ACO on Trial Part III: Tax or Penalty?

Day One of Supreme Court Arguments
   by Christina Sochacki R.N., J.D.

[As published at CAHC.net, here]

Tax or Penalty? The First Issue before the Supreme Court Today marks the beginning of the Supreme Court’s debate about the fate of the Patient Protection and Affordable Care Act (ACA). This morning, 90 minutes are dedicated to the first issue: standing. This is a question about whether the Supreme Court is even allowed to rule on the arguments regarding the individual mandate, the meat of the challenge before the Court.


Under the ACA (PL 111–148, PL 111–152), individuals who do not obtain health insurance by 2014, will be subject to a fine that is payable in their federal income tax. Today’s 90 minutes of oral arguments will address whether or not the payment of this fine is a tax on the individual which would trigger the Anti-Injunction Act (AIA).

The AIA, passed in 1867, prevents a court from hearing challenges to a tax law before the tax is actually collected by the government. Given that the penalty would not take effect until 2014, with collection in 2015, if the Supreme Court finds that the fine for not obtaining health insurance is a tax, then the case could not be heard by the Supreme Court until someone has paid this tax penalty to the IRS: 2015.

This preliminary issue is not actually in dispute between the parties. Originally, the Obama administration argued before lower courts in favor of using the AIA to block suits challenging the law. However, before the Supreme Court, both the challengers of the law and the government have asked the court to find that the AIA does not apply – that the law is a penalty – thus, allowing the Supreme Court to make a decision on the case this year. However, the Supreme Court has hired an independent attorney to argue the other way – that the fine is a tax – thus, the challenge to the individual mandate is premature until 2015, when someone has actually paid the tax.

Neither party wants to see this case punted down the road another 3–4 years. In the lower courts, only one court found the AIA to prevent the case from being heard. Liberty University, Inc. v. Geithner, in the 4th Circuit (Sept. 8, 2011), dismissed the challenge to the individual mandate on the ground that the tax law applies thus, the action is barred until the tax has been collected. The court reasoned that the fine was a tax because it applies only to a “taxpayer”, it is paid through a taxpayer’s federal income tax return, it is based upon a taxpayer’s household income, and the IRS collects it.

The general prediction: the Supreme Court will not declare that the Anti-Injunction Act bars the court from deciding the case and the Court will proceed to rule on the constitutionality of the individual mandate this year.

Note that the application of the AIA does not apply to the Medicaid expansion challenge. The Court will hear those arguments on Wednesday afternoon and will provide a ruling this year, regardless of its decision concerning the AIA’s application to the individual mandate challenge.


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Today’s oral arguments audio and transcript can be found here.


For further reference read Parts I, II, III, IV, & V of the ACA on Trial Series

ACA on Trial Part I: An Overview

ACA on Trial Part II: Possible Outcomes

ACA On Trial Part III: Tax or Penalty?

ACA On Trial Part IV: The Individual Mandate

ACA On Trial Part V: Severability and to What Extent