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Yesterday’s decision by the Supreme Court of the United States to uphold Obama’s Health Care Law had many surprise elements: it was Chief Justice John Roberts and not Justice Anthony Kennedy who cast the decisive vote; the individual mandate was upheld and at the same time not sustained; and the expansion of Medicaid was endorsed but under the condition it would not be imposed.

Chief Justice Roberts who wrote the majority opinion, and who counts as a Republican, was keen to make clear that the opinion did not represent an endorsement of the contents of the Health Care Law:

‘Members of this Court are vested the authority to interpret the law: we possess neither the expertise nor the prerogative to make policy judgments. Those decisions are entrusted to our Nation’s elected leaders, who can be thrown out of office if the people disagree with them. It is not our job to protect the people from the consequences of their political choices.’ (p.6)

Indeed the Decision reads like an attempt to delineate the limits of federal government with respect to its regulatory activities and both vis-à-vis its citizens and its constituent States:

1. On the individual mandate which sought to make health insurance mandatory, the Court ruled that the federal government may not compel economic activity. By default, this also means it cannot impose a penalty on inactivity as that would be equivalent to criminalizing it. However, the federal government may tax inactivity, and by doing so, encourage activity.

Five key passages from the Ruling explicating the above:

‘Every day individuals do not do an infinite number of things. In some cases they decide not to do something: in others they simply fail to do it. Allowing Congress to justify federal regulation by pointing to the effect of inaction on commerce would bring countless decisions an individual could potentially make within the scope of federal regulation and … empower Congress to make those decisions for him.’ (pp. 20-21)

‘To an economist, perhaps, there is no difference between activity and inactivity: both 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 metaphysical philosophers.’ (p.24)

• Yet … ‘This is not the end of the matter.’ (p.31). Because, even though this would not be ‘the most natural interpretation of the mandate’ (p.32), the latter can be regarded as ‘not a legal command to buy insurance … [but] makes going without insurance just another thing the government taxes, like buying gasoline or earning income.’ (p.32)

‘This process yields the essential feature of any tax: it produces at least some revenue for the Government.’ (p.33) which however is ‘not to say that the payment is not intended to affect individual conduct. Although the payment will raise considerable revenue, it is plainly designed to expand health insurance coverage. But taxes that seek to influence conduct are nothing new.’ (p.36)

‘it is abundantly clear the Constitution does not guarantee that individuals may avoid taxation through inactivity … The Court today holds that our Constitution protects us from federal regulation under the Commerce Clause so long as we abstain from the regulated activity. But from its creation, the Constitution has made no such promise with respect to taxes. See Letter from Benjamin Franklin to M. Le Roy (Nov. 13, 1789) (Our new Constitution is now established .. but in this world nothing can be said to be certain, except death and taxes). (p. 42)

2. On Medicaid, the Court ruled that the federal government is entitled to legislate the latter’s expansion towards inclusion of more low-income families. However, given that this expansion is significant and foresees increased State expenditures, the federal government may not compel the adoption of its policy nor may it seek to enforce it by way of threatening to cut federal subsidies.

‘Congress may use its spending power to create incentives for States to act in accordance with federal policies. But when “pressure turns into compulsion,” the legislation runs contrary to our system of federalism.’ (p.47)

‘Instead of simply refusing to grant the new funds to States that will not accept the new conditions, Congress has also threatened to withhold those States’ existing Medicaid funds.’ (p.49) … ‘In this case, the financial “inducement” Congress has chosen is much more than “relatively mild encouragement”—it is a gun to the head.’ (p.51)

‘As a practical matter, that means States may now choose to reject the expansion; that is the whole point. But that does not mean all or even any will. Some States may indeed decline to participate, either because they are unsure they will be able to afford their share of the new funding obligations, or because they are unwilling to commit the administrative resources necessary to support the expansion. Other States, however, may voluntarily sign up, finding the idea of expanding Medicaid coverage attractive, particularly given the level of federal funding the Act offers at the outset.’ (p.58)

Even though the Justices insist they are not policy-makers, their Decision appears inspired, at least to some extent, from the literature on libertarian paternalism, according to which regulators should appropriately ‘nudge’ citizens into making the right decisions rather than forcing them by means of prescriptions and penalties.

Nudging is, however, not always to the benefit of the poor who cannot afford to buy health insurance in the first place. The Medicaid expansion was meant to address this problem, and in order to facilitate the process, the federal government was even willing to cover the costs of the coverage expansion during the first three years.

If States can now opt out of this obligation, this will complicate matters on that front. A solution would, of course, be for the federal government to continue to finance this expanded coverage for a longer period of time. And if the funds for this were not to be available, it could raise taxes on the rich, or encourage States to do so. As Chief Justice indicated, by quoting Benjamin Franklin, ‘in this world nothing can be certain, except death and taxes.’