National Federation of Independent Business v. Sebelius, 567 U.S. 519 (2012)

National Federation of Independent Business (NFIB) v. Sebelius (567 U.S. 519 (2012)) is a U.S. Supreme Court decision that upheld most of the Patient Protection and Affordable Act (ACA) while setting limits on federal authority. Immediately after the ACA was signed into law by President Obama in 2010, thirteen states filed a constitutional challenge to two key features of the law, the “minimum essential coverage” requirement, often called the “individual mandate,” and the expansion of Medicaid eligibility to non-elderly, non-disabled adults. An additional thirteen states subsequently joined the lawsuit, resulting in half of the states challenging these provisions. The ACA was major federal health care reform legislation designed to achieve near-universal health insurance coverage through both public and private insurance reforms. The ACA increased access to private health insurance coverage by unifying private health insurance products and markets; leveling the playing field by establishing restrictions on insurance pricing and making everyone insurable through consumer protections such as elimination of pre-existing condition exclusions; and spreading the costs of care by broadening the risk pool to include all citizens. The ACA also expanded access to public coverage through opening Medicaid, the federal-state health care safety net, to people who historically were not eligible.

Logistically, a law that unified all of health insurance would have been a more straightforward way to achieve universal coverage. But, politically speaking, the will did not exist to upend the nation’s long reliance on private health insurance, especially employer-sponsored health insurance benefits, with a single federal health insurance program. Even so, health reform was a top priority based on the politics of the 2008 presidential election. The political calculation written into the ACA was that states could aid in the successful implementation of a federal law, especially because states historically have been responsible for the health of their citizenry, and because the states and the federal government often work together under the umbrella of cooperative federalism.

Thus, the ACA has many features that invite state participation, such as creation of private health insurance exchanges to sell individual and small-group health insurance and the expansion of insurance through state-run Medicaid programs. The ACA offered states money to create their own exchanges, but many more states than Congress anticipated rejected creation of exchanges, leading to a much greater role in the law’s implementation for the federal government than intended. (The exchanges were upheld as properly established by either states or the federal government in a second important ACA decision, ”King v. Burwell” (2015)).

The state-led challenge to the ACA, which became NFIB v. Sebelius, involved four statutory and five constitutional questions and embodied deep divisions in American politics over the role of government in health care and choices in governance between states and the federal government. The Supreme Court held three days of oral argument, a duration unheard of in modern judicial history (oral arguments of this length occurred in the early days of the Court, for example, in ”McCulloch v. Maryland” (1819). On the first day, the Court heard arguments regarding its own jurisdiction under the federal law called the Anti-Injunction Act, which prevents challenges to the legality of a federal tax before it is paid and could have prevented the Court from deciding the constitutionality of the individual mandate. The second day, the Court heard arguments regarding Congress’s ability to enact the individual mandate under the Commerce Clause, which grants Congress the power “to regulate Commerce…among the several States” (Article I, section 8, clause 1), and the Necessary and Proper Clause, which grants Congress the power “to make all Laws which shall be necessary and proper for carrying into Execution” the powers granted to it under the Constitution (Article I, section 8, clause 18). The third day was dedicated to the Spending Clause, which grants Congress the power to “provide for…the general welfare of the United States” (Article I, section 8, clause 1), and the conditions Congress can place on states that accept federal funding. The case was also suffused with the Tenth Amendment, which reminds Congress that powers not given to it by the Constitution are reserved to the states; the Court relies on the Tenth Amendment to protect states from exercises of federal power that may infringe state sovereignty. The third day also included the question of severability, meaning whether the entire law would fail if one piece of it were deemed unconstitutional.

The Court upheld the ACA, though not in a straightforward manner. All of the justices agreed that the Anti-Injunction Act did not prevent the Court from hearing the constitutional challenge to the individual mandate because it was called a “penalty” and not a “tax” in the language of the ACA. This was the only unified point of the Court’s decision.

Chief Justice John Roberts, writing for himself (but in agreement with the Joint Dissent), held that Congress exceeded its Commerce Power by making people who were “inactive” in commerce become active by purchasing health insurance. (Congress has had authority to regulate the business of insurance since U.S. v. South-Eastern Underwriters Association (1944), see ”McCarran-Ferguson Act”.) Chief Justice Roberts also held that the Necessary and Proper Clause did not save this deficiency, because even if it was “necessary” for Congress to reach all people not buying insurance to shore up nationwide insurance markets, it was not “proper” given Congress’s lack of power to do so under the Commerce Clause. Nevertheless, a five-person majority of the justices held that Congress could penalize people for failing to purchase insurance under its Taxing Power, which grants Congress the power to “lay and collect taxes,” thereby upholding the individual mandate. (The Republican-dominated Congress repealed the penalty enforcing the individual mandate as part of a tax bill on December 22, 2017.)

A plurality of the Court consisting of Chief Justice Roberts and Justices Breyer and Kagan held that the Medicaid expansion was unconstitutionally coercive for states, because they could lose all of their Medicaid funding from the federal government if they did not choose to expand Medicaid eligibility. Medicaid is a federal spending program that offers generous funding to states that agree to abide by federal rules for providing medical care to impoverished residents. States that do not accept Medicaid funding will not have a Medicaid program; but, all states have participated in Medicaid for decades because states need the money from the federal government to support their low-income populations. The plurality determined that states relied too heavily on Medicaid funding for the program to be changed in this way, what the Court called a change in “kind” not “degree.” (Justice Ginsburg’s dissent on this point, joined by Justice Sotomayor, was vehement, because constitutionally speaking Congress could have repealed Medicaid and reenacted it to encompass the expansion population.) Rather than strike the expansion from the ACA, though, the Court allowed Medicaid expansion to remain a part of the law so long as states could opt out of it without losing all of their Medicaid funding.

The Joint Dissent would have struck down the law in its entirety. Authored by Justice Scalia and joined by Justices Kennedy, Thomas, and Alito, the Joint Dissent would have held that the law exceeded Congress’s Commerce, Necessary and Proper, and Spending Powers and violated the Tenth Amendment. The Joint Dissent also would have held that the law was not severable.

The immediate effect of NFIB was to morph the implementation of the ACA, a law that had federalism at the heart of its design. Congress intended Medicaid expansion to be a national feature of the health insurance landscape, but as of this writing, nineteen states still have not expanded Medicaid because of the authority NFIB handed back to states — leaving an estimated 2.5 million uninsured people who would have otherwise gained coverage. In short, the federalism central to the Medicaid expansion, a key feature of the ACA, was inverted because of NFIB v. Sebelius.

Many areas of policy are driven by federal funding offered to states that agree to participate in a particular national goal. For this reason, NFIB v. Sebelius will have ongoing resonance for health care federalism and other areas, as the basic tenets of the Court’s decision making the Medicaid expansion optional could be extended to other spheres of interaction between the federal and state governments.