Wednesday, August 18, 2010
Recent federal healthcare legislation mandated that every ‘‘applicable individual’’ maintain healthcare insurance and it imposed (in new § 5000A(b)) a penalty to enforce that mandate. In a recent report (Constitutional Decapitation and Healthcare, 128 Tax Notes 169 (July 12, 2010), Steven J. Willis and Nakku Chung argued that § 5000A(b) is unconstitutional.
This article responds to Willis and Chung by demonstrating that the § 5000A(b) penalty constitutes a valid exercise by Congress of its legislative powers under both the commerce clause and its taxing authority and that the penalty need only be defensible under one of those two lines to survive a constitutional challenge.
Fundamentally, and contrary to Willis and Chung’s argument, the § 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, because 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 wise, the federal government will ultimately absorb a substantial portion of the costs.
The remainder of the article develops that argument then applies relevant case law to demonstrate that Congress’s interest in regulating healthcare selfinsurance falls squarely within the legislative powers granted by the commerce clause. Alternatively, the penalty is a tax that is not a direct tax in the constitutional sense and therefore can be assessed without apportionment among the states.
All Tax Analysts content is available through the LexisNexis® services.