Obamacare’s Constitutionality Ends When its Tax Ends


The constitutionality of Obamacare is an issue again.

Six years ago, a closely divided U.S. Supreme Court upheld the statute in NFIB v. Sebelius, but the Tax Cuts and Jobs Act of 2017 had an important effect — whether or not intended — on Obamacare’s constitutionality.

Obamacare requires insurance companies to cover pre-existing illnesses and injuries. That’s an expensive proposition.

To help pay for it, Congress required everyone, especially people in good health, to buy insurance — the so-called “individual mandate.”

That requirement enables insurance companies to use their profits from covering the healthy and fit — since their premiums exceed their expenses — to underwrite treatment of the sick and injured.

Don’t purchase health coverage, Congress said, and you instead must pay money into the U.S. Treasury so that coverage can be funded.

The original legal debate was whether the Commerce Clause permitted Congress to require citizens to buy coverage.

Obamacare’s defenders argued that, since health insurance is such a large part sector of the national economy, Congress can regulate how it works.

Critics said that the individual mandate was unconstitutional because the Commerce Clause empowers Congress only to “regulate” commerce, not to “create” it.

The Supreme Court upheld Obamacare by a 5-4 vote. Four justices said it was a lawful regulation of commerce; four disagreed.

Chief Justice Roberts cast the deciding vote. He concluded that the individual exaction was a “tax” that could be upheld under the Constitution’s Taxing and Spending Clause.

It is irrelevant that Congress eschewed labeling the penalty as a “tax,” he wrote, because it was for the Court to decide how to classify Obamacare.

He deemed the noncompliance payment to be a “tax” because it raised revenue and sufficiently resembled a tax that it could be labeled as such. Thus, five justices found the law constitutional, even though they disagreed why.

Now the fun begins.

Effective January 2019, the 2017 Tax Cuts and Jobs Act reduces the payment into the U.S. Treasury for not purchasing health insurance to — literally — “$0.”

Does that matter? Yes, indeed. Once the Obamacare penalty disappears, so does the basis on which the Supreme Court upheld it.

In NFIB v. Sebelius, Roberts’ wrote that “the Government asks us to interpret the mandate as imposing a tax, if it would otherwise violate the Constitution,” and he found that “it can be so read.” The “exaction” imposed on people without health insurance, he wrote, “looks like a tax in many respects.”

For example, people pay the exaction amount “into the Treasury … when they file their tax returns,” and that payment “does not apply to” people who do not pay income tax.

The payment amount “is determined by such familiar factors as taxable income, number of dependents, and joint filing status.” The payment requirement is found “in the Internal Revenue Code,” and it is “enforced by the IRS, which … must assess and collect it “in the same manner as taxes.”

If there were any doubt about the matter, he dispelled it by this line: “This process yields the essential feature of any tax: It produces at least some revenue for the Government.”

Regardless of whether Chief Justice Roberts was correct to label the Obamacare penalty a “tax” in 2012, it can’t be given that label next year.

In his words, the “essential feature of a tax” is that it raises money. Seven months from now, Obamacare won’t. Live by $1 in revenue, die by $0 in revenue.

So that brings us to this conclusion: Unless John Roberts wants history to remember him as “Humpty Dumpty” rather than as “Chief Justice of the United States,” the game is over.

Paul J. Larkin Jr. is the John, Barbara and Victoria Rumpel Senior Legal Research Fellow in The Heritage Foundation’s Edwin Meese Center for Legal and Judicial Studies