NFIB v. Sebelius Lost the Mandate Fight but Won a Limit on Federal Strings

Let me ask you a question that sounds like a trick. Which side won the biggest health care case of the last generation? If you say "the Democrats," you are right about the headline. The Affordable Care Act survived. The individual mandate survived. A Republican-appointed Chief Justice wrote the opinion that saved it, and conservatives spent a long Thursday in late June of 2012 feeling like somebody had pulled the chair out from under them.

Now ask a different question. Which side won the constitutional law? That answer is more interesting, and it is the reason I think the 2012 decision deserves a second look from anyone who cares about how this country is supposed to be built. Buried under the fight over the mandate was a ruling that Washington cannot hold a gun to the head of a state. That ruling is still on the books, it protects every governor and every legislature in the country, and it has nothing to do with whether you liked or hated the health care law.

The law and the lawsuits

The Patient Protection and Affordable Care Act was signed on March 23, 2010. Two pieces of it matter here. The first was the individual mandate: most Americans had to carry health insurance or pay a "shared responsibility payment" with their taxes. The second was an expansion of Medicaid, the joint federal-state program for low-income people. The law required states to cover a much larger group of adults, and it told states that if they refused, they could lose all of their federal Medicaid money, not only the new money.

Lawsuits followed within minutes of the signing. A group of state attorneys general, led by Florida and eventually numbering twenty-six states, filed in federal court in Pensacola. The National Federation of Independent Business, the small-business group, and several individuals joined in. The states argued that Congress had no power to make people buy insurance and no power to coerce them into a Medicaid expansion.

Here is how the case moved through the courts, in order:

1. January 31, 2011. Judge Roger Vinson in Florida ruled that the mandate was unconstitutional and that it could not be separated from the rest of the law, so the entire Act fell.
2. August 2011. The Eleventh Circuit, sitting in Atlanta, agreed that the mandate exceeded Congress's powers but held that the rest of the law could stand without it. Other federal appeals courts that heard challenges came out differently, upholding the mandate, which is how a circuit split arose.
3. November 2011. The Supreme Court agreed to hear the case and set an unusually long argument: three days, in the last week of March 2012.
4. June 28, 2012. The Court issued its decision.

The Court also had to decide, as a threshold matter, whether a federal law called the Anti-Injunction Act prevented a challenge to a tax before anyone had paid it. It held that the Act did not stop the case from going forward. That sounds like housekeeping. It mattered, because it meant the Court could rule on the merits rather than leave the question for years.

Holding one: the Commerce Clause says no to the mandate

The government's lead argument was that Congress could require people to buy insurance under its power to regulate commerce among the states. Chief Justice John Roberts, joined on this point by the four justices who would go on to dissent, Antonin Scalia, Anthony Kennedy, Clarence Thomas and Samuel Alito, rejected it.

The reasoning was simple, and conservatives should savor it. The Commerce Clause lets Congress regulate commerce. It does not let Congress create commerce by compelling someone who is doing nothing to enter a market. If it did, Roberts wrote, the government could order citizens to buy broccoli, or anything else the government decided was good for them and the economy, and the power would have no end. That limit on federal power has not been overturned since. I walked through the long history behind it in A Farmer's Wheat Crop and the Long Fight Over the Commerce Clause.

That, by the way, is the part of the opinion that did not make headlines because the mandate lived anyway.

Holding two: the taxing power saves it

Roberts then did the thing that stunned the room. Having said the mandate was not a valid exercise of the commerce power, he asked whether it could be read as something else. He concluded that it could: the payment was collected by the IRS, it was paid with the tax return, and it raised revenue. Read fairly, it was a tax under Congress's power to "lay and collect Taxes." The four liberal justices, Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor and Elena Kagan, signed on, for a five-to-four majority on that issue.

The argument for this holding is real and deserves a fair statement. Courts try to read a statute so that it survives when a reasonable reading allows. The payment was small relative to the price of insurance, no one went to jail for skipping it, and the law collected it through the tax system. Those facts give the "tax" label something to hold on to.

The argument against it is also real. Congress itself had insisted it was not passing a tax, and the president had said the same thing publicly while the bill was moving through Congress. The joint dissent made the case that the statute called it a penalty, and that if Congress wanted a tax, it should have to say so and answer to voters for it. I think the dissent has the better of the argument on honesty in government. You should not get to sell a policy to the voters as one thing and defend it in court as another. But I will say the same about Roberts' position that Congress gets to use the taxing power when it chooses to, and the voters get to respond. Later, in the Tax Cuts and Jobs Act signed in December 2017, Congress cut the mandate's payment to zero, effective in 2019. The thing conservatives could not strike down in court, they repealed through the legislative process, which is precisely how the system is supposed to work.

Holding three: the Medicaid expansion cannot be forced on the states

Now to the part I want you to remember. The Medicaid expansion was not an optional new program with a carrot. Under the Act as passed, a state that declined to expand would lose all of its existing federal Medicaid funding. For most states, Medicaid is one of the largest items in the budget, and federal dollars are a big share of it. Refusing meant putting a hole in the state budget that no governor could fill.

Seven justices said that was unconstitutional. Roberts, Breyer and Kagan formed the plurality on the remedy, and the four dissenters agreed that the expansion, as written, was coercive. Only Ginsburg and Sotomayor would have upheld it. Hence the seven-to-two vote on this question, which makes it the most lopsided part of the entire case, and the part that nobody talks about at dinner.

The Court explained that Congress may attach conditions to federal money, but it may not use that power to turn a financial incentive into compulsion. The opinion compared the threat to losing all existing funds to a gun to the head. The remedy was surgical. The Court did not strike the whole expansion. It held that the Secretary of Health and Human Services could not withdraw a state's existing Medicaid funds for refusing the new expansion. The expansion became a real choice for each state.

The practical effect has been enormous. Every state legislature and governor has since had to decide for itself whether to expand Medicaid, and different states have chosen differently, for reasons ranging from budgets to philosophy. Whether you favor expansion or not, notice who gets to decide: the people of the state and their elected representatives, not a department in Washington. If you want to know your own state's choice, ask your state Medicaid agency or read its website. That is the federalism the founders wanted.

The test behind the holding: South Dakota v. Dole

The Court did not invent its rule in 2012. It built on a case from 1987. In South Dakota v. Dole, Congress had told states that if they did not raise the drinking age to twenty-one, they would lose five percent of their federal highway funds. South Dakota sued. The Court, in an opinion by Chief Justice William Rehnquist, upheld the condition, and in doing so it set out the modern test for strings on federal money. Congress's spending must be:

1. For the general welfare. The spending has to serve the public interest, not a narrow private one.
2. Unambiguous. Conditions must be stated clearly so states can choose knowingly.
3. Related to the federal interest in the particular program or project.
4. Consistent with other constitutional provisions. Congress cannot use money to induce a state to do something unconstitutional.
5. Not coercive. The Court warned that in some circumstances the financial inducement may be so coercive as to pass the point at which pressure turns into compulsion.

For twenty-five years, that fifth condition was a theory. In Dole itself, five percent of highway money was not enough to cross the line. No court had used it to strike down a spending condition before. NFIB v. Sebelius was the first time the Court actually applied the anti-coercion limit and struck something down. A rule that had been a footnote became a holding.

What the dissent said

The joint dissent, signed by Scalia, Kennedy, Thomas and Alito, was issued jointly rather than under one justice's name. It took the view that the mandate was beyond the commerce power and the taxing power and that, because it was central to the design of the law, the whole Act should fall. The dissenters regarded the rest of the statute as inseparable from it. They agreed with the Medicaid ruling as well.

You do not have to agree with their conclusion to see why it mattered. They were arguing that when a court finds the heart of a statute unconstitutional, it should not rewrite the rest to keep something working that Congress never meant to pass alone. That is a view about separation of powers: Congress writes the laws, and judges should not redraft them. It is one thread in the conservative legal tradition that Originalism Explained for People Who Skipped Law School lays out.

The strongest objection

The opposing argument is fair, so let me put it in its best form. It runs like this. Medicaid is a voluntary program. No state has to take a dollar of it. States joined because the money was good, and they accepted federal rules. Congress reserved the right to change the program when it started it. If a state does not like the new terms, it can leave. Calling that coercion, the argument goes, misunderstands what a spending program is, and the Court was wrong to second-guess it.

Here is why I do not buy it. First, Roberts' logic is about degree. The Court was not saying that conditions are suspect. It said that when the penalty for saying no is losing a huge share of the state budget, the choice is not real. Second, the ACA changed the deal midway. States had built their budgets and their health systems around Medicaid over decades, and the new law was a different program with a new set of rules, enforced by taking away the old one. Third, if there were no limit, Congress could turn every state agency into a branch office: do what we say, or lose every federal dollar. A constitution that divides power between two governments cannot allow one of them to dictate to the other with a checkbook. The Tenth Amendment is the home for that principle, and it protects states of every political stripe. Blue states can use the same ruling against future Republican conditions, a point I explore in The Tenth Amendment Rule That Protects Red States Also Protects Sanctuary Cities.

What it means for the next fight

Two lessons stand out. One is that the Supreme Court is a weak place to win a policy argument and a good place to win a structural one. Conservatives lost the mandate fight in 2012 and won it in 2017 in Congress, by a bill signed by a Republican president. The Court's real contribution was fixing the rules of the game. The other lesson is about governors. Any governor offered a program with strings should read the fine print and know that there is a legal limit on how hard Washington may push. The same thinking runs through the Republican governors' work covered across our Republican pages.

The bottom line

• Remember which part was seven to two. The mandate got the headlines, but the Medicaid ruling is the lasting limit, and it protects the states from federal blackmail.
• Read the strings before you take the money. If you serve on a school board, county commission or state agency, ask what conditions come with a federal grant and what happens if you decline.
• Fight policy in the legislature. The mandate's payment was zeroed by a bill, not a ruling. If you want a law changed, the ballot box and Congress are where it happens.
• Check your own state's Medicaid decision. Your state agency's website says whether your state expanded and what the rules are, and your legislature can change it.
• Insist on honest labels. When a politician sells a policy as one thing in public and defends it as another in court, say so. Voters deserve to know what they are being asked to approve.