9 Pages Posted: 10 Sep 2010 Last revised: 12 Nov 2013
Date Written: September 8, 2010
Recent federal healthcare legislation mandated that every “applicable individual” maintain healthcare insurance, and imposed (in new Internal Revenue Code section 5000A(b)) a penalty to enforce that mandate. In a recent paper titled Constitutional Decapitation and Healthcare, published in the July 12th issue of Tax Notes (128 Tax Notes 169), authors Steven J. Willis and Nakku Chung argue that section 5000A(b) is unconstitutional.
This paper responds to Willis and Chung by demonstrating that the section 5000A(b) penalty constitutes a valid exercise by Congress of its legislative powers under both the Commerce Clause and its taxing authority, although the penalty need only be defensible under one of these two lines to survive a constitutional challenge.
Fundamentally, and contrary to Willis and Chung, the section 5000A(b) penalty is not a tax on “not-doing.” Section 5000A(b) is a penalty (or tax) on the provision of healthcare self-insurance. This is not the same as a tax on simply existing, or doing nothing, for the simple reason that healthcare self-insurance is an economic decision with real and immediate consequences. The federal government can properly tax (or regulate) self-insurance because healthcare self-insurers are not required to demonstrate financial capacity to absorb the possible costs of their insurance decision, and if that decision proves to be feckless or unlucky, the federal government will ultimately absorb a substantial portion of the costs.
The remainder of the paper develops this argument, and then applies relevant case law to demonstrate that Congress’s interest in regulating healthcare self-insurance falls squarely within the legislative powers granted by the Commerce Clause. The penalty also can properly be analyzed as a tax that is not a direct tax, in the constitutional sense, and therefore can be assessed without apportionment among the states.
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