that the premiums generated from these health care “financiers” — who pay more into the insurance system than they use in care — could amount to $35 billion in annual funding to pay for the care for the sick.
That $35 billion or so in funding, of course, lessened the amount that the government needed to raise through politically-unpopular traditional taxation. The premiums paid on the Obamacare-approved insurance plans were thus taxes by another name — just more discreet ones.
This observation — that Obamacare imposed stealth taxes through community-rated premiums — was frequently wielded as a cudgel by critics of the law. A Manhattan Institute fellow, writing at the National Review, criticized Obamacare for its “taxation-by-regulatory-mandate structure, which imposes invisible taxes through premiums.” And it was a common refrain that this feature of Obamacare ripped off young people in particular. Future FDA chairman Scott Gottlieb, for instance, argued in Forbes in 2014 that “Obamacare is asking young adults to effectively subsidize the healthcare costs of older Americans” by “intentionally keep[ing] prices higher for young adults.”
So Obamacare’s health redistributionist “taxation-by-regulatory-mandate structure” has always been part of the law’s inner workings. But now, in Texas v. United States, the anti-Obamacare faction would suddenly prefer to pretend it doesn’t exist.
Here’s the crux of the issue: If the individual plaintiffs are, as they claim, being compelled by the otherwise toothless individual mandate to involuntarily purchase health insurance, then they are entering Obamacare’s redistributive structure, and their premiums are being used to cross-subsidize the care of others. The individual mandate, in a functional sense, is compelling them to pay “taxes.”
And if the individual mandate is generating backdoor tax revenue — by funding premium cross-subsidies for others, which offset what would otherwise be government subsidies to fund the care of the sick — then the plaintiffs’ case collapses, because the mandate still has a constitutional hook.
Admittedly, this non-traditional form of “taxation” isn’t a comfortable fit under current legal doctrine. When Chief Justice John Roberts upheld the individual mandate under Congress’s taxing power the first time, he noted that the mandate’s tax penalty “yield[ed] the essential feature of any tax: it produces at least some revenue for the Government.”
But Roberts also explained that the Court takes a “functional approach” to evaluating exercises of the taxing power, and recognized that “the taxing power is often, very often, applied for other purposes, than revenue” for the government. He pointed to taxes like cigarette taxes as being “obviously regulatory measures” meant to influence conduct more than raise revenue. Like those taxes, Roberts said, the individual mandate is foremost “plainly designed to expand health insurance coverage.”
Moreover, the implications of a rigidly formalistic approach to the taxing power — one that said that a constitutional tax becomes unconstitutional once it stops raising revenue — are untenable. Suppose that Hillary Clinton had won the 2016 election, kept the Affordable Care Act untouched, and the individual mandate — perhaps backed up by higher tax penalties — wildly succeeded and completely eliminated uninsurance in America. Would it suddenly be an unconstitutional victim of its own success because it no longer generated revenue for the government? Similarly, would cigarette taxes lose their legal footing if we someday achieve absolute smoking cessation? The answer must certainly be no.
Roberts’ analysis of the individual mandate’s tax function is to some degree distorted by the Court’s taxing-power precedent. The original individual mandate had two functions as a tax: (1) to assess a penalty to those who failed to purchase health insurance, and (2) to generate pseudo-taxes to fund health care in the regulated insurance marketplaces. Roberts focused on Function (1), even though — as he acknowledged — Function (2) was plainly the more important to Obamacare. The clear hope of the law was that little revenue from the individual mandate would be collected by the government, because nearly everyone would opt to purchase insurance. Indeed, as Roberts recognized in the Court’s second rendezvous with the individual mandate, King v, Burwell, in passing the ACA, Congress’s primary aim was to expand health insurance — not to collect tax revenue from the uninsured.
To the extent this second function cannot find a home in the Court’s current tax doctrine, that’s because that doctrine didn’t anticipate the public-private partnership model that Obamacare adopted. A policy objective — achieving near-universal health care — that might traditionally have been achieved through direct taxing and spending was instead grafted on to the existing largely private health care system.
In fact, the Court’s newest justice has recognized that the individual mandate fills the role that would otherwise be filled by a traditional tax-and-spend program. While on the D.C. Circuit Court of Appeals, Brett Kavanaugh heard a 2011 challenge to the individual mandate. In his dissenting opinion, Kavanaugh said the individual mandate potentially represented “the leading edge of a shift in how the Federal Government goes about furnishing a social safety net for those who are old, poor, sick, or disabled and need help.” He went on:
The theory of the individual mandate in this law is that private entities will do better than government in providing certain social insurance and that mandates will work better than traditional regulatory taxes in prompting people to set aside money now to help pay for the assistance they might need later. Privatized social services combined with mandatory-purchase requirements of the kind employed in the individual mandate provision of the Affordable Care Act might become a blueprint used by the Federal Government over the next generation to partially privatize the social safety net and government assistance programs and move, at least to some degree, away from the tax-and-government-benefit model that is common now. Courts naturally should be very careful before interfering with the elected Branches’ determination to update how the National Government provides such assistance.
Kavanaugh’s sympathy for “[p]rivatized social services” was likely an outgrowth of the Bush-era obsession with privatizing Social Security. But his point remains valid: courts should show restraint when wielding outmoded doctrine that hasn’t kept pace with the times for how government legislates to protect the general welfare.
The Fifth Circuit Court of Appeals seems unlikely to show such restraint. The question for the Supreme Court’s conservative majority is whether it will write that public-private partnership “blueprint” out of the Constitution. Thanks to relentless Republican sabotage of Obamacare, that blueprint is already falling out of political fashion. But driving a constitutional stake through it would redirect our political economy for good.
So in all likelihood, the Supreme Court’s conservatives have a choice: make room for Obamacare, or leave no option but single-payer. A ruling that takes down Obamacare would effectively turn the Constitution into a single-payer-or-bust document.
They need not go down that road, especially with a vehicle as faulty as Texas v. United States. The anti-Obamacare plaintiffs are caught in an unbreakable catch-22: to have standing to bring their lawsuit, they must demonstrate that they’ve been harmed by Obamacare. But if they were harmed and compelled to buy insurance, then the mandate continues to generate backdoor taxes via premiums — and thus continues to be a valid (if non-traditional) exercise of Congress’s taxing power. And the plaintiffs’ argument that Obamacare is unconstitutional without the mandate’s tax penalty collapses.
So to argue that Obamacare’s zombie individual mandate has rendered the law unconstitutional, the plaintiffs would be stuck without standing to sue. But to have standing to sue, they’d inadvertently prove the mandate’s continued constitutionality. The individual mandate is either dead or alive. It can’t be both.
Time will tell if reality will ever catch up with the zealotry of the anti-health care cause. But a decision against Obamacare in this case can only be reached through aggressively taking political sides: to cut the anti-Obamacare plaintiffs every benefit of the doubt, to ignore the internal inconsistency of the plaintiffs’ core claims, all while subjecting the law to a rigidly formalistic legal standard blind to the principal aims of the individual mandate.
On the other hand, if neutral reality-based judging does somehow prevail, then so too will Obamacare, once again.