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June 2012

National Federation of Independent Business, et al., v. Sebelius (USSC 28 June, 2012).

Yesterday morning (Washington time), as Australians slept, the United States Supreme Court handed down its much-anticipated decision on the constitutional validity of the Patient Protection and Affordable Care Act (aka ‘Obamacare’). The Act, a keystone in Obama’s credentials as a progressive and reforming President, had proven as controversial and politically-charged (if not more so) as any law in post-war U.S. history. Challenges to the Act were immediate; Florida and twelve other States filed a complaint on the day the President signed the Act into law.

The 900+ page Act involved a complex matrix of provisions, designed to universalise health insurance coverage for Americans, and to extend the reach of existing Medicaid schemes (State medical coverage for classes of poor and disabled persons, funded through federal grants). At the Act’s heart, the most controversial provision was the ‘individual mandate’, requiring (almost) all persons, not otherwise covered by health insurance (through their employer or under Medicaid), to purchase private health insurance. A penalty was to be levied on those who did not.

It was this (unpopular) provision that commentators regarded as the soft underbelly of the Act, and many thought most likely to be defeated. (Would its invalidation have destroyed the whole scheme? For the constitutional lawyers, assuming invalidation, the next question was whether the provision could be severed, leaving the rest of the Act intact. The District Court of Northern Florida had already said that it couldn’t; the Appeals Court of the Eleventh Circuit had disagreed.) Congress had sought to persuade the Supreme Court that the provision was supported by the Constitution’s Commerce Clause. Like the Australian Constitution’s Trade and Commerce power (s 51 (i) ), the Commerce power is confined to interstate and international commerce, but (unlike in Australia) it had been given a vastly expanded scope over the years, at least until relatively recently, permitting Congress to do many things that appeared (to Australian eyes) only loosely concerned with ‘commerce’. In this case, Congress argued that the health insurance mandate was part of the regulation of interstate commerce (in the health industry), or alternatively, that it substantially affected interstate commerce, or that it was ‘necessary and proper’ (like Australia’s incidental power) for the regulation of interstate commerce.

The Court’s decision took almost everyone by surprise. By a 5:4 majority, it upheld the whole Act. This was not the only surprise. It was Chief Justice Roberts who proved to be the ‘swing’ judge (not, as considered most likely, Justice Kennedy). Indeed, it was Roberts (a conservative, who had locked horns with President Obama in the recent past) who wrote the Opinion of the Court (some, it is true, had predicted this – although not what the Opinion would be). But, perhaps the biggest surprise was that the Court based validity not on the Commerce Clause, but on a constitutional provision that had been argued in support of the provision only as an alternative, and fairly weakly at that: Congress’s Taxation power.

In an exercise that is entirely familiar to Australian constitutional lawyers, the Court took the provision through a test of characterisation. It held that the fact that the Act spoke of a ‘penalty’, rather than a tax was not fatal; that, indeed, a penalty could be a tax, regardless of what it was called. (Our Australian students would immediately know this as ‘dual characterisation.’) What made the ‘penalty’ a tax? The amount was capped at no more than the average annual insurance premium; it did not involve punitive measures or prosecution for noncompliance (effectively, people could choose to pay the ‘tax’ as an alternative to paying health insurance); and it was to be collected by the IRS, alongside regular taxes.

A consequential surprise was the Court’s attention to the Anti-Injunction Act of 1867. This Act bars suits for ‘restraining the assessment or collection of any tax’, prior to the tax being imposed and a plaintiff being sued for failure to pay (its purpose is to protect the government’s capacity to collect revenue without interruption). If the mandate had been characterised as a tax, the Court might have lacked jurisdiction to hear the challenge. The plaintiffs in this case wanted their day in court, and they needed, therefore, to avoid the tax argument. They got both. No commentators, however, had really seemed to treat the Anti-Injunction Act as a genuine threat. By contrast, the Court spent significant time on it. How, then, did the suit proceed? The Court found that, although the Affordable Care Act’s mandate ‘penalty’ was in fact a tax, Congress had effectively legislated around the Anti-Injunction Act, as it was entitled to do.

Why was the Act not supported by the Commerce Clause? Congress, the Court concluded, could not regulate the failure to engage in or enter commerce. It could only regulate commerce that already existed (this, it said, was what ‘regulate’ implied: you can’t regulate nothing.) And the ‘necessary and proper’ argument failed similarly.
Interestingly, it was the latter that had been the quiet hope of supporters of the Act who feared that what could be called the ‘broccoli mandate argument’ might otherwise work to defeat it. The ‘broccoli’ argument (arising from a question put to the Solicitor-General during oral argument by the ever-colourful Justice Scalia) had gone along these lines: if Congress is empowered to make people do things (like buying health insurance) just because these are good for their health, then what were the limits on what Congress could make people do? Could they force people to eat broccoli? The ‘necessary and proper’ response was that compulsory health insurance membership was necessary to regulate the health care industry, but compulsory eating of broccoli was not. In the end, this saving device was not needed (although broccoli did get a mention in the dissent.)

The second key issue was the Medicaid Expansion provisions of the Act. These rested on the capacity of Congress to make conditional grants to the States, via the Constitution’s ‘Spending’ power (Congress is empowered ‘to pay the Debts and provide for the … general Welfare of the United States’). The Act provided for increased federal grants to the States to support the expansion of existing Medicaid schemes, and also provided that all Medicaid grants to any State that would not comply would be withdrawn. Could Congress use the Spending power coercively (withdrawal was a significant threat: Medicaid currently makes up more than 10% of States’ budgets)? The Court concluded that it could not. (The principle, then, holds, that the Spending power cannot be used coercively, although, in fact, no Act has ever been found to be relevantly coercive. In this, as in its reach, we are reminded of section 96 of the Australian Constitution.) Again, the objection did not prove fatal: the provision was saved by the canon of statutory interpretation that requires every effort to uphold the constitutionality of an Act; the Court read the provision to mean that only the extra ‘Expansion’ grants could be withheld.

The dissenting Justices - Scalia, Kennedy, Thomas, and Alito - found the Act entirely invalid. They agreed that the Act was beyond the Commerce Clause, because it purported to ‘direct creation of commerce’; and that failure to engage in commerce was not ‘commerce’. They agreed that ‘the failure to purchase health insurance, unlike the failure to purchase… broccoli, creates a national, social-welfare problem..’ But they rejected the proposition that this difference demonstrated that the failure to enter the health-care insurance market ‘unlike the failure to buy … broccoli, is an activity that Congress can "regulate" ’. They virtually laughed out loud at the proposition that an exaction of money can simultaneously be a penalty and a tax. That, they said, would be ‘a creature never hitherto seen in the United State Reports’.

The ‘creature,’ it seems, has arrived. For those in Australia who watch U.S. constitutional law (at least those with the patience to plough through the 193 pages) this case will hold more than usual interest. It offers a counterfactual on what might have happened had the 1946 referendum (which added section 51 (xxiiiA) to the Constitution) not been successful. For the present, it provides an interesting glimpse into another country’s constitutional battles over federal spending. Along with challenges to taxation laws, these (as we have just seen with Williams v. Cth) promise much rich fare for Australia’s constitutional lawyers.

In days of old, when Legislative Councils were appointed bodies, Labor Governments would try to swamp them with suicide squads of Members who once appointed would vote to abolish the House. Yesterday, the House of Representatives committed its own act of hara-kiri, passing a Bill in just over three hours that gave full authority to the Executive to spend money on whatever it wants without the need for further legislation or parliamentary scrutiny. It was an abject surrender of its powers of financial scrutiny to the Executive, and all to save a few chaplains (possibly ineffectively).

Last week, in the case of Williams v Commonwealth, the High Court held that the Commonwealth Government could not rely on executive power alone to support the funding of the chaplaincy program. Not even an Appropriation Act was enough to support it. There needed to be validly enacted legislation to support such expenditure. The Court stressed a number of points. First, this was public money that was being spent (not the private money of the Government) and that it therefore had to be subject to parliamentary scrutiny. Secondly, there is a need for parliamentary engagement in the formulation, amendment and termination of programs for the spending of money and there will be a ‘deficit in the system of representative government’ if these programs remain solely within the Executive’s domain. Thirdly, the Court pointed to ‘federal considerations’ and the fact that the public school system in a State ‘is the responsibility of that State’.

So how has the Commonwealth Parliament responded? Yesterday, with no opportunity at all for prior consideration or scrutiny, the House of Representatives passed the bland-sounding Financial Framework Legislation Amendment Bill (No 3) 2012. It gives legislative authority to the Executive to make, vary or administer any arrangement by which public money is paid out by the Commonwealth and the grant of financial assistance to any person whatsoever. The only constraint is that the arrangement or grant must be either specified in financial management regulations, or be included in a ‘class of arrangements or grants’ or a program mentioned in the regulations. The draft regulations show that these categories of approved grants and programs are extremely wide, including expenditure for ‘Foreign Affairs and Trade Operations’, ‘Payments to International Organisations’, ‘Public Information Services’, ‘Regulatory Policy’, ‘Diversity and Social Cohesion’, ‘Domestic Policy’ and ‘Regional Development’.

Another example, listed in the draft regulations, is the payment of funds for ‘Electorate and Ministerial Support Costs and Parliamentary Entitlements Support Costs’, the objective of which is described as: ‘To provide funds to support the provision of entitlements to the current Prime Minister, and to former Prime Ministers once they have left Parliament, the Australian Political Exchange Council and related activities, and political party secretariat training.’ Another description might be political slush funds. One can see why there may be reluctance to have parliamentary scrutiny of that!

Some of those speaking in the debate on the Bill, who had for the most part only seen the Bill as the debate commenced, seemed to be under the delusion that it was all about ensuring that funding to the chaplaincy program continued. Others seemed to think that the Bill just supported existing funding that was under threat. But the Bill goes much further than that. It gives the Executive carte-blanche to enter into such programs in the future without any parliamentary scrutiny at all as long as the program or grant comes under one of the existing broad descriptions in the regulations, or with only the need to amend the regulations (by executive action), if a new category needs to be inserted. Never has such enormous power been surrendered by the Parliament to the Executive in one hit – and certainly not with a debate that went scarcely over three hours.

The complete lack of understanding of what the House was doing is most poignantly evidenced in the speech by the Independent Rob Oakeshott. He lauded the High Court decision’s decision in the Williams case, saying that it ‘adds to the cultural shift in our institutions and marks a return to the importance of this chamber, the parliament and the parliamentary process and a reaffirmation of the states and the foundation blocks upon which this place and the whole concept of the Commonwealth are built.’ He went on to state:

In my view the Williams case will now establish two very clear paths for the future for anyone involved in the executive. One is through parliamentary processes and very clearly defining any grant programs through the parliament itself. The second one is by agreement with the states. If there is anything in this ruling, it is at its very heart saying to all of us, “Respect this chamber, respect this parliament and respect the role of the states in the delivery of programs and services to the communities.”

So what did Mr Oakeshott do? He voted for the Bill which ditches the use of Parliament to scrutinise and define grant programs or the making of grants through the States and instead gives full power to the Executive to do as it wishes. Mr Oakeshott even joined with the Government to vote down an Opposition amendment to put a sunset clause on the operation of the Act so that any problems could be sorted out in the meantime, with the passage of appropriate legislation or the transfer of funding into section 96 grants to the States. Amazingly, Mr Wilkie, Mr Windsor, Mr Bandt and Mr Katter all took the same approach, granting extraordinary powers to the Executive while negating their own roles in the House of Representatives.

Will this Bill, once enacted, be effective? It is really just setting up more stoushes with the High Court. What the Court stressed in the Pape case in 2009 and the Williams case last week, was that the Commonwealth must have a head of legislative power to support its spending. Where is the head of legislative power to support this Bill? Many of the programs listed in the draft regulations will fall under a head of legislative power, and it is conceivable (although contestable) that this Bill, once enacted, is enough to support them. But others will not be supported by a head of power and will remain invalid regardless of such a law. Hence, this Bill merely provides a fig-leaf for the Commonwealth’s legislative incompetence. It still leaves open the question of whether the Commonwealth has the legislative power to support the chaplaincy program along with many others.

Finally, what is most extraordinary above all is the fact that the Commonwealth Government seems so determined not to listen to the High Court. It ignored the High Court’s judgment in the Pape case, merrily going on with funding of bodies and programs without sufficient legislative power. In response to the Williams case it simply enacts a law that attempts to restore what it wrongly believed to be its former powers, without actually listening to or taking to heart the High Court’s concerns about a democratic deficit, the important role of parliamentary scrutiny and the importance of federal considerations. This Bill, in a bald-faced manner, rejects the fundamental propositions put by the High Court in the Williams case. The Commonwealth is clearly asking for another clobbering by the Court.