Tag Archives: King v. Burwell

Commentary on National Federation of Independent Business v. Sebelius

In 2010, Congress enacted the Patient Protection and Affordable Care Act (ACA)[1]. The goals of the Act were to increase the number of Americans covered by health insurance and to decrease the cost of health care. No republicans voted for the bill. Since the Act’s passage, it has come under legal attack from many fronts.

Under the Act, the States were to set up exchanges which listed the various insurance plans and the associated costs. Accessing the exchange website would allow people to shop for a plan that would best fit their needs. If a State decided that the cost of setting up the exchange was too high or for whatever other reason, then the Federal government would come in and set up its own exchange. However, under the law, only the States that had set up their own exchange would have their citizens access tax credits which could help pay for the insurance premiums.

The first controversy to make it up to the Supreme Court dealing with this Act was King v. Burwell. In this case, the Supreme Court held that tax credits would be made available to all who used the exchanges, even the exchanges which had been set up by the Federal government.[2] In effect, the Supreme Court, in a divided opinion, saved the ACA by making insurance premiums more affordable in all of the States.

The second controversy to make it to the Supreme Court was National Federation of Independent Business v. Sebelius. This paper will look at the National Independent Business decision.

One of the key requirements under the Affordable Care Act was the individual mandate which required most Americans to obtain health insurance coverage.[3] For people who were not exempt from this coverage and were not covered through an employer or a government program, this requirement could only be met by buying health insurance from a private company. The legal issue pertaining to this individual mandate was the power of the Congress to force the buying of health insurance by people who were not participating in this particular form of commerce.

A second important requirement of the Act was to expand Medicaid to help cover all adults with incomes up to 133 percent of the federal poverty level. The legal issue relating to this expansion was the ability of the Congress to force the states to cover several more people under Medicaid or suffer the loss of all federal funding that had previously been given for Medicaid.

The third issue addressed by the Court in this decision was the applicability of the Anti-Injunction Act if, in fact, the payment required by those who did not obtain health insurance was deemed to be a “tax” as opposed to a “penalty”.


The Individual Mandate

Shortly after President Obama signed the Affordable Care Act into law, thirteen States filed a complaint in the Federal District Court for the Northern District of Florida. Eventually, 13 more States, the National Federation of Independent Business and several individuals, joined in the suit. The main issue alleged by the plaintiffs was that the individual mandate exceeded Congress’s power under Article 1 of the United States Constitution.

The District Court agreed with the plaintiffs. This Court also held that the individual mandate could not be removed without changing the law, thus, the whole ACA had to be struck down.

The Court of Appeals for the Eleventh Circuit agreed. The majority opinion of that Court affirmed that the Commerce Clause does not give the Congress the power to force people to engage in commerce. If the Commerce Clause gave Congress that kind of power, there would be no limits on what Congress could do and that would violate precepts of Federalism.

Other Courts of Appeals came up with different opinions. The Sixth Circuit and the D.C. Circuit held that the individual mandate was a valid exercise of Congress’s power under the Commerce Clause.

The Fourth Circuit held that the individual mandate was really a tax. Since a tax was involved, they reasoned that the Anti-Injunction Act would apply which would prevent the courts from assessing the merits of the case until the tax had been collected.

When several Courts of Appeal come up with very different holdings, the Supreme Court is likely to take on the case; that is what happened here.

In the Supreme Court opinion, four of the Justices felt that Congress had the power to make the individual mandate into law. They agreed with the Sixth Circuit and the D.C. Circuit that this power was emanating from the Commerce Clause. Four other Justices said that this power was not available under the Commerce Clause because if it was, Congress could force people to buy things, i.e., engage in commerce. This would be more than regulating commerce which was on-going. As Justice Scalia wrote, “Upholding the Affordable Care Act under the Commerce Clause would give Congress the same license to regulate what people do not do…They gave Congress the power to regulate commerce, not to compel it.”

Chief Justice Roberts agreed that the power was not within the Commerce Clause, but it was within the power of the Taxing Clause. With his vote, the individual mandate was deemed constitutional and the Affordable Care Act was, once again, saved by his vote. Even though President Obama assured the American people that this was not a tax, government lawyers did raise this argument during the litigation.

Surprisingly, even though the Congress stated that this penalty must be paid to the IRS with the individual’s taxes, the Act forbade the IRS from using its usual enforcement tools, criminal prosecutions and levies, in collecting the tax. Also, the law allowed for some individuals to be exempt from the penalty even though they were subject to the mandate. This would be for those whose income was below a certain level and the Indian tribes.

The dissent gave several arguments refuting the notion that the individual mandate was a tax. Justice Scalia wrote “…to say that the Individual Mandate merely imposes a tax is not to interpret the statute but to rewrite it. Judicial tax-writing is particularly troubling. Taxes have never been popular, and in part for that reason, the Constitution requires tax increases to originate in the House of Representatives. That is to say, they must originate in the legislative body most accountable to the people, where legislators must weigh the need for the tax against the terrible price they might pay at their next election, which is never more than two years off.”[4]


The Medicaid Expansion

            When Medicaid was first enacted in 1965, it offered federal funding to the States to help pregnant women, children, needy families, the blind, the elderly, and the disabled to get medical care when needed. There were federal criteria that the States had to meet in order to get the funding and by 1982, every State was participating in this program. Federal funds for Medicaid have become a large part of every State’s budget; in fact Medicaid is now more than 10% of each States’ total revenue.

The Affordable Care Act expanded the coverage under Medicaid to include adults with incomes up to 133% of the federal poverty level. This was a big expansion of Medicaid and a large part of the costs for this expansion would be borne by the States. Under Federalism, the Congress could not force the States to expand the Medicaid coverage, but they hoped to coerce compliance by threatening the States with the loss of all federal funding for Medicaid if they did not expand the coverage as required under the ACA.

In addition to expanding the patient population eligible for Medicaid, the Affordable Care Act also required the States to increase the essential health benefits package. The Federal government agreed to pay the added costs of this expansion until 2016 at which time, they would decrease the payment gradually but not below 90% of the added costs. Still, the extra costs to the States would be substantial.

The States argued that these extra costs would be substantial even with the Federal payments and some wanted to opt out but they could not afford to give up all of the Federal subsidies they were already getting for Medicaid. The States felt that this penalty was coercive in nature and was forcing the States to do something the Federal government could not directly order them to do; again an unconstitutional act.

Justice Roberts agreed with the States on this issue. His vote along with several other justices severed this mandate from the Affordable Care Act. Since this severance was not lethal to the rest of the ACA, the rest of the Act was allowed to stand.



The Applicability of the Anti-Injunction Act

            The Anti-Injunction Act is a law that forbids anyone from suing to bar the collection of a tax. With this law, taxes can only be challenged after they have been paid; the cause of action would be to sue for a refund. Since Justice John Roberts and the government felt that the individual mandate was a tax, then the argument could be made that the case was not yet ripe to be heard by the Courts.

In fact, the Fourth Circuit had ruled that the plaintiffs could not challenge the individual mandate until they had paid the penalty.

Since Justice Roberts ruled that the individual mandate was really a tax, he then had to explain why the Anti-Injunction Act did not apply. He dealt with this issue by referring to the Internal Revenue Code which draws a consistent distinction between the terms “tax” and “assessable penalty”. Although the IRS can assess taxes and penalties, the Affordable Care Act does not give the IRS the power to treat the individual mandate as a tax for which the Anti-Injunction Act would apply.

Perhaps the tax (penalty?) was not really being used to pay for debts of the United States and that is why the Anti-Injunction Act did not attach.[5] Or if a tax is the penalty for not doing something ordered by Congress, then the Anti-Injunction Act would only attach if it was actually in the law for which the penalty was described. This part of the opinion was difficult to understand; suffice it to say that Justice Roberts held that the Anti-Injunction Act did not apply to this particular tax.

The dissent, having found that the individual mandate was not a tax to begin with, had no trouble concluding that the Anti-Injunction Act did not apply.


In summary, this Supreme Court case had three holdings:

  • The Individual Mandate was constitutional;
  • The plan to withhold all Medicaid funding from the States who refused to expand the Medicaid program and add the essential health benefits that came with it was coercive in nature and was, thus, unconstitutional;
  • The tax penalty that those who refused to buy health insurance had to pay was not subject to the Anti-Injunction Act.

States who refused to expand Medicaid were still allowed to get the federal funding that they were already getting with the original Medicaid program and this ruling allows the rest of the Affordable Care Act to stand.

This was the second time that Chief Justice Roberts saved the Affordable Care Act. Nancy Pelosi said we would have to pass the law before we could understand what was in it. I think she was right. The people and the Courts are still trying to sort things out and there are still sections of the law in litigation and other sections that are not yet ripe for suit; only time and resources will sort these issues out.

Now, with the recent death of Justice Scalia, it is unlikely that the Supreme Court will do much to stop the ACA from remaining the law. However, things may change if there is a republican president and control of the House and Senate remains in republican hands.

[1] Often referred to as Obamacare

[2] See my commentary on King v. Burwell

[3] Prisoners and undocumented aliens are exempt from the individual mandate. People with incomes below a threshold and Indian tribes, although they are subject to the individual mandate, are exempt from the penalty (tax?) if they do not purchase the insurance.

[4] Dissent of Antonin Scalia in National Federation of Independent Business v. Sebelius.

[5] Under Article 1 section 8, cl.1, Congress may “lay and collect Taxes, Duties, Imposts and Excises to pay the Debts and provide for the common Defence and general welfare of the United States.”



by Darryl S. Weiman, M.D., J.D.

Professor, Cardiothoracic Surgery, University of Tennessee Health Science Center and Chief of Surgery, VAMC Memphis, TN

MORE ABOUT THE AUTHOR: Darryl Weiman is a featured expert in www.healthcaredive.com on February 17, 2016. 

A Commentary on King v. Burwell

One of the linchpins of the Affordable Care Act (Obamacare) is to have everyone in the United States get Health Care Insurance. The way that the law instructed that this be done was to have the States set up Exchanges; access to the exchanges would allow each person to shop, preferably on-line, for an insurance policy that would best meet their needs. Accessing the exchange website would allow the people to compare the types of coverage, the premiums they would be responsible for, and the deductibles available. It would be one stop shopping for health insurance. This is a great idea on its face.

Since the requirements of health insurance were powers relegated to the states, each state would be in the best position to decide which policies would meet that particular state’s requirements.

Under the law, if the state decided that the cost for setting up the exchange was too high or for whatever other reason, they could choose to have the Federal government come in and set up an exchange for them. The Federal government preferred to have the States set up the exchanges but they could not force the states to do so as that would violate rules of Federalism and the separation of powers. The Administration had to come up with a way to get the states to “buy in” and they decided to do this by making tax credits available to the people of the States that set up their own, non-federal, exchange.

These tax credits were critical for the law to succeed because without them, the costs of meeting the requirements of coverage would exceed eight percent of the income of many people which would allow those people to claim exemption from coverage. Since many of these people were healthy and would not generate much health care costs, insurance carriers really needed them to participate in order for business to be viable.

The reason that the premiums had to be high was the ACA’s requirements for “guaranteed issue” and “community rating.” The “guaranteed issue requirement” meant that insurers could not deny any person coverage due to a pre-existing medical condition. The “community rating” requirement prevented the insurance carriers from charging higher premiums for those with a pre-existing medical condition. It was probably the “guaranteed issue” and “community rating” issues that led to the failure of “Romney care” in Massachusetts and the commercial insurance market in New York, but that’s another story.

Without the tax credits along with the requirements of “guaranteed issue” and “community rating” it was foreseeable that many healthy individuals would face premiums that would exceed eight percent of their income whereby they would be exempt from buying health insurance or if they did not meet the eight percent level, they would opt out of the Affordable Care Act insurance requirements and pay the tax penalty (much less than the offered premiums) instead. These healthy people could buy the insurance after they became sick and they would suffer no penalties for waiting. This is another example of people acting rationally.

Surprising to the Obama Administration, many of the States decided to opt out of setting up their own exchanges. There was a very real concern that many people in those states, not being eligible for the tax credits, would not buy health insurance and they would not be penalized since the premiums they would have to pay amounted to more than eight percent of their income. If these predominately health people would not participate, the insurance carriers would likely go bankrupt and have to withdraw from participating in the ACA. This could have led to a death spiral for the whole Affordable Care Act.

Under direction from the White House, the Internal Revenue Service (IRS) decided to make tax credits available to all who used the exchanges, even the exchanges set up by the Federal government.

The Petitioners in this Supreme Court case were citizens of Virginia, a state with a Federal Exchange. The Petitioners did not want to purchase health insurance and if they were not eligible for tax credits their premiums would have fallen above the eight percent threshold of their income and, thus, would have been exempt from the law’s coverage requirement. However, with the IRS rule, they would have been eligible for the tax credits and would have to buy insurance or be subject to the IRS tax penalty.

The District Court which heard the case held that the Act made tax credits available to those enrolled in a Federal Exchange. The Court of Appeals for the Fourth Circuit affirmed. The Fourth Circuit wrote that the Act was “ambiguous and subject to at least two different interpretations.” They chose to defer to the IRS’s interpretation.

At the same time that the Fourth Circuit was issuing its holding, the Court of Appeals for the District of Columbia Circuit ruled against the IRS Rule, holding that the ACA “unambiguously restricts” the tax credits to State Exchanges. This Circuit did not believe that the Federal Exchange was a State Exchange.

When two different circuits come down with two different holdings of the law, it is not unusual for the Supreme Court to grant certiorari and they did.

The legal issue of the case was whether the Act’s tax credits would be allowed in States that have a Federal Exchange. The Supreme Court held that they would be allowed. The Court, in dicta, wrote “an Exchange established by the State…is properly viewed as ambiguous. The phrase may be limited in its reach to State Exchanges. But it is also possible that the phrase refers to all Exchanges—both State and Federal—at least for the purposes of tax credits.”

The Court went on to say that “[t]hose credits are necessary for the Federal Exchanges to function like their State Exchange counterparts and to avoid the type of calamitous result that Congress plainly meant to avoid.” It seems like the Court was saving the Affordable Care Act from itself.

In a blistering dissent, Justice Scalia, made it clear that a Federal Exchange was not the same as a State Exchange and the tax credits were purposely kept out of the States which opted for a Federal Exchange. The Secretary of Health and Human Services, the person responsible for setting up the Federal Exchanges was not a “State” and thus, citizens of those states should not have been eligible for the tax credits.

Historically, the Court does not like to salvage poorly written laws. They will interpret what is before them and then expect Congress to do its job by making the necessary repairs. The Supreme Court decided to make the credits available to everyone to make the insurance affordable to all. They seemed to be doing what Congress should have been responsible for.

In the United States, under our Constitution, any changes in the law should have come through the Congress. However, in light of the fact that the Congress was now controlled by the Republicans, it is unlikely that the necessary changes needed to save the law would not have been passed; the ACA was in dire straits and the Obama administration recognized this.

King v. Burwell brought to light a significant problem with the Affordable Care Act. In an effort to save an unartfully crafted law, the Obama administration changed the law to allow the Internal Revenue Service to spend billions of dollars on tax credits for those using Federal Exchanges. Changing the law is not a power vested in the Executive branch under the Constitution of the United States. All spending rules must emanate from the United States Congress.

In what looks like an effort to avoid a Constitutional crisis, and the disintegration of the Affordable Care Act, the Supreme Court ruled that any Exchange, including one set up by the Federal government, was really a State exchange. This power to re-write the law is, again, not a power vested in the Supreme Court. However, once the Supreme Court makes a decision, that decision is final.

It is said that the Supreme Court is not last because it is right, it is right because it is last. There must be finality in the law or we will have a society in disarray. The issue on tax-credits and the origination of the Exchanges under the ACA is over! At least for now.

[1] King v. Burwell, 576 U.S._(2015).

ABOUT THE AUTHOR: Darryl Weiman is a featured expert in www.healthcaredive.com on February 17, 2016.