How Obamacare Will Be Settled: A Primer on the Commerce Clause

As the Supreme Court hears arguments about the individual mandate, a complete look at the history of similar constitutional decisions.

Amid rampant speculation over the fate of Obamacare in the Supreme Court, a critical question has been missed: How will the justices decide whether to uphold or strike the individual mandate?

The case the Supreme Court will hear is an appeal of an Eleventh Circuit decision holding the individual mandate unconstitutional under both the Commerce Clause and the Taxing and Spending Clause of the Constitution. The only potential positive for Obamacare in the ruling was the finding that the mandate is "severable." Severability would allow the rest of Obamacare to stand even if the mandate falls.

To date, four of 13 circuit courts have ruled on the individual mandate. The Sixth Circuit and D.C. Circuit upheld the individual mandate under the Commerce Clause. The Fourth Circuit dismissed a case on the rationale that the mandate's penalty for not buying insurance is a tax. Under the Anti-Injunction Act, taxpayers cannot challenge a tax before it goes into effect. Only the Eleventh Circuit found the mandate unconstitutional under the Commerce Clause.

The Court's roughly 75-percent rate of reversing lower courts seems promising for the U.S. in the abstract. Circuit-by-circuit data suggest the potential to determine how in-step a circuit's judges are with the Court on average -- and thus the likelihood the Court will reverse a circuit's case.

Senator Rick Santorum has used these statistics to claim that the Ninth Circuit is a "rogue" court and "a pox on the western part of our country." Santorum and former House Speaker Newt Gingrich have called for the abolishment of the Ninth Circuit. But Santorum and Gingrich's complaints about the Ninth Circuit have been discredited. Last term the overall reversal rate was 72 percent. While the Ninth Circuit was reversed 79 percent of the time, the Fifth Circuit -- at 80 percent -- and Sixth Circuit -- at 83 percent -- had higher reversal rates.

Reverse-affirm ratios cannot reliably forecast individual case outcomes. Statistics are particularly uninformative in this instance. There are too many variables -- and too few data points since Justice Elena Kagan's confirmation -- to predict how the Court will rule on the Eleventh Circuit appeal.

Last term, Kagan's first, the Court heard 82 cases overall. Only 71 of these cases were circuit court appeals; just 13 came from the four circuit courts that have ruled on health care so far. Kagan recused herself from 29 cases. Moreover, every circuit court decision is made by a panel of three judges randomly selected from a pool of between six and 28 judges, depending on the circuit -- meaning each circuit has between 20 and 3,276 possible three-judge panels.

The lines of argument for the Eleventh Circuit appeal to the Supreme Court have already been defined. In his January 6 brief (PDF), the Solicitor General placed renewed emphasis on the claim that the individual mandate can be justified under the Taxing and Spending Clause. But that's the backup plan -- the Obama administration's legal Hail Mary if it loses the Commerce Clause argument.

The individual mandate will likely live or die by the Commerce Clause. When the Supreme Court hears the Eleventh Circuit appeal this month, arguments -- and the justices' questions -- will revolve around strict guidelines for Congress's exercise of commerce power.

Congress introduced the basis for the contemporary view of its commerce power in the 1880s. In the 1930s, the Court accepted the definition and began developing and refining the principles for assessing Commerce Clause legislation. Today's Commerce Clause jurisprudence is the cumulative product of a series of cases spanning from 1937 to 2005.

BACKGROUND ON THE COMMERCE CLAUSE

In the first century of our nation's history, Congress hewed to a very literal, limited understanding of the relevant text of Article I: "To regulate Commerce with foreign Nations, and among the several States, and with the Indian tribes." Put simply, Commerce Clause legislation could regulate only business-related activities in interstate commerce.

The inception of contemporary Commerce Clause doctrine dates to the Interstate Commerce Act of 1887, regulating railroad monopolies, and the Sherman Antitrust Act of 1890, designed to curb monopolies and trusts. The Court upheld the Sherman Antitrust Act in 1905 -- in Swift and Company v. United States, 196 U.S. 375. However, the justices based that decision on the finding that the effect of price-fixing by Chicago meat-packers on interstate commerce was not "accidental, secondary, remote or merely probable" but immediate. The opinion reinforced the traditional literal view of Congress's Commerce power.

The Supreme Court case that established the constitutionality of the expanded interpretation of Congress's commerce power was National Labor Relations Board (NLRB) v. Jones & Laughlin Steel Corporation, 301 U.S. 1, in 1937. The case originated in Aliquippa, Pennsylvania, where Jones & Laughlin was penalizing and discriminating against workers attempting to unionize. NLRB ordered Jones & Laughlin to end its coercive union-busting tactics; the firm refused to obey. After the circuit court refused to enforce the NLRB's order against Jones & Laughlin, the NLRB appealed to the Supreme Court.

Jones & Laughlin argued that Congress could not regulate its labor practices because manufacturing is an intrastate activity, not interstate commerce. The firm based its argument on then-standard reasoning stemming from a 1918 Supreme Court case, Hammer v. Dagenhart, 241 U.S. 251. In Hammer, the Court allowed a father to commit his son to child labor in a North Carolina textile mill despite the Keating Owen Child Labor Act of 1916, reasoning that mill work was part of intrastate manufacturing, not commerce between or among states.

Rejecting the firm's argument and ruling in favor of the NLRB, the Court stated for the first time that Congress could regulate activities with "a close and substantial relation to interstate commerce." The NLRB decision marked the replacement of the strict criterion that regulated activities must be part of the "stream of commerce" with the "substantial effects" doctrine still in use in Commerce Clause cases.

Just a few years later, in 1941, the Court rearticulated its "substantial effects" test in upholding the Fair Labor Standards Act of 1938 in United States v. Darby, 312 U.S. 100, forcing a Georgia lumber company to improve worker conditions. Now, any activity with substantial effects on interstate commerce can be a proper subject of congressional regulation.

Congress continued to exercise this expanded Commerce Clause power for the better part of six decades -- with periodic affirmation and clarification from the Court. The Commerce Clause was the basis for not only New Deal legislation but also the Civil Rights Act of 1964.

In the 1942 case Wickard v. Filburn, 317 U.S. 11, the Supreme Court upheld federal legislation -- the Agricultural Adjustment Act of 1938 -- that restricted individual wheat production in the name of broader regulation. The ruling generated the "aggregate effects" doctrine, licensing Congress to legislate local, individual actions that could potentially affect interstate commerce in the aggregate. Congress does not need to prove the aggregated effect on interstate commerce -- only a rational basis for believing there will be an effect.

In the 1950s, the Court upheld a wide range of legislation regulating everything from forms of fraud -- Federal Trade Commission v. Mandel Bros., Inc., 359 U.S. 385 (1959) and Securities & Exchange Commission v. Ralston Purina Company, 346 U.S. 119 (1953) -- to discrimination against small businesses -- Moore v. Mead's Fine Bread Company, 348 U.S. 115 (1954) -- to unfair business practices within professional football -- Radovich v. National Football League, 352 U.S. 445 (1957).

In 1964, in Heart of Atlanta Motel v. U.S., 379 U.S. 241, the Court unanimously upheld the desegregation of public accommodations by the Civil Rights Act under the Commerce Clause. The majority wrote, "Congress may -- as it has -- prohibit racial discrimination by motels serving travelers, however 'local' their operations may appear." A second 9-0 ruling issued the same day, Katzenbach v. McClung, 379 U.S. 294, found that racial discrimination by restaurants also impeded interstate commerce -- another victory for the Civil Rights Act.

It was 30 years before the Supreme Court checked Congress's commerce power. The Rehnquist Court limited the exercise of the Commerce Clause in a pair of critical cases in 1995 and 2000, but returned to the prior, expanded view of the power based on the same criteria in a 2005 case.

In a five-four decision in U.S. v. Lopez, 514 U.S. 549 (1995), the Court struck down the Gun-Free School Zones Act of 1990 as beyond the scope of the Commerce Clause after a high-school senior caught carrying a .38-caliber revolver on campus challenged his conviction. The justices wrote that to be constitutional, the legislation would have to "limit its reach to a discrete set of firearm possessions that additionally have an explicit connection with or effect on interstate commerce." The Court scolded, "[I]f we were to accept the Government's arguments, we are hard pressed to posit any activity by an individual that Congress is without power to regulate."

The second major blow came five years later in U.S. v. Morrison, 529 U.S. 598, another five-four split. A student at Virginia Tech filed suit against her rapists under the Violence Against Women Act of 1994 (VAWA) after a state grand jury refused to charge either man. The Court struck down VAWA on the grounds that gender-based violence was not sufficiently relevant to interstate commerce. Like gun possession, the Court reasoned, violence against women is not "some sort of economic endeavor."

Yet, seven years ago in Gonzales v. Raich, 545 U.S. 1 (2005), the Court revived the expansive language of Wickard. The justices ruled that the federal Controlled Substances Act trumps state-level laws legalizing medical marijuana. They determined that Congress could rationally believe that marijuana produced locally for consumption at home might make its way into the national market. As in Wickard, the Court stressed the importance of intrastate regulation to the integrity and success of the larger regulatory scheme.

The guidelines set in 1937 are still "good law." In 1995's Lopez, the Court cited those guidelines set by NLRB and Wickard in striking down the gun law. They reiterated that Congress's Commerce Clause legislation must be based on regulation of "channels of interstate commerce," "the instrumentalities of interstate commerce," or "activities that substantially affect interstate commerce."

WHAT CHANGES FROM COURT TO COURT

The Court's guidelines for evaluating the exercise of Commerce Clause have remained generally consistent, notwithstanding Lopez and Morrison. However, the composition of the Court will determine how the justices apply these tests to the individual mandate. The Marshall Court expanded Congress's commerce power using the same principles that the Rehnquist Court later cited in limiting Congress.

Since Raich, Justices Rehnquist, Sandra Day O'Connor, David Souter, and John Paul Stevens have been succeeded by Justices John Roberts, Samuel Alito, Sonia Sotomayor, and Elena Kagan. Now, Justice Anthony Kennedy is the Court's swing vote -- and he leans conservative.

In the last five terms, Kennedy sided with the "conservative bloc" of Roberts, Alito (previously O'Connor), Antonin Scalia, and Clarence Thomas in 63 percent of five-four decisions. He joined the "liberal bloc" comprised of Stephen Breyer, Ruth Bader Ginsburg, Sotomayor (previously Souter), and Kagan (previously Stevens) in just 25 percent of these rulings.

It is overwhelmingly likely that all nine justices will participate in the ruling. However, calls for Justices Scalia, Thomas, and Kagan to recuse themselves from the case continue -- carrying varying degrees of weight. The grounds for criticizing Scalia are scant while ethical concerns directed at Justices Thomas and Kagan are more serious.

On the same day the Court agreed to hear the health care appeal, Justices Scalia and Thomas attended a Federalist Society dinner partially sponsored by Bancroft PLLC, the firm that will argue against Obamacare this month. More substantively, Thomas has failed to disclose wife Virginia Lamp Thomas's income for 13 years as she worked for conservative organizations -- including approximately $700,000 from the Heritage Foundation. Mrs. Thomas also founded a Tea Party-linked organization, publicly opposed the passage of the health care bill, appears on Fox News, and contributes to Tucker Carlson's The Daily Caller.

Critics of Justice Kagan are demanding her recusal on the theory that she may have assisted in preparing the defense of Obamacare while serving as Solicitor General. Earlier this month, the Supreme Court denied conservative organization Freedom Watch's request for time to argue for Kagan's recusal or disqualification.

Yet the controversy surrounding Justice Kagan's participation -- and that of Justices Scalia and Thomas -- will likely drag on, fueling speculation about how the absence of any one of the three justices would affect the health care ruling.

WHAT HAPPENS AT THE SUPREME COURT

The principles generated by Commerce Clause cases from 1937 to 2005 shaped parties' Supreme Court briefs for the coming Eleventh Circuit appeal. They will also make up the largest portion of the now-six hours of oral arguments the Court will hear on the individual mandate.

In his January brief, Solicitor General Verrilli states that the individual mandate should be upheld under the Commerce Clause because "the minimum coverage provision ... regulates economic conduct with a substantial effect on interstate commerce." His language mirrors guidelines established in NLRB and Wickard and restated in Lopez.

The Solicitor General's brief echoes Wickard and Raich in his argument that the mandate is "an integral part of a comprehensive scheme of economic regulation" -- meaning that the mandate is constitutional by virtue of its necessity to the larger regulatory scheme that is Obamacare. Without the mandate, younger and healthier individuals will not enter the health insurance market -- dooming provisions meant to expand coverage and make health insurance more affordable to fail. He argues that the individual mandate should be considered as critical to health care reform as the regulation of wheat production was to the Agricultural Adjustment Act -- as essential as restrictions on medical marijuana were to the Controlled Substances Act.

Verrilli also draws a parallel between legislation restricting households from growing crops that could affect interstate markets -- as in Wickard and Raich -- and requiring individuals to buy health insurance in order to regulate the national health insurance market. In his brief, he writes that the "constitutional foundation for Congress's action is considerably stronger" than it was in Wickard.

The Solicitor General also explicitly anticipates and responds to Lopez and Morrison-derived attacks on the individual mandate as insufficiently tied to interstate commerce. Verrilli goes to great lengths -- seven-plus pages of a 62-page brief -- to argue that "the minimum coverage provision is fully consistent with Lopez and Morrison." He declares, "Its links to interstate commerce are tangible, direct, and strong."

The Obama administration's careful argumentation should meet even the more stringent Rehnquist Court Commerce Clause criteria. The interstate impact of health care decision-making is clear. Thus, the primary Lopez caution against legislation that requires "pil[ing] inference upon inference" to establish a relationship to interstate commerce does not apply. Instead of the mandate's effect on interstate commerce, the type of "activity" regulated becomes the central point of contention.

The major unknown that distinguishes this case from its Commerce Clause predecessors is the question of how the Court will rule on what Obamacare opponents call the "inactivity" issue. The inactivity argument against the mandate contends that questions of whether buying health insurance is an economic activity and whether that activity affects interstate commerce are moot because not buying health insurance is not activity. They argue Congress cannot force individuals to act, to enter interstate commerce.

The answer to the inactivity argument for supporters of Obamacare is that individuals who do not buy insurance are still active in the health care market. The Sixth Circuit was persuaded by this logic, citing the $100 billion in health care costs incurred by the uninsured each year. Of that $100 billion, $43 billion goes uncompensated. Cost-shifting results in this cost being passed from providers to insurers to consumers, raising family premiums by approximately $1,000.

There are no doctrines -- or statistics -- to presage the Court's likely stance on "inactivity." However, Heart of Atlanta offers a telling parallel. Just as the mandate would regulate "inactivity," the Civil Rights Act regulated so-called inactivity: It forced individuals not engaging in economic activities and transactions because of race to do so to prevent the disruption and distortion of interstate commerce.

The Court will also hear one hour of arguments as to whether or not it should rule on constitutionality at all. The justices may decide as the Fourth Circuit did that the individual mandate's penalty is a tax that triggers the Anti-Injunction Rule. If so, the Court will shelve the issue until the first penalties are paid in 2015. In this scenario, neither side gets a "win." However, a Supreme Court ruling characterizing the penalty as a "tax" would support the argument for constitutionality under the Taxing and Spending Clause.

The sole path to full victory for the U.S. -- protecting Obamacare and the individual mandate -- is through the Commerce Clause. A ruling holding the mandate constitutional under the Taxing and Spending Clause but unconstitutional under the Commerce Clause would preserve the statute but complicate or limit Congress's commerce power. Finding the mandate unconstitutional but severable would simply guarantee a slow and painful death rather than an immediate end for health care reform.

The Supreme Court case on health care will almost certainly result in another seminal Commerce Clause ruling. Unless the Court dismisses the case altogether, its ruling will expand, limit, or qualify Congress's exercise of commerce power -- setting an important precedent that will affect future federal legislation in areas from health care to criminal law to civil rights.