THE AFFORDABLE CARE ACT CASES

Transcript: 

ORAL ARGUMENT OF ROBERT A. LONG ON BEHALF OF THE COURT-APPOINTED AMICUS CURIAE

Chief Justice John G. Roberts: We will hear argument this morning in Case Number 11-398, Department of Health and Human Services v. Florida.

Mr. Long.

Mr. Long: Mr. Chief Justice, and may it please the Court:

The Anti-Injunction Act imposes a pay first, litigate later rule that is central to Federal tax assessment and collection.

The Act applies to essentially every tax penalty in the Internal Revenue Code.

There is no reason to think that Congress made a special exception for the penalty imposed by section 5000A.

On the contrary, there are three reasons to conclude that the Anti-Injunction Act applies here.

First, Congress directed that the section 5000A penalty shall be assessed and collected in the same manner as taxes.

Second, Congress provided that penalties are included in taxes for assessment purposes.

And third, the section 5000A penalty bears the key indicia of a tax.

Congress directed that the section 5000A penalty shall be assessed and collected in the same manner as taxes.

That derivative triggers the Anti-Injunction Act which provides that

"no suit for the purpose of restraining the assessment or collection of any tax may be maintained in any court by any person. "

Justice Antonin Scalia: Well, that depends, as -- as the government points out on whether that directive is a directive to the Secretary of the Treasury as to how he goes about getting this penalty, or rather a directive to him and to the courts.

All -- all of the other directives there seem to me to be addressed to the Secretary.

Why -- why should this one be directed to the courts?

When you say in the same manner, he goes about doing it in the same manner, but the courts simply accept that -- that manner of proceeding but nonetheless adjudicate the cases.

Mr. Long: Well, I think I have a three-part answer to that, Justice Scalia.

First, the text does not say that the Secretary shall assess and collect taxes in the same manner; it just says that it shall be assessed in the same manner as a tax, without addressing any party particularly.

Justice Antonin Scalia: Well, he's assessing and collecting it in the same manner as a tax.

Mr. Long: Well, the assessment -- the other two parts of the answer are, as a practical matter, I don't think there is any dispute in this case that if the Anti-Injunction Act does not apply, this penalty, the section 5000A penalty, will as a practical matter be assessed and collected in a very different manner from other taxes and other tax penalties.

There -- there are three main differences.

First, when the Anti-Injunction Act applies, you have to pay the tax or the penalty first and then litigate later to get it back with interest.

Second, you have to exhaust administrative remedies; even after you pay the tax you can't immediately go to court.

You have to go to the Secretary and give the Secretary at least 6 months to see if the matter can be resolved administratively.

And third, even in the very carefully defined situations in which Congress has permitted a challenge to a tax or a penalty before it's paid, the Secretary has to make the first move.

The taxpayer is never allowed to rush into court before the tax -- before the Secretary sends a notice of deficiency to start the process.

Now if -- if the Anti-Injunction Act does not apply here, none of those rules apply.

That's not just for this case; it will be for every challenge to a section 5000A penalty going forward.

The -- the taxpayer will be able to go to court at any time without exhausting administrative remedies; there will be none of the limitations that apply in terms of you have to wait for the Secretary to make the--

Justice Anthony Kennedy: Why -- why will the administrative remedies rule not be applicable -- exhaustion rule not be applicable?

Mr. Long: --Well, because if the Anti-Injunction Act doesn't apply there is -- there is no prohibition on courts restraining the assessment or collection of this penalty, and you can simply--

Justice Anthony Kennedy: Well, but courts apply the exhaustion rule.

I mean, I know you've studied this.

I'm just not following it.

Why couldn't the court say well, you haven't exhausted your remedies, no injunction?

Mr. Long: --Well, in -- you could do that, I think as a matter of -- of common law or judicially imposed doctrine, but in the code itself which is all -- I mean, the Anti-Injunction Act is an absolutely central statute to litigation--

Justice Anthony Kennedy: Yes, yes.

Mr. Long: --about taxes.

And the code says, first it says you must pay the tax first and then litigate.

So that's the baseline.

And then in addition it says you must -- I mean, it's not common law; it's in the code -- you must apply for a refund, you must wait at least 6 months.

That's -- many of these provisions are extremely specific, with very specific time limits--

Chief Justice John G. Roberts: They would apply even if the rule is not jurisdictional.

The only difference would be that the court could enforce it or not enforce it in particular cases, which brings me to the Davis case, which I think is your biggest hurdle.

It's a case quite similar to this in which the constitutionality of the Social Security Act was at issue, and the government waived its right to insist upon the application of this Act.

Of course, if it's jurisdictional, you can't waive it.

So are you asking us to overrule the Davis case?

Mr. Long: --Well, Helvering v. Davis was decided during a period when this Court interpreted the Anti-Injunction Act as simply codifying the pre-statutory equitable principles that usually but not always prohibited a court from enjoining the assessment or collection of taxes.

So that understanding, which is what was the basis for the Helvering v. Davis decision, was rejected by the Court in Williams Packing and a series of subsequent cases -- Bob Jones.

And so I would say effectively, the Davis case has been overruled by subsequent decisions of this Court.

Justice Ruth Bader Ginsburg: Mr. Long, why don't we simply follow the statutory language?

I know that you've argued that the Davis case has been overtaken by later cases, but the language of the Anti-Injunction Act is "no suit shall be maintained".

It's remarkably similar to the language in -- that was at issue in Reed Elsevier:

"No civil action for infringement shall be instituted. "

And that formulation, "no suit may be maintained", contrasts with the Tax Injunction Act, that says the district court shall not enjoin.

That Tax Injunction Act is the same pattern as 2283, which says

"courts of the United States may not stay a proceeding in State court. "

So both of those formulas, the TIA and the no injunction against proceedings in State court, are directed to "court".

The Anti-Injunction Act, like the statute at issue in Reed Elsevier, says "no suit shall be maintained", and it has been argued that that is suitor-directed in contrast to court-directed.

Mr. Long: Right.

Well, I mean, this Court has said several times that the Tax Injunction Act was based on the Anti-Injunction Act.

You are quite right, the language is different; but we submit that the Anti-Injunction Act itself, by saying that no suit shall be maintained, is -- is addressed to courts as well as litigants.

I mean, after all, a case cannot go from beginning to end without the active cooperation of the court.

Justice Ruth Bader Ginsburg: But how is that different from no civil action for infringement shall be instituted -- "maintained and instituted"?

Anything turn on that?

Mr. Long: Well, it's -- I mean -- perhaps a party could initiate an action without the act of cooperation of the court, but to maintain it from beginning to end again requires the court's cooperation.

And -- and even if -- I mean, if the Court were inclined to say as an initial matter if this statute were coming before us for the first time today, given all of your recent decisions on jurisdiction, that you might be inclined to say this is not a jurisdictional statute.

A lot of water has gone over the dam here.

The Court has said multiple times that this is a jurisdictional statute.

Congress has not disturbed those decisions.

To the contrary--

Justice Sonia Sotomayor: Counsel--

Justice Samuel Alito: Well, Congress said that many times, but is there any case in which the result would have been different if the Anti-Injunction Act were not viewed as jurisdictional but instead were viewed as a mandatory claims processing -- rule?

Mr. Long: --There -- there are certainly a number of cases where the Court dismissed saying it is jurisdictional.

As I read the cases, I don't think any of them would necessarily have come out differently, because I don't think we had a case where the argument was, well, you know, the government has waived this, so, you know, even -- if it's not jurisdictional--

Justice Samuel Alito: Well, the clearest -- the clearest way of distinguishing between the jurisdictional provision and a mandatory claims processing rule is whether it can be waived and whether the Court feels that it has an obligation to raise the issue Sua Sponte.

Now, if there are a lot of cases that call it jurisdictional, but none of them would have come out differently if the Anti-Injunction Act were simply a mandatory claims processing rule, you have that on one side.

And on the other side, you have Davis, where the Court accepted a waiver by the Solicitor General; the Sunshine Anthracite coal case, where there also was a waiver; and, there's the Williams Packing case, which is somewhat hard to understand as viewing the Anti-Injunction Act as a jurisdictional provision.

The Court said that there could be a suit if -- there is no way the government could win, and the Plaintiff would suffer irreparable harm.

Now, doesn't that sound like an equitable exception to the Anti-Injunction Act?

Mr. Long: --No.

I think the -- I think the best interpretation of the Court's cases is that it was interpreting a jurisdictional statute.

And, indeed, in Williams Packing, the Court said it was a jurisdictional statute.

But, again, even if you have doubt about simply the cases, there is more than that because Congress has -- has not only not disturbed this Court's decision stating that the statute is jurisdictional, they've passed numerous amendments to this Anti-Injunction Act.

Chief Justice John G. Roberts: Well, it seems -- you can't separate those two points.

The idea that Congress has acquiesced in what we have said only helps you if what we have said is fairly consistent.

And you, yourself, point out in your brief that we've kind of gone back and forth on whether this is a jurisdictional provision or not.

So, even if Congress acquiesced in it, I'm not sure what they acquiesced in.

Mr. Long: Well, what you have said, Mr. Chief Justice, has been absolutely consistent for 50 years, since the Williams Packing case.

The period of inconsistency was after the first 50 years, since the statute was enacted in 1867.

And there was a period, as I said, when the Court was allowing extraordinary circumstances exceptions and equitable exceptions, but then, very quickly, it cut back on that.

And since -- and since Williams Packing, you have been utterly consistent--

Justice Elena Kagan: Well, even since Williams Packing, there was South Carolina v. Regan.

And that case can also be understood as a kind of equitable exception to the rule, which would be inconsistent with thinking that the rule is jurisdictional.

Mr. Long: --Well, again, I mean, I think the best understanding of South Carolina v. Regan is not that its an equitable exception, but it's the court interpreting a jurisdictional statute as it would interpret any statute in light of its purpose, and deciding in that very special case, it's a very narrow exception, where the--

Justice Sonia Sotomayor: --Mr. Long, in Bowles, the Court looked to the long history of appellate issues as being jurisdictional, in its traditional sense, not as a claim processing rule, but as a pure jurisdiction rule, the power of the Court to hear a case.

From all the questions here, I count at least four cases in the Court's history where the Court has accepted a waiver by the Solicitor General and reached a tax issue.

I have at least three cases, one of them just mentioned by Justice Kagan, where exceptions to that rule were read in.

Given that history, regardless of how we define jurisdictional statutes versus claim processing statutes in recent times, isn't the fairer statement that Congress has accepted that in the extraordinary case we will hear the case?

Mr. Long: --No.

No, Justice Sotomayor, because in many of these amendments which have come in the '70s and the '90s and the 2000's, Congress has actually framed the limited exceptions to the Anti-Injunction Act in jurisdictional terms.

And it's written many of the express exceptions by saying notwithstanding Section 7421--

Justice Sonia Sotomayor: But doesn't that just prove that it knows that the Court will impose a claim processing rule in many circumstances, and so, in those in which it specifically doesn't want the Court to, it has to be clearer?

Mr. Long: --Well, but Congress says, notwithstanding 7421, the Court

"shall have jurisdiction to restrain the assessment and collection of taxes in very limited-- "

Justice Sonia Sotomayor: Could you go back to the question that Justice Alito asked.

Assuming we find that this is not jurisdictional, what is the parade of horribles that you see occurring if we call this a mandatory claim processing rule?

What kinds of cases do you imagine that courts will reach?

Mr. Long: --Right.

Well, first of all, I think you would be saying that for the refund statute, as well as for the Anti-Injunction Act -- which has very similar wording, so if the Anti-Injunction Act is not jurisdictional, I think that's also going to apply to the refund statute, the statute that says you have to first ask for a refund and then file, you know, within certain time -- so it would be -- it would be both of those statutes.

And, you know, we are dealing with taxes here, if people--

Justice Sonia Sotomayor: That wasn't my question.

Mr. Long: --I'm sorry.

Justice Sonia Sotomayor: My question was if we deem this a mandatory claim processing rule--

Mr. Long: Right.

Justice Sonia Sotomayor: --what cases do you imagine courts will reach on what grounds?

Assuming the government does its job and comes in and raises the AIA as an immediate defense--

Mr. Long: Well, that's--

Justice Sonia Sotomayor: --where can a Court then reach the question, despite--

Mr. Long: --That would certainly be the first class of cases, it occurs to me, where, if the government does not raise it in a timely way, it could be waived.

I would think plaintiffs would see if there was some clever way they could get a suit going that wouldn't immediately be apparent that--

Justice Sonia Sotomayor: --Assumes the lack of competency of the government, which I don't, but what other types of cases?

Justice Antonin Scalia: Mr. Long, I don't think you are going to come up with any, but I think your response is you could say that about any jurisdictional rule.

If it's not jurisdictional, what's going to happen is you are going to have an intelligent federal court deciding whether you are going to make an exception.

And there will be no parade of horribles because all federal courts are intelligent.

So it seems to me it's a question you can't answer.

It's a question which asks

"why should there be any jurisdictional rules? "

And you think there should be.

Mr. Long: --Well, and, Justice Scalia, I mean, honestly, I can't predict what would happen, but I would say that not all people who litigate about federal taxes are necessarily rational.

And I think there would be a great--

Justice Stephen G. Breyer: I just don't want you to lose the second half of your argument.

And we have spent all the time so far on jurisdiction.

And I accept, pretty much, I'm probably leaning in your favor on jurisdiction, but where I see the problem is in the second part, because the second part says

"restraining the assessment or collection of any tax. "

Now, here, Congress has nowhere used the word "tax".

What it says is penalty.

Moreover, this is not in the Internal Revenue Code "but for purposes of collection".

And so why is this a tax?

And I know you point to certain sentences that talk about taxes within the code--

Mr. Long: --Right.

Justice Stephen G. Breyer: --and this is not attached to a tax.

It is attached to a health care requirement.

Mr. Long: Right.

Justice Stephen G. Breyer: --so why does it fall within that word?

Mr. Long: Well, I mean, the first point is -- our initial submission is you don't have to determine that this is a tax in order to find that the Anti-Injunction Act applies, because Congress very specifically said that it shall be assessed and collected in the same manner as a tax, even if it's a tax penalty and not a tax.

So that's one--

Justice Stephen G. Breyer: But that doesn't mean the AIA applies.

I mean -- and then they provide some exceptions, but it doesn't mean the AIA applies.

It says "in the same manner as".

It is then attached to chapter 68, when that -- it that references that as "being the manner of".

Well, that it's being applied -- or if it's being collected in the same manner as a tax doesn't automatically make it a tax, particularly since the reasons for the AIA are to prevent interference with revenue sources.

And here, an advance attack on this does not interfere with the collection of revenues.

I mean, that's -- you have read the arguments, as have I. But I would like to know what you say succinctly in response to those arguments.

Mr. Long: --So specifically on the argument that it -- it is actually a tax, even setting aside the point that it should be assessed and collected in the same manner as a tax.

The Anti-Injunction Act uses the term "tax"; it doesn't define it.

Somewhat to my surprise, "tax" is not defined anywhere in the Internal Revenue Code.

In about the time that Congress passed the Anti-Injunction Act, tax had a very broad definition.

It's broad enough to include this exaction, which is codified in the Internal Revenue Code.

It's part of the taxpayers' annual income tax return.

The amount of the liability and whether you owe the liability is based in part on your income.

It's assessed and collected by the IRS.

Justice Antonin Scalia: There -- there is at least some doubt about it, Mr. Long, for the reasons that Justice Breyer said, and I -- I thought that we -- we had a principle that ousters of jurisdiction are -- are narrowly construed, that, unless it's clear, courts are not deprived of jurisdiction, and I find it hard to think that this is clear.

Whatever else it is, it's easy to think that it's not clear.

Mr. Long: Well, I mean, the Anti-Injunction Act applies not only to every tax in the code, but, as far as I can tell, to every tax penalty in the code.

Justice Ruth Bader Ginsburg: Mr. Long, you -- you said before -- and I think you were quite right -- that the Tax Injunction Act is modeled on the Anti-Injunction Act, and, under the Tax Injunction Act, what can't be enjoined is an assessment for the purpose of raising revenue.

The Tax Injunction Act does not apply to penalties that are designed to induce compliance with the law rather than to raise revenue.

And this is not a revenue-raising measure, because, if it's successful, they won't -- nobody will pay the penalty and there will be no revenue to raise.

Mr. Long: Well, in -- in Bob Jones the Court said that they had gotten out of the business of trying to determine whether an exaction is primarily revenue raising or primarily regulatory.

And this one certainly raises -- is expected to raise very substantial amounts of revenues, at least $4 billion a year by the--

Justice Sonia Sotomayor: But Bob Jones involved a statute where it denominated the exaction as a tax.

Mr. Long: --That's--

Justice Sonia Sotomayor: Here we have one where the Congress is not denominating it as a tax; it's denominating it as a penalty.

Mr. Long: --That's -- that's absolutely right, and that's obviously why, if it were called a tax, there would be absolutely no question that the Anti-Injunction Act applies.

Justice Sonia Sotomayor: Absolutely.

But even the section of the Code that you referred to previously, the one following 7421, the AIA, it does very clearly make a difference -- 7422 -- make a difference between tax and penalties.

It's very explicit.

Mr. Long: Yes, that's -- it does, that is correct, and there are many other places in the Code where--

Justice Stephen G. Breyer: The best collection I've found in your favor, I think, is in Mortimer Caplin's brief on page 16, 17.

He has a whole list.

All right.

So -- I got my law clerk to look all those up.

And it seems to me that they all fall into the categories of either, one, these are penalties that were penalties assessed for not paying taxes, or, two, they involve matters that were called by the court taxes, or, three, in some instances they were deemed by the Code to be taxes.

Now what we have here is something that's in a different statute that doesn't use the word AIA reason, which is to say to the Solicitor General, we don't care what you think, we, in Congress, don't want you in court where the revenue of a state -- Tax Injunction Act -- or the revenue of the federal government is at stake, and, therefore, you can't waive it.

Now I got that.

Here it's not at stake and here are all the differences I just mentioned.

So I ask that because I want to hear your response.

Mr. Long: --Well, I mean, there are penalties in the Internal Revenue Code that you really couldn't say are related in any -- in any close way to some other tax provision.

There is a penalty -- it's discussed in the briefs -- for selling diesel fuel that doesn't comply with EPA's regulations, you know.

So there are all kinds of penalties in the Code, and I think it's -- it could be--

Justice Elena Kagan: Mr. Long, aren't there places in this Act -- fees and penalties -- that were specifically put under the Anti-Injunction Act?

There is one on health care plans, there is one on pharmaceutical manufacturers, where Congress specifically said the Anti-Injunction Act is triggered for those.

It does not say that here.

Wouldn't that suggest that Congress meant for a different result to obtain?

Mr. Long: --Well, I mean, Congress didn't use the language the Anti-Injunction Act shall apply--

Justice Elena Kagan: No, but it -- it in section 9008 and in section 9010--

Mr. Long: --Right.

Justice Elena Kagan: --it specifically referred to the part of the Code where the Anti-Injunction Act is.

Mr. Long: Right, all of subtitle F, which picks up lots of administration and procedure provisions, but those -- those are fees, and they are not -- Congress did not provide, you know, in the sections themselves that they should be paid as part of a tax return.

So they were free-standing fees, and by using that subtitle F language, Congress plugged in a whole set of rules for how to collect and administer the fees, and it went not just to assessment and collection -- and the IRS has recognized this -- but to examination, privacy, a whole series of additional things.

So I think it would be a mistake to look at that language and say,

"oh, here's Congress saying they want the Anti-Injunction Act to apply. "

They are actually doing more than that.

And, yes, I grant you, you could look at section 5000A, the individual coverage requirement, and say, well, they could have been clearer about saying the Anti-Injunction Act applied, and that's certainly true, but, again, they were trying to accomplish a lot.

Maybe--

Justice Anthony Kennedy: It's easier to talk about this case if we just forget the words

"for the purpose of restraining assessment and collection. "

In a sense, that brings the jurisdictional question and Justice Breyer's question together.

It seems to me -- maybe you could just comment on that language.

Is that sort of language usually contained in a jurisdictional provision?

I mean, you often don't know the purpose of a suit until after the thing is underway.

I can see it with malicious prosecution and some civil rights cases.

Does it strike you as somewhat unusual to have this provision in a jurisdictional case?

Mr. Long: --It does strike me, honestly, as a bit unusual, but this is an old statute.

I mean, this -- the core language is essentially unchanged since 1867, and, you know, I think that's part of the explanation for it.

And, again, it's, you know, become the center of a series of provisions that very carefully control the circumstances in which litigation about federal taxes can take place.

Justice Ruth Bader Ginsburg: Mr. Long, there's another argument that has been made that I would like you to address, and that is all this talk about tax penalties is all beside the point because this suit is not challenging the penalty.

This is a suit that is challenging the must-buy provision, and the argument is made that, if, indeed, "must-buy" is constitutional, then these complainants will not resist the penalty.

So what they're seeking is a determination that that "must-buy" requirement, stated separately from penalty, that "must-buy" is unconstitutional, and, if that's so, that's the end of the case; if it's not so, they are not resisting the penalty.

Mr. Long: Well, I think that argument doesn't work for two reasons.

I mean, first, if you look at the Plaintiff's own complaint, they clearly challenge both the minimum coverage requirement and the penalty.

At page 122 of the Joint Appendix they challenge the requirement that the individuals obtain health care coverage or pay a penalty.

Justice Samuel Alito: Why is that?

Justice Ruth Bader Ginsburg: If that's -- if that's the problem, it's easier to amend the complaint.

They can just take that out of the complaint.

So it can't turn on that.

Mr. Long: Well, yes, I mean, it's -- or another complaint would be filed, but, still, I think that's a serious problem.

But even if they had filed a different complaint, I don't think you -- in this case I don't think you can separate the minimum coverage requirement from the penalty because the penalty is the sole means of enforcing the minimum coverage requirement.

So -- so, first, I mean, I think these Plaintiffs would not be satisfied if the Court were to render a judgment saying the minimum coverage requirement is invalidated; the penalty, however, remains standing.

Anybody who doesn't have insurance has to pay the penalty.

Then they would have to pay a penalty equal to the cost of insurance and they wouldn't even have insurance.

So I don't think that would be--

Justice Samuel Alito: Well, they say they want to obey the law, and they say that your argument puts them in the position of having to disobey the law in order to obtain review of their claim.

And what is your answer to that?

Mr. Long: --Well, I mean, first of all, I can't find that in the record, in their declarations.

I don't see a statement that they will, you know, never incur a penalty under any circumstances.

But -- but even if that were so, what this Court has said in Americans United is the Anti-Injunction Act bars any suit, not just to enjoin the collection of your own taxes, but to enjoin the collection of anyone's taxes.

And so even if it were really true that these plaintiffs were not interested in the penalty and would never pay the penalty, if they were to succeed in this case in striking down the minimum coverage requirement the inevitable result would be that the penalty would fall as well, because the government couldn't collect the penalty for failing to follow an unconstitutional requirement, and so it would still be barred because it would be a suit that would prevent the collection of some of the--

Justice Samuel Alito: Well, let me take us back to Justice Kennedy's question about the "for the purpose of" language.

I take it you interpret the statute to mean the following: "For the purpose of" means having the effect of.

Is that correct?

Mr. Long: --Well -- -- well, I mean, this Court in the Bob Jones case, where a similar kind of argument was being made by the plaintiff in that case, said: Look, you know, where the -- where it's inevitable that this is what the suit is about, they're sort of two sides of the same coin, that clearly is a primary purpose of the suit.

And it's -- and you can't by clever pleading get away from that.

That's just the nature of the situation.

Justice Elena Kagan: But, Mr. Long, aren't you trying to rewrite the statute in a way?

The statute has two sections.

One is the you have to have insurance section and the other is the sanction.

The statute has two different sets of exceptions corresponding to those two different sections.

You are trying to suggest that the statute says: Well, it's your choice; either buy insurance or pay a -- or pay a fee.

But that's not the way the statute reads.

And Congress, it must be supposed, you know, made a decision that that shouldn't be the way the statute reads, that it should instead be a regulatory command and a penalty attached to that command.

Mr. Long: Well, I would not argue that this statute is a perfect model of clarity, but I do think the most reasonable way to read the entire statute is that it does impose a single obligation to pay a penalty if you are an applicable individual and you are not subject to an exemption.

And the reason I say that, if you look at the exemptions from the penalty, the very first one is you are exempt from the penalty because you can't afford to purchase insurance.

And it just doesn't seem reasonable to me to interpret the statute as Congress having said, well, you know, this person is exempt from paying a penalty because we find they can't afford to buy insurance, however they still have a legal obligation to buy insurance.

That just doesn't seem reasonable.

So I -- so I do think, although it's -- I certainly wouldn't argue it's clear -- that that's the best way to understand the statute as a whole.

But again, I would say, you know, that's not essential to the question we're discussing now of whether the Anti-Injunction Act applies.

Again, you know, I think--

Justice Sonia Sotomayor: Could you tell me why you think the Solicitor General's reading creates a problem?

Mr. Long: --Well, in going back to -- so if the result were to say simply, this is not -- oh, I'm sorry.

The Solicitor General's reading.

So now it's not--

Justice Sonia Sotomayor: That it is a jurisdictional bar, but there's an exemption for those items that Congress has designated solely as penalties that are not like taxes.

Mr. Long: --Right.

Well, I mean, I think the Solicitor General's reading would probably create the fewest problems, as I understand it.

I mean, my -- my main objection to the Solicitor General's reading is I don't think it makes a whole lot of sense.

I mean, basically the Solicitor General says every penalty in the Internal Revenue Code, every other penalty in the Affordable Care Act is--

Justice Sonia Sotomayor: But that's not -- that's carrying it too far, because he says if a penalty is designated as a tax by Congress then it's subject to the AIA, and that's most of the code, the tax code.

And he says for those portions of the Affordable Care Act that designate things as taxes, the AIA applies.

So it's only -- and I haven't found another statute.

I'm going to ask him if there's another one.

It's only for those statutes in which Congress has designated something solely as a penalty.

Mr. Long: --Right.

Justice Sonia Sotomayor: And not indicated that it is a tax.

Mr. Long: Right.

Justice Sonia Sotomayor: They don't fall within the AIA.

Mr. Long: I think my -- my take on it is if you adopted the Solicitor General's approach there are probably three penalties for alcohol and tobacco-related offenses at 5114(c), 5684, and 5761 that I think would be very difficult to distinguish from this one, and possibly the 527(j) penalty for failure to disclose political contributions.

If there are no further questions, I would like to reserve my time.

Chief Justice John G. Roberts: Thank you, Mr. Long.

General Verrilli.

ORAL ARGUMENT OF DONALD B. VERRILLI, JR., ON BEHALF OF THE PETITIONERS

Mr. Verrilli Jr.: Mr. Chief Justice and may it please the Court:

This case presents issues of great moment, and the Anti-Injunction Act does not bar the Court's consideration of those issues.

That is so even though the Anti-Injunction Act is a jurisdictional limit that serves what this Court described in Clintwood Elkhorn as an exceedingly strong interest in protecting the financial stability of the Federal Government, and even though the minimum coverage provision of the Affordable Care Act is an exercise of Congress's taxing power as well as its commerce power.

Congress has authority under the taxing power to enact a measure not labeled as a tax, and it did so when it put section 5000A into the Internal Revenue Code.

But for purposes of the Anti-Injunction Act, the precise language Congress used is determinative.

And there is no language in the Anti-Injunction Act -- excuse me, no language in section 5000A of the Affordable Care Act or in the Internal Revenue Code generally that provides a textual instruction that--

Justice Samuel Alito: General Verrilli, today you are arguing that the penalty is not a tax.

Tomorrow you are going to be back and you will be arguing that the penalty is a tax.

Has the Court ever held that something that is a tax for purposes of the taxing power under the Constitution is not a tax under the Anti-Injunction Act?

Mr. Verrilli Jr.: --No, Justice Alito, but the Court has held in a license tax cases that something can be a constitutional exercise of the taxing power whether or not it is called a tax.

And that's because the nature of the inquiry that we will conduct tomorrow is different from the nature of the inquiry that we will conduct today.

Tomorrow the question is whether Congress has the authority under the taxing power to enact it and the form of words doesn't have a dispositive effect on that analysis.

Today we are construing statutory text where the precise choice of words does have a dispositive effect on the analysis.

Justice Sonia Sotomayor: Well, General, you also have the Bailey child labor tax cases, because there the Court said that the tax, which was a prohibitory tax alone, was a tax subject to the AIA, and then it said it was beyond the Court's taxing power in a separate case, correct?

Mr. Verrilli Jr.: Yes.

I do think, Justice Sotomayor, that, with respect to one of the arguments that my friend from the NFIB has made in the brief, that Bailey v. George is a significant problem because I think their argument on the constitutionality under the taxing power is essentially that the Affordable Care Act provision is the same thing as the provision that was held unconstitutional in Bailey v. Drexel Furniture Company.

Justice Sonia Sotomayor: That's a different issue--

Mr. Verrilli Jr.: But on the same day -- right, but on the same day as Bailey v. Drexel Furniture, the court issued Bailey v. George, which held that the Anti-Injunction Act did bar a challenge to that provision, even though the Court had concluded that it was invalid under the tax power.

So -- and I think the reason for that has been -- is clear now after Williams Packing and Bob Jones, in that in order to find that the Anti-Injunction Act doesn't apply to something that otherwise would be a tax that triggers it, you have to conclude essentially that there is no substantial argument that can be made in defense of it as a tax.

We don't have that here, so I don't think you can get around the Anti-Injunction Act if the Court were to read it, as the amicus suggest it should be read, on that theory.

But.

Justice Ruth Bader Ginsburg: Mr. Verrilli, a basic question about your argument.

If you are right about the second part, that is for purposes of the statute, the anti-injunction statute, this penalty does not constitute a tax, then does the Court need to decide whether the Anti-Injunction Act in other cases where it does involve a tax is jurisdictional?

Mr. Verrilli Jr.: No.

I -- I apologize if I'm creating confusion about that, Justice Ginsburg.

We think by far the better route here is to understand the statute as we have proposed that it be construed as not applying here.

From the perspective of the United States -- and if I could, I'd like to take a minute on this -- the idea that the Anti-Injunction Act would be construed as not being a jurisdictional provision is very troubling, and we don't think it's correct.

And I -- I would, if I could follow up on a question, Justice Ginsburg, that you asked Mr. Long in terms of the language of the Anti-Injunction Act 7421(a), which can be found at page 16A of the appendix to our brief.

I -- I'd ask the Court to compare that to the language of the very next provision in the code, which is on the next page of our statutory appendix, 17A, which is the refund statute which we've talked about a little bit so far this morning, 7422(a).

The refund statute this Court held in Dolan was jurisdictional, and the Court in both Dolan and Brockamp held that the statute of limitations that applies to the refund statute cases is jurisdictional.

The language in 7422(a) is virtually identical to the language in 7421(a)--

Justice Anthony Kennedy: That -- that is correct, although in the refund context, you have the sovereign immunity problem, in which we presume that has not been waived.

Mr. Verrilli Jr.: Right.

Justice Anthony Kennedy: But I -- 7421(a) -- were the same--

--The language is quite parallel.

Mr. Verrilli Jr.: --And -- originally, they were the same statutory provision.

They were only separated out later.

So I do think that's the strongest textual indication, Justice Ginsburg, that -- that 7421(a) is jurisdictional.

Justice Ruth Bader Ginsburg: But then, General, what I asked you is, if you're right that this penalty is not covered by section 7421, if you're right about that, why should we deal with the jurisdictional question at all?

Because this statute, correct, the way you reading -- read it, doesn't involve a tax that's subject to the Anti-Injunction Act.

Mr. Verrilli Jr.: Yes, that is exactly our position.

And the reason we don't--

Justice Ruth Bader Ginsburg: So -- so you -- you agree that we would not -- if we agree with you about the correct interpretation of the statute, we need not decide the jurisdiction.

Mr. Verrilli Jr.: --There would be no reason to decide the jurisdictional issue.

Justice Anthony Kennedy: Don't you want to know the answer?

[Laughter]

Mr. Verrilli Jr.: Justice Kennedy, I think we all want to know the answer to a lot of things in this case.

But -- but I do -- I do think that the prudent course here is to construe the statute in the manner that we read it.

Justice Anthony Kennedy: But -- but you indicated -- there was a discussion earlier about why does the government really care, they have competent attorneys, et cetera.

But -- and you began your argument by saying it would be very troubling to say that it's not jurisdictional.

I'd like you to comment on that -- it's not for us to tell a party what's in its best interests.

It would seem to me that there might be some instances in which the government would want to litigate the validity of a tax right away and would want to waive.

But you say it's -- that's not true; that it's very troubling.

Mr. Verrilli Jr.: I think there are two problems.

One is the problem that Justice Scalia identified, that if it's not jurisdictional, then courts have authority to craft equitable exceptions.

And it may seem from where we stand now that that authority is or could be very, very tightly cabined, but if -- if this Court were to conclude that it isn't jurisdictional, that does empower courts to find other circumstances in which they might find it equitable to allow cases to go forward in the absence of -- of -- despite the existence of the Anti-Injunction Act.

And second, although I certainly am not going to stand up here and disparage the attorneys from the United States in the slightest, the reality is that if this isn't jurisdictional, then it's -- the argument -- it's open to the argument that it's subject to forfeiture by a simple omission in failing to raise it in an answer.

And that -- and that's a troubling prospect.

by--

Justice Sonia Sotomayor: --How, if you're troubled--

Justice Ruth Bader Ginsburg: Can I ask--

Chief Justice John G. Roberts: Justice Ginsburg.

Justice Ruth Bader Ginsburg: --How -- how likely is it -- I mean, the government is going to be defending these suits, how likely is it that the government will overlook the Anti-Injunction Act?

It seems to me that this is arming the government by saying it's waivable at the government's option.

Mr. Verrilli Jr.: --That's -- that is not our assessment of the institutional interests of the United States, Justice Ginsburg.

And we do think that the -- the right way to go in this case is to read the statute as not applying to the minimum coverage provision of the Affordable Care Act.

Chief Justice John G. Roberts: It was -- it was the calculation of the interests of the United States that your predecessor made in the Davis case.

There, the -- the Solicitor General exercised the authority that we sanctioned to waive the -- the Anti-Injunction Act.

And of course, that couldn't be done if it were jurisdictional.

Mr. Verrilli Jr.: That's true, Mr. Chief Justice.

Several points about that, though.

We do agree with Mr. Long's analysis that Davis occurred in -- during a time in -- which under the Standard Nut case, the Court had interpreted the Anti-Injunction Act as doing no more than codifying the traditional equitable principles which allowed courts discretion to conclude that in certain circumstances, a case could go forward.

Williams Packing repudiated that analysis, and Bob Jones v. Simon again repudiated that analysis and said, no, we're no longer abiding by that.

It is true that the Davis case has not formally been overruled, but we do think it's fundamentally inconsistent with the Court's understanding now of--

Justice Stephen G. Breyer: Davis was the case where a shareholder sues the corporation.

Mr. Verrilli Jr.: --Yes.

Justice Stephen G. Breyer: And the remedy is that the corporation shouldn't pay the money to the tax authority.

Now, it's a little technical, but that isn't actually an injunction against the tax authority collecting.

He's not -- they're not restraining the collection of tax.

They're saying to the taxpayer, don't pay it.

Mr. Verrilli Jr.: Yes.

And--

Justice Stephen G. Breyer: I don't know how far that gets you.

Mr. Verrilli Jr.: --Well, in fairness, Justice Breyer, the United States did intervene in the -- in the Davis case and was a party, and so -- not as far as I'd like, I guess is the answer.

Justice Antonin Scalia: Don't do it again, because I think that goes too far.

I don't think that's restraining the collection of a tax.

It's restraining the payment of a tax.

Mr. Verrilli Jr.: Well--

Justice Antonin Scalia: You -- you don't want to let that bone go, right?

Mr. Verrilli Jr.: Our view here is that it is jurisdictional.

Justice Antonin Scalia: Because it's jurisdictional as this Court understands jurisdiction now, it's not waivable.

And therefore, we don't think that -- that that part of the Davis decision is good law.

Justice Elena Kagan: General, can I ask you about Reed Elsevier?

Justice Ginsburg suggested that the language was very similar in Reed Elsevier as it is here, but there are even further similarities.

Reed Elsevier pointed out that the provision in question wasn't in Title 28.

Here, too, it's not in Title 28.

In Reed Elsevier, it was pointed out that the provision there had numerous exceptions to it.

Here, too, there are numerous exceptions that we find that have been created by the courts over the years.

In Reed Elsevier, the question was essentially one about timing.

Come to court after you file your registration.

Here, too, the question is one about timing.

Come to court after you make -- after you pay your taxes.

So Reed Elsevier seems in multiple respects on all fours with this case.

Why is that wrong?

Mr. Verrilli Jr.: --I don't think so, Justice Kagan.

First, we think -- I guess I'm repeating myself and I apologize, but -- we think the closest analogue is the very next provision in the United States Code, 7422(a), which this Court has held is jurisdictional, and is phrased in exactly the same way as 7421(a).

In fact, as I said, they were the same provision back in the earlier days.

That's the closest analogue.

This isn't -- and it's actually 7422 that's a statute that says do something first.

But this -- this statute is just a flat-out command that no suit shall be maintained to restrain--

Justice Elena Kagan: I take the point--

Mr. Verrilli Jr.: --the assessment or collection.

Justice Elena Kagan: --but if you would comment on the similarities of Reed Elsevier to this case.

How do you think it's different, if at all?

Mr. Verrilli Jr.: --Well, because the -- the -- I think the best answer to that is there are no magic words.

And that history and context matter, as the Court said in Henderson.

And the history and context here is that 7422 and 7421 function together to protect an exceedingly strong interest that -- that the Court has held with respect to 7422 sufficiently strong that it -- it explains the jurisdictional nature of that.

The same interest applies here.

This isn't just a matter of do X and then you can -- and then you can come to court.

It's just a fundamentally different set of interests at stake.

So we -- we do think that that makes a big difference.

And--

Justice Ruth Bader Ginsburg: Why, in Reed Elsevier, you were dividing jurisdiction from claims processing, says you have to register before you can sue.

There are a lot of things you have to do before you can sue.

So why isn't Reed Elsevier like you have to pay a filing fee before you can file a complaint?

Mr. Verrilli Jr.: --It is -- we do think it's very much in -- in that nature and different from this case, Your Honor.

And one -- one way I think it's helpful to -- to get at this is -- is to look at the history.

We've cited a string of court of appeals cases in a footnote in our opening brief, and over time, it's been very consistent that the courts of appeals have treated the Anti-Injunction Act as a jurisdictional provision.

Again, if the Court agrees with our statutory construction, you don't need to reach this issue.

But they have -- in fact, one of those cases, the Hansen case, the district court in that case had dismissed the complaint under Federal Rule of Civil Procedure 12(b)(6).

The Court of Appeals vacated and sent it back with instructions to dismiss under 12(b)(1), which is the subject matter jurisdiction provision.

So I do think that, to the extent this issue is before the Court, it is jurisdictional, but it doesn't need to be before the Court because of the statutory construction argument that we had offered.

Justice Ruth Bader Ginsburg: On your statutory construction argument, is there any other exaction imposed under the Internal Revenue Codes that would not qualify as a tax for Anti-Injunction Act purposes, or is 5000A just out there all by itself?

Mr. Verrilli Jr.: It's not quite out there all by itself.

There are other provisions that fall outside of subchapter B of chapter 68 and, therefore, wouldn't be governed by the instruction in Section 6671(a), which answers the question about the applicability of the act for most penalties.

The ones that we've identified, and I may be overlapping a little bit with Mr. Long here, one is 26 U.S.C. 857, which poses certain penalties in connection with the administration of real estate investment trusts.

There are provisions that Mr. Long identified in his brief, Sections 6038(a) through (c) of the Code, which impose certain penalties with respect to reporting requirements for foreign corporations.

We have, in addition, in footnote 22 at page 36 of our brief, identified three provisions that Mr. Long also identified about -- about alcohol and tobacco.

Now--

Justice Sonia Sotomayor: --Could we address, General, the question of whether there are any collateral consequences for the failure to buy -- to not buy health insurance?

Is the only consequence the payment of the penalty?

The private respondents argue that there are other collateral consequences such as for people on probation who are disobeying the law, if they don't buy health insurance they would be disobeying the law and could be subject to having their supervised release revoked.

Mr. Verrilli Jr.: --Yes.

That is not a correct reading of the statute, Justice Sotomayor.

The only consequence that ensues is the tax penalty.

And the -- we have made a representation, and it was a carefully made representation, in our brief that it is the interpretation of the agencies charged with interpreting this statute, the treasury department and the Department of Health and Human Services, that there is no other consequence apart from the tax penalty.

And I do think, if I could talk for a couple of minutes about the argument that was discussed as to whether this can be conceived of as a suit just challenging the requirement, which is entirely stand-alone based on inferences drawn from the exemptions.

I really don't think that's right.

And if I could spend a minute on it, I think it's important.

The exemptions in section 5000A, it is true that there are two categories of exemptions.

There are exemptions to the penalty and exemptions to the subsection (a) requirement.

But the -- but I think, not only as a practical matter, but as a textural indication and even as a legal matter, they -- both function as exceptions to the requirement.

First, as a practical matter, one of those exemptions is a hardship exemption.

And if the Court will just bear with me for one minute here, it's at page 11A of the appendix to our brief.

It provides that a person can go to the secretary of HHS and obtain a hardship exemption for -- which would, as a formal matter here, excuse compliance with the penalty.

It seems to me to make very little sense to say that someone who has gone to an official of the United States and obtained an exemption would, nonetheless, be in a position of being a law breaker.

We think another way in which you can get to the same conclusion slightly differently is by considering the provision on the prior page, 10A, which is 5000A -- 5000A(e)(3), members of Indian tribes.

Members of Indian tribes are exempt only from the penalty as a formal matter under the structure of the statute here; but, the reason for that is because members of Indian tribes obtain their healthcare through the Indian Health Service, which is a clinic-based system that doesn't involve insurance at all.

It's an entirely different system.

They were taken out of this statute because they get their healthcare through a different system.

And it doesn't make any sense to think that persons getting their health care through the Indian Health Service are violating the law because -- exempt only from the penalty, but still under a legal obligation to have insurance, when the whole point of this is that they're supposed to be in a clinic-based system.

Justice Sonia Sotomayor: Is your whole point that this was inartful drafting by Congress; that, to the extent that there is an exemption under the penalty, it's an exemption from the legal obligation?

Mr. Verrilli Jr.: I guess what I would say about it, Your Honor, is that the way in which this statute is drafted doesn't permit the inference that my friends from the NIB are trying to draw from it.

Justice Sonia Sotomayor: And there is an additional textural indication of that, which one can find at page 13 of our reply brief.

This is a provision that is 42 U.S.C. A, section 18022(e).

This is a provision that provides for a certification that certain individuals can get.

And it's the paragraph starting with the words "other provisions", contains the quote.

And it says:

"An individual with a certification that the individual is exempt from the requirement under section 5000A, by reason of section 5000A(e)(1) of such code, is entitled to a certificate that allows for enrollment in a particular program for this category of people. "

But you can see here, Congress is saying it's an exemption from under 5000A(e)(1), which is the exemption from the penalty, and not the underlying requirement is, as Congress says, an exemption from the requirement of section 5000A.

Justice Samuel Alito: Sub-section A says directly,

"an applicable individual shall ensure that the individual has the minimum essential coverage. "

And you are saying it doesn't really mean that, that if you're not subject to the penalty, you're not under the obligation to maintain the minimum essential coverage?

Mr. Verrilli Jr.: That's correct.

And we think that is what Congress is saying, both in the provision I just pointed to, Your Honor, and by virtue of the fact -- by virtue of the way the exemptions work.

I just think that's the -- reading this in context, that is the stronger reading of the statute.

Chief Justice John G. Roberts: Suppose it makes it easy for the government to drop the other shoe in the future, right?

You have been under the law subject to this mandate all along.

You have been exempt from the penalty, so all they have to do is take away the penalty.

Mr. Verrilli Jr.: I don't -- I don't think so, Mr. Chief Justice.

I don't think it makes it easy for the government in the future.

We think this is the fairest reading of the statute, that the -- that the -- you cannot infer from the fact that someone is exempt from the penalty, that they are still under an obligation to have insurance.

That's just not the fairest reading of the statute.

Justice Elena Kagan: Could I--

Justice Samuel Alito: I'm sorry, go ahead.

Justice Elena Kagan: --The nature of the representation you made, that the only consequence is the penalty, suppose a person does not purchase insurance, a person who is obligated to do so under the statute doesn't do it, pays the penalty instead, and that person finds herself in a position where she is asked the question, have you ever violated any federal law, would that person have violated a federal law?

Mr. Verrilli Jr.: No.

Our position is that person should give the answer "no".

Justice Elena Kagan: And that's because.

Mr. Verrilli Jr.: That if they don't pay the tax, they violated a federal law.

Justice Elena Kagan: But as long as they've paid the penalty.

Mr. Verrilli Jr.: If they pay the tax, then they are in compliance with the law.

Justice Stephen G. Breyer: Why do you keep saying tax?

Mr. Verrilli Jr.: If they pay the tax penalty, they're in compliance with the law.

Justice Stephen G. Breyer: Thank you.

Mr. Verrilli Jr.: Thank you, Justice Breyer.

Justice Stephen G. Breyer: The penalty.

Mr. Verrilli Jr.: Right.

That's right.

Justice Samuel Alito: Suppose a person who has been receiving medical care in an emergency room -- has no health insurance but, over the years, goes to the emergency room when the person wants medical care -- goes to the emergency room, and the hospital says, well, fine, you are eligible for Medicaid, enroll in Medicaid.

And the person says, no, I don't want that.

I want to continue to get -- just get care here from the emergency room.

Will the hospital be able to point to the mandate and say, well, you're obligated to enroll?

Mr. Verrilli Jr.: No, I don't think so, Justice Alito, for the same reason I just gave.

I think that the -- that the answer in that situation is that that person, assuming that person -- well, if that person is eligible for Medicaid, they may well not be in a situation where they are going to face any tax penalty and therefore--

Justice Samuel Alito: No, they are not facing the tax penalty.

Mr. Verrilli Jr.: --Right, right.

Justice Samuel Alito: So the hospital will have to continue to give them care and pay for it themselves, and not require them to be enrolled in Medicaid.

Mr. Verrilli Jr.: Right.

Justice Samuel Alito: Will they be able to take this out and say, well, you really should -- you have a moral obligation to do it; the Congress of the United States has said, you have to enroll?

No, they can't say?

Mr. Verrilli Jr.: I do think it's -- I think it's certainly fair to say that Congress wants people in that position to sign up for Medicaid.

I think that's absolutely right.

And I think the statute is structured to accomplish that objective; but, the reality still is that the only consequence of noncompliance is the penalty.

Justice Sonia Sotomayor: General, but I thought the people who were eligible for Medicaid weren't subject to the penalty.

Am I wrong?

I could be just factually wrong.

Mr. Verrilli Jr.: Well, it all -- the penalty is keyed to income.

Justice Sonia Sotomayor: Yes.

Mr. Verrilli Jr.: And it's keyed to a number of things.

One is, are -- are you making so little money that you aren't obligated to file a tax return.

And if you're in that situation, you are not subject to the penalty.

It's also if the cost of insurance would be more than 8 percent of your income, you're not subject to the penalty.

So there -- there -- there isn't necessarily a precise mapping between somebody's income level and their Medicaid eligibility at the present moment.

That will depend on where things are and what the eligibility requirements are in the State.

Justice Sonia Sotomayor: But those people below.

Mr. Verrilli Jr.: But as a general matter, for people below the poverty line it's almost inconceivable that they are ever going to be subject to the penalty, and they would, after the Act'sMedicaid reforms go into place, be eligible for Medicaid.

Justice Stephen G. Breyer: So is your point that the tax -- so, what we want to do is get money from these people.

Most of them get the money by buying the insurance and that will help pay.

But if they don't, they are going to pay this penalty, and that will help, too.

And the fact that we put the latter in brings it within the taxing power.

And as far as this Act is concerned about the injunction, they called it a penalty and not a tax for a reason.

They wanted it to fall outside that, it's in a different chapter, et cetera.

Is that what the heart of what you are saying?

Mr. Verrilli Jr.: That's the essence they called it a penalty.

They didn't give any other textural instruction in the Affordable Care Act or in the Internal Revenue Code or that that penalty should be treated as a tax for the Anti-Injunction Act purpose.

Chief Justice John G. Roberts: You agree with Mr. Long, and, in fact, you just agreed with Justice Breyer that one of the purposes of the provision is to raise revenue.

Mr. Verrilli Jr.: It will -- well, it will raise revenue.

It has been predicted by the CBO that it will raise revenue, Your Honor.

But even though that's the case, and I think that would be true of any -- of any penalty, that it will raise some revenue, but even though that's the case, there still needs to be textural instruction in the statute that this penalty should be treated as a tax for Anti-Injunction Act purposes, and that's what is lacking here.

Justice Samuel Alito: After this takes effect, there may be a lot of people who are assessed the penalty and disagree either with whether they should be assessed the penalty at all, or with the calculation of the amount of their penalty.

So under your interpretation of the Act, all of them can now go to court?

None of them are barred by the Anti-Injunction Act?

Mr. Verrilli Jr.: Those are two different things, Justice Alito.

Justice Samuel Alito: I think for reasons that Justice Kennedy, I think, suggested in one of his questions to Mr. Long, all of the other doctrines that are an exhaustion of remedies and related doctrines would still be there.

The United States would rely on them in those circumstances.

And -- and so, I don't think the answer is that they can all go to court, no.

Justice Sonia Sotomayor: Well, why is it--

Justice Samuel Alito: Two former -- two former commissioners of the IRS have filed a brief saying that your interpretation is going to lead to a flood of litigation.

Are they wrong on that?

Mr. Verrilli Jr.: Yes.

We don't -- you know -- we've -- we've taken this position, after very careful consideration, and we've assessed the institutional interests of the United States and we think we are in the right place.

Justice Sonia Sotomayor: --But tell me something, why isn't this case subject to the same bars that -- that you list in your brief?

The Tax Court, at least so far, considers constitutional challenges to statutes, so why aren't we -- why isn't this case subject to a dismissal for failure to exhaust?

Mr. Verrilli Jr.: Because we don't -- because the exhaustion would go to the individual amount owed, we think, and that's a different situation from this case.

If the Court has no further questions.

Chief Justice John G. Roberts: Thank you, General.

Mr. Verrilli Jr.: Thank you.

Chief Justice John G. Roberts: Mr. Katsas.

ORAL ARGUMENT OF GREGORY G. KATSAS ON BEHALF OF THE RESPONDENTS

Mr. Katsas: Mr. Chief Justice, and may it please the Court:

Let me begin with the question whether the Anti-Injunction Act is jurisdictional.

Justice Ginsburg, for reasons you suggested, we think the text of the Anti-Injunction Act is indistinguishable from the text of the statute that was unanimously held to be non-jurisdictional in Reed Elsevier.

That statute said no suit shall be instituted.

This statute says no suit shall be maintained.

No--

Justice Ruth Bader Ginsburg: They are different things.

This said the Reed Elsevier statute says immediately after instituted unless a copyright is registered.

Mr. Katsas: --Unless the copyright is registered.

And this goes -- this goes to the character of the lawsuit.

The statute in Reed Elsevier says, register your copyright and then come back to court.

Justice Ruth Bader Ginsburg: Why isn't that like a filing fee, before you can maintain a suit for copyright infringement, you have to register your copyright?

Mr. Katsas: It -- it's a precondition to filing suit.

The -- the analogous precondition here is pay your taxes and then come back to court.

The point is--

Justice Sonia Sotomayor: No -- that -- that -- that's not true.

The suit here has nothing to do with hearing the action.

It has to do with a form of relief that Congress is barring.

It's not permitting -- it is not a tax case, you can come in afterwards.

It's not permitting the court to exercise what otherwise would be one of its powers.

Mr. Katsas: --It -- it has to be the same challenge, Justice Sotomayor, or else South Carolina v. Regan would say the Anti-Injunction Act doesn't apply.

You are right that once you file -- once you pay your taxes and then file the refund action, the act of filing the taxes converts the suit from one seeking prospective relief and to one seeking money damages.

And in that sense, you could think of the statute as a remedial limitation on the courts.

But whether you think of it as an exhaustion requirement or a remedial limitation, neither of those characterizations is jurisdictional.

In Davis v. Passman you said that a remedial limitation doesn't go--

Justice Sonia Sotomayor: It does seem strange to think of a -- a law that says no court can entertain a certain action and give a certain remedy as merely a claim processing rule.

What the -- the Court is being ousted from -- from what would otherwise be its power to hear something.

Mr. Katsas: --The suit is being delayed, I think is the right way of looking at it.

The jurisdictional apparatus in the district court is present.

Prospective relief under 1331, money damages action under 1346.

If the Anti-Injunction Act were jurisdiction-ousting, one might have expected it to be in Title 28 and to qualify those statutes and the to use jurisdictional limits.

Justice Sonia Sotomayor: How do you deal with this case and our Gonzalez -- our recent Gonzalez case where we talked about--

Mr. Katsas: Right.

Justice Sonia Sotomayor: --the language of the COA statute that no appeal will be heard absent the issuance of?

Mr. Katsas: Gonzalez -- Gonzalez v. Thaler rests on a special rule that applies with respect to appeals from one Article III court to another.

That's -- that explains Gonzalez and it explains Bowles before it.

You have five unanimous opinions in the last decade in which you have strongly gone the other direction on what counts as jurisdictional.

Justice Sonia Sotomayor: There is an argument that we should just simply say that Bowles applies only to appeals, but we haven't said that.

Mr. Katsas: No, you came very close.

In Henderson, Justice Sotomayor, you said that Bowles, which is akin to Thaler is explained by the special rules and understandings governing appeals from one Article III court to another.

And you specifically said that it does not apply to situations involving a party seeking initial judicial review of agency action, which is what we have here.

So while you're right, the text in Bowles and Thaler are not terribly different, those cases are explained by that principle.

Under Henderson it doesn't apply to this case.

The text in this case speaks to the suit, the cause of action of the litigant.

It doesn't speak to the jurisdiction or power of the Court.

The Anti-Injunction Act is placed in a section of the tax code governing procedure.

It's not placed in--

Justice Sonia Sotomayor: Counsel, all of those -- all of that in particular--

Mr. Katsas: --You did rely on that in Reed Elsevier as one consideration.

Justice Sonia Sotomayor: --And we haven't relied on it in other cases.

Mr. Katsas: And another -- another consideration in Reed Elsevier that cuts in our favor is the presence of exceptions.

You said three in Reed Elsevier cut against jurisdictional characterization.

Here there are 11.

And--

Justice Sonia Sotomayor: Many of which themselves speak in very clear jurisdictional language.

Mr. Katsas: --Well, some of them have no jurisdictional language at all, and not a single one of them uses the word "jurisdiction" to describe the ability of the Court to restrain the assessment and collection of taxes, which is what one would have expected--

Justice Stephen G. Breyer: Basically it begs the difference -- language is relevant, there are a lot of relevant things.

But one thing that's relevant in my mind is that taxes are, for better or for worse, the life's blood of government.

Mr. Katsas: --Yes.

Justice Stephen G. Breyer: And so what Congress is trying to do is to say there is a procedure here that you go through.

You can get your money back, or you go through the Tax Court, but don't do this in advance for the reason that we don't want 500 Federal judge -- judges substituting their idea of what is a proper equitable defense of when there should be an exception made about da, da, da for the basic rule.

No.

Okay?

And so there is strong reason that is there.

You tried to apply that reason to the copyright law.

You can't find it.

Registration with the copyright register is not the life's blood of anything.

Copyright exists regardless.

So the reasoning isn't there.

The language -- I see the similarity of language.

I've got that.

But it's the reasoning, the sort of underlying reason for not wanting a waiver here that -- that is -- has a significant role in my mind of finding that it is jurisdictional.

Plus the fact that we have said it nonstop since that Northrop or whatever that other case is.

Mr. Katsas: Justice Breyer, as to reasoning, you -- you give an argument -- you give an argument why as a policy matter it might make sense to have a non-jurisdictional statute.

But of course this Court's recent cases time and again say Congress has to clearly rank the statute as non-jurisdictional in its text and structure.

It seems to me a general appeal to statutory policies doesn't speak with sufficient clarity--

Justice Stephen G. Breyer: That's fine.

I just wanted to ask the question in case you wanted to answer the policy question.

Mr. Katsas: --As to policy -- as to policy I think Helvering against Davis is the refutation of this view.

It is true that in most cases the government doesn't want and Congress doesn't want people coming into court.

But Davis shows there may be some cases including, for instance, constitutional challenges to landmark Federal statutes where the government sensibly decides that its revenue-raising purposes are better served by allowing a party to come into court and waiving its defense.

That's what the Solicitor General did in Davis, and this Court accepted that waiver.

As for prior cases, we have the holding in Davis and the holding in all of the equitable exception cases like Williams Packing.

The government--

Justice Sonia Sotomayor: So why don't we say -- why don't we say it's jurisdictional except when the Solicitor General waives?

Mr. Katsas: --You have used--

Justice Sonia Sotomayor: Why would that not promote Congress's policy of insuring -- or Congress, explicitly--

Mr. Katsas: --It's jurisdictional except when the Solicitor General waives it?

Justice Sonia Sotomayor: --Yes.

It's a contradiction in terms.

I don't disagree.

Mr. Katsas: It is a contradiction in terms.

All of your cases analyze the situation as if the statute is jurisdictional, then it's not subject to waiver.

If you were to construe this as such a one-of unique statute, it seems to me we would still win because the Solicitor General with full knowledge of the Anti-Injunction Act argument available to him affirmatively gave it up.

This is not just a forfeiture where a government lawyer is -- through inadvertence fails to raise an argument.

This is a case where the government--

Justice Sonia Sotomayor: They raised it and then gave it up.

Mr. Katsas: --They made it below.

They know what it is; and not only are they not pursuing it here, they are affirmatively pursuing an argument on the other side.

Justice Elena Kagan: Mr. Katsas, is your basic position when we are talking about the jurisdiction of the district courts a statute has to say it's jurisdictional to be jurisdictional?

Mr. Katsas: I wouldn't go quite that far.

I think at a minimum it has -- it has to either say that or at least be directed to the courts which is a formulation you have used in your cases and which is the formulation that Congress used in the Tax Injunction Act but did not use in this Statute.

Justice Elena Kagan: Well, how would -- I mean, I suppose one could try to make a distinction between this case and Reed Elsevier by focusing on the difference between instituting something and maintaining something, and suggesting that instituting is more what a litigant does, and maintaining, as opposed to dismissing, is more of what judge does.

Mr. Katsas: I don't think so, Justice Kagan, because we -- we have an adversarial system, not an inquisitorial one.

The parties maintain their lawsuits I think is the more natural way of thinking of it.

If I could turn -- if I could turn to the merits question on the AIA before my time runs out.

The purpose of this lawsuit is to challenge a requirement -- a Federal requirement to buy health insurance.

That requirement itself is not a tax.

And for that reason alone, we think the Anti-Injunction Act doesn't apply.

What the amicus effectively seeks to do is extend the Anti-Injunction Act, not just to taxes which is how the statute is written, but to free-standing nontax legal duties.

And it's just--

Chief Justice John G. Roberts: The whole point -- the whole point of the suit is to prevent the collection of penalties.

Mr. Katsas: --Of taxes, Mr. Chief Justice.

Chief Justice John G. Roberts: Well prevent of the collection of taxes.

But the idea that the mandate is something separate from whether you want to call it a penalty or tax just doesn't seem to make much sense.

Mr. Katsas: It's entirely separate, and let me explain to you why.

Chief Justice John G. Roberts: It's a command.

A mandate is a command.

If there is nothing behind the command.

It's sort of well what happens if you don't file the mandate?

And the answer is nothing.

It seems very artificial to separate the punishment from the crime.

Mr. Katsas: I'm not sure the answer is nothing, but even assuming it were nothing, it seems to me there is a difference between what the law requires and what enforcement consequences happen to you.

This statute was very deliberately written to separate mandate from penalty in several different ways.

They are put in separate sections.

The mandate is described as a 20 times, three times in the operative text and 17 times in the findings.

It's imposed through use of a mandatory verb "shall".

The requirement is very well defined in the statute, so it can't be sloughed off as a general exhortation, and it's backed up by a penalty.

Congress then separated out mandate exceptions from penalty exceptions.

It defined one category of people not subject to the mandate.

One would think those are the category of people as to whom Congress is saying: You need not follow this law.

It then defined a separate category of people not subject to the penalty, but subject to the mandate.

I don't know what that could mean other than--

Chief Justice John G. Roberts: Why would you have a requirement that is completely toothless?

You know, buy insurance or else.

Or else what?

Or else nothing.

Mr. Katsas: --Because Congress reasonably could think that at least some people will follow the law precisely because it is the law.

And let me give you an example of one category of person that might be -- the very poor, who are exempt from the penalty but subject to the mandate.

Mr. Long says this must be a mandate exemption because it would be wholly harsh and unreasonable for Congress to expect people who are very poor to comply with the requirement to obtain health insurance when they have no means of doing so.

That gets things exactly backwards.

The very poor are the people Congress would be most concerned about with respect to the mandate to the extent one of the justifications for the mandate is to prevent emergency room cost shifting when people receive uncompensated care.

So they would have had very good reason to make the very poor subject to the mandate, and then they didn't do it in a draconian way; they gave the very poor a means of complying with the insurance mandate, and that is through the Medicaid system.

Justice Elena Kagan: Mr. Katsas, do you think a person who is subject to the mandate but not subject to the penalty would have standing?

Mr. Katsas: Yes, I think that person would, because that person is injured by compliance with the mandate.

Justice Elena Kagan: What would that look like?

What would the argument be as to what the injury was?

Mr. Katsas: The injury -- when that person is subject to the mandate, that person is required to purchase health insurance.

That is a forced acquisition of an unwanted good.

It's a classic pocketbook injury.

But even if I'm wrong about that question, Justice Kagan, the question of who has standing to bring the challenge that we seek to bring seems to me very different -- your hypothetical plaintiff is very different from the actual plaintiffs.

We have individuals who are planning for compliance in order to avoid a penalty, which is what their affidavits say.

And we have the States, who will be subject no doubt to all sorts of adverse ramifications if they refuse to enroll in Medicaid the people who are forced into Medicaid by virtue of the mandate.

So we don't have the problem of no adverse consequences in the case.

And then, we have the separate distinction between the question of who has Article III standing in order to maintain a suit and the question of who is subject to a legal obligation.

And you've said in your cases that even if there may be no one who has standing to challenge a legal obligation like the incompatibility clause or something, that doesn't somehow convert the legal obligation into a legal nullity.

Finally, with respect to the States, even if we are wrong about everything I've said so far, the States clearly fall within the exception recognized in South Carolina v. Regan.

They are injured by the mandate because the mandate forces 6 million new people onto their Medicaid rolls.

But they are not directly subject to the mandate, nor could they violate the mandate and incur a penalty.

Justice Elena Kagan: Could I just understand, Mr. Katsas, when the States say that they are injured, are they talking about the people who are eligible now but who are not enrolled?

Or are they also talking about people who will become newly eligible?

Mr. Katsas: It's people who will enroll, people who wouldn't have enrolled had they been given a voluntary choice.

Justice Elena Kagan: But who are eligible now.

Mr. Katsas: That's the largest category.

I think there could be future eligibles who would enroll because they are subject to a legal obligation but wouldn't have enrolled if given a voluntary choice.

But I'm happy to -- I'm happy to focus on currently eligible people who haven't enrolled in Medicaid.

That particular class is the one that gives rise to, simply in Florida alone, a pocketbook injury on the order of 500 to $600 million per year.

Justice Elena Kagan: But that does seem odd, to suggest that the State is being injured because people who could show up tomorrow with or without this law will -- will show up in greater numbers.

I mean, presumably the State wants to cover people whom it has declared eligible for this benefit.

Mr. Katsas: They -- they could, but they don't.

What the State wants to do is make Medicaid available to all who are eligible and choose to obtain it.

And in any event--

Justice Ruth Bader Ginsburg: Why would somebody not choose to obtain it?

Why -- that's one puzzle to me.

There's this category of people who are Medicaid eligible; Medicaid doesn't cost them anything.

Why would they resist enrolling?

Mr. Katsas: --I -- I don't know, Justice Ginsburg.

All I know is that the difference between current enrollees and people who could enroll but have not is, as I said, on the -- is a $600 million delta.

And--

Justice Ruth Bader Ginsburg: But it may be just that they haven't been given sufficient information to understand that this is a benefit for them.

Mr. Katsas: --It's possible, but all we're talking about right now is the standing of the States.

And the only arguments made against the standing of the States -- I mean, there is a classic pocketbook injury here.

The only arguments made about -- against the standing of the States are number one, this results from third-party actions.

That doesn't work, because the third-party actions are not unfettered in -- in the sense of Lujan; they are coerced in the sense of Bennett v. Spear.

Those people are enrolling because they are under a legal obligation to do so.

The second argument made against the States' standing is that the States somehow forfeit their ability to challenge the constitutionality of a provision of Federal law because they voluntarily choose to participate--

Justice Sonia Sotomayor: I'm -- I'm a little bit confused.

And this is what I'm confused about.

There -- there is a challenge to the individual mandate.

Mr. Katsas: --Yes.

Justice Sonia Sotomayor: All right.

What is -- the fact that the State is challenging Medicaid, how does it give the State standing to challenge an obligation that is not imposed on the State in any way?

Mr. Katsas: The -- the principal theory for State standing is the States are challenging the mandate because the mandate injures them when people are forced to enroll in Medicaid.

Now, it is true they are not directly subject to the mandate, but--

Justice Sonia Sotomayor: Yes.

That's what I'm--

Mr. Katsas: --Okay.

Let me -- let me try to--

Justice Sonia Sotomayor: --I'm confused by it.

Mr. Katsas: --Let me try it this way -- may I finish the thought?

Chief Justice John G. Roberts: Go ahead.

Mr. Katsas: In South Carolina v. Regan, the State was not subject to the tax at issue.

The State was harmed because -- as the issuer of the bonds, and the bond holders were the ones subject to the tax.

So the State is injured not because it is the direct object of the Federal tax, but because of its relationship to the regulated party as issuer/bond holder.

Chief Justice John G. Roberts: Thank you, Mr. Katsas.

Mr. Katsas: Thank you, Mr. Chief Justice.

Chief Justice John G. Roberts: Mr. Long, you have 5 minutes remaining.

REBUTTAL ARGUMENT OF ROBERT A. LONG FOR COURT-APPOINTED AMICUS CURIAE

Mr. Long: Everyone agrees that the section 5000A penalty shall be assessed and collected in the same manner as taxes.

And the parties' principal argument why that does not make the Anti-Injunction Act applicable is that, well, that simply goes to the Secretary's activities.

And I would simply ask, if -- if you look at chapters 63 and 64 of the Internal Revenue Code which are the chapters on assessment and collection, they are not just addressed to the Secretary.

There are many provisions in there that are addressed to courts and indeed talk about this interaction, the very limited situations in which courts are permitted to restrain the assessment and collection of taxes.

There was a statement made that there aren't -- and many of the exceptions to the Anti-Injunction Act are in the assessment and collection provisions -- there was a statement made that none of these directly confer jurisdiction to restrain the assessment and collection of taxes.

That's not true.

In footnote 11 of our opening brief, we cite several.

I'll simply mention section 6213 as an example.

That says -- I quote:

"Notwithstanding the provisions of section 7421(a), the making of such assessment or the beginning of such proceeding or levy during the time that such prohibition is enforced, may be enjoined by a proceeding in the proper court, including the Tax Court. "

"The Tax Court shall have no jurisdiction to enjoin any action or proceeding or order any refund under this subsection unless a timely petition for redetermination of the deficiency has been filed, and then only in respect of the deficiency that is the subject of such petition. "

Justice Stephen G. Breyer: And all that's going to really what I think Congress's intent was meant to be in sticking the collection thing into chapter 68, and -- and it's certainly an argument in your favor.

The -- the over-arching thing in my mind is it's -- it's up to Congress within leeway.

And they did not use that word "tax", and they did have a couple of exceptions.

And it is true that all this language that you quote -- you know, the first two sentences and so forth, it talks about the use of tax in the IRC.

It talks about the penalties and liabilities provided by this subchapter.

And we look over here and it's a penalty and liability provided by a different law, which says collect it through the subchapter, and it has nothing to do with the IRC.

See?

So we've got it in a separate place, we can see pretty clearly what they're trying to do.

They couldn't really care very much about interfering with collecting this one.

That's all the statutory argument.

Are you following me?

You see?

I'm trying to get you to focus on that kind of argument.

Mr. Long: I mean, I think I'm following you, but -- but the fact that it's not in the particular subchapter for assessable penalties in my view makes no difference, because they said it's still clearly -- it's assessed and collected in the same manner as the penalty in that subchapter, and those penalties are collected in the same manner as taxes.

Justice Stephen G. Breyer: Yes, yes.

Mr. Long: And so that's -- I think it's -- it's rather detailed, but I think it's a rather clear indication that the Anti-Injunction Act applies.

The -- the refund statute that does specifically refer to penalties, that has nothing to do with this argument that it's assessed and collected in the same manner as a tax.

That would simply go to the point that well, you can't just call it a tax, because they've referred to it as a penalty.

And finally, on jurisdiction, you know, I think the key point is we have a long line of this Court's decisions that's really been ratified by Congress with all these exceptions in jurisdictional terms.

As I read Bowles and John R. Sand & Gravel, the -- the gist of these decisions was not any special sort of rule about appeals, it's that when we have that situation, which I would submit applies as much to Federal taxes as it does to appeals from Federal district courts when we have this degree of -- of precedent, including precedent from Congress in the form of amendments to this Anti-Injunction Act, that should be -- the presumption should be that this is jurisdictional.

If there are no further questions.

Chief Justice John G. Roberts: Mr. Long, you were invited by this Court to defend the proposition that the Anti-Injunction Act barred this litigation.

You have ably carried out that responsibility, for which the Court is grateful.

Mr. Long: Thank you.

Chief Justice John G. Roberts: We will continue argument in this case tomorrow.

Transcript: 

ORAL ARGUMENT OF DONALD B. VERRILLI, JR., ON BEHALF OF THE PETITIONERS

Chief Justice John G. Roberts: We will continue argument this morning in Case 11-398, the Department of Health and Human Services v. Florida.

General Verrilli.

Mr. Verrilli Jr.: Mr. Chief Justice, and may it please the Court:

The Affordable Care Act addresses a fundamental and enduring problem in our health care system and our economy.

Insurance has become the predominant means of paying for health care in this country.

Insurance has become the predominant means of paying for health care in this country.

For most Americans, for more than 80 percent of Americans, the insurance system does provide effective access.

Excuse me.

But for more than 40 million Americans who do not have access to health insurance either through their employer or through government programs such as Medicare or Medicaid, the system does not work.

Those individuals must resort to the individual market, and that market does not provide affordable health insurance.

It does not do so because, because the multibillion dollar subsidies that are available for the, the employer market are not available in the individual market.

It does not do so because ERISA and HIPAA regulations that preclude, that preclude discrimination against people based on their medical history do not apply in the individual market.

That is an economic problem.

And it begets another economic problem.

Justice Antonin Scalia: Why aren't those problems that the Federal Government can address directly?

Mr. Verrilli Jr.: They can address it directly, Justice Scalia, and they are addressing it directly through this, through this Act by regulating the means by which health care, by which health care is purchased.

That is the way this Act works.

Under the Commerce Clause, what, what Congress has done is to enact reforms of the insurance market, directed at the individual insurance market, that preclude, that preclude discrimination based on pre-existing conditions, that require guaranteed issue and community rating, and it uses -- and the minimum coverage provision is necessary to carry into execution those insurance reforms.

Justice Anthony Kennedy: Can you create commerce in order to regulate it?

Mr. Verrilli Jr.: That's not what's going on here, Justice Kennedy, and we are not seeking to defend the law on that basis.

In this case, the -- what is being regulated is the method of financing health, the purchase of health care.

That itself is economic activity with substantial effects on interstate commerce.

And--

Justice Antonin Scalia: Any self purchasing?

Anything I -- you know if I'm in any market at all, my failure to purchase something in that market subjects me to regulation.

Mr. Verrilli Jr.: --No.

That's not our position at all, Justice Scalia.

In the health care market, the health care market is characterized by the fact that aside from the few groups that Congress chose to exempt from the minimum coverage requirement -- those who for religious reasons don't participate, those who are incarcerated, Indian tribes -- virtually everybody else is either in that market or will be in that market, and the distinguishing feature of that is that they cannot, people cannot generally control when they enter that market or what they need when they enter that--

Chief Justice John G. Roberts: Well, the same, it seems to me, would be true say for the market in emergency services: police, fire, ambulance, roadside assistance, whatever.

You don't know when you're going to need it; you're not sure that you will.

But the same is true for health care.

You don't know if you're going to need a heart transplant or if you ever will.

So there is a market there.

To -- in some extent, we all participate in it.

So can the government require you to buy a cell phone because that would facilitate responding when you need emergency services?

You can just dial 911 no matter where you are?

Mr. Verrilli Jr.: --No, Mr. Chief Justice.

I think that's different.

It's -- We -- I don't think we think of that as a market.

This is a market.

This is market regulation.

And in addition, you have a situation in this market not only where people enter involuntarily as to when they enter and won't be able to control what they need when they enter but when they--

Chief Justice John G. Roberts: It seems to me that's the same as in my hypothetical.

You don't know when you're going to need police assistance.

You can't predict the extent to emergency response that you'll need.

But when you do, and the government provides it.

I thought that was an important part of your argument, that when you need health care, the government will make sure you get it.

Well, when you need police assistance or fire assistance or ambulance assistance, the government is going to make sure to the best extent it can that you get it -- get it.

Mr. Verrilli Jr.: --I think the fundamental difference, Mr. Chief Justice, is that that's not an issue of market regulation.

This is an issue of market regulation, and that's how Congress, that's how Congress looked at this problem.

There is a market.

Insurance is provided through the market system--

Justice Samuel Alito: Do you think there is a, a market for burial services?

Mr. Verrilli Jr.: --For burial services?

Justice Samuel Alito: Yes.

Mr. Verrilli Jr.: Yes, Justice Alito, I think there is.

Justice Samuel Alito: All right, suppose that you and I walked around downtown Washington at lunch hour and we found a couple of healthy young people and we stopped them and we said,

"You know what you're doing? "

"You are financing your burial services right now because eventually you're going to die, and somebody is going to have to pay for it, and if you don't have burial insurance and you haven't saved money for it, you're going to shift the cost to somebody else. "

Isn't that a very artificial way of talking about what somebody is doing?

Mr. Verrilli Jr.: No, that--

Justice Samuel Alito: And if that's true, why isn't it equally artificial to say that somebody who is doing absolutely nothing about health care is financing health care services?

Mr. Verrilli Jr.: --It's, I think it's completely different.

The -- and the reason is that the, the burial example is not -- the difference is here we are regulating the method by which you are paying for something else -- health care -- and the insurance requirement -- I think the key thing here is my friends on the other side acknowledge that it is within the authority of Congress under Article I under the commerce power to impose guaranteed-issue and community rating forms, to end -- to impose a minimum coverage provision.

Their argument is just that it has to occur at the point of sale, and--

Justice Samuel Alito: I don't see the difference.

You can get burial insurance.

You can get health insurance.

Most people are going to need health care.

Almost everybody.

Everybody is going to be buried or cremated at some point.

What's the difference?

Mr. Verrilli Jr.: Well, one big difference, one big difference, Justice Alito, is the -- you don't have the cost shifting to other market participants.

Justice Samuel Alito: Here--

--Sure you do, because if you don't have money then the State is going to pay for it.

Or some -- to pay.

Mr. Verrilli Jr.: That's different.

Justice Samuel Alito: Or a family member is going--

Mr. Verrilli Jr.: --That's a difference and it's a significant difference.

In this situation one of the economic effects Congress is addressing is that the -- there -- the many billions of dollars of uncompensated costs are transferred directly to other market participants.

It's transferred directly to other market participants because health care providers charge higher rates in order to cover the cost of uncompensated care, and insurance companies reflect those higher rates in higher premiums, which Congress found translates to a thousand dollars per family in additional health insurance costs.

Justice Samuel Alito: --But isn't that a very small part of what the mandate is doing?

You can correct me if these figures are wrong, but it appears to me that the CBO has estimated that the average premium for a single insurance policy in the non-group market would be roughly $5,800 in -- in 2016.

Respondents -- the economists have supported -- the Respondents estimate that a young, healthy individual targeted by the mandate on average consumes about $854 in health services each year.

So the mandate is forcing these people to provide a huge subsidy to the insurance companies for other purposes that the act wishes to serve, but isn't -- if those figures are right, isn't it the case that what this mandate is really doing is not requiring the people who are subject to it to pay for the services that they are going to consume?

It is requiring them to subsidize services that will be received by somebody else.

Mr. Verrilli Jr.: No, I think that -- I do think that's what the Respondents argue.

It's just not right.

I think it -- it really gets to a fundamental problem with their argument.

Justice Ruth Bader Ginsburg: If you're going to have insurance, that's how insurance works.

Mr. Verrilli Jr.: A, it is how insurance works, but, B, the problem that they -- that they are identifying is not that problem.

The -- the guaranteed issue and community rating reforms do not have the effect of forcing insurance companies to take on lots of additional people who they then can't afford to cover because they're -- they tend to be the sick, and that is -- in fact, the exact opposite is what happens here.

The -- when -- when you enact Guaranteed Issue and Community Rating Reforms and you do so in the absence of a minimum coverage provision, it's not that insurance companies take on more and more people and then need a subsidy to cover it, it's that fewer and fewer people end up with insurance because their rates are not regulated.

Insurance companies, when -- when they have to offer Guaranteed Issue and Community Rating, they are entitled to make a profit.

They charge rates sufficient to cover only the sick population because health--

Justice Anthony Kennedy: Could you help -- help me with this.

Assume for the moment -- you may disagree.

Assume for the moment that this is unprecedented, this is a step beyond what our cases have allowed, the affirmative duty to act to go into commerce.

If that is so, do you not have a heavy burden of justification?

I understand that we must presume laws are constitutional, but, even so, when you are changing the relation of the individual to the government in this, what we can stipulate is, I think, a unique way, do you not have a heavy burden of justification to show authorization under the Constitution?

Mr. Verrilli Jr.: --So two things about that, Justice Kennedy.

First, we think this is regulation of people's participation in the health care market, and all -- all this minimum coverage provision does is say that, instead of requiring insurance at the point of sale, that Congress has the authority under the commerce power and the necessary proper power to ensure that people have insurance in advance of the point of sale because of the unique nature of this market, because this is a market in which -- in which you -- although most of the population is in the market most of the time -- 83 percent visit a physician every year; 96 percent over a five-year period -- so virtually everybody in society is in this market, and you've got to pay for the health care you get, the predominant way in which it's -- in which it's paid for is insurance, and -- and the Respondents agree that Congress could require that you have insurance in order to get health care or forbid health care from being provided--

Justice Antonin Scalia: Why do you -- why do you define the market that broadly?

Health care.

It may well be that everybody needs health care sooner or later, but not everybody needs a heart transplant, not everybody needs a liver transplant.

Why--

Mr. Verrilli Jr.: That's correct, Justice Scalia, but you never know whether you're going to be that person.

Justice Antonin Scalia: Could you define the market -- everybody has to buy food sooner or later, so you define the market as food, therefore, everybody is in the market; therefore, you can make people buy broccoli.

Mr. Verrilli Jr.: --No, that's quite different.

That's quite different.

The food market, while it shares that trait that everybody's in it, it is not a market in which your participation is often unpredictable and often involuntary.

It is not a market in which you often don't know before you go in what you need, and it is not a market in which, if you go in and -- and seek to obtain a product or service, you will get it even if you can't pay for it.

It doesn't--

Justice Antonin Scalia: Is that a principal basis for distinguishing this from other situations?

I mean, you know, you can also say, well, the person subject to this has blue eyes.

That would indeed distinguish it from other situations.

Is it a principle basis?

I mean, it's -- it's a basis that explains why the government is doing this, but is it -- is it a basis which shows that this is not going beyond what -- what the -- the system of enumerated powers allows the government to do.

Mr. Verrilli Jr.: --Yes, for two reasons.

First, this -- the test, as this Court has articulated it, is: Is Congress regulating economic activity with a substantial effect on interstate commerce?

The way in which this statute satisfies the test is on the basis of the factors that I have identified.

If--

Justice Ruth Bader Ginsburg: Mr. Verrilli, I thought that your main point is that, unlike food or any other market, when you made the choice not to buy insurance, even though you have every intent in the world to self-insure, to save for it, when disaster strikes, you may not have the money.

And the tangible result of it is -- we were told there was one brief that Maryland Hospital Care bills 7 percent more because of these uncompensated costs, that families pay a thousand dollars more than they would if there were no uncompensated costs.

I thought what was unique about this is it's not my choice whether I want to buy a product to keep me healthy, but the cost that I am forcing on other people if I don't buy the product sooner rather than later.

Mr. Verrilli Jr.: That is -- and that is definitely a difference that distinguishes this market and justifies this as a regulation.

Justice Stephen G. Breyer: All right.

So if that is your difference -- if that is your difference, I'm somewhat uncertain about your answers to -- for example, Justice Kennedy asked, can you, under the Commerce Clause, Congress create commerce where previously none existed.

Well, yeah, I thought the answer to that was, since McCulloch versus Maryland, when the Court said Congress could create the Bank of the United States which did not previously exist, which job was to create commerce that did not previously exist, since that time the answer has been, yes.

I would have thought that your answer -- can the government, in fact, require you to buy cell phones or buy burials that, if we propose comparable situations, if we have, for example, a uniform United States system of paying for every burial such as Medicare Burial, Medicaid Burial, CHIP Burial, ERISA Burial and Emergency Burial beside the side of the road, and Congress wanted to rationalize that system, wouldn't the answer be, yes, of course, they could.

Mr. Verrilli Jr.: --So--

Justice Stephen G. Breyer: And the same with the computers or the same with the -- the cell phones, if you're driving by the side of the highway and there is a federal emergency service just as you say you have to buy certain mufflers for your car that don't hurt the environment, you could -- I mean, see, doesn't it depend on the situation?

Mr. Verrilli Jr.: --It does, Justice Breyer, and if Congress were to enact laws like that, we--

Justice Stephen G. Breyer: We would be--

Mr. Verrilli Jr.: My responsibility -- and I would defend them on a rationale like that, but I do think that we are advancing a narrower rationale.

Justice Anthony Kennedy: Well, then your question is whether or not there are any limits on the Commerce Clause.

Can you identify for us some limits on the Commerce Clause?

Mr. Verrilli Jr.: --Yes.

The -- the rationale purely under the Commerce Clause that we're advocating here would not justify forced purchases of commodities for the purpose of stimulating demand.

We -- the -- it would not justify purchases of insurance for the purposes -- in situations in which insurance doesn't serve as the method of payment for service--

Justice Anthony Kennedy: But why not?

If Congress -- if Congress says that the interstate commerce is affected, isn't, according to your view, that the end of the analysis.

Mr. Verrilli Jr.: --No.

The, the -- we think that in a -- when -- the difference between those situations and this situation is that in those situations, Your Honor, Congress would be moving to create commerce.

Here Congress is regulating existing commerce, economic activity that is already going on, people's participation in the health care market, and is regulating to deal with existing effects of existing commerce.

Chief Justice John G. Roberts: That -- that it seems to me, it's a -- it's a passage in your reply brief that I didn't quite grasp.

It's the same point.

You say health insurance is not purchased for its own sake, like a car or broccoli; it is a means of financing health care consumption and covering universal risks.

Well, a car or broccoli aren't purchased for their own sake, either.

They are purchased for the sake of transportation or in broccoli, covering the need for food.

I -- I don't understand that distinction.

Mr. Verrilli Jr.: The difference, Mr. Chief Justice, is that health insurance is the means of payment for health care and broccoli is--

Chief Justice John G. Roberts: Well, now that's a significant -- I'm sorry.

Mr. Verrilli Jr.: --And -- and broccoli is not the means of payment for anything else.

And an automobile is not--

Chief Justice John G. Roberts: It's the means of satisfying a basic human need, just as your insurance is a means of satisfying--

Mr. Verrilli Jr.: But I do think that's the difference between existing commerce activity in the market already occurring --the people in the health care market purchasing, obtaining health careservices -- and the creation of commerce.

Chief Justice John G. Roberts: And the principle that we are advocating here under the Commerce Clause does not take the step of justifying the creation of commerce.

It's a regulation of the existing commerce.

Justice Ruth Bader Ginsburg: General Verrilli, can we -- can we go back to, Justice Breyer asked a question, and it kind of interrupted your answer to my question.

And tell me if I'm wrong about this, but I thought a major, major point of your argument was that the people who don't participate in this market are making it much more expensive for the people who do; that is, they -- they will get, a good number of them will get services that they can't afford at the point where they need them, and the result is that everybody else's premiums get raised.

So you're not -- it's not your -- your free choice just to do something for yourself.

What you do is going to affect others, affect them in -- in a major way.

Mr. Verrilli Jr.: --That -- that absolutely is a justification for Congress's action here.

That is existing economic activity that Congress is regulating by means of this rule.

Justice Antonin Scalia: General Verrilli, you -- you could say that about buying a car.

If -- if people don't buy cars, the price that those who do buy cars pay will have to be higher.

So you could say in order to bring the price down, you are hurting these other people by not buying a car.

Mr. Verrilli Jr.: That is not what we are saying, Justice Scalia.

Justice Antonin Scalia: That's not -- that's not what you're saying.

Mr. Verrilli Jr.: That's not -- not--

Justice Antonin Scalia: I thought it was.

I thought you were saying other people are going to have to pay more for insurance because you're not buying it.

Mr. Verrilli Jr.: --No.

It's because you're going -- in the health care market, you're going into the market without the ability to pay for what you get, getting the health care service anyway as a result of the social norms that allow -- that -- to which we've obligated ourselves so that people get health care.

Justice Antonin Scalia: Well, don't obligate yourself to that.

Why -- you know?

Mr. Verrilli Jr.: Well, I can't imagine that that -- that the Commerce Clause would -- would forbid Congress from taking into account this deeply embedded social norm.

Justice Antonin Scalia: You -- you could do it.

But -- but does that expand your ability to, to issue mandates to -- to the people?

Mr. Verrilli Jr.: I -- I -- this is not a purchase mandate.

This is a -- this is a law that regulates the method of paying for a service that the class of people to whom it applies are either consuming--

Justice Sonia Sotomayor: General--

Mr. Verrilli Jr.: Or -- or inevitably will consume.

Justice Sonia Sotomayor: General, I see or have seen three strands of arguments in your briefs, and one of them is echoed today.

The first strand that I have seen is that Congress can pass any necessary laws to effect those powers within its rights, i.e., because it made a decision that to effect, to effect mandatory issuance of insurance, that it could also obligate the mandatory purchase of it.

The second strand I see is self-insurance affects the market, and so the government can regulate those who self-insure.

And the third argument -- and I see all of them as different -- is that what the government is doing, and I think it's the argument you're making today -- that what the -- what the government is saying is if you pay for -- if you use health services, you have to pay with insurance.

Because only insurance will guarantee that whatever need for health care that you have will be covered.

Because virtually no one, perhaps with the exception of 1 percent of the population, can afford the massive cost if the unexpected happens.

This third argument seems to be saying what we are regulating is health care, and when you go for health services, you have to pay for insurance, and since insurance won't issue at the moment that you consume the product, we can reasonably, necessarily tell you to buy it ahead of time, because you can't buy it at the moment that you need it.

Is that -- which of these three is your argument?

Are all of them your argument?

I'm just not sure what the--

Mr. Verrilli Jr.: So, let me try to state it this way.

The Congress enacted reforms of the insurance market, the guaranteed-issue and community-rating reforms.

It did so to deal with a very serious problem that results in 40 million people not being able to get insurance and therefore not access to the health care market.

Everybody agrees in this case that those are within Congress's Article I powers.

The minimum coverage provision is necessary to carry those provisions into -- into execution; because without them, without those provisions, without minimum coverage, guaranteed issue and community rating will, as the experience in the States showed, make matters worse, not better.

There will be fewer people covered; it will cost more.

Now the -- so--

Justice Sonia Sotomayor: --So on that ground, you're answering affirmatively to my colleagues that have asked you the question, can the government force you into commerce.

Mr. Verrilli Jr.: --So -- no.

Justice Sonia Sotomayor: And there is no limit to that power.

Mr. Verrilli Jr.: No.

No.

Because that's -- that's the first part of our argument.

The second part of our argument is that the means here that the Congress has chosen, the minimum coverage provision, is a means that regulates the -- that regulates economic activity, namely your transaction in the health care market, with substantial effects on interstate commerce; and it is the conjunction of those two that we think provides the particularly secure foundation for this statute under the commerce power.

Justice Elena Kagan: General, you've talked on -- a couple of times about other alternatives that Congress might have had, other alternatives that the Respondents suggest to deal with this problem, in particular, the alternative of mandating insurance at the point at which somebody goes to a hospital or an emergency room and asks for care.

Did Congress consider those alternatives?

Why did it reject them?

How should we think about the question of alternative ways of dealing with these problems?

Mr. Verrilli Jr.: I do think, Justice Kagan, that the point of difference between my friends on the other side and the United States is about one of timing.

They have agreed that Congress has Article I authority to impose an insurance requirement or other -- or other penalty at the point of sale, and they have agreed that Congress has the authority to do that to achieve the same objectives that the minimum coverage provision of the Affordable Care Act is designed to achieve.

This is a situation if which we are talking about means.

Congress gets a substantial deference in the choice of means, and if one thinks about the difference between the means they say Congress should have chosen and the means Congress did choose, I think you can see why it was eminently more sensible for Congress to choose the means that it chose.

Justice Anthony Kennedy: I'm not sure which way it cuts.

If the Congress has alternate means, let's assume it can use the tax power to raise revenue and to just have a national health service, single payer.

How does that factor into our analysis?

In the one sense, it can be argued that this is what the government is doing; it ought to be honest about the power that it's using and use the correct power.

On the other hand, it means that since the Court can do it anyway -- Congress can do it anyway, we give a certain amount of latitude.

I'm not sure which the way the argument goes.

Mr. Verrilli Jr.: Let me try to answer that question, Justice Kennedy, and get back to the question you asked me earlier.

The, the -- I do think one striking feature of the argument here that this is a novel exercise of power is that what Congress chose to do was to rely on market mechanisms and efficiency and a method that has more choice than would the traditional Medicare/Medicaid type model; and so it seems a little ironic to suggest that that counts against it.

But beyond that, in the sense that it's novel, this provision is novel in the same way, or unprecedented in the same way, that the Sherman Act was unprecedented when the Court upheld it in the Northern Securities case; or the Packers and Stockyards Act was unprecedented when the Court upheld it, or the National Labor Relations Act was unprecedented when the Court upheld it in Jones and Laughlin; or the -- the dairy price supports in Wrightwood Dairy and Rock Royal--

Justice Antonin Scalia: Oh, no, it's not.

They all involved commerce.

There was no doubt that what was being regulated was commerce.

And here you're regulating somebody who isn't covered.

By the way, I don't agree with you that the relevant market here is health care.

You're not regulating health care.

You're regulating insurance.

It's the insurance market that you're addressing and you're saying that some people who are not in it must be in it and that's -- that's difference from regulating in any manner commerce that already exists out there.

Mr. Verrilli Jr.: --Well, to the extent that we are looking at the comprehensive scheme, Justice Scalia, it is regulating commerce that already exists out there.

And the means in which that regulation is made effective here, the minimum coverage provision, is a regulation of the way in which people participate, the method of their payment in the health care market.

That is what it is.

And I do think, Justice Kennedy, getting back to the question you asked before, what -- what matters here is whether Congress is choosing a tool that's reasonably adapted to the problem that Congress is confronting.

And that may mean that the tool is different from a tool that Congress has chosen to use in the past.

That's not something that counts against the provision in a Commerce Clause analysis.

Justice Antonin Scalia: Wait.

That's -- that's -- it's both "Necessary and Proper".

What you just said addresses what's necessary.

Yes, has to be reasonably adapted.

Necessary does not mean essential, just reasonably adapted.

But in addition to being necessary, it has to be proper.

And we've held in two cases that something that was reasonably adapted was not proper because it violated the sovereignty of the States, which was implicit in the constitutional structure.

The argument here is that this also is -- may be necessary, but it's not proper because it violates an equally evident principle in the Constitution, which is that the Federal Government is not supposed to be a government that has all powers; that it's supposed to be a government of limited powers.

And that's what all this questioning has been about.

What -- what is left?

If the government can do this, what, what else can it not do?

Mr. Verrilli Jr.: This does not violate the norm of proper as this Court articulated it in Printz or in New York because it does not interfere with the States as sovereigns.

This is a regulation that -- this is a regulation--

Justice Antonin Scalia: No, that wasn't my point.

That is not the only constitutional principle that exists.

Mr. Verrilli Jr.: --But it--

Justice Antonin Scalia: An equally evident constitutional principle is the principle that the Federal Government is a government of enumerated powers and that the vast majority of powers remain in the States and do not belong to the Federal Government.

Do you acknowledge that that's a principle?

Mr. Verrilli Jr.: --Of course we do, Your Honor.

Justice Antonin Scalia: Okay.

That's what we are talking about here.

Mr. Verrilli Jr.: And the way in which this Court in its cases has policed the boundary that -- of what's in the national sphere and what's in the local sphere is to ask whether Congress is regulating economic activity with a substantial effect on interstate commerce.

And here I think it's really impossible, in view of our history, to say that Congress is invading the State sphere.

This is a -- this is a market in which 50 percent of the people in this country get their health care through their employer.

There is a massive Federal tax subsidy of $250 billion a year that makes that much more affordable.

ERISA and HIPAA regulate that to ensure that the kinds of bans on pre-existing condition discrimination and pricing practices that occur in the individual market don't occur.

Justice Antonin Scalia: I don't understand your point--

Mr. Verrilli Jr.: This is in--

Justice Antonin Scalia: --Whatever the States have chosen not to do, the Federal Government can do?

Mr. Verrilli Jr.: No, not at all.

Justice Antonin Scalia: I mean, the Tenth Amendment says the powers not given to the Federal Government are reserved, not just to the States, but to the States and the people.

And the argument here is that the people were left to decide whether they want to buy insurance or not.

Mr. Verrilli Jr.: But this -- but, Your Honor, this is -- what the Court has said, and I think it would be a very substantial departure from what the Court has said, is that when Congress is regulating economic activity with a substantial effect on interstate commerce that will be upheld.

And that is what is going on here, and to embark on -- I would submit with all due respect, to embark on the kind of analysis that my friends on the other side suggest the Court ought to embark on is to import Lochner-style substantive due process--

Chief Justice John G. Roberts: The key in Lochner is that we were talking about regulation of the States, right, and the States are not limited to enumerated powers.

The Federal Government is.

And it seems to me it's an entirely different question when you ask yourself whether or not there are going to be limits in the Federal power, as opposed to limits on the States, which was the issue in Lochner.

Mr. Verrilli Jr.: I agree, except, Mr. Chief Justice, that what the Court has said as I read the Court's cases is that the way in which you ensure that the Federal Government stays in its sphere and the sphere reserved for the States is protected is by policing the boundary: Is the national government regulating economic activity with a substantial effect on interstate commerce?

Justice Anthony Kennedy: But the reason, the reason this is concerning, is because it requires the individual to do an affirmative act.

In the law of torts our tradition, our law, has been that you don't have the duty to rescue someone if that person is in danger.

The blind man is walking in front of a car and you do not have a duty to stop him absent some relation between you.

And there is some severe moral criticisms of that rule, but that's generally the rule.

And here the government is saying that the Federal Government has a duty to tell the individual citizen that it must act, and that is different from what we have in previous cases and that changes the relationship of the Federal Government to the individual in a very fundamental way.

Mr. Verrilli Jr.: --I don't think so, Justice Kennedy, because it is predicated on the participation of these individuals in the market for health care services.

Now, it happens to be that this is a market in which, aside from the groups that the statute excludes, virtually everybody participates.

But it is a regulation of their participation in that market.

Chief Justice John G. Roberts: Well, but it's critical how you define the market.

If I understand the law, the policies that you're requiring people to purchase involve -- must contain provision for maternity and newborn care, pediatric services, and substance use treatment.

It seems to me that you cannot say that everybody is going to need substance use treatment, substance use treatment or pediatric services, and yet that is part of what you require them to purchase.

Mr. Verrilli Jr.: Well, it's part of what the statute requires the insurers to offer.

And I think the reason is because it's trying to define minimum essential coverage because the problem--

Chief Justice John G. Roberts: But your theory is that there is a market in which everyone participates because everybody might need a certain range of health care services, and yet you're requiring people who are not -- never going to need pediatric or maternity services to participate in that market.

Mr. Verrilli Jr.: --The -- with respect to what insurance has to cover, Your Honor, I think Congress is entitled the latitude of making the judgments of what the appropriate scope of coverage is.

And the problem here in this market is that for -- you may think you're perfectly healthy and you may think that you're not -- that you're being forced to subsidize somebody else, but this is not a market in which you can say that there is a immutable class of healthy people who are being forced to subsidize the unhealthy.

This is a market in which you may be healthy one day and you may be a very unhealthy participant in that market the next day and that is a fundamental difference, and you're not going to know in which--

Chief Justice John G. Roberts: I think you're posing the question I was posing, which is that doesn't apply to a lot of what you're requiring people to purchase: Pediatric services, maternity services.

You cannot say that everybody is going to participate in the substance use treatment market and yet you require people to purchase insurance coverage for that.

Mr. Verrilli Jr.: --Congress has got -- Congress is enacting economic regulation here.

It has latitude to define essential, the attributes of essential coverage.

That doesn't -- that doesn't seem to me to implicate the question of whether Congress is engaging in economic regulation and solving an economic problem here, and that is what Congress is doing.

Justice Samuel Alito: Are you denying this?

If you took the group of people who are subject to the mandate and you calculated the amount of health care services this whole group would consume and figured out the cost of an insurance policy to cover the services that group would consume, the cost of that policy would be much, much less than the kind of policy that these people are now going to be required to purchase under the Affordable Care Act?

Mr. Verrilli Jr.: Well, while they are young and healthy that would be true.

But they are not going to be young and healthy forever.

They are going to be on the other side of that actuarial equation at some point.

And of course you don't know which among that group is the person who's going to be hit by the bus or get the definitive diagnosis.

And that--

Justice Samuel Alito: The point is -- no, you take into account that some people in that group are going to be hit by a bus, some people in that group are going to unexpectedly contract or be diagnosed with a disease that -- that is very expensive to treat.

But if you take their costs and you calculate that, that's a lot less than the amount that they are going to be required to pay.

So that you can't just justify this on the basis of their trying to shift their costs off to other people, can you?

Mr. Verrilli Jr.: --Well, the -- the people in that class get benefits, too, Justice Alito.

They get the guaranteed-issue benefit that they would not otherwise have, which is an enormously valuable benefit.

And in terms of the -- the subsidy rationale, I -- I don't think -- I think it's -- it would be unusual to say that it's an illegitimate exercise of the commerce power for some people to subsidize others.

Telephone rates in this country for a century were set via the exercise of the commerce power in a way in which some people paid rates that were much higher than their costs in order to subsidize--

Justice Antonin Scalia: Only if you make phone calls.

Mr. Verrilli Jr.: --Well, right.

But -- but everybody -- to live in the modern world, everybody needs a telephone.

And the -- the same thing with respect to the -- you know, the dairy price supports that -- that the Court upheld in Wrightwood Dairy and Rock Royal.

You can look at those as disadvantageous contracts, as forced transfers, that -- you know, I suppose it's theoretically true that you could raise your kids without milk, but the reality is you've got to go to the store and buy milk.

And the commerce power -- as a result of the exercise of the commerce power, you're subsidizing somebody else--

Justice Elena Kagan: And this is especially true, isn't it, General--

Mr. Verrilli Jr.: --Because that's the judgment Congress has made.

Justice Elena Kagan: --Verrilli, because in this context, the subsidizers eventually become the subsidized?

Mr. Verrilli Jr.: --Well, that was the point I was trying to make, Justice Kagan, that you're young and healthy one day, but you don't stay that way.

And the -- the system works over time.

And so I just don't think it's a fair characterization of it.

And it does get back to, I think -- a problem I think is important to understand--

Justice Antonin Scalia: We're not stupid.

They're going to buy insurance later.

They're young and -- and need the money now.

Mr. Verrilli Jr.: --But that's--

Justice Antonin Scalia: When -- when they think they have a substantial risk of incurring high medical bills, they'll buy insurance, like the rest of us.

Mr. Verrilli Jr.: But -- that's -- that's--

Justice Antonin Scalia: I don't know why you think that they're never going to buy it.

Mr. Verrilli Jr.: --That's the problem, Justice Scalia.

That's -- and that's exactly the experience that the States had that made the imposition of guaranteed-issue and community rating not only be ineffectual but be highly counterproductive.

Rates, for example, in New Jersey doubled or tripled, went from 180,000 people covered in this market down to 80,000 people covered in this market.

In Kentucky, virtually every insurer left the market.

And the reason for that is because when people have that guarantee of -- that they can get insurance, they're going to make that calculation that they won't get it until they're sick and they need it, and so the pool of people in the insurance market gets smaller and smaller.

The rates you have to charge to cover them get higher and higher.

It helps fewer and fewer -- insurance covers fewer and fewer people until the system ends.

This is not a situation in which you're conscripting -- you're forcing insurance companies to cover very large numbers of unhealthy people--

Justice Antonin Scalia: You could solve that problem by simply not requiring the insurance company to sell it to somebody who has a -- a condition that is going to require medical treatment, or at least not -- not require them to sell it to him at -- at a rate that he sells it to healthy people.

But you don't want to do that.

Mr. Verrilli Jr.: --But that seems to me to say, Justice Scalia, that Congress -- that's the problem here.

And that seems to be--

Justice Antonin Scalia: That seems to me a self-created problem.

Mr. Verrilli Jr.: --Congress cannot solve the problem through standard economic regulation, and that -- and -- and I do not think that can be the premise of our understanding of the Commerce Clause--

Justice Antonin Scalia: Whatever--

Mr. Verrilli Jr.: --this is an economic problem.

Justice Antonin Scalia: --whatever problems Congress's economic regulation produces, whatever they are, I think Congress can do something to counteract them.

Here, requiring somebody to enter -- to enter the insurance market.

Mr. Verrilli Jr.: This is not a -- it's not a problem of Congress's creation.

Justice Antonin Scalia: The problem is that you have 40 million people who cannot get affordable insurance through the means that the rest of us get affordable insurance.

Congress, after a long study and careful deliberation, and viewing the experiences of the States and the way they tried to handle this problem, adopted a package of reforms.

Guaranteed-issue and community rating, and -- and subsidies and the minimum coverage provision are a package of reforms that solve that problem.

I don't -- I think it's highly artificial to view this as a problem of Congress's own creation.

Chief Justice John G. Roberts: Is your argument limited to insurance or means of paying for health care?

Mr. Verrilli Jr.: --Yes.

It's limited to insurance.

Chief Justice John G. Roberts: Well, now why is that?

Congress could -- once you -- once you establish that you have a market for health care, I would suppose Congress's power under the Commerce Clause meant they had a broad scope in terms of how they regulate that market.

And it would be -- it would be going back to Lochner if we were put in the position of saying no, you can use your commerce power to regulate insurance, but you can't use your commerce power to regulate this market in other ways.

I think that would be a very significant intrusion by the Court into Congress's power.

So I don't see how we can accept your -- it's good for you in this case to say oh, it's just insurance.

But once we say that there is a market and Congress can require people to participate in it, as some would say -- or as you would say, that people are already participating in it -- it seems to me that we can't say there are limitations on what Congress can do under its commerce power, just like in any other area, all -- given significant deference that we accord to Congress in this area, all bets are off, and you could regulate that market in any rational way.

Mr. Verrilli Jr.: But this is insurance as a method of payment for health care services--

Chief Justice John G. Roberts: Exactly.

Mr. Verrilli Jr.: --And that -- and that is--

Chief Justice John G. Roberts: And you're worried -- that's the area that Congress has chosen to regulate.

There's this health care market.

Everybody's in it.

So we can regulate it, and we're going to look at a particular serious problem, which is how people pay for it.

But next year, they can decide everybody's in this market, we're going to look at a different problem now, and this is how we're going to regulate it.

And we can compel people to do things -- purchase insurance, in this case.

Something else in the next case, because you've -- we've accepted the argument that this is a market in which everybody participates.

Mr. Verrilli Jr.: --Mr. Chief Justice, let me answer that, and then if I may, I'd like to move to the tax power argument.

Justice Antonin Scalia: Can -- can I tell you what the something else is so -- while you're answering it?

The something else is everybody has to exercise, because there's no doubt that lack of exercise cause -- causes illness, and that causes health care costs to go up.

So the Federal government says everybody has to -- to join a -- an exercise club.

That's -- that's the something else.

Mr. Verrilli Jr.: No.

The -- the position we're taking here would not justify that rule, Justice Scalia, because health club membership is not a means of payment for -- for consumption of anything in -- in a market.

Chief Justice John G. Roberts: Right.

Right.

That's -- that's exactly right, but it doesn't seem responsive to my concern that there's no reason -- once we say this is within Congress's commerce power, there's no reason other than our own arbitrary judgment to say all they can regulate is the method of payment.

They can regulate other things that affect this now-conceded interstate market in health care in which everybody participates.

Mr. Verrilli Jr.: --But I think it's common ground between us and the Respondents that this is an interstate market in which everybody participates.

And they agree that -- that Congress could impose the insurance requirement at the point of sale.

And this is just a question of timing, and whether Congress's -- whether the necessary and proper authority gives Congress, because of the particular features of this market, the ability to impose the -- the insurance, the need for insurance, the maintenance of insurance before you show up to get health care rather than at the moment you get up to show--

Chief Justice John G. Roberts: Right.

No, I think--

Mr. Verrilli Jr.: --show up to get health care.

And that--

Chief Justice John G. Roberts: --unless I'm missing something, I think you're just repeating the idea that this is the regulation of the method of payment.

And I understand that argument.

And it may be -- it may be a good one.

But what I'm concerned about is, once we accept the principle that everybody is in this market, I don't see why Congress's power is limited to regulating the method of payment and doesn't include as it does in any other area.

What other area have we said Congress can regulate this market but only with respect to prices, but only with respect to means of travel?

No.

Once you're -- once you're in the interstate commerce and can regulate it, pretty much all bets are off.

Mr. Verrilli Jr.: --But we agree Congress can regulate this market.

ERISA regulates this market.

HIPAA regulates this market.

The -- the market is regulated at the Federal level in very significant ways already.

So I don't think that's the question, Mr. Chief Justice.

The question is, is there a limit to the authority that we're advocating here under the commerce power, and the answer is yes, because we are not advocating for a power that would allow Congress to compel purchases--

Justice Samuel Alito: Could you just -- before you move on, could you express your limiting principle as succinctly as you possibly can?

Congress can force people to purchase a product where the failure to purchase the product has a substantial effect on interstate commerce -- if what?

If this is part of a larger regulatory scheme?

Was that it?

Was there anything more?

Mr. Verrilli Jr.: --We got two and they are -- they are different.

Let me state them.

First with respect to the comprehensive scheme.

When Congress is regulating -- is enacting a comprehensive scheme that it has the authority to enact that the Necessary and Proper Clause gives it the authority to include regulation, including a regulation of this kind, if it is necessary to counteract risks attributable to the scheme itself that people engage in economic activity that would undercut the scheme.

It's like -- it's very much like Wickard in that respect, very much like Raich in that respect.

With respect to the -- with respect to the -- considering the Commerce Clause alone and not embedded in the comprehensive scheme, our position is that Congress can regulate the method of payment by imposing an insurance requirement in advance of the time in which the -- the service is consumed when the class to which that requirement applies either is or virtually is most certain to be in that market when the timing of one's entry into that market and what you will need when you enter that market is uncertain and when -- when you will get the care in that market, whether you can afford to pay for it or not and shift costs to other market participants.

So those -- those are our views as to -- those are the principles we are advocating for and it's, in fact, the conjunction of the two of them here that makes this, we think, a strong case under the Commerce Clause.

Justice Sonia Sotomayor: General, could you turn to the tax clause?

Mr. Verrilli Jr.: Yes.

Justice Sonia Sotomayor: I have looked for a case that involves the issue of whether something denominated by Congress as a penalty was nevertheless treated as a tax, except in those situations where the code itself or the statute itself said treat the penalty as a tax.

Do you know of any case where we've done that?

Mr. Verrilli Jr.: Well, I think I would point the Court to the License Tax Case, where it was -- was denominated a fee and nontax, and the Court upheld it as an exercise of the taxing power, in a situation in which the structure of the law was very much like the structure of this law, in that there was a separate stand-alone provision that set the predicate and then a separate provision in posing the fees--

Justice Antonin Scalia: But fees, you know, license fees, fees for a hunting license, everybody knows those are taxes.

I mean, I don't think there is as much of a difference between a fee and a tax as there is between a penalty and a tax.

Mr. Verrilli Jr.: --And that, and -- and I think in terms of the tax part, I think it's useful to separate this into two questions.

One is a question of characterization.

Can this be characterized as a tax; and second, is it a constitutional exercise of the power?

With respect to the question of characterization, the -- this is -- in the Internal Revenue Code, it is administered by the IRS, it is paid on your Form 1040 on April 15th, I think--

Justice Ruth Bader Ginsburg: But yesterday you told me -- you listed a number of penalties that are enforced through the tax code that are not taxes and they are not penalties related to taxes.

Mr. Verrilli Jr.: --They may still be exercise of the tax -- exercises of the taxing power, Justice Ginsburg, as -- as this is, and I think there isn't a case in which the Court has, to my mind, suggested anything that bears this many indicia of a tax can't be considered as an exercise of the taxing power.

In fact, it seems to me the License Tax Cases point you in the opposite direction.

And beyond that your -- the -- it seems to me the right way to think about this question is whether it is capable of being understood as an exercise of the tax.

Justice Antonin Scalia: The President said it wasn't a tax, didn't he?

Mr. Verrilli Jr.: Well, Justice Scalia, what the -- two things about that, first, as it seems to me, what matters is what power Congress was exercising.

And they were -- and I think it's clear that -- that the -- the -- they were exercising the tax power as well as--

Justice Antonin Scalia: You're making two arguments.

Number one, it's a tax; and number two, even if it isn't a tax, it's within the taxing power.

I'm just addressing the first.

Mr. Verrilli Jr.: --If the President said--

Justice Antonin Scalia: Is it a tax or not a tax?

The President didn't think it was.

Mr. Verrilli Jr.: --The President said it wasn't a tax increase because it ought to be understood as an incentive to get people to have insurance.

I don't think it's fair to infer from that anything about whether that is an exercise of the tax power or not.

Justice Ruth Bader Ginsburg: A tax is to raise revenue, tax is a revenue-raising device, and the purpose of this exaction is to get people into the health care risk -- risk pool before they need medical care, and so it will be successful.

If it doesn't raise any revenue, if it gets people to buy the insurance, that's -- that's what this penalty is -- this penalty is designed to affect conduct.

The conduct is buy health protection, buy health insurance before you have a need for medical care.

That's what the penalty is designed to do, not to raise revenue.

Mr. Verrilli Jr.: That -- that is true, Justice Ginsburg.

This is also true of the marijuana tax that was withheld in Sanchez.

That's commonly true of penalties under the Code.

They do -- if they raise revenue, they are exercises of the taxing power, but their purpose is not to raise revenue.

Their purpose is to discourage behavior.

I mean, the -- the mortgage deduction works that way.

When the mortgage deduction is -- it's clearly an exercise of the taxing power.

When it's successful it raises less revenue for the Federal Government.

It's still an exercise of the taxing power.

So, I don't--

Justice Elena Kagan: I suppose, though, General, one question is whether the determined efforts of Congress not to refer to this as a tax make a difference.

I mean, you're suggesting we should just look to the practical operation.

We shouldn't look at labels.

And that seems right, except that here we have a case in which Congress determinedly said this is not a tax, and the question is why should that be irrelevant?

Mr. Verrilli Jr.: --I don't think that that's a fair characterization of the actions of Congress here, Justice Kagan.

On the -- December 23rd, a point of constitutional order was called to, in fact, with respect to this law.

The floor sponsor, Senator Baucus, defended it as an exercise of the taxing power.

In his response to the point of order, the Senate voted 60 to39 on that proposition.

The legislative history is replete with members of Congress explaining that this law is constitutional as an exercise of the taxing power.

It was attacked as a tax by its opponents.

So I don't think this is a situation where you can say that Congress was avoiding any mention of the tax power.

It would be one thing if Congress explicitly disavowed an exercise of the tax power.

But given that it hasn't done so, it seems to me that it's -- not only is it fair to read this as an exercise of the tax power, but this Court has got an obligation to construe it as an exercise of the tax power, if it can be upheld on that basis.

Chief Justice John G. Roberts: Why didn't Congress call it a tax, then?

Mr. Verrilli Jr.: Well--

Chief Justice John G. Roberts: You're telling me they thought of it as a tax, they defended it on the tax power.

Why didn't they say it was a tax?

Mr. Verrilli Jr.: --They might have thought, Your Honor, that calling it a penalty as they did would make it more effective in accomplishing its objective.

But it is -- in the Internal Revenue Code it is collected by the IRS on April 15th.

I don't think this is a situation in which you can say--

Chief Justice John G. Roberts: Well, that's the reason.

They thought it might be more effective if they called it a penalty.

Mr. Verrilli Jr.: --Well, I -- you know, I don't -- there is nothing that I know of that -- that illuminates that, but certainly--

Justice Sonia Sotomayor: --General, the problem goes back to the limiting principle.

Is this simply anything that raises revenue that Congress can do?

Mr. Verrilli Jr.: --No.

There are certain limiting principles under the--

Justice Sonia Sotomayor: So there has to be a limiting principle --

Mr. Verrilli Jr.: -- taxing power, and they -- and I think, of course, the Constitution imposes some, got to be uniform, can't be taxed on exports, if it's a direct tax, it's got to be apportioned.

Beyond that, the limiting principle, as the Court has identified from Drexel Furniture to Kurth Ranch, is that it can't be punishment, punitive in the guise of a tax.

And there are three factors of Court has identified to look at that.

The first is the sanction and how disproportionate it is to the conduct; the second is whether there is scienter; and the third is whether there is an -- an -- an administrative apparatus out there to enforce the tax.

Now in -- in Bailey v. Drexel Furniture, for example, the tax was 10 percent of the company's profits, even if they had only one child laborer for one day.

There was a scienter requirement, and it was enforced by the Department of Labor.

It wasn't just collected by the Internal Revenue Service.

Here you don't have any of those things.

This -- the -- the penalty is calculated to be no more than, at most, the equivalent of what one would have paid for insurance if you forgone.

There is no scienter requirement, there is no enforcement apparatus out there.

So, certain--

Justice Samuel Alito: Can the -- can the mandate be viewed as tax if it does impose a requirement on people who are not subject to the penalty or the tax?

Mr. Verrilli Jr.: --I think it could, for the reasons I -- I discussed yesterday.

I don't think it can or should be read that way.

But if there is any doubt about that, Your Honor, if there is -- if -- if it is the view of the Court that it can't be, then I think the -- the right way to handle this case is by analogy to New York v. United States, in which the -- the Court read the shall provision, shall handle the level of radioactive waste as setting the predicate, and then the other provisions were merely incentives to get the predicate met, and so--

Justice Antonin Scalia: You're saying that all the discussion we had earlier about how this is one big uniform scheme and the Commerce Clause blah, blah, blah, it really doesn't matter.

This is a tax and the Federal Government could simply have said, without all of the rest of this legislation, could simply have said everybody who doesn't buy health insurance at a certain age will be taxed so much money, right?

Mr. Verrilli Jr.: --It -- it used its powers together to solve the problem of the market not--

Justice Antonin Scalia: Yes, but you didn't need that. --You didn't need that.

If it's a tax, it's only -- raising money is enough.

Mr. Verrilli Jr.: --providing for the -- It's justifiable under its tax power.

Justice Antonin Scalia: Extraordinary.

Mr. Verrilli Jr.: If I may reserve the balance of my time.

Chief Justice John G. Roberts: Thank you, General.

We'll take a pause for a minute or so, Mr. Clement.

Why don't we get started again.

Mr. Clement.

ORAL ARGUMENT OF PAUL D. CLEMENT, ON BEHALF OF THE RESPONDENTS FLORIDA, ET AL.

Mr. Clement: Mr. Chief Justice and may it please the Court.

The mandate represents an unprecedented effort by Congress to compel individuals to enter commerce in order to better regulate commerce.

The Commerce Clause gives Congress the power to regulate existing commerce.

It does not give Congress the far greater power to compel people to enter commerce to create commerce essentially in the first place.

Now, Congress when it passed the statute did make findings about why it thought it could regulate the commerce here, and it justified the mandate as a regulation of the economic decision to forego the purchase of health insurance.

That is a theory without any limiting principle.

Justice Sonia Sotomayor: --Do you accept your -- the General's position that you have conceded that Congress could say, if you're going to consume health services, you have to pay by way of insurance?

Mr. Clement: That's right, Justice Sotomayor.

We say, consistent with 220 years of this Court's jurisprudence, that if you regulate the point of sale, you regulate commerce, that's within Congress' commerce power.

Justice Sonia Sotomayor: All right.

So what do you do with the impossibility of buying insurance at the point of consumption.

Virtually, you force insurance companies to sell it to you?

Mr. Clement: Well, Justice, I think there is two points to make on that.

One is, a lot of the discussion this morning so far has proceeded on the assumption that the only thing that is at issue here is emergency room visits, and the only thing that's being imposed is catastrophic care coverage; but, as the Chief Justice indicated earlier, a lot of the insurance that's being covered is for ordinary preventive care, ordinary office visits, and those are the kinds of things that one can predict.

So there is a big part of the market that's regulated here that wouldn't pose the problem that you're suggesting; but, even as to emergency room visits, it certainly would be possible to regulate at that point.

You could simply say, through some sort of mandate on the insurance companies, you have to provide people that come in -- this will be a high-risk pool, and maybe you will have to share it amongst yourself or something, but people simply have to sign up at that point, and that would be regulating at the point of sale.

Justice Elena Kagan: Well, Mr. Clement, now it seems as though you're just talking about a matter of timing; that Congress can regulate the transaction, and the question is when does it make best sense to regulate that transaction?

And Congress surely has within its authority to decide, rather than at the point of sale, given an insurance-based mechanism, it makes sense to regulate it earlier.

It's just a matter of timing.

Mr. Clement: Well, Justice Kagan, we don't think it's a matter of timing alone, and we think it has very substantive effects.

Because if Congress tried to regulate at the point of sale, the one group that it wouldn't capture at all are the people who don't want to purchase health insurance and also have no plans of using health care services in the near term.

And Congress very much wanted to capture those people.

I mean, those people are essentially the golden geese that pay for the entire lowering of the premium.

Justice Anthony Kennedy: Was the government's argument this -- and maybe I won't state it accurately -- it is true that the noninsured young adult is, in fact, an actuarial reality insofar as our allocation of health services, insofar as the way health insurance companies figure risks?

That person who is sitting at home in his or her living room doing nothing is an actuarial reality that can and must be measured for health service purposes; is that their argument?

Mr. Clement: Well, I don't know, Justice Kennedy, but, if it is, I think there is at least two problems with it.

One is, as Justice Alito's question suggested earlier, I mean, somebody who is not in the insurance market is sort of irrelevant as an actuarial risk.

I mean, we could look at the people not in the insurance market, and what we'd find is that they're relatively young, relatively healthy, and they would have a certain pool of actuarial risks that would actually lead to lower premiums.

The people that would be captured by guaranteed rating and community issue -- guaranteed issue and community rating would presumably have a higher risk profile, and there would be higher premiums.

And one of the things, one of the things Congress sought to accomplish here, was to force individuals into the insurance market to subsidize those that are already in it to lower the rates.

And that's just not my speculation, that's Finding I at 43A of the government's brief that -- it has the statute.

And that's one of the clear findings.

Justice Ruth Bader Ginsburg: Mr. Clement, doesn't that work -- that work the way Social Security does?

Let me put it this way.

Congress, in the '30s, saw a real problem of people needing to have old age and survivor's insurance.

And yes, they did it through a tax, but they said everybody has got to be in it because if we don't have the healthy in it, there's not going to be the money to pay for the ones who become old or disabled or widowed.

So they required everyone to contribute.

It was a big fuss about that in the beginning because a lot of people said -- maybe some people still do today -- I could do much better if the government left me alone.

I'd go into the private market, I'd buy an annuity, I'd make a great investment, and they're forcing me to paying for this Social Security that I don't want; but, that's constitutional.

So if Congress could see this as a problem when we need to have a group that will subsidize the ones who are going to get the benefits, it seems to me you are saying the only way that could be done is if the government does it itself; it can't involve the private market, it can't involve the private insurers.

If it wants to do this, Social Security is its model.

The government has to do -- has to be government takeover.

We can't have the insurance industry in it.

Is that your position?

Mr. Clement: No.

I don't think it is, Justice Ginsburg.

I think there are other options that are available.

The most straightforward one would be to figure out what amount of subsidy to the insurance industry is necessary to pay for guaranteed issue and community rating.

And once we calculate the amount of that subsidy, we could have a tax that's spread generally through everybody to raise the revenue to pay for that subsidy.

That's the way we pay for most subsidies.

Justice Sonia Sotomayor: Could we have an exemption?

Could the government say, everybody pays a shared health care responsibility payment to offset all the money that we are forced to spend on health care, we the government; but, anybody who has an insurance policy is exempt from that tax?

Could the government do that?

Mr. Clement: The government might be able to do that.

I think it might raise some issues about whether or not that would be a valid exercise of the taxing power.

Justice Sonia Sotomayor: Under what theory wouldn't it be?

Mr. Clement: Well, I do think that--

Justice Sonia Sotomayor: We get tax credits for having solar-powered homes.

We get tax credits for using fuel efficient cars.

Why couldn't we get a tax credit for having health insurance and saving the government from caring for us.

Mr. Clement: --Well, I think it would depend a little bit on how it was formulated; but, my concern would be -- the constitutional concern would be that it would just be a disguised impermissible direct tax.

And I do think -- I mean, I don't want to suggest we get to the taxing power to soon, but I do think it's worth realizing that the taxing power is limited in the ability to impose direct taxes.

And the one thing I think the framers would have clearly identified as a direct tax is a tax on not having something.

I mean, the framing generation was divided over whether a tax on carriages was a direct tax or not.

Hamilton thought that was a indirect tax; Madison thought it was a direct tax.

I have little doubt that both of them would have agreed that a tax on not having a carriage would have clearly been a direct tax.

I also think they would have thought it clearly wasn't a valid regulation of the market in carriages.

And, you know, I mean, if you look at Hilton against the United States, that's this Court's first direct tax--

Justice Stephen G. Breyer: Let me ask -- can I go back for a step, because I don't want to get into a discussion of whether this is a good bill or not.

Some people think it's going to save a lot of money.

Some people think it won't.

So I'm focusing just on the Commerce Clause; not on the Due Process Clause, the Commerce Clause.

And I look back into history, and I think if we look back into history we see sometimes Congress can create commerce out of nothing.

That's the national bank, which was created out of nothing to create other commerce out of nothing.

I look back into history, and I see it seems pretty clear that if there are substantial effects on interstate commerce, Congress can act.

And I look at the person who's growing marijuana in her house, or I look at the farmer who is growing the wheat for home consumption.

This seems to have more substantial effects.

Is this commerce?

Well, it seems to me more commerce than marijuana.

I mean, is it, in fact, a regulation?

Well, why not?

If creating a bank is, why isn't this?

And then you say, ah, but one thing here out of all those things is different, and that is you're making somebody do something.

I say, hey, can't Congress make people drive faster than 45 -- 40 miles an hour on a road?

Didn't they make that man growing his own wheat go into the market and buy other wheat for his -- for his cows?

Didn't they make Mrs. -- if she married somebody who had marijuana in her basement, wouldn't she have to go and get rid of it?

Affirmative action?

I mean, where does this distinction come from?

It sounds like sometimes you can, and sometimes you can't.

So what is argued here is there is a large group of -- what about a person that we discover that there are -- a disease is sweeping the United States, and 40 million people are susceptible, of whom 10 million will die; can't the Federal Government say all 40 million get inoculation?

So here, we have a group of 40 million, and 57 percent of those people visit emergency care or other care, which we are paying for.

And 22 percent of those pay more than $100,000 for that.

And Congress says they are in the midst of this big thing.

We just want to rationalize this system they are already in.

So, there, you got the whole argument, and I would like you to tell me--

Justice Antonin Scalia: We'll get to those questions in inverse order.

Justice Stephen G. Breyer: --Well, no, it's one question.

It's looking back at that -- looking back at that history.

The thing I can see that you say to some people, go buy; why does that make a difference in terms of the Commerce Clause?

Mr. Clement: --Well, Justice Breyer, let me start at the beginning of your question with McCulloch.

McCulloch was not a commerce power case.

Justice Stephen G. Breyer: It was both?

Mr. Clement: No, the bank was not justified and the corporation was not justified as an exercise of commerce power.

So that is not a case that says that it's okay to conjure up the bank as an exercise of the commerce power.

What, of course, the Court didn't say, and I think the Court would have had a very different reaction to, is, you know, we are not just going to have the bank, because that wouldn't be necessary and proper, we are going to force the citizenry to put all of their money in the bank, because, if we do that, then we know the Bank of the United States will be secure.

I think the framers would have identified the difference between those two scenarios, and I don't think that the great Chief Justice would have said that forcing people to put their deposits in the Bank of the United States was necessary and proper.

Now, if you look through all the cases you mentioned, I do not think you will find a case like this.

And I think it's telling that you won't.

I mean, the regulation of the wheat market in Wickard against Filburn, all this effort to address the supply side and what producers could do, what Congress was trying to do was support the price of wheat.

It would have been much more efficient to just make everybody in America buy 10 loaves of bread.

That would have had a much more direct effect on the price of wheat in the prevailing market.

But we didn't do that.

We didn't say when we had problems in the automobile industry that we are not just going to give you incentives, not just cash for clunkers, we are going to actually have ever everybody over 100,000 has to buy a new car--

Chief Justice John G. Roberts: Well, Mr. Clement, the key to the government's argument to the contrary is that everybody is in this market.

It's all right to regulate Wickard -- again, in Wickard against Filburn, because that's a particular market in which the farmer had been participating.

Everybody is in this market, so that makes it very different than the market for cars or the other hypotheticals that you came up with, and all they're regulating is how you pay for it.

Mr. Clement: --Well, with respect, Mr. Chief Justice, I suppose the first thing you have to say is what market are we talking about?

Because the government -- this statute undeniably operates in the health insurance market.

And the government can't say that everybody is in that market.

The whole problem is that everybody is not in that market, and they want to make everybody get into that market.

Justice Elena Kagan: Well, doesn't that seem a little bit, Mr. Clement, cutting the bologna thin?

I mean, health insurance exists only for the purpose of financing health care.

The two are inextricably interlinked.

We don't get insurance so that we can stare at our insurance certificate.

We get it so that we can go and access health care.

Mr. Clement: Well, Justice Kagan, I'm not sure that's right.

I think what health insurance does and what all insurance does is it allows you to diversify risk.

And so it's not just a matter of I'm paying now instead I'm paying later.

That's credit.

Insurance is different than credit.

Insurance guarantees you an upfront, locked-in payment, and you won't have to pay any more than that even if you incur much great expenses.

And in every other market that I know of for insurance, we let people basically make the decision whether they are relatively risk averse, whether they are relatively non-risk averse, and they can make the judgment based on--

Justice Sonia Sotomayor: But we don't in car insurance, meaning we tell people, buy car -- not we, the states do, although you're going to -- I'll ask you the question, do you think that if some states decided not to impose an insurance requirement, that the Federal Government would be without power to legislate and require every individual to buy car insurance?

Mr. Clement: --Well, Justice Sotomayor, let me say this, which is to say -- you're right in the first point to say that it's the states that do it, which makes it different right there.

But it's also--

Justice Sonia Sotomayor: Well, that goes back to the substantive due process question.

Is this a Lochner era argument that only the states can do this, even though it affects commerce?

Cars indisputably affect commerce.

So are you arguing that because the states have done it all along, the Federal Government is no longer permitted to legislate in this area?

Mr. Clement: --No.

I think you might make a different argument about cars than you would make about health insurance, unless you tried to say -- but, you know, we're--

Justice Sonia Sotomayor: Health insurance -- I mean, I've never gotten into an accident, thankfully, and I hope never.

The vast majority of people have never gotten into an accident where they have injured others; yet, we pay for it dutifully every year on the possibility that at some point we might get into that accident.

Mr. Clement: --But, Justice Sotomayor, what I think is different is there is lots of people in Manhattan, for example, that don't have car insurance because they don't have cars.

And so they have the option of withdrawing from that market.

It's not a direct imposition from the government.

So even the car market is difference from this market, where there is no way to get outside of the regulatory web.

And that's, I think, one of the real problems with this because, I mean, we take as a given--

Justice Sonia Sotomayor: But you're -- but the given is that virtually everyone, absent some intervention from above, meaning that someone's life will be cut short in a fatal way, virtually everyone will use health care.

Mr. Clement: --At some point, that's right, but all sorts of people will not, say, use health care in the next year, which is the relevant period for the insurance.

Justice Stephen G. Breyer: But do you think you can, better than the actuaries or better than the members of Congress who worked on it, look at the 40 million people who are not insured and say which ones next year will or will not use, say, emergency care?

Can you do that any better than if we knew that 40 million people were suffering, about to suffer a contagious disease, and only 10 million would get sick--

Mr. Clement: Of course not--

Justice Stephen G. Breyer: --and we don't know which?

Mr. Clement: --Of course not, Justice Breyer, but the point is that once Congress decides it's going to regulate extant commerce, it is going to get all sorts of latitude to make the right judgments about actuarial predictions, which actuarial to rely on, which one not to rely on.

The question that's a proper question for this Court, though, is whether or not, for the first time ever in our history, Congress also has the power to compel people into commerce, because, it turns out, that would be a very efficient things for purposes of Congress' optimal regulation of that market.

Justice Elena Kagan: But, Mr. Clement, this goes back to the Chief Justice's question.

But, of course, the theory behind, not just the government's case, but the theory behind this law is that people are in this market right now, and they are in this market because people do get sick, and because when people get sick, we provide them with care without making them pay.

And it that would be different, you know, if you were up here saying, I represent a class of Christian scientists.

Then you might be able to say, look, you know, why are they bothering me.

But absent that, you're in this market.

You're an economic actor.

Mr. Clement: Well, Justice Kagan, once again, it depends on which market we're talking about.

If we're talking about the health care insurance market--

Justice Elena Kagan: Well, we are talking about the health insurance market, which is designed to access the health care market.

Mr. Clement: --And with respect to the health insurance market that's designed to have payment in the health care market, everybody is not in the market.

And that's the premise of the statute, and that's the problem Congress is trying to solve.

And if it tried to solve it through incentives, we wouldn't be here; but, it's trying to solve it in a way that nobody has ever tried to solve an economic problem before, which is saying, you know, it would be so much more efficient if you were just in this market--

Justice Anthony Kennedy: But they are in the market in the sense that they are creating a risk that the market must account for.

Mr. Clement: --Well, Justice Kennedy, I don't think that's right, certainly in any way that distinguishes this from any other context.

When I'm sitting in my house deciding I'm not to buy a car, I am causing the labor market in Detroit to go south.

I am causing maybe somebody to lose their job, and for everybody to have to pay for it under welfare.

So the cost shifting that the government tries to uniquely to associate with this market, it is everywhere.

And even more to the point, the rationale that they think ultimately supports this legislation, that look, it's an economic decision, once you make the economic decision, we aggregate the decision, there is a substantial effect on commerce.

That argument works here.

It works in every single industry.

Justice Stephen G. Breyer: Of course we do know that there are a few people, more in New York City than there are in Wyoming, who never will buy a car.

But we also know here, and we don't like to admit it, that because we are human beings we all suffer from the risk of getting sick.

And we also all know that we'll get seriously sick.

And we also know that we can't predict when.

And we also know that when we do, there will be our fellow taxpayers through the Federal Government who will pay for this.

If we do not buy insurance, we will pay nothing.

And that happens with a large number of people in this group of 40 million, none of whom can be picked out in advance.

Now, that's quite different from a car situation, and it's different in only this respect.

It shows there is a national problem, and it shows there is a national problem that involves money, cost insurance.

So if Congress could do this, should there be a disease that strikes the United States and they want every one inoculated even though ten million will be hurt, it's hard for me to decide why that isn't interstate commerce, even more so where we know it affects everybody.

Mr. Clement: Well, Justice Breyer, there are other markets that affect every one: transportation, food, burial services, though we don't like to talk about that either.

There also are situations where there are many economic effects from somebody's failure to purchase a product.

And if I could, if I could talk about the difference between the health insurance market and the health care market, I mean, ultimately I don't want you to leave here with the impression that anything turns on that.

Because if the government decided tomorrow that they would come up with a great -- some of these -- some private companies come up with a great new wonder drug that would be great for everybody to take, would have huge health benefits for everybody; and by the way, also if everybody had to buy it, it would facilitate economies of scale, and the production would be great, and the price would be cheaper and force everybody in the health care market, the actual health care market to buy the wonder drug, I'd be up here making the same argument.

I would be saying that's not a power that's within the commerce power of the Federal Government.

It is something much greater.

And it would have been much more controversial.

That's why the important things.

In Federalist 45, Madison says the commerce power.

That's a new power, but it's not one anyone has any apprehension about.

The reason they didn't have any apprehension about it is because it's a power that only operated once people were already in commerce.

You see that from the text of the clause.

The first kind of commerce Congress gets to regulate is commerce with foreign nations.

Did anybody think the fledgling Republic had the power to compel some other nation into commerce with us?

Of course not.

And in the same way, I think if the framers had understood the commerce power to include the power to compel people to engage in commerce--

Justice Elena Kagan: Well, once again though, who's in commerce and what are they in commerce?

If the effect of all these uninsured people is to raise everybody's premiums, not just when they get sick, if they get sick, but right now in the aggregate, and Wickard and Raich tell us we should look at the aggregate, and the aggregate of all these uninsured people are increasing the normal family premium, Congress says, by a thousand dollars a year.

Those people are in commerce.

They are making decisions that are affecting the price that everybody pays for this service.

Mr. Clement: --Justice Kagan, again, with all due respect, I don't think that's a limiting principle.

My unwillingness to buy an electric car is forcing up the price of an electric car.

If only more people demanded an electric car there would be economies of scale, and the price would go down.

Justice Elena Kagan: Not necessarily, Mr. Clement.

And it's different because of the nature of the health care service, that you are entitled to health care when you go to an emergency room, when you go to a doctor, even if you can't pay for it.

So the difference between your hypotheticals and the real case is the problem of uncompensated care which--

Mr. Clement: Justice Kagan, first of all, I do think there -- this is not the only place where there's uncompensated care.

If some -- if I don't buy a car and somebody goes on welfare, I'm going to end up paying for that as well.

But let me also say that there is a real disconnect then between that focus on what makes this different and statute that Congresses passed.

If all we were concerned about is the cost sharing that took place because of uncompensated care in emergency rooms, presumably we have before us a statute that only addressed emergency care and catastrophic insurance coverage.

But it covers everything, soup to nuts, and all sorts of other things.

And that gets at the idea that there is two kinds of cost shifting that are going on here.

One is the concern about emergency care and that somehow somebody who gets sick is going to shift costs back to other policy areas -- holders.

But there is a much bigger cost shifting going on here, and that's the cost shifting that goes on when you force healthy people into an insurance market precisely because they are healthy, precisely because they are not likely to go to the emergency room, precisely because they are not likely to use the insurance they are forced to buy in the health care insurance.

That creates a huge windfall.

It lowers the price of premiums.

And again, this is not just some lawyer up here telling you that's what it does and trying to second-guess the congressional economic decisions.

This is Congress's findings, findings I on page 43 A of the appendix to the government's--

Justice Stephen G. Breyer: All that sounds like you're debating the merits of the bill.

You ask really for limiting principles so we don't get into a matter that I think has nothing to do with this case: broccoli, okay?

And the limiting principles, you've heard three.

First, the Solicitor General came up with a couple joined, very narrow ones.

You've seen in Lopez this Court say that we cannot, Congress cannot get into purely local affairs, particularly where they are noncommercial.

And, of course, the greatest limiting principle of all, which not too many accept, so I'm not going to emphasize that, is the limiting principle derived from the fact that members of Congress are elected from States and that 95 percent of the law of the United States is State law.

That is a principle though enforced by the legislature.

The other two are principles, one written into Lopez and one you just heard.

It seems to me all of those eliminate the broccoli possibility, and none of them eliminates the possibility that we are trying to take the 40 million people who do have the medical cost, who do affect interstate commerce and provide a system that you may like or not like.

That's where we are in limiting principles.

Mr. Clement: --Well, Justice Breyer, let me take them in turn.

I would encourage this Court not to Garcia-ize the Commerce Clause and just simply say it's up to Congress to police the Commerce Clause.

So I don't think that is a limiting principle.

Second of all--

Justice Sonia Sotomayor: Yes, but that's exactly what Justice Marshall said in Gibbons.

He said that it is the power to regulate, the power like all others vested in Congress is complete in itself, may be exercised to its utmost extent, and acknowledges no limitations other than those prescribed in the Constitution.

But there is no conscription in the, set forth in the Constitution with respect to regulating commerce.

Mr. Clement: --I agree 100 percent, and I think that was the Chief Justice's point which was once you open the door to compelling people into commerce based on the narrow rationales that exist in this industry, you are not going to be able to stop that process.

Justice Antonin Scalia: I would like hear you address Justice Breyer's other, other two principles.

Mr. Clement: Well, the other two principles are Lopez -- and this case really is not -- I mean, you know, Lopez is a limit on the affirmative exercise of people who are already in commerce.

The question is, is there any other limit to people who aren't in commerce?

And so I think this is the case that really asks that question.

And then the first point which was I take it to be the Solicitor General's point is, with all due respect, simply a description of the insurance market.

It's not a limiting principle, because the justification for why this is a valid regulation of commerce is in no way limited to this market.

It simply says, these are economic decisions, they have effect on other people, my failure to purchase in this market has a direct effect on others who are already in the market.

That's true of virtually every other market under the sun.

Chief Justice John G. Roberts: And now maybe return to Justice Sotomayor's question.

Mr. Clement: I'd be delighted to, which is -- I mean, I -- you are absolutely right.

Once you're in the commerce power, there is not -- this Court is not going to police that subject maybe to the Lopez limit.

And that's exactly why I think it's very important for this Court to think seriously about taking an unprecedented step of saying that the commerce power not only includes the power to regulate, prescribe the rule by which commerce is governed, the rule of Gibbons v. Ogden.

But to go further and say it's not just prescribing the rule for commerce that exists but is the power to compel people to enter into commerce in the first place.

I would like to say two very brief things about the taxing power, if I could.

There are lots of reasons why this isn't a tax.

It wasn't denominated a tax.

It's not structured as a tax.

If it's any tax at all, though, it is a direct tax.

Article I, Section 9, clause 4, the Framers would have had no doubt that a tax on not having something is not an excise tax but a forbidden direct tax.

That's one more reason why this is not proper legislation because it violates that.

The second thing is I would urge you to read the License Tax case which the Solicitor General says is his best case for why you ignore the fact that a tax is denominated into something other.

Because that is a case where the argument was that because the Federal government had passed a license not a tax, that somehow that allowed people to take actions that would have been unlawful under State law, that this was some special Federal license to do something that was forbidden by State law.

This Court looked beyond the label in order to preserve federalism there.

What the Solicitor General and the government ask you to do here is exactly the opposite, which is to look past labels in order to up-end our basic federalist system.

In this--

Justice Sonia Sotomayor: Would you tell me, do you think the States could pass this mandate.

Mr. Clement: --I represent 26 States.

I do think the States could pass this mandate, but I--

Justice Sonia Sotomayor: Is there any other area of commerce, business, where we have held that there is a concurrent power between the State and the Federal Government to protect the welfare of commerce?

Mr. Clement: --Well, Justice Sotomayor, I have to resist your premise, because I didn't answer yes, the States can do it because it would be a valid regulation of intrastate commerce.

I said yes, the States can do it because they have a police power, and that is the fundamental difference between the States on the one hand and the limited, enumerated Federal Government on the other.

Chief Justice John G. Roberts: Thank you, Mr. Clement.

Mr. Carvin.

ORAL ARGUMENT OF MICHAEL A. CARVIN ON BEHALF OF THE RESPONDENTS NFIB, ET AL.

Mr. Carvin: Thank you, Mr. Chief Justice, may it please the Court: I'd like to begin with the Solicitor General's main premise, which is that they can compel the purchase of health insurance in order to promote commerce in the health market because it will reduce uncompensated care.

If you accept that argument, you have to fundamentally alter the text of the Constitution and give Congress plenary power.

It simply doesn't matter whether or not this regulation will promote health care commerce by reducing uncompensated care; all that matters is whether the activity actually being regulated by the act negatively affects Congress or negatively affects commerce regulation, so that it's within the commerce power.

If you agree with us that this is -- exceeds commerce power, the law doesn't somehow become redeemed because it has beneficial policy effects in the health care--

In other words, Congress does not have the power to promote commerce.

Congress has -- Congress has the power to regulate commerce.

And if the power exceeds their permissible regulatory authority, then the law is invalid.

Chief Justice John G. Roberts: Well, surely--

Mr. Carvin: I'm sorry.

Chief Justice John G. Roberts: --Well, surely regulation includes the power to promote.

Since the New Deal we've said that regulation in -- there is a market agricultural products; Congress has the power to subsidize, to limit production, all sorts of things.

Mr. Carvin: Absolutely, Chief Justice, and that's the distinction I'm trying to draw.

When they are acting within their enumerated power then obviously they are promoting commerce, but the Solicitor General wants to turn it into a different power.

He wants to say we have the power to promote commerce, to regulate anything to promote commerce, and if they have the power to promote commerce then they have the power to regulate everything, right?

Because--

Chief Justice John G. Roberts: I don't -- I don't think you're addressing their main point, which is that they are not creating commerce in -- in health care.

It's already there, and we are all going to need some kind of health care; most of us will at some point.

Mr. Carvin: --I'd -- I'd like to address that in two ways, if I could, Mr. Chief Justice.

In the first place they keep playing mix and match with the statistics.

They say 95 percent of us are in the health care market, okay?

But that's not the relevant statistic, even from -- as the government frames the issue.

No one in Congress and the Solicitor General is arguing that going to the doctor and fully paying him creates a problem.

The problem is uncompensated care, and they say the uncompensated care arises if you have some kind of catastrophe -- hit by a bus, have some prolonged illness.

Well, what is the percentage of the uninsured that have those sorts of catastrophes?

We know it has got to be a relative small fraction.

So in other words, the relevant--

Chief Justice John G. Roberts: Yet we don't know who they are.

Mr. Carvin: --We don't.

No, and we don't know in advance, and -- and -- but that doesn't change the basic principle, that you are nonetheless forcing people for paternalistic reasons to go into the insurance market to ensure against risk that they have made the voluntary decision that they are not -- have decided not to.

But even--

Justice Ruth Bader Ginsburg: But the problem is -- the problem is this they are making the reinvent of us pay for it, because as much as they say, well, we are not in the market, we don't know when the -- the timing when they will be.

Mr. Carvin: --Which is--

Justice Ruth Bader Ginsburg: And the -- the figures that how much more families are paying for insurance because people get sick, they may have intended to self-insure, they haven't been able to meet the bill for -- for cancer, and the rest of us end up paying because these people are getting cost-free health care, and the only way to prevent that is to have them pay sooner rather than later, pay up front.

Mr. Carvin: --Yes, but my point is this.

That, with respect, Justice Ginsburg, conflicts the people who do result in uncompensated care, the free riders.

Those are people who default on their health care payments.

That is an entirely different group of people, an entirely different activity than being uninsured.

So the question is whether or not you can regulate activity because it has a statistical connection to an activity that harms Congress.

And my basic point to you is this: the Constitution only gives Congress the power to regulate things that negatively affect commerce or commerce regulation.

It doesn't give them the power to regulate things that are statistically connected to things that negatively affect the commerce--

Justice Elena Kagan: Well, Mr. Carvin--

Mr. Carvin: --Because -- I'm sorry.

Justice Elena Kagan: --Please.

Mr. Carvin: I was just going to say, because if they have that power, then they obviously have the power to regulate everything because everything in the aggregate is statistically connected to something that negatively affects commerce, and every compelled purchase promotes commerce.

Justice Stephen G. Breyer: In your view, right there -- in your view right there--

Mr. Carvin: Justice Breyer--

Justice Stephen G. Breyer: --Can I just--

Mr. Carvin: --I'm sorry.

Justice Stephen G. Breyer: --I'm just picking on something.

I'd like to just -- if it turned out there was some terrible epidemic sweeping the United States, and we couldn't say that more than 40 or 50 percent -- I can make the number as high as I want -- but the -- the -- you'd say the Federal Government doesn't have the power to get people inoculated, to require them to be inoculated, because that's just statistical.

Mr. Carvin: Well, in all candor, I think Morrison must have decided that issue, right?

Because people who commit violence against--

Justice Stephen G. Breyer: Is your answer to that yes or no?

Mr. Carvin: --Oh, I'm sorry; my answer is no, they couldn't do it, because Morrison--

Justice Stephen G. Breyer: No, they could not do it.

Mr. Carvin: --Yes.

Justice Stephen G. Breyer: They cannot require people even if this disease is sweeping the country to be inoculated.

The Federal Government has no power, and if there's -- okay, fine.

Go ahead.

Mr. Carvin: May--

Justice Stephen G. Breyer: Please turn to Justice Kagan.

Mr. Carvin: --May I just please explain why?

Justice Stephen G. Breyer: Yes.

Mr. Carvin: Violence against women obviously creates the same negative impression on fellow citizens as this communicable disease, but the -- and it has huge effects on the health care of our country.

Congress found that it increased health care costs by--

Justice Stephen G. Breyer: I agree with you that--

Mr. Carvin: --Well, but--

Justice Stephen G. Breyer: --that it had huge negative effects but the majority thought that was a local matter.

Justice Antonin Scalia: I think that's his point.

[Laughter]

Mr. Carvin: --I -- I don't know why having a disease is any more local than -- that beating up a woman.

But -- but -- my basic point is, is that notwithstanding its very profound effect on the health care market, this Court said the activity being regulated, i.e., violence against women, is outside the Commerce Clause power.

So regardless of whether it has beneficial downstream effects, we must say no, Congress doesn't have that power.

Why not?

Because everything has downstream effects on commerce and every compelled purchase promotes commerce.

It by definition helps the sellers of existing--

Justice Samuel Alito: Mr. Carvin, isn't there this difference between Justice Breyer's hypothetical and the law that we have before us here?

In his hypothetical harm to other people from the communicable disease is the result of the disease.

It is not the result of something that the government has done, whereas here the reason why there is cost shifting is because the government has mandated that.

It has required hospitals to provide emergency treatment, and instead of paying for that through a tax which would be born by everybody, it has required -- it has set up a system in which the cost is surreptitiously shifted to people who have health insurance and who pay their bills when they go to the hospital.

Mr. Clement: Justice Alito, that is exactly the government's argument.

It's an extraordinarily illogical argument.

Justice Stephen G. Breyer: Fine.

Then if that's so, is -- let me just change my example under pressure ----

[Laughter]

--and say that in fact it turns out that 90 percent of all automobiles driving interstate without certain equipment put up pollution, which travels interstate -- not 100 percent, maybe only 60 percent.

Does the EPA have the power then to say you've got to have an antipollution device?

It's statistical.

Mr. Carvin: --What they can't do -- yes, if you have a car, they can require you to have an anti-pollution--

Justice Stephen G. Breyer: Then you're not going on statistics; you're going on something else which is what I'd like to know what it is.

Mr. Carvin: --It's this.

They can't require you to buy a car with an anti-pollution device.

Once you've entered the market and made a decision they can regulate the terms and conditions of the car that you do, and they can do it for all sorts of reasons.

What they can't do it compel you to enter the market.

Justice Stephen G. Breyer: Now we -- now you've changed the ground of argument, which I accept as -- as totally legitimate.

And then the question is when you are born, and you don't have insurance, and you will in fact get sick, and you will in fact impose costs, have you perhaps involuntarily -- perhaps simply because you are a human being -- entered this particular market, which is a market for health care?

Mr. Carvin: If being born is entering the market, then I can't think of a more plenary power Congress can have, because that literally means they can regulate every human activity from cradle to grave.

I thought that's what distinguished the plenary police power from the very limited commerce power.

I don't disagree that giving the Congress plenary power to mandate property transfers from A to B would be a very efficient way of helping B and of accomplishing Congress's objectives.

But the framers--

Justice Stephen G. Breyer: I see the point.

You can go back to, go back to Justice Kagan.

Don't forget her question.

Justice Elena Kagan: I've forgotten my question.

[Laughter]

Mr. Carvin: --I -- I was facing the same dilemma, Justice Kagan.

Justice Ruth Bader Ginsburg: Let me -- let me ask a question I asked Mr. Clement.

It just seems--

Justice Elena Kagan: See what it means to be the junior justice?

[Laughter]

Justice Ruth Bader Ginsburg: --It just seems very strange to me that there's no question we can have a Social Security system besides all the people who say: I'm being forced to pay for something I don't want.

And this it seems to me, to try to get care for the ones who need it by having everyone in the pool, but is also trying to preserve a role for the private sector, for the private insurers.

There's something very odd about that, that the government can take over the whole thing and we all say, oh, yes, that's fine, but if the government wants to get -- to preserve private insurers, it can't do that.

Mr. Carvin: Well I don't think the test of a law's constitutionality is whether it more adheres to the libertarian principles of the Cato Institute or the statist principles of someone else.

I think the test of a law's constitutionality is not those policy questions; it's whether or not the law is regulating things that negatively affect commerce or don't.

And since obviously the failure to purchase an item doesn't create the kind of effects on supply and demand that the market participants in Wickard and Raich did and doesn't in any way interfere with regulation of the insurance companies, I don't think it can pass the basic--

Justice Ruth Bader Ginsburg: I thought -- I thought that Wickard was you must buy; we are not going to let you use the home-grown wheat.

You have got to go out in the market and buy that wheat that you don't want.

Mr. Carvin: --Oh, but let's be careful about what they were regulating in Wickard, Justice Ginsburg.

What they were regulating was the supply of wheat.

It didn't in any way imply that they could require every American to go out and buy wheat.

And yes, one of the consequences of regulating local market participants is it'll affect the supply and the demand for the product.

That's why you can regulate them, because those local market participants have the same effect on the interstate market that a black market has on a legal--

But none of that is true -- in other words, you can regulate local bootleggers, but that doesn't suggest you can regulate teetotalers, people who stay out of the liquor market, because they don't have any negative effect on the existing market participants or on regulation of those market participants.

Justice Elena Kagan: That's why I suggested, Mr. Carvin, that it might be different if you were raising an as-applied challenge and presenting a class of people whom you could say clearly would not be in the health care market.

But you're raising a facial challenge and we can't really know which, which of the many, many, people that this law addresses in fact will not participate in the health care market and in fact will not impose costs on all the rest of us.

So the question is can Congress respond to those facts, that we have no crystal ball, that we can't tell who is and isn't going to be in the health insurance market, and say most of these people will be and most of these people will thereby impose costs on the rest of us and that's a problem that we can deal with on a class-wide basis?

Mr. Carvin: No again.

The people who impose the costs on the rest of us are people who engage in a different activity at a different time, which is defaulting on their health care payments.

It's not the uninsured.

Under your theory you could regulate anybody if they have got a statistical connection to a problem.

You could say, since we could regulate people who enter into the mortgage market and impose mortgage insurance on them, we can simply impose the requirement to buy private mortgage insurance on everybody before they have entered the market because we are doing it in this prophylactic way before it develops.

Chief Justice John G. Roberts: No, no, that's not -- I don't think that's fair, because not everybody is going to enter the mortgage market.

The government's position is that almost everybody is going to enter the health care market.

Mr. Carvin: Two points, one of which Mr. Clement's already made, which is the health insurance market is different than the health care market.

But let me take it on full-stride.

I think everybody is in the milk market.

I think everybody is in the wheat product market.

But that doesn't suggest that the government compel you to buy five gallons of meat or five bushels of wheat because they are not regulating commerce.

Whether you're a market participant or not, they are still requiring you to make a purchase that you don't want to do, and to get back to your facial example--

Justice Sonia Sotomayor: I mean, but that's true of almost every product.

Mr. Carvin: --I've sorry?

Justice Sonia Sotomayor: It's true of almost every product, directly or indirectly by government regulation.

The government says, borrowing my colleague's example, you can't buy a car without emission control.

I don't want a car with emission control.

It's less efficient in terms of the horsepower.

But I'm forced to do something I don't want to do by government regulation.

Mr. Carvin: You are not forced to buy a product you don't want.

And I agree with you that since the government regulates all markets there is no limiting principle on their compelled purchase.

When they put these environmental controls on the--

Justice Sonia Sotomayor: They force me to buy--

Mr. Carvin: --I'm sorry.

Justice Sonia Sotomayor: --They forced me to buy if I need unpasteurized foods, goods that don't have certain pesticides but have others.

There is government compulsion in almost every economic decision because the government regulates so much.

It's a condition of life that some may rail against, but--

Mr. Carvin: Let's think about it this way.

Yes, when you've entered the marketplace they can impose all sorts of restrictions on you, and they can impose, for example, all kinds of restrictions on States after they have enacted laws.

They can wipe out the laws.

They can condition them.

But what can't they do?

They can't compel States to enact laws.

They can't compel States to carry out Federal law.

And I am arguing for precisely the same distinction, because everyone intuitively understands that regulating participants after A and B have entered into a contract is fundamentally less intrusive than requiring the contract.

Justice Sonia Sotomayor: --We let the government regulate the manufacturing process whether or not the goods will enter into interstate commerce, merely because they might statistically.

We -- there is all sorts of government regulation of manufacturing plants, of agricultural farms, of all sorts of activity that will be purely intrastate because it might affect interstate activity.

Mr. Carvin: I fully agree with you, Justice Sotomayor.

But I think--

Justice Sonia Sotomayor: So how is that different from saying you are self-insuring today, you're foregoing insurance?

Why isn't that a predecessor to the need that you're eventually going to have?

Mr. Carvin: --The cases you referred to I think effectively eliminated the distinction between participants in the intrastate market vis -- vis participants in the interstate market.

None of those cases suggest that you can regulate people who are outside of the market on both an intrastate and interstate level by compelling them to enter into the market.

And that--

Justice Stephen G. Breyer: What about -- the simplest counter-example for me to suggest is you've undoubtedly read Judge Sutton's concurring opinion.

He has about two pages, it seemed to me, of examples where everyone accepts the facts that under these kinds of regulations the government can compel people to buy things they don't otherwise want to buy.

For example, he gives, even in that farm case, the farmer who was being forced to go out and buy grain to feed to his animals because he couldn't raise it at home.

You know and he goes through one example after another.

So what -- what is your response to that, which you've read?

Mr. Carvin: --Judge Sutton is wrong in each and every example.

There was no -- there was no compulsion in Raich for him to buy wheat.

He could have gotten wheat substitutes or he could have not sold wheat, which is actually what he was doing.

There is a huge difference between conditioning regulation, i.e., conditioning access to the health care market and saying you must buy a product, and forcing you to buy a product.

And that, that -- I'm sorry.

Justice Ruth Bader Ginsburg: I thought it was common ground that the requirement that the insurers -- what was it, the community-based one and they have to insure you despite your health status; they can't refuse because of preexisting conditions.

The government tells us and the Congress determined that those two won't work unless you have a pool that will include the people who are now healthy.

But so -- well, first, do you agree with your colleague that the community-based -- and what's the name that they give to the other?

Mr. Carvin: The guaranteed-issue.

Justice Ruth Bader Ginsburg: Yes.

That that is legitimate Commerce Clause legislation?

Mr. Carvin: Oh, sure.

And that's why -- but we don't in any way impede that sort of regulation.

These nondiscrimination regulations will apply to every insurance company just as Congress intended whether or not we buy insurance.

Justice Ruth Bader Ginsburg: Well then, what about the determination that they can't possibly work if people don't have to buy insurance until they are -- their health status is such that the insurance company just dealt with them on its -- as it will?

I won't insure you because you're -- you're already sick.

Mr. Carvin: It depends what you mean by "work".

It'll work just fine in ensuring that no sick people are discriminated against.

What -- what -- but when you do that -- Congress--

Justice Ruth Bader Ginsburg: But the sick people, why would they insure early if they had to be protected if they get insurance late?

Mr. Carvin: --Yes.

Well, that's -- this is the government's very illogical argument.

They seem to be saying look, we couldn't just force people to buy insurance to lower health insurance premiums.

That would be no good.

But we can do it because we've created the problem.

We, Congress, have driven up the health insurance premiums, and since we've created that problem, this somehow gives us authority that we wouldn't otherwise have.

That can't possibly be right.

That would--

Justice Sonia Sotomayor: Do you think that there's -- what percentage of the American people who took their son or daughter to an emergency room and that child was turned away because the parent didn't have insurance -- do you think there's a large percentage of the American population who would stand for the death of that child--

Mr. Carvin: --One of the most--

Justice Sonia Sotomayor: --They had an allergic reaction and a simple shot would have saved the child?

Mr. Carvin: --One of the more pernicious, misleading impressions that the government has made is that we are somehow advocating that people be -- could get thrown out of emergency rooms, or that this alternative that they've hypothesized is going to be enforced by throwing people out of emergency rooms.

This alternative; i.e. conditioned access to health care on buying health insurance, is enforced in precisely the same way that the Act does.

You either buy health insurance or you pay a penalty of $695.

You don't have doctors throwing people out on the street.

And -- and so the only--

Justice Sonia Sotomayor: I'm sorry, did you say the penalty's okay but not the mandate?

I'm sorry.

Maybe I've misheard you.

Mr. Carvin: --No.

No.

I was -- they create this strawman that says look, the only alternative to doing it the way we've done it, if we condition access to health care on buying health insurance, the only way you can enforce that is making sick people not get care.

I'm saying no, no.

There's a perfectly legitimate way they could enforce their alternative; i.e. requiring you to buy health insurance when you access health care, which is the same penalty structure that's in the Act.

There is no moral dilemma between having people have insurance and denying them emergency service.

Congress has made a perfectly legitimate value judgment that they want to make sure that people get emergency care.

Since the founding, whenever Congress has imposed that public responsibility on private actors, it has subsidized it from the Federal Treasury.

It has not conscripted a subset of the citizenry and made them subsidize the actors who are being hurt, which is what they're doing here.

They're making young healthy people subsidize insurance premiums for the cost that the nondiscrimination provisions have put on insurance premiums and insurance companies.

Justice Sonia Sotomayor: So the--

Mr. Carvin: --and that -- that is the fundamental problem here.

Justice Sonia Sotomayor: --So the -- I -- I want to understand the choices you're saying Congress has.

Congress can tax everybody and set up a public health care system.

Mr. Carvin: Yes.

Justice Sonia Sotomayor: That would be okay.

Mr. Carvin: Yes.

Tax power is--

Justice Sonia Sotomayor: Okay.

Mr. Carvin: --I would accept that.

Justice Sonia Sotomayor: Congress can -- you're taking the same position as your colleague, Congress can't say we're going to set up a public health system, but you can get a tax credit if you have private health insurance because you won't access the public system.

Are you taking the same position as your colleague?

Mr. Carvin: There may have been some confusion in prior colloquy.

I fully agree with my brother Clement that a direct tax would be unconstitutional.

I don't think he means to suggest, nor do I, that a tax credit that incentivizes you to buy insurance creates problems.

Congress incentivizes all kinds of activities.

If they gave us a tax credit for buying insurance, then it would be our choice whether or not that makes economic sense, even though--

Justice Sonia Sotomayor: So how is this different than this Act which says if a taxpayer fails to meet the requirement of having minimum coverage, then they are responsible for paying the shared responsibility payment?

Mr. Carvin: --The difference is that the taxpayer is not given a choice.

It's the difference between banning cigarettes and saying I'm going to enforce that legal ban through a $5 a pack penalty, and saying look, if you want to sell cigarettes, fine.

I'm going to charge you a tax of $5 a pack.

And that's--

Justice Sonia Sotomayor: I think -- I think that's what's happening, isn't it?

Mr. Carvin: --No.

Not--

Justice Sonia Sotomayor: We're paying -- I thought that everybody was paying, what is it, $10 a pack now?

I don't even know the price.

It's pretty high.

Mr. Carvin: --Right.

And everyone understands--

Justice Sonia Sotomayor: I think everybody recognizes that it's all taxation for the purposes of dissuading you to buy it.

Mr. Carvin: --That's precisely my point.

And everyone intuitively understands that that system is dramatically different than saying cigarettes tomorrow are illegal.

It is different.

Justice Stephen G. Breyer: It is different.

It is different.

I agree with that.

But you pointed out, and I agree with you on this, that the government set up these emergency room laws.

The government set up Medicaid.

The government set up Medicare.

The government set up CHIP, and there are 40 million people who don't have the private insurance.

In that world, the government has set up commerce.

It's all over the United States.

And in that world, of course, the decision by the 40 million not to buy the insurance affects that commerce, and substantially so.

So I thought the issue here is not whether it's a violation of some basic right or something to make people buy things they don't want, but simply whether those decisions of that group of 40 million people substantially affect the interstate commerce that has been set up in part through these other programs.

So that's the part of your argument I'm not hearing.

Mr. Carvin: Let me--

Justice Stephen G. Breyer: Please.

Mr. Carvin: --It is clear that the failure to buy health insurance doesn't affect anyone.

Defaulting on your payments to your health care provider does.

Congress chose for whatever reason not to regulate the harmful activity of defaulting on your health care provider.

They used the 20 percent or whoever among the uninsured as a leverage to regulate the 100 percent of the uninsured.

Justice Anthony Kennedy: I agree -- I agree that that's what's happening here.

Mr. Carvin: Okay.

Justice Anthony Kennedy: And the government tells us that's because the insurance market is unique.

And in the next case, it'll say the next market is unique.

But I think it is true that if most questions in life are matters of degree, in the insurance and health care world, both markets -- stipulate two markets -- the young person who is uninsured is uniquely proximately very close to affecting the rates of insurance and the costs of providing medical care in a way that is not true in other industries.

That's my concern in the case.

Mr. Carvin: And, Your -- I may be misunderstanding you, Justice Kennedy.

I hope I'm not.

Sure.

It would be perfectly fine if they allowed -- you do actuarial risk for young people on the basis of their risk for disease, just like you judge flood insurance on the homeowner's risk of flood.

One of the issues here is not only that they're compelling us to enter into the marketplace, they're not -- they're prohibiting us from buying the only economically sensible product that we would want.

Catastrophic insurance.

Everyone agrees the only potential problem that a 30-year-old, as he goes from the healthy 70 percent of the population to the unhealthy 5 percent.

And yet Congress prohibits anyone over 30 from buying any kind of catastrophic health insurance.

And the reason they do that is because they needed this massive subsidy.

Justice Alito, it's not our numbers.

CBO said that injecting my clients into the risk pool lowers premiums by 15 to 20 percent.

So, Justice Kennedy, even if we were going to create exceptions for people that are outside of commerce and inside of commerce, surely we'd make Congress do a closer nexus and say look, we're really addressing this problem.

We want these 30-year-olds to get catastrophic health insurance.

And not only did they -- they deprived them of that option.

And I think that illustrates the dangers of giving Congress these plenary powers, because they can always leverage them.

They can always come up with some public policy rationale that converts the power to regulate commerce into the power to promote commerce, which, as I was saying before, is the one that I think is plenary.

Justice Elena Kagan: Mr. Carvin, a large part of this argument has concerned the question of whether certain kinds of people are active participants in a market or not active participants in a market.

In your test, which is a test that focuses on this activity/inactivity distinction, would force one to confront that problem all the time.

Now, if you look over the history of the Commerce Clause, what you see is that there were sort of unhappy periods when the Court used tests like this -- direct versus indirect, commerce versus manufacturing.

I think most people would say that those things didn't really work.

And the question is, why should this test, inactive versus active, work any better?

Mr. Carvin: The problem you identify is exactly the problem you would create if you bought the government's bogus limiting principles.

You'd have to draw distinctions between the insurance industry and the car industry and all of that.

We turn you to the Commerce Clause jurisprudence that bedeviled the Court before the 1930s, where they were drawing all these kinds of distinctions among industries; whereas our test is really very simple.

Are you buying the product or is Congress compelling you to buy the product?

I can't think of a brighter line.

And again, if Congress has the power to compel you to buy this product, then obviously, they have got the power to provide you -- to compel you to buy any product, because any purchase is going to benefit commerce, and this Court is never going to second-guess Congress's policy judgments on how important it is this product versus that product.

Justice Samuel Alito: Do you think they are drawing a line between commerce and everything else that is not commerce is drawing an artificial line, drawing a line between Congress and manufacturing?

Mr. Carvin: The words "inactivity" and "activity" are not in the Constitution.

The words "commerce" and "noncommerce" are.

And again, it's a distinction that comes, Justice Kagan, directly from the text of the Constitution.

The Framers consciously gave Congress the ability to regulate commerce, because that's not a particularly threatening activity that deprives you of individual freedom.

If you were required, if you were authorized to require A to transfer property to B, you have, as the early cases put it, a monster in legislation which is against all reason in justice, because everyone intuitively understands that regulating people who voluntarily enter into contracts in setting changing conditions does not create the possibility of Congress compelling wealth transfers among the citizenry.

And that is precisely why the Framers denied them the power to compel commerce, and precisely why they didn't give them plenary power.

Chief Justice John G. Roberts: Thank you, Mr. Carvin.

remaining.

General Verrilli, you have four minutes--

REBUTTAL ARGUMENT OF DONALD B. VERRILLI, JR., ON BEHALF OF THE PETITIONERS

Mr. Verrilli Jr.: Thank you, Mr. Chief Justice.

Congress confronted a grave problem when it enacted the Affordable Care Act.

The 40 million Americans who can't get health insurance and suffered often very terrible consequences.

Now, we agree, I think -- everyone arguing this case agrees that Congress could remedy that problem by imposing the insurance requirement at the point of sale.

That won't work.

The reason it won't work is because people will still show up at the hospital or at their physician's office seeking care without insurance, causing the cost shifting problem.

And Mr. Clement's suggestion that they can be signed up for a high risk pool at that point is utterly unrealistic.

Think about how much it would cost to get the insurance when you are at the hospital or at the doctor.

It would be -- it would be unfathomably high, that will never work.

Congress understood that.

It chose a means that will work.

The means that it saw work in the States and in the State of Massachusetts and that, and that it had every reason to think would work on a national basis.

That is the kind of choice of means that McCulloch says that the Constitution leaves to the democratically accountable branches of government.

There is no temporal limitation in the Commerce Clause.

Everyone subject to this regulation is in or will be in the health care market.

They are just being regulated in advance.

That's exactly the kind of thing that ought to be left to the judgment of Congress and the democratically accountable branches of government.

And I think this is actually a paradigm example of the kind of situation that Chief Justice Marshall envisioned in McCulloch itself, that the provisions of the Constitution needed to be interpreted in a manner that would allow them to be effective in addressing the great crises of human affairs that the Framers could not even envision.

But if there is any doubt about that under the Commerce Clause, then I urge this Court to uphold the minimum coverage provision as an exercise of the taxing power.

Under New York v. United States, this is precisely a parallel situation.

If the Court thinks there is any doubt about the ability of Congress to impose the requirement in 5000A(a), it can be treated as simply the predicate to which the tax incentive of 5000A(b) seeks accomplishment.

And the Court -- as the Court said in New York, has a solemn obligation to respect the judgments of the democratically accountable branches of government, and because this statute can be construed in a manner that allows it to be upheld in that way, I respectfully submit that it is this Court's duty to do so.

Chief Justice John G. Roberts: Thank you, General.

Counsel, we'll see you tomorrow.

Transcript: 

ORAL ARGUMENT OF PAUL D. CLEMENT ON BEHALF OF THE PETITIONERS

Chief Justice John G. Roberts: We will continue argument this morning in Case Number 11-393, National Federation of Independent Business v. Sebelius and case 11-400, Florida v. The Department of HHS.

Mr. Clement.

Mr. Clement: Mr. Chief Justice, and may it please the Court:

If the individual mandate is unconstitutional, then the rest of the Act cannot stand.

As Congress found and the Federal Government concedes, the community rating and guaranteed-issue provisions of the Act cannot stand without the individual mandate.

Congress found that the individual mandate was essential to their operation.

And not only can guaranteed-issue and community-rating not stand, not operate in the manner that Congress intended, they would actually counteract Congress's basic goal of providing patient protection but also affordable care.

If you do not have the individual mandate to force people into the market then community rating and guaranteed-issue will cause the cost of premiums to skyrocket.

We can debate the order of magnitude of that but we can't debate that the direction will be upward.

We also can't debate--

Justice Sonia Sotomayor: Counsel, that may well be true.

The economists are going back and forth on that issue, and the figures vary from up 10 percent to up 30.

We are not in the habit of doing the legislative findings.

What we do know is that for those States that found prices increasing, that they found various solutions to that.

In one instance, and we might or may not say that it's unconstitutional, Massachusetts passed the mandatory coverage provision.

But others adjusted some of the other provisions.

Why shouldn't we let Congress do that, if in fact, the economists prove, some of the economists prove right, that prices will spiral?

What's wrong with leaving it to -- in the hands of the people who should be fixing this, not us?

Mr. Clement: --Well, a couple of questions -- a couple of responses, Justice Sotomayor.

First of all, I think that it's very relevant here that Congress had before it as examples some of the States that had tried to impose guaranteed-issue and community rating and did not impose an individual mandate.

And Congress rejected that model.

So your question is quite right in the saying that it's not impossible to have guaranteed-issue and community-rating without an individual mandate.

But it's a model that Congress looked at and specifically rejected.

And then, of course, there is Congress's own finding, and their finding, of course, this is (i), which is [= 43(a)of] the government's brief in the appendix, Congress specifically found that having the individual mandate is essential to the operation of guaranteed-issue and community-rating.

Justice Sonia Sotomayor: That's all it said it's essential to.

I mean, I'm looking at it.

The exchanges, the State exchanges are information -- gathering facilities that tell insurers what the various policies actually mean.

And that has proven to be a cost saver in many of the States who have tried it.

So why should we be striking down a cost saver when if what your argument is, was, that Congress was concerned about costs rising?

Why should we assume they wouldn't have passed that information?

Mr. Clement: I think a couple of things.

One, you get -- I mean, I would think you are going to have to take the bitter with the sweet.

And if Congress -- if we are going to look at Congress's goal of providing patient protection but also affordable care, we can't -- I don't think it works to just take the things that save money and cut out the things that are going to make premiums more expensive.

But at a minimum--

Justice Sonia Sotomayor: I want a bottom line is why don't we let Congress fix it?

Mr. Clement: --Well, let me answer the bottom line question, which is, no matter what you do in this case, at some point there's going to be -- if you strike down the mandate, there is going to be something for Congress to do.

The question is really, what task do you want to give Congress.

Do you want to give Congress the task of fixing the statute after something has been taken out, especially a provision at the heart, or do you want to give Congress the task of fixing health care?

And I think it would be better in this situation--

Justice Sonia Sotomayor: We are not taking -- If we strike down one provision, we are not taking that power away from Congress.

Congress could look at it without the mandatory coverage provision and say, this model doesn't work; let's start from the beginning.

Or it could choose to fix what it has.

We are not declaring -- one portion doesn't force Congress into any path.

Mr. Clement: --And of course that's right, Justice Sotomayor, and no matter what you do here, Congress will have the options available.

So if you, if you strike down only the individual mandate, Congress could say the next day: Well, that's the last thing we ever wanted to do so we will strike down the rest of the statute immediately and then try to fix the problem.

So whatever you do, Congress is going to have options.

The question is--

Justice Antonin Scalia: Well, there is such a thing as legislative inertia, isn't there?

Mr. Clement: --That's exactly what I was going to say, Justice Scalia, which is, I think the question for this Court is, we all recognize there is legislative inertia.

And then the question is: What is the best result in light of that reality?

Justice Sonia Sotomayor: Are you suggesting that we should take on more power to the Court?

Mr. Clement: No--

Justice Sonia Sotomayor: Because Congress would choose to take one path rather than another.

That's sort of taking onto the Court more power than one I think would want.

Mr. Clement: --And I agree.

We are simply asking this Court to take on straight on the idea of the basic remedial inquiry into severability which looks to be intent of the Congress--

Justice Antonin Scalia: Mr. Clement, I want to ask you about that.

Why -- why do we look to the -- are you sure we look to the intent of the Congress?

I thought that, you know, sometimes Congress says that these provisions will -- all the provisions of this Act will be severable.

And we ignore that when the Act really won't work.

When the remaining provisions just won't work.

Now how can you square that reality with the proposition that what we're looking for here is what would this Congress have wanted?

Mr. Clement: --Well, two responses, Justice Scalia.

We can look at this Court's cases on severability, and they all formulate the task a little bit differently.

Justice Antonin Scalia: Yes, they sure do.

Mr. Clement: And every one of them talks about congressional intent.

But here's, here's the other answer--

Justice Antonin Scalia: That's true, but is it right?

Mr. Clement: --It is right.

And here is how I would answer your question, which is, when Congress includes a severability clause, it is addressing the issue in the abstract.

It doesn't say: No matter which provisions you strike down, we absolutely, positively want what's left.

Justice Antonin Scalia: All right.

The consequence of your proposition, would Congress have enacted it without this provision, okay that's the consequence.

That would mean that if we struck down nothing in this legislation but the -- what you call the corn husker kickback, okay, we find that to violate the constitutional proscription of venality, okay?

When we strike that down, it's clear that Congress would not have passed it without that.

It was the means of getting the last necessary vote in the Senate.

And you are telling us that the whole statute would fall because the corn husker kickback is bad.

That can't be right.

Mr. Clement: Well, Justice Scalia, I think it can be, which is the basic proposition, that it's congressional intent that governs.

Now everybody on this Court has a slightly different way of dividing legislative intent.

And I would suggest the one common brand among every member of this Court as I understand it is you start with the text.

Everybody can agree with that.

Justice Elena Kagan: So Mr. Clement, let's start with the text.

Then you suggest, and I think that there is -- this is right, that there is a textual basis for saying that the guaranteed-issue and the community ratings provisions are tied to the mandate.

And you said -- you pointed to where that was in the findings.

Is there a textual basis for anything else, because I've been unable to find one.

It seems to me that if you look at the text, the sharp dividing line is between guaranteed-issue and community ratings on the one hand, everything else on the other.

Mr. Clement: Well, Justice Kagan I would be delighted to take you through my view of the text and why there are other things that have to fall.

The first place I would ask you to look is finding J which is on the same page 43 A. And as I read that, that's a finding that the individual mandate is essential to the operation of the exchanges.

But there are other links between guaranteed-issue and community ratings and the exchanges.

And there I think it's just the way that the exchanges are supposed to work.

And the text makes this clear is they are supposed to provide a market where people can compare community rated insurance.

That's what makes the exchanges function.

Justice Elena Kagan: Although the exchanges function perfectly well in Utah where there is no mandate.

They function differently, but they function.

And the question is always, does Congress want half a loaf.

Is half a loaf better than no loaf?

And on something like the exchanges it seems to me a perfect example where half a loaf is better than no loaf.

The exchanges will do something.

They won't do everything that Congress envisioned.

Mr. Clement: Well, Justice Kagan, I think there are situations where half a loaf is actually worse and I want to address that.

But before I do it -- broadly.

But before I do that, if I could stick with just the exchanges.

I do think the question that this Court is supposed to ask is not just whether they can limp along and they can operate independently, but whether they operate in the manner that Congress intended.

And that's where I think the exchanges really fall down.

Because the vision of the exchanges was that if you got out of this current situation where health insurance is basically individualized price based on individualized underwriting and you provide community ratings, then it's going to be very easy for people to say okay, well this is a silver policy and this is a bronze policy and this is a gold policy and we can, you know, I can just pick which insurer provides what I think is going to be the best service based on those comparable provisions.

Justice Elena Kagan: Mr. Clement, you just said something which you say a lot in your brief.

You say the question is the manner in which it would have operated.

And I think that that's not consistent with our cases.

And I guess the best example would be Booker where we decided not to sever provisions, notwithstanding that the sentencing guidelines clearly operate in a different manner now than they did when Congress passed them.

They operate as advisory rather than mandatory.

Mr. Clement: Well, but Justice Kagan, I mean I actually think Booker supports our point as well, because there are two aspects of the remedial holding of Booker.

And the first part of it, which I think actually very much supports our point is where the majority rejects the approach of the dissent, which actually would have required nothing in the statute to have been struck, not a single word.

But nonetheless this Court said, well, if you do that then all of the sentencing is basically going to be done by a combination of the juries and the prosecutors and the judges are going to be cut out.

And the Court said the one thing we know is that's not the manner in which Congress thought that this should operate.

Now later they make a different judgment about the -- which particular provisions to cut out.

But I do think Booker is consistent with this way of looking at it and certainly consistent with Brock, the opinion we rely on because there the Court only reached that part of the opinion after they already found that the must-hire provision operated functionally independent from the legislative detail, so--

Justice Ruth Bader Ginsburg: Mr. Clement, there are so many things in this Act that are unquestionably okay.

I think you would concede that reauthorizing what is the Indian Healthcare Improvement Act changes to long benefits, why make Congress redo those?

I mean it's a question of whether we say everything you do is no good, now start from scratch, or to say, yes, there are many things in here that have nothing to do frankly with the affordable healthcare and there are some that we think it's better to let Congress to decide whether it wants them in or out.

So why should we say it's a choice between a wrecking operation, which is what you are requesting, or a salvage job.

And the more conservative approach would be salvage rather than throwing out everything.

Mr. Clement: --Well, Justice Ginsburg, two kinds of responses to that.

One, I do think there are some provisions that I would identify as being at the periphery of this statute.

And I'll admit that the case for severing those is perhaps the strongest.

But I do think it is fundamentally different, because if we were here arguing that some provision on the periphery of the statute, like the Biosimilars Act or some of the provisions that you've mentioned was unconstitutional, I think you'd strike it down and you wouldn't even think hard about severability.

What makes this different is that the provisions that have constitutional difficulties or are tied at the hip to those provisions that have the constitutional difficulty are the very heart of this Act.

And then if you look at how they are textually interconnected to the exchanges, which are then connected to the tax credits, which are also connected to the employer mandates, which is also connected to some of the revenue offsets, which is also connected to Medicaid, if you follow that through what you end up with at the end of that process is just sort of a hollow shell.

And at that point I think there is a strong argument for not -- I mean, you can't possibly think that Congress would have passed that hollow shell without the heart of the Act.

Chief Justice John G. Roberts: Well, but it would have -- it would have passed parts of the hollow shell.

I mean, a lot of this is reauthorization of appropriations that have been reauthorized for the previous 5 or 10 years and it was just more convenient for Congress to throw it in in the middle of the 2700 pages than to do it separately.

I mean, can you really suggest -- I mean, they've cited the Black Lung Benefits Act and those have nothing to do with any of the things we are talking about.

Mr. Clement: Well, Mr. Chief Justice, they tried to make them germane.

But I'm not here to tell you that -- some of their -- surely there are provisions that are just looking for the next legislative vehicle that is going to make it across the finish line and somebody's going to attach it to anything that is moving.

I mean, I'll admit that.

But the question is when everything else from the center of the Act is interconnected and has to go, if you follow me that far, then the question is would you keep this hollowed-out shell?

Justice Sonia Sotomayor: Well, but it's not--

Justice Anthony Kennedy: But I'm still not sure, what is the test -- and this was the colloquy you had with Justice Scalia with the corn husker hypothetical.

So I need to know what standard you are asking me to apply.

Is it whether as a rational matter separate parts could still function, or does it focus on the intent of the Congress?

If you -- suppose you had party A wants proposal number 1, party B wants proposal number 2.

Completely unrelated.

One is airline rates, the other is milk regulation.

And we -- and they decide them together.

The procedural rules are these have to be voted on as one.

They are both passed.

Then one is declared unconstitutional.

The other can operate completely independently.

Now, we know that Congress would not have intended to pass one without the other.

Is that the end of it, or is there some different test?

Because we don't want to go into legislative history, that's intrusive, so we ask whether or not an objective -- as an objective rational matter one could function without -- I still don't know what the test is that we are supposed to apply.

And this is the same question as Justice Scalia asked.

Could you give me some help on that?

Mr. Clement: Sure.

Justice Kennedy, the reality is I think this Court's opinions have at various times applied both strains of the analysis.

Justice Anthony Kennedy: And which one -- and what test do you suggest that we follow if we want to clarify our jurisprudence?

Mr. Clement: I'm -- I'm a big believer in objective tests, Justice Kennedy.

I would be perfectly happy with you to apply a more textually based objective approach.

I think there are certain justices that are more inclined to take more of a peek at legislative history, and I think if you look at the legislative history of this it would only fortify the conclusion that you would reach from a very objective textual inquiry.

But I am happy to focus the Court on the objective textual inquiry.

Chief Justice John G. Roberts: I don't understand--

Justice Anthony Kennedy: And that objective test is what?

Mr. Clement: Is whether the statute can operate in the manner that Congress -- that Congress intended.

Justice Sonia Sotomayor: --No statute can do that, because once we chop off a piece of it, by definition, it's not the statute Congress passed.

So it has to be something more than that.

Mr. Clement: Justice Sotomayor, every one of your cases, if you have a formulation for severability, if you interpret it woodenly it becomes tautological.

And Justice Blackmun addressed this in footnote 7 of the Brock opinion that we rely on, where he says: Of course it's not just -- you know, it doesn't operate exactly in the manner because it doesn't have all the pieces, but you still make an inquiry as to whether when Congress links two provisions together and one really won't work without the other--

Justice Sonia Sotomayor: So what is wrong with the presumption that our law says, which is we presume that Congress would want to sever?

Wouldn't that be the simplest, most objective test?

Going past what Justice Scalia says we have done, okay, get rid of legislative intent altogether, which some of our colleagues in other contexts have promoted, and just say: Unless Congress tells us directly, it's not severable, we shouldn't sever.

We should let them fix their problems.

You still haven't asked -- answered me why in a democracy structured like ours, where each branch does different things, why we should involve the Court in making the legislative judgment?

Mr. Clement: --Justice Sotomayor let me try to answer the specific question and then answer the big picture question.

The specific question is, I mean, you could do that.

You could adopt a new rule now that basically says, look, we've severed--

Justice Sonia Sotomayor: It's not a new rule.

We presume.

We've rebutted the presumption in some cases--

Mr. Clement: --Right.

Justice Sonia Sotomayor: --But some would call that judicial action.

Mr. Clement: I think in fairness, though, Justice Sotomayor, to get to the point you are wanting to get to, you would have to ratchet up that presumption a couple of ticks on the scale, because the one thing--

Justice Sonia Sotomayor: And what's wrong with that?

Mr. Clement: --Well, one thing that's wrong with that, which is still at a smaller level, is that's inconsistent with virtually every statement in every one of your severability opinions, which all talk about congressional intent.

Justice Elena Kagan: Well, it's not inconsistent with our practice, right, Mr. Clement?

I mean, you have to go back decades and decades and decades, and I'm not sure even then you could find a piece of legislation that we refused to sever for this reason.

Mr. Clement: I don't think that's right, Justice Kagan.

I think there are more recent examples.

A great example I think which sort of proves, and maybe is a segue to get to my broader point, is a case that involves a State statute, not a Federal statute, but I don't think anything turns on that, is Randall against Sorrell, where this Court struck down various provisions of the Vermont campaign finance law.

But there were other contribution provisions that were not touched by the theory that the Court used to strike down the contribution limits.

But this Court at the end of the opinion said: There is no way to think that the Vermont legislator would have wanted these handful of provisions there on the contribution side, so we will strike down the whole thing.

And if I could make the broader point, I mean, I think the reason it makes sense in the democracy with separation of powers to in some cases sever the whole thing is because sometimes a half a loaf is worse.

And a great example, if I dare say so, is Buckley.

In Buckley this Court looked at a statute that tried to, in a coherent way, strike down limits on contributions and closely related expenditures.

This Court struck down the ban on expenditures, left the contribution ban in place, and for 4 decades Congress has tried to fix what's left of the statute, largely unsuccessfully, whereas it would have I think worked much better from a democratic and separation of powers standpoint if the Court would have said: Look, expenditures are -- you can't limit expenditures under the Constitution; the contribution provision is joined at the hip.

Give Congress a chance to actually fix the problem.

Justice Elena Kagan: Mr. Clement--

Justice Stephen G. Breyer: Could I ask you one question, which is a practical question.

I take as a given your answer to Justice Kennedy, you are saying let's look at it objectively and say what Congress has intended, okay?

This is the mandate in the community, this is Titles I and II, the mandate, the community, pre-existing condition, okay?

Here's the rest of it, you know, and when I look through the rest of it, I have all kinds of stuff in there.

And I haven't read every word of that, I promise.

As you pointed out, there is biosimilarity, there is breast feeding, there is promoting nurses and doctors to serve underserved areas, there is the CLASS Act, etcetera.

What do you suggest we do?

I mean, should we appoint a special master with an instruction?

Should we go back to the district court?

You haven't argued most of these.

As I hear you now, you're pretty close to the SG.

I mean, you'd like it all struck down, but we are supposed to apply the objective test.

I don't know if you differ very much.

So what do you propose that we do other than spend a year reading all this and have you argument all this?

Mr. Clement: Right.

What I would propose is the following, Justice Breyer, is you follow the argument this far and then you ask yourself whether what you have left is a hollowed-out shell or whether--

Justice Stephen G. Breyer: I would say the Breast Feeding Act, the getting doctors to serve underserved areas, the biosimilar thing and drug regulation, the CLASS Act, those have nothing to do with the stuff that we've been talking about yesterday and the day before, okay?

So if you ask me at that level, I would say, sure, they have nothing to do with it, they could stand on their own.

The Indian thing about helping the underserved Native Americans, all that stuff has nothing to do.

Black lung disease, nothing to do with it, okay?

So that's -- do you know what you have there?

A total off-the-cuff impression.

So that's why I am asking you, what should I do?

Mr. Clement: --What you should do, is let me say the following, which is follow me this far, which is mandatory, individual mandate is tied, as the government suggests, to guaranteed-issue and community rating, but the individual mandate, guaranteed-issue, and community rating together are the heart of this Act.

They are what make the exchanges work.

The exchanges in turn are critical to the tax credits, because the amount of the tax credit is key to the amount of the policy price on the exchange.

The exchanges are also key to the employer mandate, because the employer mandate becomes imposed on an employer if one of the employees gets insurance on the exchanges.

But it doesn't stop there.

Look at the Medicare provision for DISH hospitals, okay?

These are hospitals that serve a disproportionate share of the needy.

This isn't in Title I. It's in the other part that you had in your other hand.

But it doesn't work without the mandate, community rating and guaranteed-issue.

Justice Samuel Alito: Well, can I ask you this, Mr. Clement?

Mr. Clement: Sure.

Justice Samuel Alito: What would your fallback position be if -- if we don't accept the proposition that if the mandate is declared unconstitutional, the rest of the Act, every single provision, has to fall?

Other -- proposed other dispositions have been proposed.

There's the Solicitor General's disposition, the recommended disposition to strike down the guaranteed-issue and community rating provisions.

One of the -- one amicus says strike down all of Title I, another one says strike down all of Title I and Title II.

What -- what would you suggest?

Mr. Clement: Well, I -- I think what I would suggest, Justice Alito -- I don't want to be unresponsive -- is that you sort of follow the argument through and figure out what in the core of the Act falls.

And then I guess my fallback would be if what's left is a hollowed-out shell, you could just leave that standing.

If you want a sort of practical answer, I mean, I do think you could just -- you know, you could use Justice Breyer's off-the-cuff as a starting point and basically say, you know, Title I and a handful of related provisions that are very closely related to that are -- are really the heart of the Act--

Chief Justice John G. Roberts: --Well, that's--

Mr. Clement: --the bigger volume -- on the other hand -- I mean, you could strike one and leave the other, but at a certain point -- I'm sorry, Mr. Chief Justice.

Chief Justice John G. Roberts: --Finish your certain point.

Mr. Clement: At -- at a certain point, I just think that, you know, the better answer might be to say, we've struck the heart of this Act, let's just give Congress a clean slate.

If it's so easy to have that other big volume get reenacted, they can do it in a couple of days; it won't be a big deal.

If it's not, because it's very ----

[Laughter]

--well, but -- I mean, you can laugh at me if you want, but the point is, I'd rather suspect that it won't be easy.

Because I rather suspect that if you actually dug into that, there'd be something that was quite controversial in there and it couldn't be passed quickly--

Chief Justice John G. Roberts: But the -- the--

Mr. Clement: --and that's our whole point.

Chief Justice John G. Roberts: --the -- the reality of the passage -- I mean, this was a piece of legislation which, there was -- had to be a concerted effort to gather enough votes so that it could be passed.

And I suspect with a lot of these miscellaneous provisions that Justice Breyer was talking about, that was the price of the vote.

Put in the Indian health care provision and I will vote for the other 2700 pages.

Put in the black lung provision, and I'll go along with it.

That's why all -- many of these provisions I think were put in, not because they were unobjectionable.

So presumably what Congress would have done is they wouldn't have been able to put together, cobble together, the votes to get it through.

Mr. Clement: Well, maybe that's right, Mr. Chief Justice.

And I don't want to, I mean, spend all my time on -- fighting over the periphery, because I do think there are some provisions that I think you would make as -- as an exercise of your own judgment, the judgment that once you've gotten rid of the core provisions of this Act, that you would then decide to let the periphery fall with it.

But if you want to keep the periphery, that's fine.

What I think is important, though, as to the core provisions of the Act, which aren't just the mandate community rating and guaranteed-issue, but include the exchanges, the tax credit, Medicare and Medicaid -- as to all of that, I think you do want to strike it all down to avoid a redux of Buckley.

If I could reserve the remainder of my time.

Chief Justice John G. Roberts: Thank you, Mr. Clement.

Mr. Kneedler.

ORAL ARGUMENT OF EDWIN S. KNEEDLER ON BEHALF OF THE RESPONDENTS

Mr. Kneedler: Thank you, Mr. Chief Justice, and may it please the Court:

There should be no occasion for the Court in this case to consider issues of severability, because as we argue, the -- the minimum coverage provision is fully consistent with Article I of the Constitution.

But if the Court were to conclude otherwise, it should reject Petitioners' sweeping proposition that the entire Act must fall if this one provision is held unconstitutional.

As an initial matter, we believe the Court should not even consider that question.

The vast majority of the provisions of this Act do not even apply to the Petitioners, but instead apply to millions of citizens and businesses who are not before the Court--

Chief Justice John G. Roberts: How does your proposal actually work?

Your idea is that, well, they can take care of it themselves later.

I mean, do you contemplate them bringing litigation and saying -- I guess the insurers would be the most obvious ones -- without -- without the mandate, the whole thing falls apart and we're going to bear a greater cost, and so the rest of the law should be struck down.

And that's a whole other line of litigation?

Mr. Kneedler: --Well, I -- I think the continuing validity of any particular provision would arise in litigation that would otherwise arise under that provision by parties who are actually--

Chief Justice John G. Roberts: But what cause of action is it?

I've never heard of a severability cause of action.

Mr. Kneedler: --Well, in the first place, I don't -- the point isn't that there has to be a -- an affirmative cause of action to decide this.

You could -- for example, to use the Medicare reimbursement issue is, one of the things that this Act does is change Medicare reimbursement rates.

Well, the place where someone adjudicates the validity of Medicare reimbursement rates is through the special statutory review procedure for that.

And the same thing is true of the Anti-Injunction Act--

Justice Antonin Scalia: Mr. Kneedler, there -- there are some provisions which nobody would have standing to challenge.

If the provision is simply an expenditure of Federal money, it -- it doesn't hurt anybody except the taxpayer, but the taxpayer doesn't have standing.

That -- that just continues.

Even though it -- it is -- it should -- it is so closely aligned to what's been struck down that it ought to go as well.

But nonetheless, that has to continue because there's nobody in the world that can challenge it.

Can that possibly be the law?

Mr. Kneedler: --I think that proves our point, Justice Scalia.

This Court has repeatedly said that just because there's -- no one may have standing to challenge -- and particularly like tax credits or taxes which are challenged only after going through the Anti-Injunction Act -- just because no one has standing doesn't mean that someone must.

But beyond that--

Justice Antonin Scalia: But -- but those are provisions that have been legitimately enacted.

The whole issue here is whether these related provisions have been legitimately enacted, or whether they are so closely allied to one that has been held to be unconstitutional that they also have not been legitimately enacted.

You -- you can't compare that to -- to cases dealing with a -- a statute that nobody denies is -- is constitutional.

Mr. Kneedler: --This -- this case is directly parallel to the Printz case, in our view.

In that case, the Court struck down several provisions of the Brady Act, but went on to say it had no business addressing the severability of other provisions that did not apply to the people before whom--

Justice Sonia Sotomayor: But--

Justice Stephen G. Breyer: What he's thinking of is this: I think Justice Scalia is thinking, I suspect, of -- imagine a tax which says, this tax, amount Y, goes to purpose X, which will pay for half of purpose X. The other half will come from the exchanges somehow.

That second half is unconstitutional.

Purpose X can't possibly be carried out now with only half the money.

Does the government just sit there collecting half the money forever because nobody can ever challenge it?

You see, there -- if it were inextricably connected, is it enough to say, well, we won't consider that because maybe somebody else could bring that case and then there is no one else?

Is that--

Mr. Kneedler: --Yes, we think that is the proper way to proceed.

Severability--

Justice Ruth Bader Ginsburg: It's not a choice between someone else bringing the case and a law staying in place.

And what we're really talking about, as Justice Sotomayor started this discussion, is who is the proper party to take out what isn't infected by the Court's holding -- with all these provisions where there may be no standing, one institution clearly does have standing, and that's Congress.

And if Congress doesn't want the provisions that are not infected to stand, Congress can take care of it.

It's a question of which -- which side -- should the Court say, we're going to wreck the whole thing, or should the Court leave it to Congress?

Mr. Kneedler: --We think the Court should leave it to Congress for two reasons.

One is the point I'm making now about justiciability, or whether the Court can properly consider it at all.

And the second is, we think only a few provisions are inseverable from the minimum coverage provision.

I just would like to--

Chief Justice John G. Roberts: Before you go, Mr. Kneedler, I'd like your answer to Justice Breyer's question.

I think you were interrupted before that--

Mr. Kneedler: --Yes.

No.

We -- we believe that in that case, the -- the tax -- the tax provision should not be struck down.

In the first place, the Anti-Injunction Act would bar a -- a direct suit to challenge it.

It would be very strange to allow a tax to be struck down on the basis of a severability analysis.

Severability arises in a case only where it's necessary to consider what relief a party before the Court should get.

The only party--

Justice Samuel Alito: Suppose that there was -- suppose there was a non-severability provision in -- in this Act.

If one provision were to be held unconstitutional, then every single -- someone would have to bring a -- a separate lawsuit challenging every single other provision in the Act and say, well, one fell and the Congress said it's all -- it's a package, it can't be separated.

That's your position?

Mr. Kneedler: --The -- the fact that that's such a clause might make it easy doesn't change the point.

Article III jurisdictional problems apply to easy questions as well as -- as hard questions.

If I could just--

Justice Anthony Kennedy: But there's no Article III jurisdictional problem in Justice Alito's hypothetical, that this is a remedial exercise of the Court's power to explain the consequences of its judgment in this case.

Mr. Kneedler: --But -- this Court had said that one has -- has to have standing for every degree of relief that -- that is sought.

That was in Davis, that was Los Angeles v. Lyons.

Justice Antonin Scalia: Mr. Kneedler--

Mr. Kneedler: --Daimler/Chrysler--

Justice Antonin Scalia: --don't you think it's unrealistic to say leave it to Congress, as though you are sending it back to Congress for Congress to consider it dispassionately on balance, should we have this provision or should we not have provision?

That's not what it's going to be.

It's going to be, these provisions are in effect; even though you -- a lot of you never wanted them to be in effect, and you only voted for them because you wanted to get the heart of the -- the Act, which has now been cut out; but nonetheless these provisions are the law, and you have to get the votes to overturn them.

That's an enormously different question from whether you get the votes initially to put them into the law.

What -- there, there is no way that this Court's decision is not going to distort the congressional process.

Whether we strike it all down or leave some of it in place, the congressional process will never be the same.

One way or another, Congress is going to have to reconsider this, and why isn't it better to have them reconsider it -- what -- what should I say -- in toto, rather than having some things already in the law which you have to eliminate before you can move on to consider everything on balance?

Mr. Kneedler: --We think as a matter of judicial restraint, limits on equitable remedial power limit this Court to addressing the provision that has been challenged as unconstitutional and anything else that the plaintiff seeks as relief.

Here the only--

Justice Anthony Kennedy: But in restraint--

Justice Sonia Sotomayor: --Mr. Kneedler would you please--

Chief Justice John G. Roberts: --Justice Kennedy?

Justice Anthony Kennedy: --When you say judicial restraint, you are echoing the earlier premise that it increases the judicial power if the judiciary strikes down other provisions of the Act.

I suggest to you it might be quite the opposite.

We would be exercising the judicial power if one Act was -- one provision was stricken and the others remained to impose a risk on insurance companies that Congress had never intended.

By reason of this Court, we would have a new regime that Congress did not provide for, did not consider.

That, it seems to me can be argued at least to be a more extreme exercise of judicial power than to strike -- than striking the whole.

Mr. Kneedler: --I -- I -- I think not--

Justice Anthony Kennedy: I just don't accept the premise.

Mr. Kneedler: --I think not, Justice Kennedy and then I -- I will move on.

But this is exactly the situation in Printz.

The Court identified the severability questions that were -- that were briefed before the Court as important ones, but said that they affect people who are -- rights and obligations of people who are not before the Court.

Justice Sonia Sotomayor: --Mr. Kneedler, move away from the issue of whether it's a standing question or not.

Mr. Kneedler: Right.

Justice Sonia Sotomayor: Make the assumption that's an -- that this is an issue of the Court's exercise of discretion.

Because the last two questions had to do with what's wise for the Court to do, not whether it has power to do it or not.

Mr. Kneedler: Right.

That--

Justice Sonia Sotomayor: So let's move beyond the power issue, which your answers have centered on, and give me a sort of -- policy.

And I know that's a, that's a bugaboo word sometimes, but what should guide the Court's discretion?

Mr. Kneedler: --Well, we think that matters of justiciability do blend into--

Justice Sonia Sotomayor: Would you please -- I've asked you three times to move around that.

Mr. Kneedler: --blend into, blend into discretion, and in turn blend into the merits of the severability question.

And as to that, just to answer a question that, that several Justices have asked, we think that severability is a matter of statutory interpretation.

It should be resolved by looking at the structure and the text of the Act, and the Court may look at legislative history to figure out what the text and structure mean with respect to severability.

We don't--

Justice Antonin Scalia: Mr. Kneedler, what happened to the Eighth Amendment?

You really want us to go through these 2,700 pages?

And do you really expect the Court to do that?

Or do you expect us to -- to give this function to our law clerks?

Is this not totally unrealistic?

That we are going to go through this enormous bill item by item and decide each one?

Mr. Kneedler: --Well--

Justice Sonia Sotomayor: I thought the answer was you don't have to because--

Mr. Kneedler: --Well, that is, that is the--

Justice Sonia Sotomayor: --what we have to look at is what Congress said was essential, correct?

Mr. Kneedler: --That is correct, and I'd also like to -- going -- I just want to finish the thought I had about this being a matter of statutory interpretation.

The Court's task, we submit, is not to look at the legislative process to see whether the bill would been -- would have passed or not based on the political situation at the time, which would basically convert the Court into a function such as a whip count.

That is not the Court's--

Justice Elena Kagan: And Mr. Kneedler, that would be a revolution--

Mr. Kneedler: --Yes.

Justice Elena Kagan: --in our severability law, wouldn't it?

Mr. Kneedler: It would.

Justice Elena Kagan: I mean, we have never suggested that we were going to say, look, this legislation was a brokered compromise and we are going to try to figure out exactly what would have happened in the complex parliamentary shenanigans that go on across the street and figure out whether they would have made a difference.

Instead, we look at the text that's actually given us.

For some people, we look only at the text.

It should be easy for Justice Scalia's clerks.

Mr. Kneedler: I -- I think -- I think that--

Justice Antonin Scalia: I don't care whether it's easy for my clerks.

I care whether it's easy for me.

Mr. Kneedler: --I think that -- I think that's exactly right.

As I said, it is a question of statutory interpretation.

Chief Justice John G. Roberts: Well, how is that -- what's exactly right?

It's a question of statutory interpretation; that means you have to go through every line of the statute.

I haven't heard your answer to Justice Scalia's question yet.

Mr. Kneedler: Well, I -- I think in this case there is an easy answer, and that is, Justice Kagan pointed out that, that the Act itself creates a sharp dividing line between the minimum coverage provision -- the package of -- of reforms: The minimum coverage provision along with the guaranteed-issue and community rating.

That is one package that Congress deemed essential.

Chief Justice John G. Roberts: How do you know that?

Where is this line?

I looked through the whole Act, I didn't read -- well--

Mr. Kneedler: It is in--

Chief Justice John G. Roberts: --Where is the sharp line?

Mr. Kneedler: --It is in Congress's findings that the -- that the minimum coverage provision -- without it the Court -- the -- Congress said, in finding I, without that provision people would wait to get insurance, and therefore -- and cause all the adverse selection problems that arise.

Chief Justice John G. Roberts: No, no.

That -- that makes your case that the one provision should fall if the other does.

It doesn't tell us anything about all the other provisions.

Mr. Kneedler: Well, I -- I think -- I think it does, because Congress said it was essential to those provisions, but it conspicuously did not say that it was essential to other provisions.

Chief Justice John G. Roberts: Well--

Justice Samuel Alito: May I ask you about the argument that is made in the economists' amicus brief?

They say that the insurance reforms impose 10-year costs of roughly $700 billion on the insurance industry, and that these costs are supposed to be offset by about 350 billion in new revenue from the individual mandate and 350 billion from the Medicaid expansion.

Now if the 350 billion -- maybe you will disagree with the numbers, that they are fundamentally wrong; but assuming they are in the ballpark, if the 350 million from the individual mandate were to be lost, what would happen to the insurance industry, which would now be in the -- in the hole for $350 billion over 10 years?

Mr. Kneedler: I don't -- I mean, first of all, for the Court to go beyond text and legislative history to try to figure out how the finances of the bill operate, it -- it's like being a budget committee.

But -- but we think the, the economists had added up the figures wrong.

If there is Medicaid expansion, the insurance -- and the insurance companies are involved in that, they are going to be reimbursed.

Chief Justice John G. Roberts: --But what if there isn't Medicaid expansion?

We've talked about the individual mandate, but does the government have a position on what should happen if the Medicaid expansion is struck down?

Mr. Kneedler: We don't -- we don't think that that would have any effect.

That could be addressed in the next argument.

But we don't think that would have any effect on the -- on the rest of the -- on the rest of the Act.

Chief Justice John G. Roberts: So if your -- the government's position is that if Medicaid expansion is struck down, the rest of the Act can operate--

Mr. Kneedler: Yes.

Yes.

It's -- in the past Congress has expanded Medicaid coverage without there being -- it's done it many times without there being a minimum coverage provision.

Justice Anthony Kennedy: But I still don't understand where you are with the answer to Justice Alito's question.

Assume that there is a, a substantial probability that the 350 billion plus 350 billion equals 7 is going to be cut in half if the individual mandate is -- is stricken.

Assume there is a significant possibility of that.

Is it within the proper exercise of this Court's function to impose that kind of risk?

Can we say that the Congress would have intended that there be that kind of risk?

Mr. Kneedler: Well, we don't think it's in the Court's place to look at the, at the budgetary implications, and we also--

Justice Anthony Kennedy: But isn't that -- isn't that the point then, why we should just assume that it is not severable?

Mr. Kneedler: --No.

Justice Anthony Kennedy: If we -- if we lack the competence to even assess whether there is a risk, then isn't this an awesome exercise of judicial power?

Mr. Kneedler: No, I don't--

Justice Anthony Kennedy: To say we are doing something and we are not telling you what the consequences might be?

Mr. Kneedler: --No, I don't think so, because when you -- when you are talking about monetary consequences, you are looking through the Act, you are looking behind the Act, rather than -- the Court's function is to look at the text and structure of the Act and what the substantive provisions of the Act themselves mean.

And if I could go past--

Justice Antonin Scalia: Mr. Kneedler, can I -- can you give us a prior case in -- that -- that resembles this one in which we -- we are asked to strike down what the other side says is the heart of the Act and yet leave in -- as -- as you request, leave, in effect, the rest of it?

Have we ever -- most of our severability cases, you know, involve one little aspect of the Act.

The question is whether the rest.

When have we ever really struck down what was the main purpose of the Act, and left the rest in effect?

Mr. Kneedler: --I think Booker is the best example of that.

In -- in Booker the mandatory sentencing provisions were central to the act, but the Court said Congress would have preferred a statute without the mandatory provision in the Act, and the Court struck that but the rest of the sentencing guidelines remained.

Justice Antonin Scalia: I think the reason -- the reason the majority said that was they didn't think that what was essential to the Act was what had been stricken down, and that is the -- the ability of the judge to say on his own what -- what -- what the punishment would be.

I don't think that's a case where we struck -- where we excised the heart of the statute.

You have another one?

Mr. Kneedler: There is no example--

Justice Antonin Scalia: There is no example.

This is really--

Mr. Kneedler: --to our -- to our -- that we have found that suggests the contrary.

Justice Antonin Scalia: --This is really a case of first impression.

I don't know another case where we have been confronted with this -- with this decision.

Can you take out the heart of the Act and leave everything else in place?

Mr. Kneedler: I would like to go to the heart of the Act point in a moment.

But what I'd like to say is this is a huge Act with many provisions that are completely unrelated to market reforms and operate in different ways.

And we think it would be extraordinary in this extraordinary Act to strike all of that down because there are many provisions and it would be too hard to do it.

Justice Stephen G. Breyer: --I don't think it's not uncommon that Congress passes an act, and then there are many titles, and some of the titles have nothing to do with the other titles.

That's a common thing.

And you're saying you've never found an instance where they are all struck out when they have nothing to do with each other.

My question is, because I hear Mr. Clement saying something not too different from what you say.

He talks about things at the periphery.

We can't reject or accept an argument on severability because it's a lot of work for us.

That's beside the point.

But do you think that it's possible for you and Mr. Clement, on exploring this, to -- to get together and agree on ----

[Laughter]

--I mean on -- on a list of things that are in both your opinions peripheral, then you would focus on those areas where one of you thinks it's peripheral and one of you thinks it's not peripheral.

And at that point it might turn out to be far fewer than we are currently imagining.

At which point we could hold an argument or figure out some way or somebody hold an argument and try to -- try to get those done.

Is -- is that a pipe dream or is that a--

Mr. Kneedler: I -- I -- I just don't think that is realistic.

The Court would be doing it without the parties, the millions of parties--

Justice Antonin Scalia: You can have a conference committee report afterwards, maybe.

[Laughter]

Mr. Kneedler: --No, it just -- it just is not something that a court would ordinarily do.

But I would like--

Justice Sonia Sotomayor: Could you get back to the argument of -- of the heart?

Mr. Kneedler: --Yes.

Justice Sonia Sotomayor: Striking down the heart, do we want half a loaf or show.

I think those are the two analogies--

Mr. Kneedler: Right.

And -- and -- and I would like to discuss it again in terms of the text and structure of the Act.

We have very important indications from the structure of this Act that the whole thing is not supposed to fall.

The -- the most basic one is, the notion that Congress would have intended the whole Act to fall if there couldn't be a minimum coverage provision is refuted by the fact that there are many, many provisions of this Act already in effect without a minimum coverage provision.

Two point -- 2 and-a-half million people under 26 have gotten insurance by one of the insurance requirements.

Three point two billion dollars--

Justice Antonin Scalia: Anticipation of the minimum coverage.

That's going to bankrupt the insurance companies if not the States, unless this minimum coverage provision comes into effect.

Mr. Kneedler: --There is no reason to think it's going to -- it's going to bankrupt anyone.

The costs will be set to cover those -- to cover those amounts.

Justice Sonia Sotomayor: --I thought that the 26-year-olds were saying that they were healthy and didn't need insurance yesterday.

So today they are going to bankrupt the--

Mr. Kneedler: Two and-a-half -- 2.5 million people would be thrown off the insurance roles if the Court were to say that.

Congress made many changes to Medicare rates that have gone into effect for the Congress -- for the courts to have to unwind millions of Medicare reimbursement rates.

Medicare has -- has covered 32 million insurance -- preventive care visits by patients as a result of -- of this Act.

Chief Justice John G. Roberts: --All of that was based on the assumption that the mandate was -- was constitutional.

And if -- that certainly doesn't stop us from reaching our own determination on that.

Mr. Kneedler: No, what I'm saying is it's a question of legislative intent, and we have a very fundamental indication of legislative intent that Congress did not mean the whole Act to fall if -- if -- without the minimum coverage provision, because we have many provisions that are operating now without that.

But there's a further indication about why the line should be drawn where I've suggested, which is the package of these particular provisions.

All the other provisions of the Act would continue to advance Congress's goal, the test that was articulated in Booker but it's been said in Regan and other cases.

You look to whether the other provisions can continue to advance the purposes of the Act.

Here they unquestionably can.

The public health -- the broad public health purposes of the Act that are unrelated to the minimum coverage provision, but also that the other provisions designed to enhance access to affordable care.

The employer responsibility provision, the credit for small businesses, which is already in effect, by the way, and affecting many small businesses--

Justice Antonin Scalia: But many people might not -- many of the people in Congress might not have voted for those provisions if -- if the central part of this statute was not adopted.

Mr. Kneedler: --But that--

Justice Antonin Scalia: I mean, you know, you're -- to say that we're effectuating the intent of Congress is just unrealistic.

Once you've cut the guts out of it, who knows, who knows which of them were really desired by Congress on their own and which ones weren't.

Mr. Kneedler: --The question for the Court is Congress having passed the law by whatever majority there might be in one House or the other, Congress having passed the law, what at that point is -- is -- is the legislative intent embodied in the law Congress has actually passed?

Chief Justice John G. Roberts: Well, that's right.

But the problem is, straight from the title we have two complimentary purposes, patient protection and affordable care.

And you can't look at something and say this promotes affordable care, therefore, it's consistent with Congress's intent.

Because Congress had a balanced intent.

You can't look at another provision and say this promotes patient protection without asking if it's affordable.

So, it seems to me what is going to promote Congress's purpose, that's just an inquiry that you can't carry out.

Mr. Kneedler: No, with respect, I disagree, because I think it's evident that Congress's purpose was to expand access to affordable care.

It did it in discreet ways.

It did it by the penalty on employers that don't -- that don't offer suitable care.

It did it by offering tax credits to small employers.

It did it by offering tax credits to purchasers.

All of those are a variety of ways that continue to further Congress's goal, and -- and most of all, Medicaid, which is -- which is unrelated to the -- to the private insurance market altogether.

And in adopting those other provisions governing employers and whatnot, Congress built on its prior experience of using the tax code, which it is -- for a long period of time Congress has subsidized--

Justice Anthony Kennedy: I don't quite understand about the employers.

You're -- you are saying Congress mandated employers to buy something that Congress itself has not contemplated?

I don't understand that.

Mr. Kneedler: --No.

Employer coverage -- 150 million people in this country already get their insurance through -- through their employers.

What Congress did in seeking to augment that was to add a provision requiring employers to purchase insurance--

Justice Anthony Kennedy: Based on the assumption that the cost of those policies would be lowered by -- by certain provisions which are by hypothesis -- we are not sure -- by hypothesis are in doubt.

Mr. Kneedler: --No, I -- I -- I think any cost assumptions -- there is no indication that Congress made any cost assumptions, but -- but there is no reason to think that the individual -- that the individual market, which is where the minimum coverage provision is directed, would affect that.

I would like to say -- I would point out why the other things would advance Congress's goal.

The point here is that the package of three things would -- would be contrary -- would run contrary to Congress's goal if you took out the minimum coverage provision.

And here's why -- and this is reflected in the findings:

If you take out minimum coverage but leave in the guaranteed-issue and community-rating, you will make matters worse.

Rates will go up, and people will be less -- fewer people covered in the individual market.

Justice Samuel Alito: Well, if that is true, what is the difference between guaranteed-issue and community-rating provisions on the one hand and other provisions that increase costs substantially for insurance companies?

For example, the tax on high cost health plans, which the economists in the amicus brief said would cost $217 billion over 10 years?

Mr. Kneedler: Those are -- what Congress -- Congress did not think of those things as balancing insurance companies.

Insurance companies are participants in the market for Medicaid and -- and other things.

Justice Anthony Kennedy: But you are saying we have -- we have the expertise to make the inquiry you want us to make, i.e., the guaranteed-issue, but not the expertise that Justice Alito's question suggests we must make.

Mr. Kneedler: Well--

Justice Anthony Kennedy: I just don't understand your position.

Mr. Kneedler: --that's because -- that's because I think this Court's function is to look at the text and structure and the legislative history of the law that Congress enacted, not the financial -- not a financial balance sheet, which doesn't appear anywhere in the law.

And just--

Justice Ruth Bader Ginsburg: You are relying on Congress's quite explicitly tying these three things together.

Mr. Kneedler: --We do.

That's -- that's -- and it's not just the text of the act, but the background of the act, the experience in the state, the testimony of the National Association of Insurance Commissioners.

That's the -- that's the problem Congress was addressing.

There was a -- there was -- a shifting of present actuarial risks in that market that Congress wanted to correct.

And if you took the minimum coverage provision out and left the other two provisions in, there would be laid on top of the existing shifting of present actuarial risks an additional one because the uninsured would know that they would have guaranteed access to insurance whenever they became sick.

It would make the -- it would make the adverse selection in that market problem even worse.

And so what -- and Congress, trying to come up with a market-based solution to control rates in that market, has adopted something that would -- that would work to control costs by guaranteed-issue and community-rating; but, if you -- if -- if you take out the minimum coverage, that won't work.

That was Congress's assumption, again, shown by the text and legislative history of this provision.

And that's why we think those things rise or fall in a package because they cut against what Congress was trying to do.

All of the other provisions would actually increase access to affordable care and would have advantageous effects on price.

Again, Congress was invoking its traditional use of the tax code, which has long subsidized insurance through employers, has used that to impose a tax penalty on employers, to give tax credits.

This is traditional stuff that Congress has done.

And the other thing Congress has done, those preexisting laws had their own protections for guaranteed-issue and community-rating.

Effectively, within the large employer plans, they can't discriminate among people, they can't charge different rates.

What Congress was doing, was doing that in the other market.

If it can't, that's all that should be struck from the act.

Chief Justice John G. Roberts: Thank you, Mr. Kneedler.

Mr. Farr?

ORAL ARGUMENT OF H. BARTOW FARR FOR COURT-APPOINTED AMICUS CURIAE

Mr. Farr: Mr. Chief Justice and may it please the Court:

At the outset, I would just like to say, I think that the government's position in this case that the community-rating and guaranteed-issue provisions ought to be struck down is an example of the best driving out the good; because, even without the minimum coverage provision, those two provisions, guaranteed-issue and community-rating, will still open insurance markets to millions of people that were excluded under the prior system, and for millions of people will lower prices, which were raised high under the old system because of their poor health.

So even though the system is not going to work precisely as Congress wanted, it would certainly serve central goals that Congress had of expanding coverage for people who were unable to get coverage or unable to get it at affordable prices.

So when the government--

Justice Ruth Bader Ginsburg: One of the points that Mr. Kneedler made is that the price won't be affordable because -- he spoke of the adverse selection problem, that there would be so fewer people in there, the insurance companies are going to have to raise the premiums.

So it's nice that Congress made it possible for more people to be covered, but the reality is they won't because they won't be able to afford the premium.

Mr. Farr: --Well, Justice Ginsburg, let me say two things about that.

First of all, when we talk about premiums becoming less affordable, it's very important to keep in mind different groups of people, because it is not something that applies accurately to everybody.

For people who were not able to get insurance before, obviously, their insurance beforehand was -- the price was essentially infinite.

They were not able to get it at any price.

They will now be able to get it at a price that they can afford.

For people who are unhealthy and were able to get insurance, but perhaps not for the things that they were most concerned about, or only at very high rates, their rates will be lower under the system, even without the minimum coverage provision.

Also, you have a large number of people who, under the Act--

Justice Antonin Scalia: Excuse me, why do you say -- I didn't follow that.

Why?

Mr. Farr: --Because--

Justice Antonin Scalia: Why would their rates be lower?

Mr. Farr: --Their rates are going to be lower than they were under the prior system because they are going into a pool of people, rather than -- some of whom are healthy, rather than having their rates set according to their individual health characteristics.

That's why their rates were so high.

Justice Elena Kagan: But the problem, Mr. Farr, isn't it, that they're going to a pool of people that will gradually get older and unhealthier.

That's the way the thing works.

Once you say that the insurance companies have to cover all of the sick people and all of the old people, the rates climb.

More and more young people and healthy people say, why should we participate, we can just get it later when we get sick.

So they leave the market, the rates go up further, more people leave the market, and the whole system crashes and burns, becomes unsustainable.

Mr. Farr: Well--

Justice Elena Kagan: And this is not--

Mr. Farr: --Certainly.

Justice Elena Kagan: --like what I think.

What do I know?

It's just what's reflected in Congress's findings, that it's look -- it looks at some states and says, this system crashed and burned.

It looked at another state with the minimum coverage provision and said, this one seems to work.

So we will package the minimum coverage provision with the nondiscrimination provisions.

Mr. Farr: Well, in a moment, I'd like to talk about the finding; but, if I could just postpone that for a second and talk about adverse selection itself.

I think one of the misconceptions here, Justice Kagan, is that Congress, having seen the experience of the states in the '90s with community-rating and guaranteed-issue, simply imposed the minimum coverage provision as a possible way of dealing with that; and, if you don't have the minimum coverage provision, then, essentially, adverse selection runs rampant.

But that's not what happened.

Congress included at least half a dozen other provisions to deal with adverse selection caused by bringing in people who are less healthy into the Act.

There are -- to begin with, the Act authorizes annual enrollment periods, so people can't just show up at the hospital.

If they don't show up and sign up at the right time, they at least have to wait until the time next year.

That's authorized by the Act.

There -- with respect to the subsidies, there are three different things that make this important.

First of all, the subsidies are very generous.

For people below 200 percent of the federal poverty line, the subsidy will cover 80 percent, on average, of the premium which makes it attractive to them to join.

The structure of the subsidies, because their income -- they create a floor for -- based on the income of the person getting the insurance, and then the government covers everything over that.

And this is important in adverse selection because if you do have a change in the mix of people, and average premiums start to rise, the government picks up the increase in the premium.

The amount that the person who is getting insured contributes remains constant at a percentage of his or her income.

And the third thing--

Justice Antonin Scalia: And there is nothing about federal support that is unsustainable, right?

That is infinite.

Mr. Farr: --Well, I mean, that's a fair point, Justice Scalia; although, one of the things that happens, if you take the mandate out, while it is true that the subsidies that the government provides to any individual will increase, and they will be less efficient -- I'm not disputing that point -- actually the overall amount of the subsidies that the government will provide will decline, as the government notes itself in its brief, because there will be fewer people getting them.

Some people will opt out of the system even though they are getting subsidies.

But I would just like to go back for one more second to the point about how the subsidies are part of what Congress was using, because the other thing is that for people below 250 percent of the Federal poverty line Congress also picks up and subsidizes the out-of-pocket costs, raising the actuarial value.

So you have all of that, and then you have Congress also, unlike the States establishing -- or I should be precisely accurate -- almost all the States, establishing an age differential of up to three to one.

So an insurance company, for example, that is selling a 25-year-old a policy for $4,000 can charge a 60-year-old $12,000 for exactly the same coverage.

The States typically in the 90s when they were instituting these programs, they either had pure community rating, where everybody is charged the same premium, everybody regardless of their age is charged the same premium.

Some states had a variance of 1.5 to 1.

Massachusetts, for example, which did have good subsidies, but their age band was two to one.

So when Congress is enacting this Act, it's not simply looking at the States and thinking: Well, that didn't go very well; why don't we put in a minimum coverage provision; that will solve the problem.

Congress did a lot of different things to try to combat the adverse selection.

Now, if I could turn to the finding, because I think this is the crux of the government's position and then the plaintiffs pick up on that, and then move -- move from that to the rest of the Act.

And it seems to me, quite honestly, it's an important part because that is textual.

In this whole sort of quest for what we are trying to figure out, the finding seems to stand out as something that the Court could rely on and say here's something Congress has actually told us.

But I think the real problem with the finding is the context in which Congress made it.

It's quite clear.

If the Court wants to look, the finding is on page 42 -- 43A, excuse me, of the Solicitor General's severability brief in the appendix.

But the finding is made specifically in the context of interstate commerce.

That is why the findings are in the Act at all.

Congress wanted to indicate to the Court, knowing that the minimum coverage provision was going to be challenged, wanted to indicate to the Court the basis on which it believed it had the power under the Commerce Clause to enact this law.

Why does that make a difference with respect to finding I, which is the one that the government is relying on, and in particular the last sentence, which says

"this requirement is essential to creating effective health insurance markets in which guaranteed-issue and preexisting illnesses can be covered. "

The reason is because the word "essential" in the Commerce Clause context doesn't have the colloquial meaning.

In the Commerce Clause context "essential" effectively means useful.

So that when one says in Lopez, when the Court says section 922(q) is not an essential part of a larger regulatory scheme of economic activity, it goes on to say, in which the regulatory scheme would be undercut if we didn't have this provision.

Well, if that's all Congress means, I agree with that.

The system will be undercut somewhat if you don't have the minimum coverage provision.

It's like the word "necessary" in the Necessary and Proper Clause clause.

It doesn't mean, as the Court has said on numerous occasions, absolutely necessary.

It means conducive to, useful, advancing the objectives, advancing the aims.

And it's easy to see, I think, that that's what Congress--

Justice Antonin Scalia: Is there any dictionary that gives that--

Mr. Farr: --I'm sorry, Justice Scalia?

Justice Antonin Scalia: --that definition of "essential"?

It's very imaginative.

Just give me one dictionary.

Mr. Farr: Well, but I think my point, Justice Scalia, is that they are not using it in the true dictionary sense.

Justice Antonin Scalia: How do we know that?

When people speak, I assume they are speaking English.

Mr. Farr: Well, I think that there are several reasons that I would suggest that we would know that from.

The first is, as I say, the findings themselves.

Congress says at the very beginning, the head of it, is Congress makes the following findings, and they are talking about the interstate -- you know, B is headed

"Effects on the national economy and interstate commerce. "

So we know the context that Congress is talking about.

It is more or less quoting from the Court's Commerce Clause statements.

But if one looks at the very preceding finding, which is finding H, which is on 42 over onto 43, Congress at that point also uses the word "essential".

In the second sentence it says "this requirement" -- and again we're talking about the minimum coverage provision -- is an essential part of this larger regulation of economic activity, which is, by the way, an exact quote from Lopez, in which

"the absence of the requirement undercuts Federal regulation. "

also an exact quote from Lopez.

But what it is referring to is an essential -- an essential part of ERISA, the National Health Service Act and the Affordable Care Act.

It can't possibly be, even the plaintiffs haven't argued, that those Acts would all fall in their entirety if you took out the minimum coverage provision.

And as a second example of the same usage by Congress, the statute that was before the Court in Raich, section 801 of Title 21, the Court said that the regulation of intrastate drug activity, drug traffic, was essential to the regulation of interstate drug activity.

Again, it is simply not conceivable that Congress was saying one is so indispensable to the other, the way the United States uses the term here, so indispensable that if we can't regulate the intrastate traffic we don't want to regulate the interstate traffic, either.

The whole law criminalizing drug traffic would fall.

So I think once you look at the finding for what I believe it says, which is we believe this is a useful part of our regulatory scheme, which the Congress would think in its own approach would be sufficient--

Justice Sonia Sotomayor: Counsel, the problem I have is that you are ignoring the congressional findings and all of the evidence Congress had before it that community ratings and guaranteed-issuance would be a death spiral -- I think that was the word that was used -- without minimum coverage.

Those are all of the materials that are part of the legislative record here.

So even if it might not be because of the structure of the Act, that's post hoc evidence.

Why should we be looking at that as opposed to what Congress had before it and use essential in its plain meaning. You can't have minimum coverage without, what the SG is arguing, community ratings and guaranteed-issue.

You can't have those two without minimum coverage.

Mr. Farr: --Well, I think that's a fair question.

But the idea that -- that all the information before Congress only led to the idea that you would have death spirals seems to me to be contradicted a little bit at least by the CBO report in November of 2009, which is about 4 months before the Act passed, where the CBO talks about adverse selection.

Now, I want to be clear.

This is at a time when the minimum coverage provision was in the statute, so I'm not suggesting that this is a discussion without that in it.

But nonetheless, the CBO goes through and talks about adverse selection, and points out the different provisions in the Act, the ones I have mentioned plus one other, actually, where in the first 3 years of the operation of the exchanges those insurance companies that get sort of a worse selection of consumers will be given essentially credits from insurance companies that get better selections.

Justice Anthony Kennedy: So do you want us to write an opinion saying we have concluded that there is an insignificant risk of a substantial adverse effect on the insurance companies, that's our economic conclusion, and therefore not severable?

That's what you want me to say?

Mr. Farr: It doesn't sound right the way you say it, Justice Kennedy.

No, I--

Justice Sonia Sotomayor: But you don't want them to say, either, that there is a death spiral.

Do you want -- you don't want us to make either of those two findings, I'm assuming?

Mr. Farr: --That's correct.

Now, I agree that there is a risk and the significance of it people can debate.

But what I think is -- is lost in that question, and I didn't mean to be whimsical about it, I think what is lost in it a little bit is what is on the other side, which is the fact that if you follow the government's suggestion, if the Court follows the government's suggestion, what is going to be lost is something we know is a central part of the Act.

I mean, indeed, if one sort of looks at the legislative history more broadly, I think much of it is directed toward the idea that guaranteed -- issue and community rating were the crown jewel of the Act.

The minimum coverage provision wasn't something that everybody was bragging about, it was something that was meant to be part of this package.

I agree with that.

But the -- the point of it was to have guaranteed-issue and minimum coverage -- I mean, excuse me -- guaranteed-issue and community rating.

And that's -- under the government's proposal, those would -- would disappear.

We would go back to the old system.

And under what I think is the proper severability analysis, the -- the real question the Court is asking, should be asking, is, would Congress rather go back to the old system than to take perhaps the risk that you're talking about, Justice Kennedy.

Chief Justice John G. Roberts: You're -- you're referring to the government's second position.

Their -- their first, of course, is that we shouldn't address this issue at all.

Mr. Farr: That's correct.

Chief Justice John G. Roberts: I asked Mr. Kneedler about what procedure or process would be anticipated for people who are affected by the change in -- in the law, and change in the economic consequences.

Do you have a view on how that could be played out?

It does seem to me that if we accept your position, something -- there have to -- there has to be a broad range of consequences, whether it's additional legislation, additional litigation.

Any thoughts on how that's going to play out?

Mr. Farr: Well, if the Court adopts the position that I'm advocating, Mr. Chief Justice, I think what would happen is that the Court would say that the minimum coverage provision, by hypothesis of course, is unconstitutional, and the fact of that being unconstitutional does not mean the invalidation of any other provision.

So under the position I'm advocating, there would no longer be challenges to the remaining part of the Act.

The--

Chief Justice John G. Roberts: But if the challenge is what we're questioning today, whether -- if you're an insurance company and you don't believe that you can give the coverage in the way Congress mandated it without the individual mandate, what -- what type of action do you bring in a court?

Mr. Farr: --You -- if the Court follows the course that I'm advocating, you do not bring an action in court, you go to Congress and you seek a change from Congress to say the minimum coverage provision has been struck down by the Court, here is our -- here -- here's the information that we have to show you what the risks are going to be.

Here are the adjustments you need to make.

One of the questions earlier pointed out that States have adjusted their systems as they've gone along, as they've seen things work or not work.

You know, as I was talking earlier about the -- the different ratio for -- for ages and insurance.

The States have tended to change that, because they've found that having too narrow a band worked against the effectiveness of -- of their programs.

But they did -- except for in Massachusetts, they didn't enact mandates.

So to answer -- I think to answer your question directly, [= Mr.] Chief Justice, the position I'm advocating would simply have those -- those pleas go to Congress, not in court.

Now, if one -- just -- just to discuss the issue more generally, if that's helpful, I -- I think that -- that if there were situations where the Court deferred -- let's say for discretionary reasons, they just said -- the Court said we're -- we're not going to take up the question of severability and therefore not resolve it in these other situations, it certainly seems to me that in enforcement actions, for example, if the time comes in -- in 2014 and somebody applies to an insurance company for a policy -- and the insurance company says, well, we're not going to issue a policy, we don't think your risks are ones that we're willing to cover, that -- it seems to me that they could sue the insurance company and the insurance company could raise as a defense that this provision, the guaranteed-issue provision of the statute, is not enforceable because it was inseverable from the decision -- from the provision that the Court held unconstitutional in 2012.

Justice Antonin Scalia: Mr. Farr, let's -- let's consider how -- how your approach, severing as little as possible there -- thereby increases the deference that we're showing to -- to Congress.

It seems to me it puts Congress in -- in this position: This Act is still in full effect.

There is going to be this deficit that used to be made up by the mandatory coverage provision.

All that money has to come from somewhere.

You can't repeal the rest of the Act because you're not going to get 60 votes in the Senate to repeal the rest.

It's not a matter of enacting a new act.

You've got to get 60 votes to repeal it.

So the rest of the Act is going to be the law.

So you're just put to the choice of I guess bankrupting insurance companies and the whole system comes tumbling down, or else enacting a Federal subsidy program to the insurance companies, which is what the insurance companies would like, I'm sure.

Do you really think that that is somehow showing deference to Congress and -- and respecting the democratic process?

It seems to me it's a gross distortion of it.

Mr. Farr: Well, Your Honor, the -- the difficulty is that it seems to me the other possibility is for the Court to make choices, particularly based on what it expects the difficulties of Congress altering the legislation after a Court ruling would be.

I'm not aware of any severability decision that is--

Justice Antonin Scalia: No, I -- that wouldn't be my approach.

My approach would say if you take the heart out of the statute, the statute's gone.

That enables Congress to -- to do what it wants in -- in the usual fashion.

And it doesn't inject us into the process of saying,

"this is good, this is bad, this is good, this is bad. "

It seems to me it reduces our options the most and increases Congress's the most.

Mr. Farr: --I guess to some extent I have to quarrel with the premise, Justice Scalia, because at least the -- the position that I'm advocating today, under which the Court would only take out the minimum coverage provision, I don't think would fit the description that you have given of taking out the heart of the statute.

Now, I do think once you take out guaranteed-issue and community rating, you are getting closer to the heart of the statute.

And one of the -- one of the difficulties I think with the government's position is that I think it's harder to cabin that, to draw that bright line around it.

It's harder than the government thinks it is.

I mean, to begin with, even the government seems to acknowledge, I think, that the exchanges are going to be relatively pale relatives of -- of the exchanges as they're intended to be, where you're going to have standardized products, everybody can come and make comparisons based on products that look more or less the same.

But the other thing that's going to happen is with the subsidy program.

The -- the way that the subsidy program is -- is set up, the subsidy is calculated according to essentially a benchmark plan.

And this -- if the Court wants to look at the provisions, they're -- they begin at page 64A of the Private Plaintiffs' brief -- again, in the appendix.

The particular provision I'm talking about's at 68A, but there's a -- there's a question -- you -- you're looking essentially to calculate the premium by looking at a -- at a standardized silver plan.

First question, obviously, is, is there going to be any such plan if you don't have guaranteed-issue and community rating, if the plans can basically be individualized?

But the second problem is that, in the provision on 68A, the -- the provision that's used for calculating the subsidy, what -- what is anticipated in the provision under the -- the Act as it is now, is that you do have the floor of the income, you would -- you would take this benchmark plan, and the government would pay -- pay the difference.

And as we talked about earlier, the benchmark plan can change for age, and -- and the provision says it can be adjusted only for age.

So if in fact you even have such a thing as a benchmark plan anymore -- if the rates of people in poor health go up because of individual insurance underwriting, the government subsidy is not going to pay for that.

Justice Elena Kagan: Mr. Farr, I understood that the answer that you gave to Justice Scalia was essentially that the minimum coverage provision was not the heart of the Act.

Instead, the minimum coverage provision was a tool to make the nondiscrimination provisions, community rating guaranteed-issue, work.

So if you assume that, that all the minimum coverage is is a tool to make those provisions work, then I guess I would refocus Justice Scalia's question and say, if we know that something is just a tool to make other provisions work, shouldn't that be the case in which those other provisions are severed along with the tool?

Mr. Farr: No.

I don't think so, because there are -- there are many other tools to make the same things work.

That's I think the point.

And if one -- the case that comes to mind is New York v. the United States, where the Court struck down the take title provision but left other -- two other incentives essentially in place.

Even without the minimum coverage provision, there will be a lot of other incentives still to bring younger people into the market and to keep them in the market.

And if -- if my reading of the finding is correct, and that's all that Congress is saying, that this would be useful, it doesn't mean that it's impossible.

Justice Stephen G. Breyer: But would you -- I would just like to hear before you leave your argument, if you want to, against what Justice Scalia just said, let's assume, contrary to what you want, that the government's position is accepted by the majority of this Court.

And so we now are rid, quote, of the true "heart" of the bill.

Now still there are a lot of other provisions here like the Indian Act, the Black Lung Disease, the Wellness Program, that restaurants have to have a calorie count of major menus, et cetera.

Now, some of them cost money.

And some of them don't.

And there are loads of them.

Now, what is your argument that just because the heart of the bill is gone, that has nothing to do with the validity of these other provisions, both those that cost money, or at least those that cost no money.

Do you want to make an argument in that respect, that destroying the heart of the bill does not blow up the entire bill; it blows up the heart of the bill.

I just would like to hear what you have to say about that.

Mr. Farr: Well, Justice Breyer, I think what I would say is if one goes back to the, what I think is the proper severability standard and say, would Congress rather have not -- no bill as opposed to the bill with whatever is severed from it.

It seems to me when you are talking about provisions that don't have anything to do with the minimum coverage provision, there is no reason to answer that question as any other way than yes, Congress would have wanted the--

Justice Anthony Kennedy: The -- the real Congress or a hypothetical Congress?

Mr. Farr: --An objective Congress, Your Honor, not the -- specific not with a vote count.

Justice Antonin Scalia: Why put -- why put Congress to that false choice?

Mr. Farr: Well--

Justice Antonin Scalia: You only have two choices, Congress.

You have the whole bill or you can have, you can have parts of the bill or no bill at all.

Why that false choice?

Mr. Farr: --I think the reason is because severability is by necessity a blunt tool.

The Court doesn't have, even if it had the inclination, doesn't essentially have the authority to retool the statute--

Justice Stephen G. Breyer: I would say stay out of politics.

That's for Congress; not us.

But the, the question here is, you've read all these cases, or dozens, have you ever found a severability case where the Court ever said: Well, the heart of the thing is gone; and, therefore, we strike down these other provisions that have nothing to do with it which could stand on their feet independently and can be funded separately or don't require money at all.

Mr. Farr: --I think the accurate answer would be, I am not aware of a modern case that says that.

I think there probably are cases in the '20s and '30s that would be more like that.

If I could just take one second to raise the economist brief because Justice Alito raised it earlier.

I just want to make one simple point.

Leaving aside the whole balancing thing, if one looks at the economist brief, it's very important to note that when they are talking about one side of the balance -- if may I finish.

Chief Justice John G. Roberts: Certainly.

Mr. Farr: When they are talking about the balance, they are not just talking about the minimum coverage provision.

They very carefully word it to say the minimum coverage provision and the subsidy programs.

And then so when you are doing the mathematical balancing, the subsidy programs are extremely large.

They -- in the year 2020, they are expected to be over $100 billion in that one year alone.

So if you are looking at the numbers, please consider that.

Thank you.

Chief Justice John G. Roberts: Thank you, Mr. Farr.

Mr. Clement, you have four minutes remaining--

REBUTTAL ARGUMENT OF PAUL D. CLEMENT ON BEHALF OF THE PETITIONERS

Justice Sonia Sotomayor: --Amicis' point, he says that Congress didn't go into this Act to impose minimum coverage.

They went into the Act to have a different purpose, i.e., to get people coverage jury when they needed it, to increase coverage for people, but this is only a tool.

But other States -- going back to my original point, that are other tools besides minimum coverage that Congress can achieve these goals.

So if we strike just a tool, why should we strike the whole Act, when Congress has other tools available?

Mr. Clement: Mr. Chief Justice, I will make four points in rebuttal, but I will start with Justice Sotomayor's question; which is to simply say this isn't just a tool; it's the principal tool, Congress identified it as an essential tool.

It's not just a tool to make it work.

It's a tool to pay for it, to make it affordable.

And again, that's not my characterization; that's Congress's characterization in subfinding I on page 43a of the government's brief.

Now, that bring me to my first point in rebuttal, which is Mr. Kneedler says quite correctly, tells this Court, don't look at the budgetary implications.

The problem with that, though, is once it's common ground, that the individual mandate is in the statute at least in part to make community rating and guaranteed-issue affordable, that really is all you have to identify.

That establishes the essential link that it's there to pay for it.

You don't have to figure out exactly how much that is and which box -- I mean, it clearly is a substantial part of it, because what they were trying to do was take healthy individuals and put them into the risk pool, and this is quoting their finding, which is in order -- they put people into the market "which will lower premiums".

So that's what their intent was.

So you don't have to get to the -- the final number.

You know that's what was going on here, and that's reason alone to sever it.

Now the government -- Mr. Kneedler also says there is an easy dividing line between what they want to keep and what they want to dish out.

The problem with that is that, you know, you read their brief and you might think oh, there is a guaranteed-issue and a community rating provision subtitle in the bill.

There is not.

To figure out what they are talking about you have to go to page 6 of their brief, of their opening severability brief, where they tell you what is in and what's out.

And the easy dividing line they suggest is actually between 300g(a)(1) and 300g(a)(2), because on community rating they don't -- they say that (a)(1) goes, but then they say (a)(2) has to stay, because that's the way that you'll have some sort of, kind of Potemkin community rating for the exchanges.

But if you actually look at those provisions, (a)(2) makes all these references to (a)(1).

It just doesn't work.

Now, in getting back to the -- an inquiry that I think this Court actually can approach, is to look at what Congress was trying to do, you need look no further than look than the title of this statute: Patient Protection and Affordable Care.

I agree with Mr. Farr that community rating and guaranteed-issue were the crown jewels of this Act.

They were what was trying to provide patient protection.

And what made it affordable?

The individual mandate.

If you strike down guaranteed-issue, community rating and the individual mandate, there is nothing left to the heart of the Act.

And that takes me to my last point, which is simply this court in Buckley created a halfway house and it took Congress 40 years to try to deal with the situation, when contrary to any time of their intent, they had to try to figure out what are we going to do when we are stuck with this ban on contributions, but we can't get at expenditures because the Court told us we couldn't?

And for 40 years they worked in that halfway house.

Why make them do that in health care?

The choice is to give Congress the task of fixing this statute, the residuum of this statute after some of it is struck down, or giving them the task of simply fixing the problem on a clean slate.

I don't think that is a close choice.

If the individual mandate is unconstitutional, the rest of the Act should fall.

Chief Justice John G. Roberts: Thank you, Mr. Clement.

Mr. Farr, you were invited by this Court to brief and argue in these cases in support of the decision below on severability.

You have ably carried out responsibility for which we are grateful.

Case Number 11-393 is submitted.

We will continue argument in Case Number 11-400 this afternoon.

Transcript: 

ORAL ARGUMENT OF PAUL D. CLEMENT ON BEHALF OF THE PETITIONER

Chief Justice John G. Roberts: We will continue argument this afternoon in case 11-400 Florida v. Department of Health and Human Services.

Mr. Clement.

Mr. Clement: Mr. Chief Justice, and may it please the Court:

The constitutionality of the Act's massive expansion of Medicaid depends on the answer to two related questions: First is the expansion coercive and second does that coercion matter.

Justice Elena Kagan: Mr. Clement, can I ask you just a matter of clarification?

Would you be making the same argument if instead of the Federal government picked up 90 percent of the cost the Federal government picked up 100 percent of the cost.

Mr. Clement: Justice Kagan, if everything else in the statute remained the same, I would be making the exact same argument.

Justice Elena Kagan: The exact same argument.

So that really reduces to the question of why is a big gift from the Federal government a matter of coercion?

In other words, the Federal government is here saying, we are giving you a boatload of money.

There are no -- there's no matching funds requirement, there are no extraneous conditions attached to it, it's just a boatload of Federal money for you to take and spend on poor people's healthcare.

It doesn't sound coercive to me, I have to tell you.

Mr. Clement: Well, Justice Kagan, let me -- I mean, I eventually want to make a point where even if you had a stand alone program that just gave 100 percent, again 100 percent boatload, nothing but boat load -- well, there would still be a problem.

Justice Elena Kagan: And you do make that argument in your brief, just a stand alone program, a boatload of money, no extraneous conditions, no matching funds, is coercive?

Mr. Clement: It is.

But before I make that point, can I simply say you built into your question the idea that there are no conditions.

And of course, when you first asked it was what about the same program with 100 percent matching on the newly eligible mandatory individuals, which is how the statute refers to them.

And that would have a very big condition.

And the very big condition is that the States in order to get that new money, they would have to agree not only to the new conditions but the government here is -- the Congress is leveraging their entire prior participation in the program--

Justice Elena Kagan: Well, let me give you a hypothetical, Mr. Clement.

Mr. Clement: --Sure.

Justice Elena Kagan: Now, suppose I'm an employer and I see somebody I really like and I want to hire that person.

And I say Im going to give you $10 million a year to come work for me.

And the person says well, I -- you know, I've never been offered anywhere approaching $10 million a year, of course I'm going to say yes to that.

Now we would both be agreed that that's not coercive, right.

Mr. Clement: Well, I guess I would want to know where the money came from.

And if the money came from--

Justice Elena Kagan: Wow, wow.

I'm offering you $10 million a year to come work for me and you are saying this is anything but a great choice?

Mr. Clement: --Sure, if I told you actually it came from my own bank account.

And that's what's really going on here in part.

And that's why it's not--

Justice Elena Kagan: But, Mr. Clement -- Mr. Clement, can that possibly be.

When a taxpayer pays taxes to the Federal government, the person is acting as a citizen of the United States.

When a taxpayer pays taxes to New York, a person is acting as a citizen of New York.

And New York could no more tell the Federal government what to do with the Federal government's money than the Federal government can tell New York what to do with the moneys that New York is collecting.

Mr. Clement: --Right.

And if New York and the United States figured out a way to tax individuals at greater than 100 percent of their income then maybe you could just say it's two separate sovereigns and two separate taxes.

But we all know that in the real world that to the extent that the Federal government continues to increase taxes that decreases the ability of the States to tax their own citizenry and it's a real tradeoff.

Justice Sonia Sotomayor: Well, is that a limit on the Federal government's power to tax?.

Mr. Clement: What's that.

Justice Sonia Sotomayor: Are you suggesting that at a certain point the States would have a claim against the Federal government raising their taxes because somehow the States will feel coerced to lower their tax rate?

Mr. Clement: No, Justice Sotomayor, I'm not.

What I'm suggesting is that it's not simply the case that you can say, well, it's free money, so we don't even have to ask whether the program's coercive.

Justice Sonia Sotomayor: Now, counsel, what percentage does it become coercive?

Meaning, as I look at the figures I've seen from amici, there are some states for whom the percentage of Medicaid funding to their budget is close to 40 percent, but there are others that are less than 10 percent.

And you say, across the board this is coercive because no state, even at 10 percent, can give it up.

What's the percentage of big gift that the federal government can give?

Because what you're saying to me is, for a bankrupt state, there's no gift the federal government could give them ever, because it can only give them money without conditions.

No matter how poorly the state is run, no matter how much the federal government doesn't want to subsidize abortions or doesn't want to subsidize some other state obligation, the federal government can't give them 100 percent of their needs.

Mr. Clement: And, Justice Sotomayor, I'm really saying the opposite, which is not that every gift is coercive, no matter what the amount, no matter how small.

I'm saying essentially the opposite, which is there has to be some limit.

There has to be some limit on coercion.

And the reason is quite simple, because this Court's entire spending power jurisprudence is premised on the notion that spending power is different, and that Congress can do things pursuant to the spending power that it can't do pursuant to its other enumerated powers precisely because the programs are voluntary.

And if you relax that assumption that the programs are voluntary, and you are saying they are coercion, then you can't have the spending power jurisprudence--

Justice Sonia Sotomayor: What makes them coercive; that the state doesn't want to face its voters and say, instead of taking 10, 20, 30, 40 percent of the government's offer of our budget and paying for it ourselves and giving up money for some other function?

That's what makes it coercive--

Mr. Clement: --Well--

Justice Sonia Sotomayor: --that the state is unwilling to say that?

Mr. Clement: --Maybe I can talk about what makes it coercive by talking about the actual statute at issue here and focusing on what I think are the three hallmarks of this statute that make it uniquely coercive.

One of them is the fact that this statute is tied to the decidedly nonvoluntary individual mandate.

And that makes this unique, but it makes it significant, I think.

I will continue.

I thought you had a question.

I'm sorry.

The second factor, of course, is the fact that Congress here made a distinct and conscious decision to tie the state's willingness to accept these new funds, not just to the new funds but to their entire participation in the statute, even though the coverage for these newly eligible individuals is segregated from the rest of the program.

And this is section 2001A3 at page 23A of the appendix to the blue brief.

Justice Ruth Bader Ginsburg: Isn't that true of every Medicaid increase?

That each time -- I mean, and this started quite many years ago, and Congress has added more people and given more benefits -- and every time, the condition is, if you want the Medicaid program, this is the program, take it or leave it.

Mr. Clement: No, Justice Ginsburg, this is distinct in two different directions.

One is, in some of the prior expansions of the program, but not all, Congress has made covering newly eligible individuals totally voluntary.

If the states wants to cover the newly eligible individuals, they will get additional money; but, if they don't, they don't risk any of their existing participation programs.

The 1972 program was a paradigm of that.

It created this 209(b) option for states to participate.

This court talked about it in the Gray Panthers case.

There were other expansions that have taken place, such as the 1984 expansions, where they didn't give states that option; but, here's the second dimension in which this is distinct, which is, here, Congress has created a separate part of the program for the newly eligible mandatory individuals.

That's what they called them.

And those individuals are treated separately from the rest of the program going forward forever.

They are going to be reimbursed at a different rate from everybody who's covered under the preexisting program.

Now, in light of that separation by Congress itself of the newly eligible individuals from the rest of the program, it's very hard to understand Congress's decision to say, look if you don't want to cover these newly eligible individuals, you don't just not get the new money, you don't get any of the money under the--

Justice Stephen G. Breyer: Where does it say that?

I'm sorry, where does it say that?

Mr. Clement: --It says -- well, it -- where does it say what, Justice Breyer?

Justice Stephen G. Breyer: What you just said.

You said, Congress said, if you don't take the new money to cover the new individuals, you don't get any of the old money that covers the old individuals.

That's what I heard you say.

Mr. Clement: Right.

Justice Stephen G. Breyer: And where does it say that?

Mr. Clement: It says it -- there's two places where it says it.

Justice Stephen G. Breyer: Yeah, where?

Mr. Clement: The 2001A3 makes it part of my brief.

Justice Stephen G. Breyer: Where is it in your brief?

Mr. Clement: That's at page 23 A--

Justice Stephen G. Breyer: In the blue brief?

Mr. Clement: --Blue brief.

Justice Stephen G. Breyer: 23A.

Okay.

Thank you.

Mr. Clement: And this makes not the point about the funding cutoff.

This makes the point just that these newly eligible individuals are really treated separately forevermore.

Justice Stephen G. Breyer: I want the part about the funding cutoff.

Mr. Clement: Right.

And there, Justice Breyer--

Justice Stephen G. Breyer: And that cite section is what?

Mr. Clement: --I don't have that with me--

Justice Stephen G. Breyer: Well, I have it in front of me--

Mr. Clement: --Great.

Perfect.

Thank you.

Justice Stephen G. Breyer: --And I will tell you what I have, what I have in front of me, what it says.

Mr. Clement: Right.

Justice Stephen G. Breyer: And it's been in the statute since 1965.

Mr. Clement: Exactly.

Justice Stephen G. Breyer: And the cite I have is 42 U.S.C. Section 1396(c).

So are we talking about the same thing?

Mr. Clement: If that's the -- if that is the provision that gives the secretary--

Justice Stephen G. Breyer: Yeah, okay.

Mr. Clement: --among other things--

Justice Stephen G. Breyer: And here's what it says at the end.

Mr. Clement: --the authority to cut off all participation in the program, yes.

Justice Stephen G. Breyer: It says,

"The secretary shall notify the state agency. "

--this is if they don't comply --

"that further payments will not be made to the state or, in his discretion, that payments will be limited to categories under or parts of the state plan not affected by such failure, which it repeats until the secretary is satisfied that he shall limit payments to categories under or parts of the state plan not affected by such failure. "

So, reading that in your favor, I read that to say, it's up to the secretary whether, should a state refuse to fund the new people, the secretary will cut off funding for the new people, as it's obvious the state doesn't want it, and whether the secretary can go further.

I also should think -- I could not find one case where the secretary ever did go further, but I also would think that the secretary could not go further where going further would be an unreasonable thing to do, since government action is governed by the Administrative Procedure Act, since it's governed by the general principle, it must always be reasonable.

So I want to know where this idea came from that should state X say,

"I don't want the new money. "

that the secretary would or could cut off the old money?

Mr. Clement: And, Justice Breyer, here's where it comes from, which is from the very beginning of this litigation, we've pointed out that what's coercive is not the absolute guarantee that the secretary could cut off every penny, but the fact that she could.

Justice Stephen G. Breyer: All right.

Now, let me relieve you of that concern, and tell me whether I have.

That a basic principle of administrative law, indeed, all law, is that the government must act reasonably.

And should a secretary cut off more money than the secretary could show was justified by being causally related to the state's refusal to take the new money, you would march into court with your clients and say,

"Judge, the secretary here is acting unreasonably, and I believe there is implicit in this statute, as there is explicit in the ADA, that any such cut-off decision must be reasonable. "

Now, does that relieve you of your fear?

Mr. Clement: It doesn't for this reason, Justice--

Justice Stephen G. Breyer: I didn't think it would.

Mr. Clement: --Well, but here's the reason.

Here's the reason, Justice Breyer, it doesn't.

One is, I mean, I don't know the opinion to cite for that proposition.

Second is, we have been making in this litigation since the very beginning this basic point, the government has had opportunities at every level of this system, and I suppose they will have an opportunity today to say,

"fear not, States, if you don't want to take the new conditions, all you will lose is the new money. "

Justice Stephen G. Breyer: And I said -- I said because it could be, you know, given the complexity of the act, that there is some money that would be saved in the program if the States take the new money, and if they don't take the new money there is money that is being spent that wouldn't otherwise be spent.

There could be some pile like that.

It might be that the secretary could show it was reasonable to take that money away from the states, too.

Justice Antonin Scalia: Mr. Clement--

Justice Stephen G. Breyer: But my point is, you have to show reasonableness before you can act.

Justice Antonin Scalia: --do you agree -- do you agree that the government has to act reasonably?

Do we strike down unreasonable statutes?

My God.

Mr. Clement: And, Justice Scalia, I mean--

Justice Antonin Scalia: The executive has to act reasonably, that's certain, in implementing a statute; but, if the statute says, in so many words, that the secretary can strike the whole -- funding for the whole program, that's the law, unreasonable or not, isn't it?

Mr. Clement: --That's the way I would read the law, Your Honor.

Justice Stephen G. Breyer: Yeah, but I have a number -- all right.

Mr. Clement: And if I could just add one thing just to the discussion is the point that, you know, this is not all hypothetical.

I mean, in -- there was a record in the district court, and there is an Exhibit 33 to our motion to summary judgment.

It is not in the joint appendix.

We can lodge it with the Court if you'd like.

But it's a letter in the record in this litigation, and it's a letter from the secretary to Arizona, when Arizona floated the idea that it would like to withdraw from the CHIP program, which is a relatively small part of the whole program.

And what Arizona was told by the secretary is that if you withdraw from the CHIP program, you risk losing $7.8 billion, the entirety of your Medicaid participation.

So this is not something that we've conjured up--

Justice Stephen G. Breyer: All right.

Justice Elena Kagan: Mr. Clement--

Justice Stephen G. Breyer: To make you feel a little better, I want to pursue this for one more minute.

There are cases and many, of which Justice Scalia knows as well, which uses the Holly Hill, uses the same word as this statute: In the Secretary's discretion.

And in those cases this Court has said, that doesn't mean the Secretary can do anything that he or she wants, but rather, they are limited to what is not arbitrary, capricious, and abuse of discretion in interpreting statutes, in applying those statutes, et cetera.

End of my argument; end of my question.

Respond as you wish.

Mr. Clement: --Well, Justice Breyer, I'm not sure that the Court's federalism jurisprudence should force States to defend on how a lower court reads Holly Hill.

I think that really right here what we know to an absolute certainty is that this Secretary -- this statute gives the Secretary the right to remove all of the State's funding under these programs.

Think about what that is, just--

Justice Sonia Sotomayor: Mr. Clement, do you think that the Federal Government couldn't, if it chose, Congress, say, this system doesn't work.

We are just simply going to rehaul it.

It is not consistent with how -- what we want to accomplish.

We're just going to do away with the system and start a new health care plan of some sort.

And States, you can take the new plan, you can leave them.

We are going to give out 20 percent less, maybe 20 percent more, depending on what Congress chooses.

Can Congress do that?

Does it have to continue the old system because that is what the States are relying upon and it's coercive now to give them a new system?

Mr. Clement: --Justice Sotomayor, we are not saying we have a vested right to participate in the Medicaid program as it exists now.

So if Congress wanted to scrap the current system and have a new one, I'm not going to tell you that there is no possibility of a coercion challenge to it, but I'm not going to say--

Justice Sonia Sotomayor: That's what I -- I want to know how I draw the line, meaning--

Mr. Clement: --Well, can--

Justice Sonia Sotomayor: --I think the usual definition of coercion is, I don't have a choice.

I'm not sure what -- why it's not a choice for the States.

They may not pay for something else.

If they don't take Medicaid and they want to keep the same level of coverage, they may have to make cuts in their budget to other services they provide.

That's a political choice of whether they choose to do that or not.

But when have we defined the right or limited the right of government not to spend money in the ways that it thinks appropriate?

Mr. Clement: --Well, Justice Sotomayor, before -- I mean, I will try to answer that question, too.

But the first part of the question was, what if Congress just tried to scrap this and start over again with a new program?

Here's why this is fundamentally different and why it's fundamentally more coercive, because Congress is not saying we want to scrap this program.

They don't have a single complaint, really, with the way that States are providing services to the visually impaired and the disabled under pre-existing Medicaid.

And that's why it's particularly questionable why they are saying that if you don't take our new money subject to the new conditions, we are going to take all of the money you have previously gotten, that you have been dependent on for 45 years and you are using right now to serve the visually impaired and the disabled--

Justice Ruth Bader Ginsburg: Mr. Clement, may I -- may I ask you -- question another line.

You represent, what, 26 States?

Mr. Clement: --That's right, Justice Ginsburg.

Justice Ruth Bader Ginsburg: And we are also told that there are other States that like this expansion and they are very glad to have it.

The relief that you are seeking is to say the whole expansion is no good, never mind that there are States that say, we don't feel coerced, we think this is good.

You are -- you are saying that because you represent a sizeable number of States, you can destroy this whole program, even though there may be as many States that want it, that don't feel coerced, the States, thinking that this is a good thing?

Mr. Clement: Justice Ginsburg, that's right, but that shouldn't be a terrible concern, because if Congress wants to do what it did in 1972, and pass a statute that makes the expansion voluntary, every State that thinks that this is a great deal can sign up.

What's telling here, though, is 26 States, who think that this is a bad deal for them, actually are also saying that they have no choice but to take this because they can't afford to have their entire participation in this 45-year-old program wiped out, and they have to go back to square one and figure out how they are going to deal with the visually impaired in their State, the disabled in their State--

Justice Antonin Scalia: Mr. Clement, I didn't take the time to figure this out, but maybe you did.

Is there any chance at all that 26 States opposing it have Republican governors and all of the states supporting it have Democratic governors?

Is that possible?

Mr. Clement: --There's a correlation, Justice Scalia.

Justice Antonin Scalia: Yes.

Justice Ruth Bader Ginsburg: Let -- let me ask you another thing, Mr. -- Mr. Clement.

Most colleges and universities are heavily dependent on the government to fund their research programs and other things.

And that has been going on for a long time.

And then Title IX passes, and a government official comes around and say -- says to the colleges, you want money for your physics labs and all the other things you get it for, then you have to create an athletic program for girls.

And the recipient says, I am being coerced, there is no way in the world I can give up all the funds to run all these labs that we have, I can't give it up, so I'm being coerced to accept this program that I don't want.

Why doesn't your theory, if your theory is any good, why doesn't it work any time, something -- someone receives something that is too good to give up?

Mr. Clement: Well, Justice Ginsburg, there is two reasons that might be different.

One is this whole line of coercion only applies -- is only relevant, really, when Congress tries to do something through the spending power it couldn't do directly.

So if Congress tried to impose Title IX directly, I guess the question for this Court would be whether or not Section 5 of the 14th Amendment allowed Congress to do that?

I imagine you might think that it did and I imagine some of your colleagues might take issue with that, but that's -- that's the nature of the question.

So one way around that would be if Congress can do it directly, you don't even have to ask whether there is something special about the spending power.

That's how this Court resolved, for example, the Ferra case about funding to -- to colleges.

Justice Ruth Bader Ginsburg: I'm trying to understand your coercion theory.

I know that there are cases of ours that have said there is a line between pressure and coercion, but we have never had, in the history of this country or the Court, any Federal program struck down because it was so good that it becomes coercive to be in it.

Mr. Clement: Well, Justice Ginsburg, I'm going -- to say the second thing about my answer to your prior question was just, I also think that, you know, it may be that spending on certain private universities is something again that Congress can do, and it doesn't matter whether it's coercion, but when they are trying to get the States to expand their Medicaid programs, that's--

Justice Ruth Bader Ginsburg: Let's take -- let's take public colleges.

Mr. Clement: --Okay.

Then there -- then there may be some limits on that -- I mean, but again, I'm not sure even in that context there might not be some things Congress can do.

It's a separate question.

But once we take a premise, which I don't think there is a disagreement here, that Congress could not simply as a matter of direct legislation under the commerce power or something say, States, you must expand your Medicaid programs.

If we take that as a given, then I think we have to ask the question about whether or not it's coercive.

Now, you -- in your second question you ask, well, you know, I mean, where's the case that says that we've crossed that line.

And this is that case, I would respectfully say.

Justice Stephen G. Breyer: Then the government can reply as well to the 1980 extension to children 0 to 6 years old, 1990 requiring the extension for children up to 18, all those prior extensions to me seem just as big in amount, just about as big in the number of people coming on the rolls, and they are all governed by precisely the same statute that you are complaining of here, which has been in the law since '65.

Mr. Clement: Justice Breyer, I don't think that our position here would necessarily extend to say the 1984 amendments, and let me tell you why.

You know, I'm -- I'm I am not saying that absolutely that's guaranteed that's not coercive, but here's reasons why they're different.

The one major difference is of the size of the program.

I mean, the expansion of Medicaid since 1984 is really breathtaking.

Medicaid, circa, 1984 the Federal spending to the States was a shade over $21 billion.

Right now it's $250 billion, and that's before the expansion under this statute.

Justice Elena Kagan: --Well, if you are right, Mr. Clement, doesn't that mean that Medicaid is unconstitutional now?

Mr. Clement: Not necessarily, Justice Kagan.

And again, it's because we are not here with a one trick pony.

One of the factors -- we point you to three factors that make this statute uniquely coercive.

One of them is the sheer size of this program.

And, you know, if you want a gauge on the size of this program, the best place to look is the government's own number.

Footnote 6, page 73--

Justice Elena Kagan: So, when does a program become too big?

I want you to give me a dollar number.

Mr. Clement: --$3.3 trillion over the next 10 years.

That's -- that--

Justice Stephen G. Breyer: I'll tell you this number, which I did look up, that the amount, approximately, if you look into it -- as a percentage of GDP, it's big, but it was before this somewhere about 2-point-something percent, fairly low, of GDP.

It'll go up to something a little bit over 3 percent of GDP.

And now go look at the comparable numbers, which I did look at, with the expansion that we're talking about before.

The expansion from 0 to 18 or even from 0 to 6.

And while you can argue those numbers, it's pretty hard to argue that they aren't roughly comparable as a percentage of the prior program or as a percentage of GDP.

If I'm right on those numbers or even roughly right -- I don't guarantee them -- then would you have to say, well, indeed, Medicaid has been unconstitutional since 1964.

And if not, why not?

Mr. Clement: --The answer is no, and that's because we're here saying there are three things that make this statute unique.

Justice Antonin Scalia: What are your second and third?

I'm on pins and needles to hear your ----

[Laughter]

Mr. Clement: One is the sheer size.

Two is the fact that this statute uniquely is tied to an individual mandate which is decidedly nonvoluntary.

And three is the fact that they've leveraged the prior participation in the program, notwithstanding that they've broken this out as a separately segregated fund going forward, which is not--

Justice Elena Kagan: So on the third -- on the third, suppose you had the current program and Congress wakes up tomorrow and says

"we think that there's too much fraud and abuse in the program, and we're going to put some new conditions on how the States use this money so we can prevent fraud and abuse, and we're going to tie it to everything that's been there initially. "

Unconstitutional?

Mr. Clement: --No, I think that is constitutional because I think that's something that Congress could do directly.

It wouldn't have to limit that to the spending program.

And I think 18 U.S.C. 666 is -- is a statute -- it's in the criminal code, it may be tied to spending, but I think that's -- that's a provision that I don't think it's constitutional; I think it's called into question.

Justice Elena Kagan: I guess I don't get the idea.

I mean, Congress can legislate fraud and abuse restrictions in Medicaid, and Congress can legislate coverage expansions in Medicaid.

Mr. Clement: Well, Justice Kagan, I think there's a difference, but if I'm wrong about that and the consequence is that Congress has to break Medicaid down into remotely manageable pieces as opposed to $3.3 trillion over 10 years before the expansion, I don't think that would be the end of the world.

But I really would ask you to focus on specifically what's going on here, which is they take these newly eligible people -- and that's a massive change in the way the program works.

These are people who are healthy, childless adults who are not covered in many States.

They say okay, we're going to make you cover those.

We're going to have a separate program for how you get reimbursed for that.

You get reimbursed differently from all the previously eligible individuals.

But if you don't take our money, we're going to take away your participation in the program for the visually impaired and disabled.

If I may reserve the balance of my time.

Chief Justice John G. Roberts: Well, I'm -- I'm not sure my colleagues have exhausted their questions, so--

Justice Sonia Sotomayor: I guess my greatest fear, Mr. Clement, with your argument is the following: The bigger the problem, the more resources it needs.

We're going to tie the hands of the Federal government in choosing how to structure a cooperative relationship with the States.

We're going to say to the Federal government, the bigger the problem, the less your powers are.

Because once you give that much money, you can't structure the program the way you want.

It's our money, Federal government.

We're going to have to run the program ourself to protect all our interests.

I don't see where to draw that line.

The uninsured are a problem for States only because they, too, politically, just like the Federal government, can't let the poor die.

And so to the extent they don't want to do that, it's because they feel accountable to their citizenry.

And so if they want to do it their way, they have to spend the money to do it their way, if they don't want to do it the Federal way.

So I -- I just don't understand the logic of saying States, you can't -- you don't -- you're not entitled to our money, but once you start taking it, the more you take, the more power you have.

Mr. Clement: Well, Justice Sotomayor, a couple of points.

One is, I actually think that sort of misdescribes what happened with Medicaid.

I mean, States were, as you suggest, providing for the poor and the visually impaired and disabled even before Medicaid came along.

Then all of a sudden, States -- the Federal government says look, we'd like to help you with that, and we're going to give you money voluntarily.

And then over time, they give more money with more conditions, and now they decide they're going to totally expand the program, and they say that you have to give up even your prior program, where we -- first came in and offered you cooperation, we're now going to say you have to give that up if you don't take our new conditions.

Secondarily, I do think that our principle is not that when you get past a certain level, it automatically becomes coercive per se.

But I do think when you get a program and you're basically telling States that look, we're going to take away $3.3 trillion over the next 10 years, that at that point, it's okay to insist that Congress be a little more careful that it not be so aggressively coercive as it was in this statute.

And I would simply say that -- we're not here to tell you that this is going to be an area where it's going to be very easy to draw the line.

We're just telling you that it's inceptionally important to draw that line, and this is a case where it ought to be easy to establish a beachhead, say that coercion matters, say there's three factors of this particular statute that make it as obviously coercive as any piece of legislation that you've ever seen, and then you will have effectively instructed Congress that there are limits, and you have laid down some administrable rules.

Justice Antonin Scalia: Mr. Clement, the Chief has said I can ask this.

Chief Justice John G. Roberts: --He doesn't always check first.

Justice Antonin Scalia: As I recall your -- your theory, it is that to determine whether something is coercive, you look to only one side, how much you're threatened with losing or offered to receive.

And the other side doesn't matter.

I don't think that's realistic.

I mean, I think, you know, the -- the old Jack Benny thing, Your Money Or Your Life, and, you know, he says "I'm thinking, I'm thinking".

It's -- it's funny, because it's no choice.

You know?

Your life?

Again, it's just money.

It's an easy choice.

No coercion, right?

I mean -- right?

Now whereas, if -- if the choice were your life or your wife's, that's a lot harder.

Now, is it -- is it coercive in both situations?

Mr. Clement: Well, yes.

It is.

Justice Antonin Scalia: Really?

Mr. Clement: I would say that.

Justice Antonin Scalia: It's a tough choice.

And -- and--

Justice Anthony Kennedy: I thought you were going to say

"the statute is your money and your life. "

Mr. Clement: And well -- it is.

But I mean -- I might have missed something, but both of those seem to be coercion.

Justice Antonin Scalia: --No, no, no.

To say -- to say you're -- when you say you're coerced, it means you've been -- you've been given an offer you can't refuse.

Okay?

You can't refuse your money or your life.

But your life or your wife's, I could refuse that one.

Justice Sonia Sotomayor: Mr Clement.

He's not going home tonight--

Chief Justice John G. Roberts: Let's leave the wife out of this--

Justice Antonin Scalia: I'm talking about my life.

I think -- take mine, you know?

Mr. Clement: I wouldn't do that either,--

Justice Antonin Scalia: I won't use that example.

example.

Forget about it.

Chief Justice John G. Roberts: --That's enough frivolity for a while.

But I want to make sure I understand where the meaningfulness of the choice is taken away, is it the amount that's being offered, that it's just so much money, of course you can't turn it down, or is it the amount that's going to be taken away if you don't take what they're offering?

Mr. Clement: --It's both, Your Honor.

And I think that that's -- I mean, there really is -- I -- there really is, you know, three strings in this bow.

I mean, one is, the sheer amount of money here makes it very, very difficult to refuse, because it's not money that, you know, that's come from some -- you know, China or, you know, the -- the -- the export tariffs like in the old day.

It's coming from the taxpayers, so that's part of it.

The fact that they're being asked to give up their continuing participation in a program that they've been participating in for 45 years as a condition to accept the new program, we think that's the second thing that's critical--

Chief Justice John G. Roberts: Well, why isn't that a consequence of how willing they have been since the New Deal to take the Federal government's money?

And it seems to me that they have compromised their status as independent sovereigns because they are so dependent on what the Federal government has done, they should not be surprised that the Federal government having attached the -- they tied the strings, they shouldn't be surprised if the Federal government isn't going to start pulling them.

Mr. Clement: --With all due respect, Mr. Chief Justice, I don't think we can say that, you know, the States have gotten pretty dependent, so let's call this whole federalism thing off.

And I just think it's too important.

Because again, the consequence -- if you think about it -- if -- the consequence of saying that we're not going to police the coercion line here shouldn't be that well, you know, it's just too hard, so we'll give the Federal Congress unlimited spending power.

The consequence ought to be, if you really can't police this line, then you should go back and reconsider your cases that say that Congress can spend money on things that it can't do directly.

Now, we're not asking you to go that far.

We're simply saying that look, your spending power cases absolutely depend on there being a line between coercion--

Justice Sonia Sotomayor: --But could you tell me--

Mr. Clement: --and voluntary action.

Justice Sonia Sotomayor: --I don't understand your first answer to Justice Kagan.

You don't see there being a difference between the Federal government saying we want to take care of the poor.

States, if you do this, we'll pay 100 percent of your administrative costs.

And you said that could be coercion.

All right.

Doesn't the amount of burden that the State undertakes to meet the Federal obligation count in this equation at all?

Mr. Clement: It -- it certainly can, Justice Sotomayor.

I didn't mean to suggest in answering Justice Kagan's question that my case was no better than that hypothetical.

I mean, but if in the nature of things that I do think the amount of the money even considered alone does make a difference, and it's precisely because it has an effect on their ability to raise revenue from their own citizens.

So it's not just free money that they are turning down if they want to.

It really is--

Justice Sonia Sotomayor: Counsel, if we go pack to the era of matching what a State pays to what a State gets, Florida loses.

It's citizens pay out much less than what they get back in Federal subsidies of all kinds.

So you can't really be making the argument that Florida can't ask for more than it gives, because it's really giving less than it receives.

Mr. Clement: --Well then--

Justice Sonia Sotomayor: You don't really want to go to that point, do you?

Mr. Clement: --Well, then I will make that argument on behalf of Texas.

But it's not, it's not what my argument depends on.

And that's the critical thing.

It's one aspect of what makes this statute uniquely coercive.

And I really think if you ask the question: What explains the idea that if you don't take this new money you are going to lose all your money under what you have been doing for 45 years to help out the visually impaired and disabled?

Nobody in Congress wants the States to stop doing that.

They are just doing it, and it's purely coercive to condition the money.

It's leverage, pure and simple.

Justice Anthony Kennedy: If the inevitable consequence of your position was that the Federal government could just do this on its own, the Federal government could have Medicaid, Medicare, and these insurance regulations.

Assume that's true.

Then how are the interests of federalism concerned?

How are the interests of federalism concerned if in Florida or Texas or some other objecting States there are huge Federal bureaucracies doing what this bill allows the State bureaucracies to do.

I know you have thought about that.

I would just like your answer.

Mr. Clement: I have, and I would like to elaborate that the one word answer is "accountability".

If the Federal government decides to spend money through Federal instrumentalities and the citizenry is hacked off about it, they can bring a Federal complaint to a Federal official working in a Federal agency.

And what makes this so pernicious is that the Federal government knows that the citizenry is not going to take lightly the idea that there are huge, new Federal bureaucracies popping up across the country.

And so they get the benefit of administering this program through State officials, but then it makes it very confusing for the citizen who doesn't like this.

Do they complain to the State official because it's being administered in the State official in a State building?

Justice Elena Kagan: Mr. Clement, that is very confusing because the idea behind cooperative Federal/State programs was exactly a federalism idea.

It was to give the States the ability to administer those programs.

It was to give the States a great deal of flexibility in running those programs.

And that's exactly what Medicaid is.

Mr. Clement: Well, that's exactly what Medicaid was.

The question is: What will it be going forward?

And I absolutely take your point, Justice Kagan.

Cooperative federalism is a beautiful thing.

Mandatory federalism has very little to recommend it because it poses exactly the kind of accountability--

Justice Elena Kagan: Cooperative federalism does not mean that there are no Federal mandates and no Federal restrictions involved in a program that uses 90 percent here, 100 percent Federal money.

It means there is flexibility built into the program subject to certain rules that the Federal government has about how it wishes its money to be used.

It's like giving a gift certificate.

If I give you a gift certificate for one store, you can't use it for other stores.

But still you can use it for all kinds of different things.

Mr. Clement: --I absolutely agree that if it's cooperative federalism and the States have choices, then that is perfectly okay.

But when -- that's why voluntariness and coercion is so important.

Because if you force a State to participate in a Federal program, then -- I mean, as long as it's voluntary then a State official shouldn't complain if a citizen complains to the State about the way the State's administering a Federal program that it volunteered to participate in.

But at the point it becomes coercive, then it's not fair to tell the citizen to complain to the State official.

They had no choice.

But who do they complain at the Federal level?

There's nobody there, which would be -- I'm not saying it's the best solution to have Federal instrumentalities in every State, but it actually is better than what you get when you have mandatory federalism and you lose the accountability that is central to the federalism provisions in the Constitution.

Chief Justice John G. Roberts: Thank you, Mr. Clement.

General Verrilli?

ORAL ARGUMENT OF GENERAL DONALD B. VERRILLI, JR., ON BEHALF OF THE RESPONDENTS

Mr. Verrilli Jr.: Mr. Chief Justice, and may it please the Court:

The Affordable Care Act's Medicaid expansion provisions will provide millions of Americans with the opportunity to have access to essential health care that they cannot now afford.

It is an exercise of the Spending Clause power that complies with all of the limits set forth in this Court's decision in Dole, and the States do not contend otherwise.

The States are asking this Court to do something unprecedented, which is, to declare this an impermissibly coercive exercise.

Justice Antonin Scalia: What do you think we meant in those dicta in several prior cases where we've said that the Federal government cannot be coercive through the Spending Clause?

What -- what do you think we were -- give us a hypothetical.

Mr. Verrilli Jr.: Yes.

First, if I could just try to be a little more precise about it, Justice Scalia.

I think what the Court said in Steward Machine and in Dole is that it's possible that you might envision a situation in which there's coercion--

Justice Antonin Scalia: Okay.

Mr. Verrilli Jr.: --And the courts didn't say much more.

But I can think of something.

One example I could think of that might serve as a limit would be a Coyle type situation, in which the condition attached was worth a fundamental transformation in the structure of State government in a situation in which the State didn't have a choice but to accept it.

But -- and so--

Justice Antonin Scalia: Anything else, so long as you--

Mr. Verrilli Jr.: Well, but--

Justice Antonin Scalia: --You are talking about situations where they have to locate their State house in some other city--

Mr. Verrilli Jr.: Or you may have a legislature--

Justice Antonin Scalia: --And they have no choice.

But short of that, they can make the State do anything at all?

Mr. Verrilli Jr.: --No, no.

Dole -- the Dole conditions are real.

The germaneness condition in Dole is real, for example, and so those--

Chief Justice John G. Roberts: None of those have addressed the coercion question.

Mr. Verrilli Jr.: --Right.

Chief Justice John G. Roberts: So then you think it would be all right for the Federal government to say -- same program: States, you can take this or you can leave it.

But if you don't take it, you lose every last dollar of Federal funding for every program.

Mr. Verrilli Jr.: I think that would raise a germaneness issue, Mr. Chief Justice, but it's not what we have here.

Chief Justice John G. Roberts: But there's no coercion question at all.

Mr. Verrilli Jr.: Well, but I think -- I think they are related.

I think that the germaneness inquiry in Dole really gets at coercion in some circumstances, and that's why I think they are related.

But we don't have that here.

And if I could, I would like to address--

Chief Justice John G. Roberts: No, I know we don't have that here.

How does germaneness get -- get to coercive?

Mr. Verrilli Jr.: --Because it gets to be harder to see what--

Chief Justice John G. Roberts: That's germane if there's no--

Mr. Verrilli Jr.: What the connection is between getting you to do A and the money you are getting for--

Chief Justice John G. Roberts: --So it fails because it is not germane.

But you are saying it would not fail because it was coercive.

Mr. Verrilli Jr.: --Why -- I think that -- as I said, I think they are really trying to get at the same thing, and I -- but I do think it's quite different here, and I would like to, if I could, take up each of the--

Chief Justice John G. Roberts: No, I know -- I know it's different here.

I'm just trying to understand if you accept the fact or regarded as true that there is a coercion limit, or that once the Federal government -- once you are taking Federal government money, the Federal government money -- can take it back, and that doesn't affect the voluntariness of your choice.

Because it does seem like a serious problem.

We are assuming under the Spending Clause the Federal government cannot do this.

Under the Constitution it cannot do this.

But if it gets the State to agree to it, well, then it can.

And the concern is, if you can say: If you don't agree with this, you lose all your money, whether that's really saying the limitation in the Constitution is -- is largely meaningless.

Mr. Verrilli Jr.: --Well, but I don't think that this is a case that presents that question.

Chief Justice John G. Roberts: No, no, I know.

I know this.

I don't know if I will grant it to you or not.

But let's assume it's not this case.

Do you recognize any limitation on that concern?

Mr. Verrilli Jr.: I think the Court has said in Steward Machine and Dole that this is something that needs to be considered in an appropriate case.

And we acknowledge that.

But I do think it's so dependent on the circumstances that it's very hard to say in the abstract with respect to a particular program that there is a--

Justice Antonin Scalia: You can't imagine a case in which it is both germane and yet coercive, is what you are saying.

There is no such case as far as you know.

Mr. Verrilli Jr.: Well, I am not prepared to -- to say right here that I can -- that--

Justice Antonin Scalia: --I wouldn't think that is a surprise question, you know?

Mr. Verrilli Jr.: --Congress has authority to act and--

Justice Antonin Scalia: I can't think of one.

I'm not blaming you for not thinking of one.

Mr. Verrilli Jr.: --But I do think -- I really do think that it's important to look at this, an issue like this.

If you are going to consider it, it has got to be considered in a factual context from which it arises.

Justice Samuel Alito: Let me give you a factual context.

Let's say Congress says this to the States: We have got great news for you; we know your expenditures on education are a huge financial burden, so we are going to take that completely off your shoulders; we are going to impose a special Federal education tax which will raise exactly the same amount of money as all of the States now spend on education; and then we are going to give you a grant that is equal to what you spent on education last year.

Now, this is a great offer and we think you will take it, but of course, if you take it, it's going to have some conditions because we are going to set rules on teacher tenure, on collective bargaining, on curriculum, on textbooks, class size, school calendar and many other things.

So take it or leave it.

If you take it, you have to follow our rules on all of these things.

If you leave it, well, then you are going to have to fine -- you are going to have to tax your citizens, they are going to have to pay the Federal education tax; but on top of that, you were going to have to tax them for all of the money that you are now spending on education.

Plus all of the Federal funds that you were previously given.

Would that be -- would that reach the point -- would that be the point where financial inducement turns into coercion?

Mr. Verrilli Jr.: No, I don't think so--

Justice Samuel Alito: No.

Mr. Verrilli Jr.: --because they do, the States do have a choice there, especially as a -- as a going-in proposition.

The argument the States are making here is not that they're -- that -- this is not a going-in proposition.

Their argument is that they're -- they are in a position where they don't have a choice because of everything that has happened before.

But--

Justice Samuel Alito: You might be right.

But if that is the case then there is nothing left. 27198812723016

Mr. Verrilli Jr.: Well, but as a--

Justice Samuel Alito: --of federalism.

Mr. Verrilli Jr.: --As a practical matter, I disagree with that, Justice Alito.

First of all, as a practical matter there is a pretty serious political constraint on that situation ever arising, because it's not like the Federal Government is going to have an easy time of raising the kinds of tax revenues that need to be -- needed to raised to work that kind of fundamental transformation, and that is real.

And political constraints do operate to protect federalism in this area.

Justice Antonin Scalia: I would have thought there was a serious political strain -- constraint on the individual mandate, too, but that didn't work.

What you call serious political constraints sometimes don't work.

Mr. Verrilli Jr.: But -- but with respect to a situation like that one, Justice Scalia, the -- the States have their education system, and they can decide whether they are going to go in or not.

But here, of course, I think it's important to trace through the history of Medicaid.

It, it is not a case, as my friend from the other side suggested, that the norm here is that the Federal Government has offered to the States the opportunity either to stay where they are or add the new piece.

We can debate that proposition with respect to 1972 one way or another, the States have one view about that; we have a different one.

But starting in the 1984 expansion, with respect to pregnant women and infants, it was an expansion of the entire program; States were given the choice to stay in the entire program or not.

1989 when the program was expanded to children under 6 years of age, under 133 percent of poverty, same thing.

1990, kids 6 to 18 and 100 percent of poverty, same thing.

In fact, every major expansion, same thing.

And so I just think the history of the program, and particularly when you read that in context of 42 U.S.C. 1304, which reserves the right of the Federal Government to amend the program going forward, shows you that this is something that the States have understood all along.

This has been the evolution of it, and with respect to--

Chief Justice John G. Roberts: Could you give me some assurance?

We heard the question about whether or not the Secretary would use this authority to the extent available.

Is there circumstances where you are willing to say that that would not be permissible?

I'm thinking of the Arizona letter, for example.

I mean, if I had the authority and I was in that position, I would use it all the time.

You might -- you want some little change made?

Well, guess what; I can take away all your money if you don't make it.

I win.

Every time.

It seems that that would be the case.

So why shouldn't we be concerned about the extent of authority that the government is exercising, simply because they could do something less?

We have to analyze the case on the assumption that that power will be exercised, don't we?

Mr. Verrilli Jr.: --Well, Mr. Chief Justice, it would not be responsible of me to stand here in advance of any particular situation becoming -- coming before the Secretary of Health and Human Services and commit to how that would be resolved one way or another.

But that--

Chief Justice John G. Roberts: No, I appreciate that.

I appreciate that, but I guess -- GENERAL VERRILLI: That discretion is there in the statute, and I have every reason to think it is real, but I do think, getting back to the circumstances here--

Justice Elena Kagan: Well, General, what's the -- been the history of its use?

Has the Secretary in fact ever made use of that authority?

Mr. Verrilli Jr.: --That's correct, Justice Kagan.

It's never been used--

Chief Justice John G. Roberts: --What about the Arizona letter we just heard about today?

Mr. Verrilli Jr.: --It has never been used to cut off -- threaten--

Chief Justice John G. Roberts: It's been used to--

Justice Antonin Scalia: Of course not.

Chief Justice John G. Roberts: --Of course no States would say okay, go ahead but -- make my day, take it away; they are -- they are going to give in.

Mr. Verrilli Jr.: --If we could go to the situation we have here, Mr. Chief Justice, this -- with respect to the Medicaid expansion, the States' argument is, as they said in their briefs, they articulated a little bit different this morning -- this afternoon.

But as they said it in their briefs, was, it's not what you stand to gain, but what you stand to lose.

But I think an important thing in evaluating that argument in this context is fully 60 percent of Medicaid expenditures in this country are based on optional choices; and I don't mean by that the optional choices of the States to stay in the program in '84 or '88 or '89.

But -- but States are given the choices to expand the beneficiaries beyond the Federal minimum and to expand services beyond the Federal minimum.

Justice Anthony Kennedy: And just a small point, and please correct me if I am wrong.

It -- does this Act not require States to keep at the present level their existing Medicaid expenditure?

So some States may have been more generous than others in Medicaid, but this Act freezes that so the States can't go back.

Or am I incorrect?

Mr. Verrilli Jr.: It's much more nuanced than that, Justice Kennedy.

There is something called a maintenance of effort provision which lasts until 2014, until such time as the Medicaid expansion takes place and the exchanges are in place.

That applies to the population.

It says with respect to the population, you can't take anybody out.

It does not apply to the optional benefits where the States still have flexibility, they can still reduce optional benefits that they are now providing if they -- if they want to -- to control costs.

They can also work on provider rates, there's also with respect to demonstration projects by which some States have expanded their populations beyond the required eligibility levels, they don't have to keep them in.

So -- and then there's also, if the State has a budgetary crisis, it can get a waiver of that, as Wisconsin did.

So that is a -- that's a provision I think that does a significant degree less than my friends on the other side have suggested in terms of -- in terms of its effect, and its effect beyond that is just temporary.

I do think with respect to the -- the first of their three arguments for coercion, the sheer size argument, that it's very difficult to see how that is going to work; because if the question is about what you stand to lose rather than what you stand to gain, then it seems to me that it doesn't matter whether the Medicaid expansion is substantial or whether it's modest, or whether there is any expansion at all.

The States, for example -- the Federal Government, for example, could decide that under -- under the current system too much money has ended up flowing to nursing care and that money would be better serving the general welfare if it were directed at infants and children.

But if the Federal Government said we are going to redirect the spending priorities of the Federal money that we are offering to you, the States could say well, Geez, we don't like that; we would like to keep spending the money the way we were, and we have no choice, because this has gotten too big for us to exit.

And so -- and in fact, it seems to me, standing here today before these expansions take place, under their theory, the provision is--

Justice Antonin Scalia: The smaller it, is the bigger the coercion.

Mr. Verrilli Jr.: --well--

Justice Antonin Scalia: The smaller what you are demanding of them, the bigger the coercion to go along.

Mr. Verrilli Jr.: --The more they stand to lose.

And -- and so -- and then it -- I'm sorry, Justice Breyer.

Justice Stephen G. Breyer: I -- just before you leave that, I'd -- I'd appreciate it if you would expand a little bit on the answer to Justice Kagan's question.

For the reason, when I read the cutoff statute, which as I said has been there since 1965 unchanged, it does refer to the Secretary's discretion to keep the funding, insofar as the funding has no relationship to the failure to comply with the condition.

And as I read that, that gives the Secretary the authority to cut off all the money, but the State's refusal to accept the condition means they shouldn't have.

But nothing there says they can go beyond that and cut off unrelated money.

Now there is a sentence says maybe they could do that.

I thought they had to exercise that within reason.

Mr. Verrilli Jr.: Well--

Justice Stephen G. Breyer: I don't know when it be reasonable.

So you have looked into it, and that's what I want to know.

Mr. Verrilli Jr.: --Right.

Justice Stephen G. Breyer: Is there -- I could find no instance where they went beyond the funds that were related to the thing that the State refused to do, or things affected by that.

I would like you to tell me, when you looked into it, that what I thought of in this isolation chamber here is actually true.

Or whether they have run around threatening people that we will cut off totally unrelated funds.

What is the situation?

Mr. Verrilli Jr.: I think the situation is generally as you have described it, but I do want to be careful in saying I -- I don't think it would be responsible of me to commit now that the Secretary would exercise the discretion uniformly in one way or another.

Chief Justice John G. Roberts: Well, but that's just saying that when, you know, the analogy that has been used, the gun to your head, "your money or your life", you say well, there is no evidence that anyone has ever been shot.

Mr. Verrilli Jr.: But--

Chief Justice John G. Roberts: --Well, it's because you have to give up your wallet.

You don't have a choice.

Mr. Verrilli Jr.: But that--

Chief Justice John G. Roberts: And you cannot represent -- you cannot represent that the Secretary has never said,

"and if you don't do it, we are going to take away all the funds. "

They cite the Arizona example; I suspect there are others, because that is the leverage.

Mr. Verrilli Jr.: --But it--

Chief Justice John G. Roberts: I'm not saying there is anything wrong with it.

Mr. Verrilli Jr.: --It's not coercion, Mr. Chief Justice.

Chief Justice John G. Roberts: Wait a second.

It's not -- it's not coercion -- well, I guess that's what the case is.

It's not coercion. 32460063247256

Mr. Verrilli Jr.: It's not coercion.

Chief Justice John G. Roberts: --to say I'm going to take away all your funds, no matter how minor the infringement?

Mr. Verrilli Jr.: But -- But of course--

Justice Stephen G. Breyer: But I don't know if that's so.

And all I asked in my question was I didn't ask you to commit the Secretary to anything.

I wanted to know what the facts are.

Mr. Verrilli Jr.: --I--

Justice Stephen G. Breyer: I wanted to know what you found in researching this case.

I wanted you to, in other words, to answer the question the Chief Justice has: Is it a common thing, that that happens, that this unrelated threat is made?

Or isn't it?

Mr. Verrilli Jr.: --It's -- my understanding is that these situations are usually worked out back and forth between the States and the Federal government.

And I think that most--

Justice Stephen G. Breyer: And you are not privy to what those are.

Mr. Verrilli Jr.: --And I'm not.

But--

Justice Antonin Scalia: And who wins.

Mr. Verrilli Jr.: --Well, I think -- that's what I think is the problem here, Justice Scalia, is it seems to me we are operating under a conception that isn't right.

The reason we have had all these Medicaid expansions and the reason seems to me why we are were where we are now and why 60 percent of what's being spent on Medicaid is based on voluntary decisions by the States to expand beyond what Federal law requires, because this is a good program and it works.

And the States generally like what it accomplishes--

Justice Elena Kagan: And, General Verrilli--

Justice Samuel Alito: Is this discussion realistic?

The objective of the Affordable Care Act is to provide near universal health care.

Now suppose that all of the 26 States that are parties to this case were to say, well, we're not going to -- we're not going to abide by the new conditions.

Then there would be a huge portion -- a big portion of the population that would not have healthcare, and it's a realistic possibility the Secretary is going to say, well, okay, fine, you know.

We are going to cut off your new funds but we are not going to cut off your old funds and just let that condition sit there.

Mr. Verrilli Jr.: --Well, just as I can't make a commitment that the authority wouldn't be exercised, I'm not going to make a commitment that it would be exercised.

But I do think that that -- to try and move away from the first of their argument, the sheer size argument, to the second one, which is that it's coercive by virtue of its relationship to the Affordable Care Act.

I really think that that's a misconception and I would like to be able to take a minute and walk through and explain why that is.

Justice Elena Kagan: --General Verrilli, before you do that, I'm sorry, but in response to the Chief Justice's question -- I mean the money or your life has consequence because we are worried that that person is actually going to shoot.

So I think that this question about are we -- what do we think the Secretary is going to do is an important one.

And as I understand it, I mean when the Secretary withdraws funds, what the Secretary is doing is withdrawing funds from poor people's health care.

And that the Secretary is reluctant and loathe to take money away from poor people's health care.

And that that's why these things are always worked out.

It's that the Secretary really doesn't want to use this power.

And so the Secretary sits down with the State and figures out a way for the Secretary not to use the power.

Mr. Verrilli Jr.: That's correct, Justice Kagan.

That is no--

Chief Justice John G. Roberts: No, what the -- GENERAL VERRILLI: I'm sorry--

--Go ahead.

Mr. Verrilli Jr.: --That's another way of trying to say what I was trying to say to Justice Scalia earlier is that the States and the Federal government share a common objective here, which is to get health care to the needy.

And in the vast majority of instances they work together to make that happen.

Chief Justice John G. Roberts: Well, but the question is not obviously the States are interested in the same objective and they have a disagreement or they have budget realities that they have to deal with.

And States say, well, we are going to cut by 10 percent what we reimburse this for or that for and the Federal government says well, you can't.

And no one is suggesting that people want to cut health care but they have different views about how to implement policy in this area.

And the concern is that the Secretary has the total and complete say because the Secretary has the authority under this provision to say you lose everything.

No one's suggested in the normal course that will happen, but so long as the Federal government has that power, it seems to be a significant intrusion on the sovereign interests of the State.

Now I'm not -- it may be something they gave up many decades ago when they decided to live off of Federal funds.

But I don't think you can deny that it's a significant authority that we are giving the Federal government to say that you can take away everything if the States don't buy into the next program.

Mr. Verrilli Jr.: Well, but what I would say about that Mr. Chief Justice, is that we recognize that these decisions aren't going to be easy decisions in some circumstances.

As a practical matter there may be circumstances in which they are very difficult decisions.

But that's different from saying that they are coercive and that's different from saying that it's an unconstitutional--

Justice Stephen G. Breyer: Why is it different?

Why is it different?

I mean, I thought it might be very unlikely that the State would ever say that the government -- the Federal government would say here's a condition that you have to have a certain kind of eyeglasses for people who don't see.

And by the way if you don't do that we'll take away $42 billion of funding, okay?

I thought such a thing would not happen.

And I thought that if it tried to happen that it's governed by the APA and the person with eyeglasses would say it's arbitrary, capricious, abusive discretion.

And that's so, even though the statute says it's in the discretion of the Secretary but Mr. -- your colleague and brother says no, I'm wrong about the law there and moreover they would do it.

That's what I'm hearing now, that they would do it and they do do it, and -- and, etc.

So I would like a little clarification.

Mr. Verrilli Jr.: --In of the situation described in your hypothetical, Justice Breyer, the Secretary of health and human services would never do it.

But what I'm saying with respect to the Medicaid expansion in this case.

Justice Antonin Scalia: Could never do it or would a prediction, okay.

Mr. Verrilli Jr.: Well, I think it would have to satisfy the administrative procedure, that's a real constraint.

When I don't what I don't feel able to do here is to say with respect to this Medicaid expansion.

Justice Antonin Scalia: Are you willing to acknowledge that the Administrative Procedure Act is a limitation on the secretary's ability to cut off all the funds; she can't do it if it -- if that would be unreasonable?

Are you willing to accept that?

I wouldn't if I were you.

Mr. Verrilli Jr.: So what I'm trying to do here is to -- is to suggest that the secretary does have discretion under the statute, and that that -- and that--

Justice Antonin Scalia: Indeed, part of the discretion is to cut off all of the funds.

That's what the statute says.

Mr. Verrilli Jr.: --and it is possible, and I'm not willing to give that away.

But that doesn't make this--

Justice Elena Kagan: But, General Verrilli, you are not willing to give away whether the APA would bar that; but, the APA surely has to apply to a discretionary act of the secretary.

Mr. Verrilli Jr.: --I agree with that, Justice Kagan, but--

Justice Stephen G. Breyer: What's making you reluctant?

Mr. Verrilli Jr.: --I'm not trying to be -- I'm not trying to be reluctant.

I understand how this works.

I'm trying to be careful about the authority of the Secretary of Health and Human Services and how it will apply in the future.

Justice Antonin Scalia: I wouldn't worry a lot if I were you.

I don't know of any case that, where the secretary's discretion explicitly includes a certain act, we have held that, nevertheless, that act cannot be performed unless we think it reasonable.

I don't know any case like that.

Yes, when there is just a general grant of discretion, it has to be exercised reasonably.

But maybe Justice Breyer knows such a case.

Justice Stephen G. Breyer: Yes, I do.

Justice Antonin Scalia: Give it to me.

Mr. Verrilli Jr.: If I could go back to the sheer size idea, there is, I think, another couple of points that are important in thinking about whether that's a principle courts could ever apply.

Once you get into that business, in addition to the problem I identified earlier, that it basically means that Congress is frozen in place, based on the size of the program, you have got this additional issue of having to make a judgment about in what circumstances will -- will the loss of the federal funding be so significant that you would count it as -- coercive.

Justice Anthony Kennedy: I suppose one test could be -- I just don't see that it would be very workable -- is whether or not it's so big that accountability is lost, that it is not clear to the citizens that the State or the Federal Government is administering the program, even though it's a state administrator.

Mr. Verrilli Jr.: Well, but I think--

Justice Anthony Kennedy: I think that's unworkable.

Mr. Verrilli Jr.: --this is going to come from a withdrawal situation.

Their argument's about it's what you stand to lose and with respect to withdrawal.

I mean, so, does it depend on -- is it an absolute or a relative number with respect to how much of the state budget?

Is it a situation where you have to make a calculation about how hard would it be for that state to make up in state tax revenues the federal revenue they would lose?

Does that depend on whether it's a high tax state or a low tax state.

It just seems to me -- and then, what is the political climate in that state?

It seems to me like--

Justice Anthony Kennedy: In your view, does federalism require that there be a relatively clear line of accountability for political acts?

Mr. Verrilli Jr.: --Yes, of course, it does, Justice Kennedy.

But, here--

Justice Anthony Kennedy: Is that subsumed in the coercion test, or is that an independent?

Mr. Verrilli Jr.: --You know, here, the coercion test, as it's been discussed, I think, for example, in Justice O'Connor's dissent in Dole and in some of the other literature, does address federalism concerns in the sense of the Federal Government using federal funding in one area to try to get states to act in an area where the Federal Government may not have Article I authority.

Justice Anthony Kennedy: Yes.

Mr. Verrilli Jr.: But, as Your Honor suggested earlier, this is a situation in which, while it is certainly true that the Federal Government couldn't require the states, as the Chief Justice indicated, to carry out this program, the federal government could, as Your Honor suggested, expand Medicare and do it itself.

Justice Anthony Kennedy: But do you think that there still is inherent and implicit in the idea of federalism, necessary for the idea of federalism, that there be a clear line of accountability so the citizen knows that it's the Federal or the State government who should be held responsible for a program?

Mr. Verrilli Jr.: Certainly, but I think the problem here is--

Justice Anthony Kennedy: And does coercion relate to that, or is that a separate-- 38433763845959

Mr. Verrilli Jr.: Yes, but I think--

Justice Anthony Kennedy: --is that a separate thought?

Mr. Verrilli Jr.: --Well, I think it relates to it in the opposite way that my friends on the other side would like it to, in that I think their argument is that it would subject us to such a high degree of political accountability at the state level to withdraw ourselves from the program, that it's an unpalatable choice for us, and that's where the coercive effect comes from.

And that's why I think--

Justice Anthony Kennedy: Well, but I think the answer would be that the state wants to preserve its integrity, its identity, its responsibility in the federal system.

Mr. Verrilli Jr.: --And it may -- and, of course, it may do so, and it can make--

Justice Antonin Scalia: May it do so?

Doesn't the question come down to this -- maybe you can answer this yes.

But -- but isn't the question simply: Is it conceivable to you, as it was evidently not to Congress, that any State would turn down this offer, that they can't refuse?

Is it conceivable to you that any State would have said no to this program?

Congress didn't think that, because some of its other provisions are based on the assumption that every single State will be in this thing.

Now, do you -- can you conceive of a State saying no?

And -- and if you can't, that sounds like coercion to me.

Mr. Verrilli Jr.: --I think -- I think Congress predicted that States would stay in this program, but the -- prediction is not coercion.

And the reason Congress predicted it, I think, Justice Scalia, is because the Federal government is paying 90-plus percent of the costs.

It increases State costs--

Justice Antonin Scalia: So what do you predict?

If you predict the same, that 100 percent of the States will accept it, that sounds like coercion.

Mr. Verrilli Jr.: --Prediction is not coercion.

I disagree, Justice Scalia.

That's just an assumption, and if it proves to be wrong, then Congress has time to recalibrate.

And beyond that, I do think if -- I just want to go back to the other part of Your Honor's point -- that with respect to the relationship between Medicaid and the Act, and particularly the minimum coverage provision, my -- my friend Mr. Clement has suggested that you can infer coercion because with respect to the population to which the provision applies, if there's no Medicaid, there's no other way for them to satisfy the requirement.

I want to work through that for a minute if I may, because it's just incorrect.

First of all, with respect to anybody at 100 percent of the poverty line or above, there is an alternative in the statute.

It's the exchanges with tax credits and with subsidies to insurance companies.

So with respect to that, the part of the population at 100 percent of poverty to 133 percent of poverty, the -- the statute actually has an alternative for them.

For people below 100 percent of poverty, it -- it is true that there is no insurance alternative.

But by the same token, there is no penalty that is going to be imposed on anybody in that group.

To begin with, right now, the -- the level of 100 percent of poverty is $10,800.

The -- the requirement for filing a Federal income tax return is $9,500.

So anybody below $9,500, no penalty, because they don't have to file an income tax return.

The sliver of people between $9,500 and $10,800, the question there is are they going to be able to find health insurance that will cost them less than 8 percent of their income.

Justice Samuel Alito: Well, I'm not -- in selling this argument -- take the poorest of the poor.

If there is no Medicaid program, then they're not going to get health care.

Isn't that right?

Mr. Verrilli Jr.: Yes, that's true.

But this--

Justice Samuel Alito: So Congress obviously assumed -- it thought it was inconceivable that any State would reject this offer, because the objective of the Affordable Care Act is to provide near-universal care.

And Medicaid is the way to provide care for at least the poorest of the poor.

So it -- it just didn't occur to them that this was a possibility.

And when -- when that's the case, how can that not be coercion?

Unless it's just a gift.

Unless it's just purely a gift.

Then it comes back to the question of whether you think it makes a difference that the money -- a lot of the money to pay for this -- is going to come out of the same taxpayers that the States have to tax to get their money.

Mr. Verrilli Jr.: --This is -- this is a -- this is -- these are Federal dollars that Congress has offered to the States and said, we're going to make this offer to you, but here's how these dollars need to be spent.

This is the essence of Congress's Article I authority under the General Welfare Clause and the Appropriations Clause.

This is not some remote contingency, or an effort to leverage in that regard.

This is how Congress is going to have the Federal government's money be used if States choose to accept it.

Yes, it was reasonable for Congress to predict in this circumstance that the States were going to -- to take this money, because -- because it is an extremely generous offer of funds: 90-plus percent of the funding.

States can -- can expand their Medicaid coverage to more than 20 percent of their population for an increase of only 1 percent--

Chief Justice John G. Roberts: If it's such a good deal--

Mr. Verrilli Jr.: of their funding.

Chief Justice John G. Roberts: --why do you care?

If it's such a good deal, why do you need the club?

Mr. Verrilli Jr.: --Well, the -- the--

Chief Justice John G. Roberts: It's a good deal, take it.

We're not going to -- if you don't take it, you're just hurting yourself.

We're not going to--

Mr. Verrilli Jr.: That's a judgment for Congress to make about how the Federal -- how Federal funds are going to be used if States choose to accept them, and Congress has made that judgment.

Chief Justice John G. Roberts: That's Congress's judgment to make, and it's -- it doesn't mean that it's coercive.

You have another 15 minutes.

Mr. Verrilli Jr.: --Lucky me.

Justice Anthony Kennedy: But the -- but the point is -- but the -- the point is, there's -- there's no real--

Justice Sonia Sotomayor: Can we go back--

Justice Anthony Kennedy: --There's no real -- there's no realistic choice.

There's no real choice.

And Congress does not in effect allow for an out -- opt out.

We just know that.

And it's--

Mr. Verrilli Jr.: No, I guess I--

Justice Anthony Kennedy: --it's substantial.

Mr. Verrilli Jr.: I would go back, Justice Kennedy--

Justice Anthony Kennedy: I recognize the problem with that test.

Mr. Verrilli Jr.: --I would go back to the fact that 60 percent of the Medicaid spending is now optional.

It's -- it's a result of choices that States have made that -- it's expanded the--

Justice Anthony Kennedy: Even though they're now frozen in, per our earlier discussions, to a large extent.

Mr. Verrilli Jr.: --Well, no -- to a more -- much more modest extent was my point, Justice Kennedy.

For example, optional services where a huge amount of money is spent -- more than $100 billion annually -- the largest component of that is nursing home services.

That remains optional.

It's -- right now, once the minimum -- once the maintenance provision remains in place, States have the flexibility to that -- reduce those numbers.

States have considerable flexibility now and going forward with respect to the way that money is spent.

And I do think in terms of evaluating whether this expansion should be considered coercive has got to be evaluated against the backdrop of the fact that the States are generally taking -- are generally taking advantage of the opportunities of this statute to greatly expand the amount of money that the Federal government spends and the amount of money that they spend to try to make the -- the lives of their citizens better.

I think--

Justice Anthony Kennedy: Of course, they have to do so by hiring a very substantial number of more employees.

There will be State employees.

There'll be substantial State administrative expenses that are not reimbursed.

Mr. Verrilli Jr.: --Well, but -- I would take issue with that, Justice Kennedy.

Part of the Affordable Care Act is that it -- it provides for new streamlined eligibility processes to get people into the system at a -- at a much faster and cheaper rate.

There are going to be costs to set that up.

But under the statute, the Federal government is going to pay 90 percent of those costs, the short-term set-up costs.

And then all of the projections that we have seen suggest that the medium -- to long-term costs once these changes are in place are going to be dramatically lower on the administrative side.

Chief Justice John G. Roberts: Well, what--

--Obviously, the Federal government isn't bound to that.

And what if, after the 90 percent, they say well, now -- from now on, we're going to pay 70 percent?

What happens then?

Where does that extra money come from?

Mr. Verrilli Jr.: Well, I think -- then the States would have a choice at that -- at that point whether they were going to stay in the program or not.

But that isn't what we have here, and--

Chief Justice John G. Roberts: There's no -- they can just bail out -- whenever the government reduces the amount of the percentage that it's going to pay, the States can say, that's -- that's--

Mr. Verrilli Jr.: Well, I'm not saying it would be an easy choice, Mr. Chief Justice.

Justice Antonin Scalia: They'd have to bail out of Medicaid, you're talking about.

Not just there.

Mr. Verrilli Jr.: --Right.

That would be--

Justice Antonin Scalia: The option.

Mr. Verrilli Jr.: --Right.

That that would be the option.

They can leave Medicaid if they decide that that isn't working for them.

I'm not saying this is an easy choice.

I'm also not saying it would happen, because the Secretary does have this discretion--

Chief Justice John G. Roberts: Well, the Secretary has the discretion.

We're talking about something else.

We're talking about fiscal realities, and whether or not the Federal government is going to say we need to lower our contribution to Medicaid and leave it up to the States because we want the people to be mad at the States when they have to have all these budget cuts to keep it up, and not at the Federal government.

Mr. Verrilli Jr.: --That would be true, Mr. Chief Justice, whether this Medicaid expansion occurred or not.

Chief Justice John G. Roberts: I know, but you've been emphasizing that the Federal government is going to pay 90 percent of this, 90 percent of this, and it's -- it's not something they can take to the bank, because the next day or the next fiscal year, they can decide we're going to pay a lot less.

And you, States, are still on the hook, because you -- you don't -- you say it's not an easy choice.

We can say -- ask whether it's coercion.

You're not going to be able to bail out of Medicaid.

You just have to pay more because we're going to pay less.

Mr. Verrilli Jr.: Well, like I said, I -- I agree that it would be a difficult choice in some circumstances.

But that is not to say it's coercion as a legal matter or even as a practical matter.

And I think it would depend on what the circumstances were on how -- and I think trying to think about how a court would ever answer the question of whether it was coercive, it was too difficult as a practical matter for States to withdraw.

Justice Sonia Sotomayor: --General, I'm trying.

--to go back to that.

Because Justice Kennedy asked you whether there is -- I think he said it's -- it's coercion if no one can be politically accountable.

I'm not sure how that could be practically politically accountable, because almost every gift -- if the terms are attractive, it would be an unattractive political alternative to turn it down.

Dole itself was one of those cases.

I think every State raised the drinking age to 21; correct?

Mr. Verrilli Jr.: --Yes, Justice Sotomayor, and this argument was raised in Dole, and the Court rejected it as a--

Justice Sonia Sotomayor: I guess my point is that political accountability has two components: What can I do if I like something, and what can I do if I don't like something.

And if people really like something like Medicaid, they were not going to let you drop it, correct.

Mr. Verrilli Jr.: --Well, the citizens of the State, but that's the citizen of the State acting--

Justice Sonia Sotomayor: Exactly.

That's the whole point that's their choice, right?

Mr. Verrilli Jr.: --in the capacity of the citizens of the State.

And I think that's why I get -- try to get back to the point, that's why I think this is wrong to think about this as coercion, because this is a program that works effectively for the citizens of the State, and States' governments -- and States governments think that and that's why it has expanded the way it has expanded, because it's providing an essential service for millions of needy citizens in these States.

It's providing access to health care that they would not otherwise have.

Chief Justice John G. Roberts: You mentioned the -- the Dole case.

Now, what was the -- the threat in that case, raise your drinking age to 21 -- 21 or what?

Mr. Verrilli Jr.: Or lose a percentage of your highway funds.

Chief Justice John G. Roberts: Do you remember the percentage?

Mr. Verrilli Jr.: Seven percent, yes.

Chief Justice John G. Roberts: Yes.

It's a pretty small amount.

That is really apples and oranges when you are talking about lose all of your Medicaid funds or lose -- I thought it was 5, but 7 -- 7 percent of your highway funds.

Mr. Verrilli Jr.: It's -- I think I agree with Your Honor, that it's -- that it's different, but I don't think that that makes coercion as -- as a legal matter.

As I said, I think that this is a situation in which the -- if the States -- is it -- I'm saying it won't be an easy choice, but the States made the choice, they have made the choice.

And--

Justice Sonia Sotomayor: They made a choice with the stimulus bill, didn't they?

Some governors rejected the stimulus bill--

Mr. Verrilli Jr.: That is -- that's correct, Justice Sotomayor.

Justice Sonia Sotomayor: --and some of -- some of their congressional or legislative processes overturned that--

Mr. Verrilli Jr.: That's right.

Justice Sonia Sotomayor: --and others supported it.

The percentages were smaller, but it's always the preference of the voters as to what they want, isn't it?

Mr. Verrilli Jr.: --That is correct.

Chief Justice John G. Roberts: What was the threat in the stimulus bill, what would the State lose?

Mr. Verrilli Jr.: That answer I don't know, Mr. Chief Justice.

Chief Justice John G. Roberts: Would anything be taken away or would it just lose the opportunity to get the money?

Mr. Verrilli Jr.: I don't know the answer to that.

I don't know the answer to that.

But if I may just say in conclusion that -- I would like to take half a step back here, that this provision, the Medicaid expansion that we are talking about this afternoon, and the provisions we have talked about yesterday, we have been talking about them in terms of their effect as measures that solve problems, problems in the economic marketplace, that have resulted in millions of people not having health care because they can't afford insurance.

There is an important connection, a profound connection between that problem and liberty.

And I do think it's important that we not lose sight of that.

That in this population of Medicaid eligible people who will receive health care that they cannot now afford under this Medicaid expansion, there will be millions of people with chronic conditions like diabetes and heart disease, and as a result of the health care that they will get, they will be unshackled from the disabilities that those diseases put on them and have the opportunity to enjoy the blessings of liberty.

And the same thing will be true for -- for a husband whose wife is diagnosed with breast cancer and who won't face the prospect of being forced into bankruptcy to try to get care for his wife and face the risk of having to raise his children alone and I can multiply example after example after example.

In a very fundamental way this Medicaid expansion, as well as the provisions we discussed yesterday, secure of the blessings of liberty.

And I think that that is important as the Court's considering these issues that that be kept in mind.

The -- the Congress struggled with the issue of how to deal with this profound problem of 40 million people without health care for many years, and it made a judgment, and its judgment is one that is, I think, in conformity with lots of experts thought, was the best complex of options to handle this problem.

Maybe they were right, maybe they weren't, but this is something about which the people of the United States can deliberate and they can vote, and if they think it needs to be changed, they can change it.

And I would suggest to the Court with profound respect for the Court's obligation to ensure that the Federal Government remains a government of enumerated powers, that this is not a case in any of its aspects that calls that into question.

That this was a judgment of policy, that democratically accountable branches of this government made by their best lights, and I would encourage this Court to respect that judgment and ask that the Affordable Care Act, in its entirety, be upheld.

Thank you.

Chief Justice John G. Roberts: Thank you, General.

Mr. Clement, you have 5 minutes.

REBUTTAL ARGUMENT OF PAUL D. CLEMENT ON BEHALF OF THE PETITIONERS

Mr. Clement: Thank you, Mr. Chief Justice and may it please the Court:

Just a few points in rebuttal.

First of all we talked a lot about the sort of hallmark of coercion, your money or your life, with somebody with a gun.

I would respectfully suggest that it is equally coercive or certainly not uncoercive if I say your money or your life, and by the way, I have discretion as to whether or not I will shoot the gun.

I don't think that eliminates the coercion.

I also don't think this is a discretion that the Secretary would ever be able to exercise.

And the reason is, we disagree on the details, but the Solicitor General and I agree that over the years Congress has had different approaches to expanding Medicare.

Sometimes, as in 1972, it makes the expansion voluntary; that's also by the way that happened with the stimulus funds, which were voluntary funds.

You didn't lose all your Medicaid funds, which is why 17 States could say no.

Sometimes they take the voluntary approach.

Sometimes, as in 1984, they take the mandatory approach.

If the Secretary exercised the discretion to say you know what, it really isn't reasonable for you to have to give up your funding for the visually impaired and the disabled just to cover these newly eligible people, so we will make it voluntary; we'll make that discretionary -- that would essentially be creating -- converting a 1984 amendment approach to a 1972 amendment approach, and I just don't think that is the kind of discretion that the Secretary has, with all due respect.

Now moving on to the next point, Justice Alito, your hypothetical I think aptly captures the effect on this, based on the fact that these tax dollars are being taken from the State's tax base, and it's not like Steward Machine, where the Federal Government would say, and oh, by the way, if you don't take the option we are giving you, we are going to have a Federal substitute that will go in and we will take care of the unemployed in your States.

Here if you don't take this offer we are giving you, your tax dollars will fund the other 49 States and you will get nothing.

But of course, this situation is much more coercive even than your hypothetical, because it is tied directly to the mandate.

It's also tied to the -- to participation in the preexisting program.

So it is as if there was yet another program for post-secondary education; they gave them exactly your option -- option -- and then they also said, oh, and by the way; you not only -- not get these funds, but you lose the post-secondary fund as well.

It's really hard to understand tying the preexisting participation in the program as anything other than coercive.

The Solicitor General makes a lot of the fact that there are optional benefits under this program.

Well, guess what?

After the Medicaid expansion there will be a lot less opportunity for the States to exercise those options, because one of the things that the expansion does -- precisely because the expansion is designed to convert Medicaid into a program that satisfies the requirement of the minimum essential cover of the individual mandate, things that used to be voluntary will no longer be voluntary.

The perfect example is prescription coverage.

It's a big part of the benefits that some States but not all provide voluntarily now.

It will no longer be voluntary after the expansion, because the Federal Government has deemed that prescription drugs to be part of the minimal essential health coverage that everybody in this country must have after the manned date.

So that option that the State has is being removed by the expansion itself.

The Chief Justice made the point--

Justice Ruth Bader Ginsburg: Mr. Clement, may I ask one question about the bottom line in this case?

It sounds to me like everything you said would be to the effect of, if Congress continued to do things on a voluntary basis, so we are getting these new eligibles, and say States, you can have it or not, you can preserve the program as it existed before, you can opt into this.

But you are not asking the Court as relief to say, well, that's how we -- we -- that's how we cure the constitutional infirmity; we say this has to be on a voluntary basis.

Instead, you are arguing that this whole Medicaid addition, that the whole expansion has to be nullified; and moreover, the entire health care act.

Instead of having the easy repair, you say that if we accept your position, everything falls.

Mr. Clement: --Well, Justice Ginsburg, if we can start with the common ground that there is a need for repair because there is a coercion doctrine and this statute is coercion, then we are into the question of remedy.

And we do think, we do take the position that you describe in the remedy, but we would be certainly happy if we got something here, and we got a recognition that the coercion doctrine exists; this is coercive; and we get the remedy that you suggest in the alternative.

Let me just finish by saying I certainly appreciate what the Solicitor General says, that when you support a policy, you think that the policy spreads the blessings of liberty.

But I would respectfully suggest that it's a very funny conception of liberty that forces somebody to purchase an insurance policy whether they want it or not.

And it's a very strange conception of federalism that says that we can simply give the States an offer that they can't refuse, and through the spending power which is premised on the notion that Congress can do more because it's voluntary, we can force the States to do whatever we tell them to.

That is a direct threat to our federalism.

Thank you.

Chief Justice John G. Roberts: Thank you, Mr. Clement.

And thank you, General Verrilli, Mr. Kneedler, Mr. Carvin, Mr. Katsas, and in particular, of course, Mr. Long and Mr. Farr.

The case is submitted.