Jack Balkin on the Constitutionality of Health Reform

The Constitutionality of the Individual Mandate for Health Insurance
Posted by NEJM • January 13th, 2010 •

Jack M. Balkin, J.D., Ph.D.

Once President Barack Obama and Democrats in Congress have passed a health care reform bill, conservative groups are likely to challenge parts of it as unconstitutional, arguing that it oversteps Congress’s powers. A key target will be the individual mandate, which is designed to coax uninsured persons into purchasing insurance.

The term “individual mandate” is misleading for two reasons. First, the law would not actually require all individuals to purchase insurance. The mandate would not apply to dependents, persons receiving Medicare or Medicaid, military families, persons living overseas, persons with religious objections, or persons who already get health insurance from their employers under a qualified plan.

Second, it is not actually a mandate. It is a tax, which people would not have to pay if they purchased health insurance. The House bill imposes a tax of 2.5% on adjusted gross income if a taxpayer is not part of a qualified health insurance program. The Senate bill imposes what is called an “excise tax” — a tax on transactions or events — or a “penalty tax” — a tax for failing to do something (e.g., filing your tax return promptly). The tax is levied for each month that an individual fails to pay premiums into a qualified health plan.

Congress has the power to pass legislation that falls within any of its powers enumerated in the Constitution. There are two obvious sources of congressional power. The first, described in the General Welfare Clause, is the power “to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defence and general welfare of the United States.” The second, laid out in the Commerce Clause, is the power “to regulate commerce . . . among the several states.”

The individual mandate is a tax. Does it serve the general welfare? The constitutional test is whether Congress could reasonably conclude that its taxing and spending programs promote the general welfare of the country.1 This test is easily satisfied. The new health care reform bill insures more people and prevents them from being denied insurance coverage because of preexisting conditions. Successful reform requires that uninsured persons — most of whom are younger and healthier than average — join the national risk pool; this will help to lower the costs of health insurance premiums nationally.

Taxing uninsured people helps to pay for the costs of the new regulations. The tax gives uninsured people a choice. If they stay out of the risk pool, they effectively raise other people’s insurance costs, and Congress taxes them to recoup some of the costs. If they join the risk pool, they do not have to pay the tax. A good analogy would be a tax on polluters who fail to install pollution-control equipment: they can pay the tax or install the equipment.

Because the textual argument for Congress’s authority under the General Welfare Clause is obvious and powerful, opponents have tried to argue that the tax is unconstitutional because it is a “direct” tax. Under the Constitution, “direct” taxes must be apportioned to state population. That is, if State A has twice as many people as State B, the amount of revenue collected from State A must be twice that collected from State B. Like most federal taxes, the individual mandate is not apportioned to state population.

The classic examples of direct taxes are taxes on real estate and capitation or “head” taxes on the general population, under which people are taxed no matter what they do. In one of the Supreme Court’s first cases, Hylton v. United States, Justice William Paterson held that if there is any doubt, taxes should be classified as indirect rather than direct.2

The individual mandate is not a direct tax. The House’s version is a tax on income. Under the Sixteenth Amendment, income taxes do not have to be apportioned, regardless of the source of the income. The Senate’s version is an excise or penalty tax. It is neither a tax on real estate nor a general tax on individuals. It is a tax on events: individuals who are not exempted are taxed for each month they do not pay premiums to a qualified plan.

If the individual mandate falls within