Supreme Court Considers its own Jurisdiction to Determine the Constitutionality of the Affordable Care Act

By Amy L. Miles
On March 26, 2012, the United States Supreme Court heard the first day of Oral Arguments surrounding the controversy over some provisions of the Obama Administration’s healthcare reform act known as the Affordable Care Act (ACA). In its first round, the Court must determine whether it has the jurisdiction to consider the challenges to the Act at all. The ACA, among other things, contains an “individual mandate,” which will require U.S. taxpayers above a certain minimal income threshold to maintain healthcare insurance or to pay a penalty for failing to do so. In the case of Department of Health and Human Services v. Florida, which is a consolidation of challenges to the ACA from lawsuits brought in 26 states, the court will be considering whether, among other things, the individual mandate is a constitutionally permitted exercise of legislative power. As the ACA is written, the individual mandate goes into effect in 2014 and will be fully implemented by 2016. Therefore, the lawsuits challenging the mandate were in the form of seeking injunctive relief from the courts—asking them to prohibit the federal government from implementing the mandate before it goes into effect.
The jurisdictional question that the Supreme Court must answer first is whether it has the authority to issue the injunction the various states are seeking. Under the federal tax Anti-Injunction Act (AIA), courts have absolutely no power to prevent the federal government from assessing or collecting taxes before they are actually assessed or collected. Of course, once a taxpayer is liable for paying an assessment, he or she has a right to bring a refund action in federal court. The determination of the Court’s power to decide this case will revolve around whether the penalty required by the ACA is properly classified as a tax, which would divest the Court of its injunctive power before the law is in effect, or whether it is some other non-tax penalty.
In the underlying Florida case, the district court found that the penalty was not a tax. The government did not raise the issue on appeal, and so the Court of Appeals for the Eleventh Circuit did not decide the issue. The issue was directly confronted, however, by both the Court of Appeals for the Fourth Circuit, in Liberty University, Inc. v. Geithner, and the Court of Appeals for the Sixth Circuit, in Thomas More Law Center v. Obama. Although the Fourth Circuit Court came to the conclusion that the penalty was not a tax, the Sixth Circuit determined it was and therefore, the courts had no jurisdiction to provide the pre-enforcement relief the parties were seeking. With a conflict in the Circuit Courts of Appeals, and with the question of the Supreme Court’s own jurisdiction to provide the relief sought by those challenging the ACA, the issue of how to classify the penalty became primary in this closely-followed contest between the federal government and certain taxpayers and states.
In summary, the Sixth Circuit Court found that because the AIA bars “litigation over ‘taxes’” and the ACA imposes only a penalty, the “former does not cover the latter.” Recognizing that some penalties are considered taxes for purposes of barring injunctive action, the court found that the penalty for failing to comply with the individual mandate was not. The court reasoned that it was not a penalty found within the tax code itself, and therefore was not protected by the AIA. Further, the court noted that unlike the penalties listed in the tax code, the individual mandate’s penalty “has nothing to do with tax enforcement.” Accordingly, the court determined there was no bar to it considering whether the ACA provisions are constitutional.
On the other hand, the Fourth Circuit relied on earlier Supreme Court cases that used a broad definition of “tax” to find that the ACA individual mandate penalty qualified. The court defined “tax” as any “exaction for the support of the government,” even where the purpose of obtaining revenue was secondary to other goals for exacting the penalty, i.e., even though the exactions were not technically taxes. Specifically, the court cited to Supreme Court cases where other penalties were considered to be taxes and protected under the AIA. The court noted that the Supreme Court has never required Congress to specifically use the word “tax” in legislation to enable the AIA protection. The court also noted that the Supreme Court has held “that the AIA establishes a nearly irrebuttable presumption that no tax may be challenged in any pre-enforcement action.” Given the historical application of the AIA, the court concluded that Congress could have specifically exempted the ACA’s individual mandate from the AIA if it had chosen to do so—or provided a means for a pre-enforcement challenge—but it did not. Therefore, the Fourth Circuit refused to do by implication what the Congress did not expressly permit.
Although it was rejected by the court, the Secretary of the Treasure, in the Liberty University case raised a legitimate point. He argued that “Congress would have ‘wanted’ early resolution of challenges to” the ACA. Despite whatever else the Supreme Court may decide in these consolidated cases, deciding it at this point seems to make the most sense. If the Court were to determine that it has no jurisdiction because the penalty associated with the individual mandate is a tax, theses 26 challenges will be delayed for another two years and, by that time could turn in to thousands, or possibly hundreds of thousands of similar challenges by individual taxpayers who have had the penalty assessed against them. The cost and challenge to the states, to employers, and to the insurance industry of implementing the ACA mandate—only to have its constitutional validity remain in question for even more time seems to be a waste of the precious healthcare resources that are at issue. The same is true of the potential to clog the judicial system if the issue is not resolved at this stage.