Understanding the Supreme Court’s Ruling on the Individual Insurance Mandate

Health Care Symbol in front of congress

| Featured Author: Austin Hagaman |

Austin Hagaman's pencil headshot | PWMDid the Supreme Court Rule the Individual Insurance Mandate Constitutional because it’s a Penalty or because it’s a Tax?

On Thursday morning the U.S. Supreme Court upheld President Obama’s Affordable Care Act (also known as the Individual Insurance Mandate & ObamaCare), 5-4.The ruling declared it constitutional for Congress to require every American citizen and legal resident to maintain minimum essential health coverage or else be subject to a penalty/tax. Yes… A “penalty/tax”.

The Supreme Court ruling found the Individual Insurance Mandate constitutional by calling the mandate a penalty, for purposes of the “Anti-Injunction Act”, and a tax, for purposes of Congress’s constitutional taxing powers. Before you start shouting abuse, let’s first consider the Supreme Court’s thought processes:

Anti-Injunction Act: “The Individual Insurance Mandate is a Penalty”

The Anti-Injunction Act states the government cannot be brought to court for wrongfully imposing a tax until after a tax has been paid (“The government can’t be found guilty of something until it has done something wrong”). Meaning, if the Mandate was deemed a “tax” for purposes of the Anti-Injunction Act, the Supreme Court would not be allowed to make a ruling on the constitutionality of the Patient Protection Act until 2015 (the first year taxpayers would have begun paying the tax and could thus sue for refund). The Supreme Court, however, decided that since congress chose to call it a penalty and not a tax, it should be regarded as a penalty and not a tax, thereby allowing the Supreme Court to rule on the issue.(1).

Comic: Judges hand pointing at a calendar to prove that the Individual Insurance Mandate is a penalty and a tax todayCongress’s Taxing Power: “The Individual Insurance Mandate is a Tax”

After calling the Individual Insurance Mandate a “penalty” the Supreme Court, through some very interesting reasoning, took a half step back and found that Congress could enforce the Individual Insurance mandate under their Constitutional right to tax the public. The Supreme Court reasoned that the mandate should be “regarded as establishing a condition” that in turn could trigger a tax. And, “under that theory, the mandate is not a legal command to buy insurance. Rather, it makes going without insurance just another thing the Government taxes, like buying gasoline or earn­ing income. (sic.)”, Chief Justice Roberts wrote in his opinion.(1).

The following infographic further explains how the Supreme Court arrived at their decision to uphold the Individual Insurance Mandate:

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1. The Individual Insurance Mandate is Constitutional Because it is Both a Penalty and a Tax. Wait…What?. Tony Nitti. Double-taxation.com

Due to various factors, including changing market conditions and/or applicable laws, the presented material(s) may no longer be reflective of current opinions or positions. The thoughts and opinions expressed in the presented material(s) relate only to the author and are not necessarily reflective of PWM’s views. Moreover, you should not assume that any discussion or information contained in the presented material(s) serves as the receipt of, or as a substitute for, personalized investment advice from PWM. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Photo Credit: Truthout.org

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