National Federation of Independent Businesses v. Sebelius

PETITIONER:National Federation of Independent Businesses, et al.
RESPONDENT:Kathleen Sebelius, Secretery of Health and Human Services, et al.
LOCATION: The US Capitol

DOCKET NO.: 11-393
DECIDED BY: Roberts Court (2010-2016)
LOWER COURT: United States Court of Appeals for the Eleventh Circuit

CITATION: 567 US (2012)
GRANTED: Nov 14, 2011
ARGUED: Mar 26, 2012 / Mar 27, 2012 / Mar 28, 2012
DECIDED: Jun 28, 2012

Donald B. Verrilli, Jr. – Solicitor General, Department of Justice, for the petitioners (Anti-Injunction Act); for the petitioners (Minimum Coverage Provision); for the respondents (Medicaid expansion)
Edwin S. Kneedler – Deputy Solicitor General, Department of Justice, for the respondents (Severability)
Gregory G. Katsas – for the respondents (Anti-Injunction Act)
H. Bartow Farr, III – for the Court-appointed amicus curiae (Severability)
Michael A. Carvin – for the respondents National Federation of Independent Business et al. (Minimum Coverage Provision)
Paul D. Clement – for the respondents Florida et al. (Minimum Coverage Provision); for the petitioners (Severability); for the petitioners (Medicaid expansion)
Robert A. Long, Jr. – for the Court-appointed amicus curiae (Anti-Injunction Act)

Facts of the case

Check out Oyez’s deep-dive into the background of the Affordable Care Act cases.

Amid intense public interest, Congress passed the Patient Protection and Affordable Care Act (ACA), which became effective March 23, 2010. The ACA sought to address the fact that millions of Americans had no health insurance, yet actively participated in the health care market, consuming health care services for which they did not pay.

The ACA contained a minimum coverage provision by amending the tax code and providing an individual mandate, stipulating that by 2014, non-exempt individuals who failed to purchase and maintain a minimum level of health insurance must pay a tax penalty. The ACA also contained an expansion of Medicaid, which states had to accept in order to receive Federal funds for Medicaid, and an employer mandate to obtain health coverage for employees.

Shortly after Congress passed the ACA, Florida and 12 other states brought actions in the United States District Court for the Northern District of Florida seeking a declaration that the ACA was unconstitutional on several grounds. These states were subsequently joined by 13 additional states, the National Federation of Independent businesses, and individual plaintiffs Kaj Ahburg and Mary Brown.

The plaintiffs argued that: (1) the individual mandate exceeded Congress’ enumerated powers under the Commerce Clause; (2) the Medicaid expansions were unconstitutionally coercive; and (3) the employer mandate impermissibly interfered with state sovereignty.

The District Court first addressed whether the plaintiffs had standing to bring the lawsuit. It determined that Brown had standing to challenge the minimum coverage provision because she did not have health insurance and had to make financial arrangements to ensure compliance with the provision, which would go into effect in 2014. The court further determined that Idaho and Utah had standing because each state had enacted a statute purporting to exempt their residents from the minimum coverage provision.

The court also concluded that the Anti-Injunction Act did not bar the suit.

The District Court then addressed the constitutional questions. It ruled that the individual mandate provision was not a valid exercise of Congress’ commerce or taxing powers. The court held the entire act invalid because the mandate could not be severed from any other provision. The court dismissed the states’ challenge to the employer mandates and granted judgment to the federal government on the Medicaid expansions, finding insufficient support for the contention that the spending legislation was unconstitutionally coercive.

A panel of the U.S. Court of Appeals for the Eleventh Circuit affirmed 2-to-1 the District Court’s holdings as to the Medicaid expansions and the individual mandate. But it also reversed the District Court, holding that the individual mandate could be severed without invalidating the remainder of the ACA.


  1. Is the suit brought by respondents to challenge the minimum coverage provision of the Patient Protection and Affordable Care Act barred by the Anti-Injunction Act, 2 U.S.C. 7421(a)?

  2. Does Congress have power under Article I, Section 8 of the Constitution, specifically under the Commerce Clause or the Taxing and Spending Clause, to require most Americans to purchase health insurance?

  3. Is the individual mandate severable from the ACA?

  4. Did Congress exceed its enumerated powers and violate principles of federalism when it pressured States into accepting conditions that Congress could not impose directly by threatening to withhold all federal funding under Medicaid, the single largest grant-in-aid program?

Media for National Federation of Independent Businesses v. Sebelius

Audio Transcription for Opinion Announcement – June 28, 2012 (Part 2) in National Federation of Independent Businesses v. Sebelius
Audio Transcription for Opinion Announcement – June 28, 2012 (Part 3) in National Federation of Independent Businesses v. Sebelius
Audio Transcription for Oral Argument – March 26, 2012 in National Federation of Independent Businesses v. Sebelius
Audio Transcription for Oral Argument – March 27, 2012 in National Federation of Independent Businesses v. Sebelius
Audio Transcription for Oral Argument – March 28, 2012 in National Federation of Independent Businesses v. Sebelius

Audio Transcription for Opinion Announcement – June 28, 2012 (Part 1) in National Federation of Independent Businesses v. Sebelius

John G. Roberts, Jr.:

I have the announcement in case number 11-393, National Federation of Independent Business versus Sebelius, and the related cases.

In these cases we consider claims that Congress lacked constitutional power to enact two provisions of the Patient Protection and Affordable Care Act of 2010.

The limits on government power foremost in many American’s minds are likely to be affirmative restrictions such as contained in the Bill of Rights.

These are affirmative restrictions come into play however only where the government possesses authority to act in the first place.

And in our federal system, the national government possess only those limited powers the constitution assigns to it.

If no constitutional power authorizes Congress to pass a certain law, that law may not be enacted even if it would not violate any of the express prohibitions in the Bill of Rights or elsewhere in the constitution.

The first provision in issue here is often referred to as the individual mandate.

That provision requires individuals to maintain a specified level of health insurance.

For many, the mandate must be satisfied by purchasing health insurance from a private company.

Those who do not obtain the required coverage over the IRS what the Act calls, a shared responsibility of payment.

The question is whether Congress has the constitutional power to enact the individual mandate.

The government advances two arguments that it does.

First, the government contends that the constitution’s Commerce Clause authorizes the mandate.

Second, the government says that Congress could enact the statute under its constitutional power to lay and collect taxes.

Turning first to the Commerce Clause.

Congress has never before attempted to use the commerce power to order individuals not engaged in commerce to buy an unwanted product.

And nothing in the text to the constitution suggests it can.

The Commerce Clause allows Congress to regulate commerce.

The power to regulate commerce presupposes the existence of commercial activity to be regulated.

Our president reflects that understanding.

As expansive as our cases construing the commerce power have been, they all have one thing in common.

They uniformly described the power as reaching activity.

It is nearly impossible to avoid the word when quoting our cases.

The individual mandate by contrast does not regulate existing activity.

It instead compels individuals to become active in commerce by purchasing a product they do not want.

The government contends that Congress can do this because the failure to purchase health insurance has a substantial effect on interstate commerce.

In particular, the government focuses on the costs that the uninsured as a group impose on the healthcare system when they need care but are unable to pay for it.

Allowing Congress to regulate individuals precisely because they do not do something however would vastly expand federal power.

People for reasons of their own often fail to do things that would be good for them or for society.

Those failures joined with the similar failures of others can have a substantial effect on interstate commerce.

John G. Roberts, Jr.:

Under the government’s logic, that authorizes Congress to compel unwilling citizens to act as the government would have them act.

Congress already enjoys vast power to regulate much of what we do except in the government’s theory would allow Congress the same license to regulate what we do not do.

That would fundamentally change the relationship between the American citizen and the federal government.

Now, to an economist perhaps, there is no difference between activity and inactivity.

Both can have measurable economic effects on commerce.

But the distinction between doing something and doing nothing would not have been lost on the framers who were practical statesmen, not academic theorists.

The framers gave Congress the power to regulate commerce not to compel it.

For over 200 years, this Court’s decisions and Congress’ actions have reflected this understanding.

There is no reason to depart from it now.

But the government says that health insurance is different because everyone will eventually need healthcare.

According to the government, that means the uninsured even though doing nothing can be “regulated in advance.”

That assertion is inconsistent with a limited consumption of federal power.

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 government also contends that Congress could enact the individual mandate because the mandate is important to other parts of the Healthcare Act.

Other provisions of the Act whose validity under the Commerce Clause is not challenged here, restrict the ability of health insurance companies to charge higher prices to less healthy individuals.

Those provisions will likely cause insurance companies to raise the prices they charge everyone.

According to the government, the individual mandate is in the constitution’s language, necessary and proper to support those provisions because it will compel healthy individuals to subsidize the cost of insuring those who are less healthy.

Our cases interpreting the necessary and proper clause have been very differential to Congress’ determination of what is necessary.

But we have also explained that the clause is not a grant of a great and independent power.

The clause only allows Congress to do things that are incidental to the exercise of its other powers.

Compelling people to enter commerce precisely because they have chosen not to cannot be considered a necessary and proper supplement to the Commerce Clause.

There are separate writings on this subject but the majority of this Court agrees that the Commerce Clause cannot sustain the individual mandate.

That brings us to the Government’s second argument that the mandate maybe upheld under Congress’ power to lay and collect taxes.

The Government’s tax power argument asks us to interpret the statute not as ordering individuals to buy insurance but rather as imposing the tax on those who go without it.

Under the mandate, if an individual does not buy health insurance, the only consequence is that he must make an additional payment to the IRS when he pays his taxes.

The government says, that means the mandate can be interpreted as establishing a condition not only health insurance that triggers a tax, the required payment to the IRS.

Under that theory, the mandate makes going without insurance just another thing the government taxes like buying gasoline or earning income.

And if the mandate is just a tax hike on taxpayers who don’t have health insurance, it may be within Congress’ constitutional power to tax.

Under our precedent, if there are two possible interpretations of a statute and one of those interpretations violates the constitutions — the constitution, courts should adopt the interpretation that allows the statute to be upheld.

Thus, the question here isn’t whether the interpretation of the statute, the Government offers to support its tax argument is the best interpretation.

John G. Roberts, Jr.:

Rather, under our cases, the question is whether that interpretation is reasonable or fairly possible.

If it is, then the Court should adopt that interpretation rather than declare the statute unconstitutional.

The payment the Act imposes on those without health insurance certainly looks like a tax.

By its terms, it applies to taxpayers and is paid to the IRS when they file their tax returns.

It doesn’t apply to individuals who don’t pay federal income taxes because their income is too low.

For taxpayers who do know the payment, its amount is determined by factors such as taxable income, number of dependents, and joint filing status.

And the payment is expected to generate nearly $4 billion per year in government revenue.

The Act doesn’t call this payment a tax.

It calls it a shared responsibility payment and a penalty.

But whether law is with Congress’ taxing power is determined by what the statute does, not the labels Congress attaches to it.

This payment functions like a tax.

It’s paid by taxpayers with their to the IRS will generate a lot of government revenue.

The amount of the payment also suggest it is in effect a tax.

Our cases examining whether something is a tax often consider this factor.

If an exaction is high that no one could be expected voluntarily to pay it, that can show the law is really just a command enforced by a fine.

The payment in this case by contrast is calibrated to the taxpayer’s income, can never be higher than the cost of buying insurance and can often be quite a bit less.

It is indeed likely that many Americans will choose to pay the IRS rather than buying insurance and someone who makes that payment has fully complied with the law.

He has not done anything unlawful.

The Solicitor General confirm that understanding in his briefs and at oral argument.

That is another reason that the statute functions more like a tax than the sort of punitive exactions we’ve struck down before.

The plaintiffs however say that because this statute uses words like shall and penalty, the law must be read to make it illegal not to buy insurance even if that would mean the law was unconstitutional.

We disagree.

An example may help show why.

Suppose Congress enacted a statute providing that every taxpayer who owns a house without energy efficient windows must pay $50 to the IRS.

The amount due is adjusted based on factors such as taxable income and joint filing status and is paid along with the taxpayer’s income tax return.

Those whose income is below the filing threshold need not pay.

The required payment in the hypothetical statute is not called a tax, a penalty or anything else.

Now, no one would doubt that this law impose a tax and was within Congress’ power to tax.

Now, suppose Congress used the word penalty to describe the payment.

The law would still do the exact same thing.

John G. Roberts, Jr.:

There is no reason to conclude that it would then be outside Congress’ power to tax.

The plaintiffs also argue that even if the tax is interpreted even if the statute is interpreted as a tax, such a tax would violate the constitution’s direct tax clause.

But as our opinion explains more fully, our precedent is clear that a tax on going without health insurance is not a direct tax.

Still, this tax is a burden that the federal government imposes for an omission, not an Act.

If the commerce power does not authorize Congress to regulate those who don’t engage in commerce, perhaps the taxing power should not permit Congress to impose a tax for not doing something.

But we cannot accept that reasoning.

First and most importantly, nothing in the constitution guarantees that individuals may avoid taxation through inactivity.

The Government’s Commerce Clause argument asked this Court to condone a new sort of federal power ordering people not in commerce to buy an unwanted product.

The Government’s tax power argument by contrast asks us only to determine that Congress has gone something it clearly can do and indeed often has, use tax incentives to encourage people to buy a product.

Upholding the statute under the taxing power does not recognize any new federal power.

It determines that Congress has used an existing one.

Moreover, Congress’ ability to use its taxing power to control conduct is significantly weaker than it is under the Commerce.

When Congress regulates under the Commerce Clause, it can bring the full weight of the federal government to bear a command issued under the Commerce Clause can be backed by fines, imprisonment, and all the consequences of being branded a criminal such as loss of job opportunities, the right to bear arms or vote in elections.

By contrast, Congress’ authority under the taxing power is limited to requiring an individual to pay money into the Federal Treasury.

That is of course no small thing.

But our cases have always maintained that a tax so punitive that it functions like a command exceeds Congress’ taxing power.

The Affordable Care Acts requirement that certain taxpayers pay the Government for not obtaining health insurance is in effect the tax on those without insurance.

Passing on the wisdom or fairness of such attacks is not our role because the constitution permits it, we must uphold it.

In some, a majority the Court holds that the federal government cannot use the taxing power to order people to buy health insurance but a majority also holds that the statute here maybe upheld as a tax increase on those without health insurance which is within Congress’ power to tax.

So this portion of the Affordable Care Act is upheld.

We now turn to the second part of the Act challenge in this case often referred to as the Medicaid expansion.

Enacted in 1965, Medicaid offers federal funding to states to assist needy persons in obtaining medical care.

In order to receive that funding, states must comply with federal rules governing matters such as who receives care and what services are provided at what cost.

The Affordable Care Act dramatically increases state obligations under Medicaid.

The current Medicaid program require states to cover only discreet categories of particularly vulnerable individuals, pregnant women, children, need families, the blind and the disable.

There is no mandatory coverage for most childless adults and parents receive aid only if their income is far below the federal poverty line.

The Medicaid expansion in contrast requires states to cover all individuals under the age of 65 within incomes below 133% of the federal poverty line.

And, critically for this case, if a State does not comply with the Act’s new coverage requirements, it may lose not only the federal funding for the expansion but all of it’s federal Medicaid funds.

The constitution Spending Clause grants Congress the power to pay the debts and provide for the general welfare of the United States.

Our cases have recognized limits on Congress’ power to use the Spending Clause to compel the states to advance federal objectives.

John G. Roberts, Jr.:

One of the fundamental tenets of our constitutional is that the states are independent sovereigns, not merely departments of the federal government.

Our cases thus make clear that Congress cannot commandeer state governments to carry out federal programs.

That is true whether Congress directly commands a State to run a federal program or indirectly coerces a State to adopt the federal program as its own.

Normally, the way for states to avoid complying with conditions on federal funds they do not like is to refuse to take the money.

The states are separate and independent sovereigns.

Sometimes they have to act like it.

The Medicaid expansion however is far from a typical case.

Congress did not merely conditioned the new funds for implicating — implementing the expansion on whether states agreed to expand their Medicaid programs.

Instead, Congress threatened to withhold states existing Medicaid funds if they do not comply with the expansion.

The states claim that this threat serves no purpose other than to force unwilling states to sign up for the new program.

We agree.

There is no valid reason to condition a state’s existing Medicaid funds which are already being spent according to federal conditions on agreeing to the new program.

We examined a similar situation in a case called South Dakota versus Dole.

There, we did not strike down the federal law but only because the amount of money at stake was so small, less than one half of 1% of South Dakota’s total budget.

Under those circumstances, we held that the threat to withdraw funds was, “relatively mild encouragement so that whether to accept the federal funds in conditions remains the prerogative of the states not merely in theory but in fact.”

In this case, the threat to withhold funds is more than relatively mild encouragement.

It is a gun to the head.

A State that opts out of the Medicaid expansion stands to lose all of its existing Medicaid funding.

The threatened loss of over 10% of a state’s overall budget leaves a State with no real option but to accept the Medicaid expansion.

The government however claims that the Medicaid expansion is just a modification of the existing program.

It observes that the original law contains a clause expressly reserving the right to alter, amend, or repeal any provision of the Medicaid program.

But the Medicaid expansion is a shift in kind not merely degree.

Under the Affordable Care Act, Medicaid is transformed into a program to meet the healthcare needs of the entire non-elderly population with income below 133% of the poverty level.

It is no longer a program to care for the neediest among us but rather an element of a comprehensive national plan to provide universal health insurance coverage.

A state could hardly anticipate that Congress’ right to alter or amend that the Medicaid program included the power to transform it so dramatically.

We thus reject the government’s argument that the states agreed to this when they signed up for the original Medicaid program.

Threatening to withdraw states’ existing Medicaid funds if the states do not accept the expansion is an impermissible attempt to conscript states into the federal bureaucratic army.

Although there are separate writings on this issue as well, seven members of the Court agree that the Medicaid expansion violates the constitution’s limits on the spending power.

Nothing in the controlling opinion precludes Congress from offering federal funds to states to expand their Medicaid programs.

What Congress cannot do is penalized states that declined to participate in that need program by taking away their existing Medicaid funding.

John G. Roberts, Jr.:

The Medicaid ruling does not affect other provisions of the Affordable Care Act.

States now have a real choice whether to accept the Medicaid expansion that may affect the implementation of the Act going forward.

But, for reasons we explained in our opinion, it does not impair the Act’s other provisions in such a way that we must invalidate them in whole or in part.

The Court today rules that Congress does not have the power under the Commerce Clause to enact the individual mandate.

The Court goes on to rule that Congress does have such power under the Taxing Clause.

Finally, the Court rules that the expansion of Medicaid in the Affordable Care Act is unconstitutional to the extent, it allows the federal government to take away a state’s Medicaid funds if the state does not adopt the expansion.

Our decision today is based on our responsibility recognized in Marbury versus Madison to say what the law is.

It is not in any way based on our judgment about whether the Affordable Care Act is good policy.

That judgment is for the people acting through their representatives.

It is not our job to save the people from the consequences of their political choices.

The judgment of the Court of Appeals for the Eleventh Circuit is affirmed in part and reversed in part.

Justices Breyer and Kagan joined parts 1, 2, 3(C), and 4 of this opinion.

Justices Ginsburg and Sotomayor joined parts 1, 2, and 3(C) and concurring the judgment with respect to part 4(B).

Justices Scalia, Kennedy, Thomas, and Alito have filed a joint dissenting opinion.

Justice Thomas has filed a dissenting opinion.

Justice Ginsburg has filed an opinion dissenting in part in which Justice Sotomayor joins in which Justices Breyer and Kagan joined in part.