Supreme Court Upholds Mandate as Tax

By JESS BRAVIN, BRENT KENDALL and LOUISE RADNOFSKY

WASHINGTON—In a surprise conclusion to a constitutional showdown, Chief Justice John Roberts joined the Supreme Court's four liberals Thursday to uphold the linchpin of President Barack Obama's health plan, the individual mandate requiring citizens to carry insurance or pay a penalty.

A divided Supreme Court upheld the constitutionality of the Obama administration's health-care law, in one of the most anticipated high-court rulings in a generation. Jess Bravin reports on The News Hub. Photo: AP.

By a 5-4 vote, the court held the mandate valid under Congress' constitutional authority "to lay and collect Taxes" to provide for "the general Welfare of the United States." The penalty for failing to carry insurance possesses "the essential feature of any tax," producing revenue for the government, Chief Justice Roberts wrote.
Although the Obama administration always asserted the penalty was valid under the federal taxing power, until Thursday no court had fully accepted that theory. Those that upheld the Patient Protection and Affordable Care Act, as the law is known, did so under Congress's constitutional power to regulate interstate commerce.

The court did find one part of the law unconstitutional, saying its expansion of the federal-state Medicaid program threatened states' existing funding. The court ruled that the federal government can't put sanctions on states' existing Medicaid funding if the states decline to go along with the Medicaid expansion.
The ruling leaves the bulk of the law intact and means the fall campaign will present voters with a clear choice between Republicans who want to repeal the law and Democrats led by Mr. Obama, who spent much of the first 14 months of his term pushing his health overhaul through Congress.

Streaming Live: Health-Law Decision

Associated Press

Real-time updates, analysis and reaction on the Supreme Court's decision to uphold the health-care law. Click here to see full coverage of the decision.

Live Chat at 2:30 p.m. ET

WSJ's D.C. deputy bureau chief Tim Hanrahan, health policy writer Janet Adamy, and legal editor Peter Landers will take your questions at 2:30 p.m. EDT. Ask questions now.

Journal Community

"What the court did not do I will do on my first day as president," Republican presidential candidate Mitt Romney said. "ObamaCare was bad policy yesterday. It's bad policy today."
Addressing the decision from the White House, Mr. Obama declared victory while vowing to improve the law, a nod to its unpopularity among much of the public.

The Surprise Vote: Roberts

The pivotal -- and most surprising -- vote to uphold most of the Obama administration's health-care law came from Supreme Court Chief Justice John Roberts. Read more.

"Whatever the politics, today's decision was a victory for people all over the country," Mr. Obama said. "We will continue to implement this law. And we'll work together to improve on it where we can. But what we won't do, what the country can't afford to do, is re-fight the political battles of two years ago or go back to the way things were."
On the commerce question, Chief Justice Roberts handed conservatives an ideological victory, if not a practical one. Along with the four dissenting justices, he rejected the administration's central argument that Congress could require Americans to carry insurance because the aggregate impact of uninsured individuals drove up insurance costs for everyone else.
Congress has invoked that commerce authority to justify a vast range of legislation, from environmental regulation to the Civil Rights Act of 1964. Conservatives wanted to see the Supreme Court put a limit on the commerce power, and Thursday it did.
"The Commerce Clause is not a general license to regulate an individual from cradle to grave, simply because he will predictably engage in particular transactions," the chief justice wrote.
Justice Anthony Kennedy, joined by Justices Antonin Scalia, Clarence Thomas and Samuel Alito, said they would have struck down the entire law, arguing that neither the government's commerce nor taxing power justified the mandate.
By reinterpreting the insurance mandate and changing the Medicaid provision, the majority engaged in "vast judicial overreaching," the dissenters said. "The court today decides to save a statute Congress did not write," they said.
Justice Ruth Bader Ginsburg, joined by Justices Stephen Breyer, Sonia Sotomayor and Elena Kagan, wrote separately to argue that the insurance mandate fell squarely within the federal government's commerce power.
"The Chief Justice's crabbed reading of the Commerce Clause harks back to the era in which the Court routinely thwarted Congress' efforts to regulate the national economy in the interest of those who labor to sustain it," Justice Ginsburg wrote.
Chief Justice Roberts brushed aside the label of "penalty" given to the payment required of those who fail to carry insurance. Nor did it matter, he wrote, that the payment was designed more to influence behavior than to raise tax revenue. The penalty functioned like a tax—and plenty of taxes, like those on cigarettes or other disfavored things, are enacted principally to create incentives rather than raise revenue, he wrote.
The ruling mostly preserves the biggest reworking to the health system since the creation of Medicare in the 1960s, after a legal battle of more than two years had left Mr. Obama facing the prospect of his effort being nullified. It also averts disruption for hospitals, doctors and employers who have spent more than two years preparing for the law.
However, the ruling may give more leeway to states that don't want to cooperate with the law by letting them avoid punishment for refusing to expand Medicaid.
Currently, states and the federal government split the costs of Medicaid, which provides health insurance for the poor. Under the health-care law, the federal government is set to pick up most of the cost of expanding Medicaid, but states would eventually have to chip in part. If states refused to pay their part, the law allowed the federal government to threaten to withdraw all Medicaid funding.

What It Means for Consumers

The health law's future depends on which party controls the White House and Congress after elections in November. Read More.

Health-Care Industry Gains Clarity

Though the coming election and expected budget negotiations could throw off more changes, the Supreme Court's decision to effectively uphold most of the law removes a big question mark and will add momentum to shifts that were already in progress.

Chief Justice Roberts wrote that such a threat would amount to a "gun to the head" and effectively let Washington commandeer state spending. He said that kind of coercion was unconstitutional. But the remedy he adopted was relatively modest: He said the federal government could expand Medicaid so long as it didn't threaten states with the withdrawal of all Medicaid funding.
The chief justice added that that the problem with the Medicaid language "does not require striking down other portions" of the law.
Twenty-six states filed suit the day Mr. Obama signed the health-care bill into law in March 2010. Lower courts issued conflicting rulings on whether the law's insurance mandate was constitutional.
Even as the law's fate was in doubt, the administration moved ahead with implementing its provisions. It has been negotiating with states to set up exchanges where consumers can buy subsidized insurance policies and sign up millions of lower-income Americans for Medicaid. Some states, including Florida and Texas, refused to cooperate because they expected the law to be overturned.
The exchanges are set to open in 2014, the same year insurers will have to accept all customers regardless of their medical histories. The insurance mandate will also take effect that year: People must show when they file tax returns for 2014 that they had coverage during that year or pay a tax penalty. The size of the penalty will rise over time and eventually reach a maximum of several thousand dollars a year.
Also starting in 2014, employers with more than 50 workers will have to pay penalties starting at $2,000 per employee if they didn't offer a set level of health benefits.
Although the law survived the court challenge, Republican congressional leaders said they will work to repeal it. "Today's ruling underscores the urgency of repealing this harmful law in its entirety," said House Speaker John Boehner.

Legacies Intertwined

Obama's political fate has been shaped to an unusual degree by the court of Chief Justice John Roberts. This fraught relationship could reach a new level when the court announces its decision on the health-care overhaul later today. Read More.

The court's decision could further energize voters who dislike the law to back Republicans in November. And it forces the Obama administration to continue defending the unpopular insurance mandate, which the court has now made clear is legally equivalent to a tax on those who refuse to carry health insurance.
Republicans quickly sent out news releases highlighting Mr. Obama's statements in a 2009 interview with ABC News, when he said the insurance mandate "is absolutely not a tax increase."
The Supreme Court reached its decision in the final week of its 2011-12 term, following an extraordinary three days of oral argument in late March at which conservative justices sharply questioned the mandate. Justice Scalia suggested that under the government's logic, Congress could require the purchase of any product and "you can make people buy broccoli."
Justice Kennedy confounded many predictions by turning out not to be the swing justice on the court as he sided with conservatives in calling for the entire law to be struck down.
Instead Chief Justice Roberts proved the decisive vote with his opinion that rejected much of the Obama administration's case but still gave the president a de facto victory on the centerpiece of the law.