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New ObamaCare strategery - health insurance premiums are really a tax

First, President Obama defended the idea of a government-imposed health care mandate by "absolutely rejecting" the notion that mandated health insurance premiums were a tax.

Then Obama Administration lawyers attempted to defend the legality of the ObamaCare health insurance mandate by arguing that the penalties for not purchasing health insurance are really just a form of tax revenue and therefore it is legal for the government to collect them.

Now, Obama Administration lawyers are arguing that mandated health insurance premiums are a "financing mechanism" not a "product" (like shoes or cars or broccoli) so the government is not overstepping its authority when it requires everyone to purchase health insurance, because the government legally has the power to collect revenue to fund its programs.

Which, as Megan McArdle notes, raises an interesting question: does this mean that, since we have effectively nationalized the health care industry, all health insurance premiums are now taxes? Can third parties with minimal oversight (i.e. private insurance companies) collect and disperse "tax revenue"? A compelling legal argument for this position would be interesting, to say the least.

I don't think I could ever make up stuff this good, even if I spent my entire life working on it. Maybe that's why I'm not a high-priced government lawyer.


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Comments (27)

If the health insurance pre... (Below threshold)
retired military:

If the health insurance premiums are taxes can they then tax us on the benefits of the "taxes" we are paying ie healthcare that is going to be treated as income?

Do any lawyer types who pos... (Below threshold)

Do any lawyer types who post here know whether this really changes the argument of the government forcing a private citizen to buy a product? The product still exists - the policy itself. The sad thing is that there will always be some judge out there somewhere who will see merit in this administration's perverse interpretation of law.

DaveD:I'm honestly... (Below threshold)
James H:


I'm honestly not certain. I've never looked at the taxing power in a detailed manner. But my gut feeling is that this doesn't really fly under the taxing power.

But interestingly, I got into a debate over the recent decision with two lawyer friends over it. One, a far-left liberal lawyer, said this was constitutional under the Commerce Clause. From the center left, I averred that the Necessary and Proper Clause offers sufficient support for the individual mandate's constitutionality. The third, a center-right lawyer, said he thought the Taxing Clause argument was persuasive.

James H,Thanks for t... (Below threshold)

James H,
Thanks for the reply. However, with specific regard to the far-left liberal lawyer you mentioned, how does the administration's argument for the premium as a tax have anything to do with the commerce clause? It seems taxing a mandate has nothing to do with commerce, but I am not a constitutional lawyer obviously.

Can third parties with m... (Below threshold)

Can third parties with minimal oversight (i.e. private insurance companies) collect and disperse "tax revenue"?

They do with sales taxes.

DaveD:Commerce Cla... (Below threshold)
James H:


Commerce Clause and Taxing Clause have little to do with each other. It's a strategy called "arguing in the alternative."

Essentially, you lead with what you think is your strongest argument, make that argument, then you move on to the weaker ones.

If you were, for example, trying to get out of a particular contract, you might argue first that you signed under duress, or (just in the case the court doesn't find this persuasive), you would also argue that the contract was unconscionable, or that there was some sort of fraudulent inducement to sign.

And then, just in case the court is unwilling to throw out the contract, you might argue for an equitable remedy of the contract.

Under res judicata and/or collateral estoppel (I always confuse the two), you only get one shot at the case. So you take all your arguments, pile them up into one complaint, and early on in the case you find out which ones are likely to succeed.

To take our previous example. Let's say that the duress argument doesn't work, but after the case is over, your lawyer says, "you know, unconscionability might have been a strong argument, too." You don't get to go back and litigate that. You should have raised it in the first place.

Hmm ... maybe I didn't answ... (Below threshold)
James H:

Hmm ... maybe I didn't answer your question.

As far as my far-left friend is concerned, the Commerce Clause is sufficient in that health insurance is interstate commerce. Boom. Taxation doesn't even enter into it.

I'm personally quite leery of expansion of that much expansion of the Commerce Clause, so I prefer Necessary and Proper. Basically, I concede that the federal government has the power to regulate interstate transactions in the health insurance market ... and I admit that the individual mandate is a necessary portion of that regulatory scheme.

In that sense, I find the "inactivity"/"activity" distinction to be unpersuasive. And I agree (along with a lot of legal commentators) that Judge Hudson gave the Necessary and Proper argument short shrift in his opinion.

The irony in all of this is that a national single-payer system would actually pass constitutional muster far more easily.

James H,I appreciate... (Below threshold)

James H,
I appreciate the time and your reply. I understand your perspective and your points are clear to me. I think this whole Commerce Clause thing for me with healthcare boils down to this. I accept the federal government has the power to regulate interstate commerce. However, the states themselves limit interstate commerce with regard to private insurance availablility. It seems to me, in the interest of commerce, this practice should have been overturned first. I feel the liberal agenda's ultimate goal is to eliminate the need for "commerce" completely with regard to healthcare.

(Having to use site managem... (Below threshold)

(Having to use site management software to post comments -- this is getting annoying)

James, I still stand by my thought that the "Necessary and Proper" clause is an "assisting" clause, and not a standalone power. It needs an underlying legitimate power to enable. I see it as saying "you can do X, if it's necessary in order to do Y, where Y is an expressed power of the Constitution." If there's no Y, then there can't be an X.

To cite Necessary and Proper as a standalone justification just doesn't work for me.


Dave:Sorry if I so... (Below threshold)
James H:


Sorry if I sounded a hair pedantic. I get that way when talking law sometimes.

Jay Tea:

That's not a full understanding of Necessary and Proper.

Necessary and Proper (at least to me) means that you can take steps beyond enumerated powers, provided those steps are rooted in one of those powers in some way.

For example, you might argue that Congress does not directly have the power to regulate the content of feed a chicken farm uses if that chicken feed has not moved in interstate commerce. But Congress does have the authority to regulate the health and safety of chicken moved to grocery stores in interstate commerce. If you establish that contaminants in the chicken feed can lead to chickens that give people food poisoning, then you establish a federal power to regulate contaminants in the feed as a necessary and proper extension of the core power to regulate the chickens.

steve,Retail busin... (Below threshold)


Retail businesses do collect sales tax, but they remit it -- in full -- directly to the government. On the other hand insurance premiums are the primary revenue source for insurance companies.

I wonder if this means that the government is ready to declare ownership of all insurance premium revenue; after all, the ObamaCare bill already specifies that companies offering "qualified" health care coverage must pay out 85% of their premium revenue to cover medical expenses.

don't revenue generating bi... (Below threshold)

don't revenue generating bills (i.e., tax bills) have to originate in the house? if the gov't position holds then obamacare is unconstitutional by their own admission.
a much-deserved catch-22!

The lawyers can spin all th... (Below threshold)

The lawyers can spin all they want. What the judges will consider is what was SAID at time of passage.

Barry and company are going to be hung on their own words.

He can call it whatever he ... (Below threshold)
jim m:

He can call it whatever he likes now. When they passed this monstrosity of a bill they called it a penalty. A federal judge has ruled that they cannot call it one thing in order to get it passed and then call it another to defend it in court. Congress has the power to tax, it does not have the power to fine people in an unlimited manner.

Barry can try to call it a tax but the courts are going to look at it as a penalty because that is what Pelosi and Reid sold it as.

James, I don't think we're ... (Below threshold)

James, I don't think we're so far apart on this. You've said pretty much the same thing I've been saying, just in more legalistic language.

So, what IS the enumerated power at the root of ObamaCare? I've rejected the Interstate Commerce argument, and the "promote the general welfare" one. The former should NOT encompass a REFUSAL to engage in economic activity as "economic activity that might affect interstate commerce," and "promote" and "general" are way, way too vague terms -- especially from the Preamble, which is filled with generalities and exhortatory phrases.


any of you lawyers have a v... (Below threshold)

any of you lawyers have a view on my comment above--- that only the house can initiate a "taxing" bill?

does the government position therefore assume the the feds could compel me to buy an electric car in the National interest? after all, it would reduce our dependence on foreign oil (barf)

I could have sworn Obama sa... (Below threshold)

I could have sworn Obama said something to the effect of no changes to the taxes for those making less than 250K. I sure hope someone manages to hang this around his neck in 2012, this is a Bush Sr, read my lips issue if there ever was one.

Whichever way this all ends... (Below threshold)
Les Nessman:

Whichever way this all ends, how in the world could ANYONE look at this thing and the way it was enacted and not think 'My God. What a bunch of incompetent, unprofessional hacks these Democrats are.'

Does this mean we can claim... (Below threshold)

Does this mean we can claim our health and maybe other premiums as taxes paid? Do we need to go back and redo our tax returns?

The chances of a Democrat h... (Below threshold)
Caesar Augustus:

The chances of a Democrat hack government attorney being logically consistent and not hypocritical are less than zero.

Thanks for your thoughts, J... (Below threshold)
DJ Drummond:

Thanks for your thoughts, James H. I have a few of my own in response:

First, I hear what you are saying about res judicata; it smacks of game show technicalities to tell someone that a valid argument could be rejected on the basis of the order of presentation or other superficial constraints. While lawsuits and court proceedings can be exccedingly lengthy and drawn-out, at the federal level especially, it would seem that a full discussion of the pertinent elements and issues would be the best interest of justice.

Also, I don't know Judge Hudson's work well enough to argue that he prefers a constructionist position or not, but it does seem to me from what I have heard, that there is a basic disagreement, and an old debate, between judges and justices about the scope of federal law. At what point is it unreasonable for the federal government to dictate individual rights, privileges, and choices? It's one thing to protect rights and freedoms which are clearly enumerated, but quite another to impose burdens on individuals, for essentially no better argument than because a politician demands it. Consider that the original Continental Congress objected to the British demand that Americans provide room and board for soldiers, for their own benefit (the service of those soldiers)? How is mandatory healthcare imposed on Americans who don't want it different from tyranny of any sort? From there, it appears to many people and not a few judges, that regardless of intent the actions of this law run counter to both spirit and letter of the Constitution.

As to 'Interstate Commerce', the very term would seem simple to understand to us ordinary people. 'Commerce' after all, must involve a voluntary transaction of money, and 'Interstate' means that the transaction takes place across state lines, so that state laws would each be insufficient to address a dispute between the parties. If there is no purchase, there is no commerce. If the money is not given voluntarily, it is not commerce. If the customer buys and receives the product or service from a provider in the same state in which he resides, it is by definition not 'Interstate'. So in fact the imposition of federal law requiring individuals to pay for a healthcare plan they do not want, is by definition neither 'Interstate' nor 'Commerce'. The continuing attempt to evade this obvious fact does not improve confidence in the government's position.

Allow me to stir the pot a ... (Below threshold)

Allow me to stir the pot a bit (once again):

Two points -- this "mandate as tax" is by no means new. The section of the amended law, in the United States Code (the one that contains the mandate) is -- and always was -- an amendment to the Internal Rvenue Code. "You could look it up. . ." (but you apparently didn't).

Our 44th President taught Constitutional Law at the U. of C. -- and it shows, here. The power to tax is quite nearly a plenary power, of the federal government.

Because this is an amendment to the IRS's Code, Judge Hudson's decision is not likely to be of much moment, when it reaches the SCOTUS.

As I've said before, unless Scalia can attract five votes to rewrite 100 years of history, and get those five to adopt his concurring opinion in Raisch (just five years ago, not one other Justice would join him in his analysis in Gonzales v. Raisch). . . then the mandate -- stated as a legitimate TAX. . . will pass muster.

The latest line has (oddly enough!) Chief Justice Roberts voting to uphold the mandate -- as a legitimate exercise of the power to tax (based on his joining Breyer in Comstock last term, without any additional comment). In Comstock, Roberts might have joined the concurrence of Justice Alito, or even the dissent of Justice Thomas, at least in parts -- but he didn't. So, it seems Roberts is a believer in a "BIG" reading of the power in "Necessary & Proper" -- so, buckle up, folks.

You will have (apparently) read it here first, oh (not-so-)enlightened and sheltered people of Locker C-18, erh. . . WizBang-istan.

नमस्ते, to all of good will.

I am stuck in moderation, a... (Below threshold)

I am stuck in moderation, at the moment, here -- so do go read my comment -- reprinted in its entirety.

I've stirred the pot a bit, and made some plain corrections -- and predicitons.

Namaste, one and all.

Jay Tea:As I said ... (Below threshold)
James H:

Jay Tea:

As I said before, it's the power to regulate interstate commerce ... especially because health insurance can be bought across state lines. If you add the Necessary and Proper Clause, you can argue that the individual mandate is necessary to execute the overall regulatory scheme.

You can choose to reject that personally, but I think it's the strongest argument in favor of the individual mandate.

But I got a counter-question. Outside of the individual mandate, how do you take care of the free rider problem in health care?

My own evil thought of the ... (Below threshold)
James H:

My own evil thought of the moment:

If we're going to get rid of the individual mandate, let's also get rid of ERs' obligation (whether ethical or legal) to treat people who come in without insurance.

That is, even before a nurse takes your temperature, you have to prove that you have insurance or are otherwise able to pay for medical care. And no matter what's wrong with you, even if your life is in immediate danger, lack of insurance means no medical care.

No insurance means that the ER would be perfectly within its rights to shove you out the door and tell you to go die on a street corner, just not on the sterile ER floor, please.

My suggestion is rather extreme, but it gets to the root of what the individual mandate is really about. People who go to the ER without insurance, or people who try to pick up health insurance only when they suddenly feel sick, are called free riders. They don't pay a single dime into the pot of healthcare money that lies in the private sector, and when they get sick they suddenly want their appendectomy or their chemotherapy or what have you.

And they want that care even if they haven't taken steps to ensure they can pay for it.

They're free riders ... and how would those of you against the individual mandate address them?

1. Auto insurance manda... (Below threshold)

1. Auto insurance mandate !

Under historical interpretations of the Constitution, Congress can dictate the economic activity of citizens so long as that activity will have profound, large-scale effects on the national economy.
2. Health insurance protects you PLUS all !
** Inaction cost, $9trillion over the next decade, ((Some of CBO analysis : While the costs of the financial bailouts and economic stimulus bills are staggering, they are only a fraction of the coming costs from Social Security, Medicare, and Medicaid. Over the next decade, the Congressional Budget Office (CBO) projects that each year Medicaid will expand by 7 percent, Medicare by 6 percent, and Social Security by 5 percent. These programs face a 75-year shortfall of $43 trillion--60 times greater than the gross cost of the $700 billion TARP financial bailout)).

Among the thirty-three industrialized countries in the world, only America has no universal health care. Why do all the leading countries require participation in a universal plan? Because every other country understands that health care is not only a basic right, it is also a necessity, a sane policy protecting the country from plagues and epidemics but also from bankruptcy by providing modern and uniform health care for its people.

"If the individual mandate ... (Below threshold)

"If the individual mandate is defeated at the Supreme Court level, I can guarantee health costs will sky rocket"






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