Could it be Unconstitutional to Raise the Obamacare "Tax" for Not Purchasing Health Insurance?

As many predicted, especially us at Cato, the Affordable Care Act is beginning to make health insurance less affordable for many Americans. Part of the problem, in a nutshell, is precisely what my colleague Michael Cannon described in 2009, the young and the healthy avoiding signing up for health insurance and choosing to pay the fine, or, as Chief Justice John Roberts would call it, a tax.

MIT economist Jonathan Gruber, often described as an architect Obamacare, recently said that some of these problems can be alleviated by increasing the “tax” on those without insurance. “I think probably the most important thing experts would agree is we need a larger mandate penalty,” said Gruber.

Depending on how high the penalty goes, there could be a constitutional problem with that. In the opinion that converted the “penalty” into a constitutional “tax,” Chief Justice Roberts described the characteristics of the “shared responsibility payment” that made it, constitutionally speaking, a tax rather than a penalty. One of those characteristics is that the penalty was not too high: “for most Americans the amount due will be far less than the price of insurance, and, by statute, it can never be more. It may often be a reasonable financial decision to make the payment rather than purchase insurance, unlike the ‘prohibitory’ financial punishment in Drexel Furniture.” In Drexel Furniture, also known as the Child Labor Tax Case, the Court struck down a 10 percent tax on the profits of employers who used child labor in certain businesses. One reason the Court struck it down was because its “prohibitory and regulatory effect and purpose are palpable.”

Roberts actually went out of his way to describe paying the “tax” as a voluntary and permissible act. Even though they won, this should have irked the government a bit because the Chief was essentially giving millions of people permission to not buy insurance, which the government knew would severely undermine the law. In Roberts’s words:

Neither the Act nor any other law attaches negative legal consequences to not buying health insurance, beyond requiring a payment to the IRS. The Government agrees with that reading, confirming that if someone chooses to pay rather than obtain health insurance, they have fully complied with the law.

Indeed, it is estimated that four million people each year will choose to pay the IRS rather than buy insurance. We would expect Congress to be troubled by that prospect if such conduct were unlawful. That Congress apparently regards such extensive failure to comply with the mandate as tolerable suggests that Congress did not think it was creating four million outlaws. It suggests instead that the shared responsibility payment merely imposes a tax citizens may lawfully choose to pay in lieu of buying health insurance.

So could raising the “tax” turn it into a “penalty” and thus make it unconstitutional? Possibly. At some point, the tax would take on a punitive character, and, if people like Gruber get their way, the tax might have to be pretty stiff. With health insurance prices going up, it can still be cheaper to pay the “tax” rather than purchase insurance. And that tax might have to go up a lot to make some people change their minds. If the government ever tries to attach criminal penalties to noncompliance, then the argument is even stronger that it would become an unconstitutional regulation of commerce, given that the Court held that the individual mandate isn’t a valid use of the commerce power.

It’s all just another act in the ACA’s tragic comedy of errors.