Transcript: SCOTUS Affordable Care Act oral argument of Solicitor General Donald Verrilli on day 2

Department of Health and Human Services v. Florida, et al. 

Transcript of the oral argument of Solicitor General Donald B. Verrilli, Jr. before the U.S. Supreme Court on March 27, 2012:

CHIEF JUSTICE ROBERTS: We will continue argument this morning in Case 11-398, the Department of Health and Human Services v. Florida.

General Verrilli.

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


GENERAL VERRILLI: 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 it — 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 SCALIA: Why aren’t those problems that the Federal Government can address directly?

GENERAL VERRILLI: 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 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 KENNEDY: Can you create commerce in order to regulate it?

GENERAL VERRILLI: That’s not what’s going on here, Justice Kennedy, and we’re 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 SCALIA: So, 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.

GENERAL VERRILLI: 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 market.

CHIEF JUSTICE 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’s a market there. 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?

GENERAL VERRILLI: 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 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.

GENERAL VERRILLI: 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 a market system -­

JUSTICE ALITO: Do you think there is a market for burial services?

GENERAL VERRILLI: For burial services?

JUSTICE ALITO: Yes.

GENERAL VERRILLI: Yes, Justice Alito, I think there is.

JUSTICE 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?

GENERAL VERRILLI: No -­

JUSTICE 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.

GENERAL VERRILLI: It’s — I think it’s completely different. The — and the reason is that the burial example is not — the difference is here you are regulating the method by which you are paying for something else — health care — and the insurance requirement I think — I mean, 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 reforms, to end — to impose a minimum coverage provision. Their argument is just that it has to occur at the point of sale, and -­

JUSTICE 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.

GENERAL VERRILLI: Well, one big difference -­

JUSTICE ALITO: What’s the difference?

GENERAL VERRILLI: One big difference, Justice Alito, is the — you don’t have the cost shifting to other market participants. Here -­

JUSTICE ALITO: Sure you do, because if you don’t have money, then the State is going to pay for it or some -­

GENERAL VERRILLI: But that’s different.

JUSTICE ALITO: A family member is going to pay for it.

GENERAL VERRILLI: That’s a difference, and it’s a significant difference. That 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 ALITO: But isn’t that really a 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 who 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.

GENERAL VERRILLI: 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 GINSBURG: If you’re going to have insurance, that’s how insurance works.

GENERAL VERRILLI: A, it is how insurance works, but, B, the problem that they — that they are identifying is not that problem. 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 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 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?

GENERAL VERRILLI: 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 and 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 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 -­

GENERAL VERRILLI: That’s correct, Justice Scalia, but you never know whether you’re going to be that person.

JUSTICE 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.

GENERAL VERRILLI: 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 have -­

JUSTICE SCALIA: Is that a principled 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 principled 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.

GENERAL VERRILLI: 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 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.

GENERAL VERRILLI: That is — and that is definitely a difference that distinguishes this market and justifies this as a regulation.

JUSTICE 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, yes, 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, Ship 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.

GENERAL VERRILLI: So -­

JUSTICE 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?

GENERAL VERRILLI: It does, Justice Breyer, and if Congress were to enact laws like that, we -­

JUSTICE BREYER: Would be up here defending it -­

GENERAL VERRILLI: It would be my responsibility to then defend them, and I would defend them on a rationale like that, but I do think that we are advancing a narrower rationale.

JUSTICE 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?

GENERAL VERRILLI: 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 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.

GENERAL VERRILLI: No. 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 ROBERTS: That, it seems to me, is — and 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’re purchased for the sake of transportation or, in broccoli, covering the need for food.

GENERAL VERRILLI: No -­

CHIEF JUSTICE ROBERTS: I don’t understand that distinction.

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

CHIEF JUSTICE ROBERTS: Well, now that’s a significant — I’m sorry.

GENERAL VERRILLI: And broccoli is not the means of payment for anything else. And an automobile is not -­

CHIEF JUSTICE ROBERTS: It’s the means of satisfying a basic human need -­

GENERAL VERRILLI: But -­

CHIEF JUSTICE ROBERTS: — just as insurance is the means of satisfying -­

GENERAL VERRILLI: 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 care services — and the creation of commerce. And the principle that we’re advocating here under the Commerce Clause does not take the step of justifying the creation of commerce.

JUSTICE GINSBURG: General Verrilli, can we -­

GENERAL VERRILLI: This is a regulation of existing commerce.

JUSTICE GINSBURG: 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 will get — a goodly number of them will get services that they can’t afford at the point when they need them, and the result is that everybody else’s premiums get raised.

So, you’re not — it’s not your free choice just to do something for yourself. What you do is going to affect others, affect them in a major way.

GENERAL VERRILLI: 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 SCALIA: Mr. Verrilli, you could say that about buying a car. 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’re hurting these other people by not buying a car.

GENERAL VERRILLI: That is not what we’re saying, Justice Scalia.

JUSTICE SCALIA: That’s not — that’s not what you’re saying.

GENERAL VERRILLI: That’s not — not -­

JUSTICE SCALIA: I thought it was. I thought you’re saying other people are going to have to pay more for insurance because you’re not buying it.

GENERAL VERRILLI: 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 SCALIA: Well, don’t obligate yourself to that. Why — you know?

GENERAL VERRILLI: 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 SCALIA: You could do it. But does that expand your ability to issue mandates to — to the people?

GENERAL VERRILLI: 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 SOTOMAYOR: General -­

GENERAL VERRILLI: — or inevitably will consume.

JUSTICE 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’ve 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’re 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 -­

GENERAL VERRILLI: 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 environment. 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 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 -­

JUSTICE SOTOMAYOR: So, on that ground -­

GENERAL VERRILLI: So -­

JUSTICE SOTOMAYOR: — you’re answering affirmatively to my colleagues that have asked you the question, can the government force you into commerce?

GENERAL VERRILLI: So — no. No.

JUSTICE SOTOMAYOR: And there’s no limit to that power.

GENERAL VERRILLI: No, because that’s -­ that’s the first part of our argument. The second part of our argument is that the means here that 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 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?

GENERAL VERRILLI: 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’ve 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 in the Affordable Care Act is designed to achieve.

This is a situation in 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 KENNEDY: I’m not sure which way it cuts, if the Congress has alternate means. Let’s assume that it could 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 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.

GENERAL VERRILLI: 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 & Laughlin; or the dairy price supports in Wrightwood Dairy and Rock Royal. And -­

JUSTICE 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 different from regulating in any manner commerce that already exists out there.

GENERAL VERRILLI: 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 SCALIA: Wait. 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?

GENERAL VERRILLI: 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 SCALIA: No, that wasn’t my point. That is not the only constitutional principle that exists.

GENERAL VERRILLI: But it -­

JUSTICE 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?

GENERAL VERRILLI: Of course we do, Your Honor.

JUSTICE SCALIA: Okay. That’s what we are talking about here.

GENERAL VERRILLI: 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 SCALIA: I don’t understand your point -­

GENERAL VERRILLI: This is in -­

JUSTICE SCALIA: Whatever the States have chosen not to do, the Federal Government can do?

GENERAL VERRILLI: No, not at all.

JUSTICE 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.

GENERAL VERRILLI: 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 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 on the Federal power, as opposed to limits on the States, which was the issue in Lochner.

GENERAL VERRILLI: 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 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.

GENERAL VERRILLI: 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 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.

GENERAL VERRILLI: 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 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.

GENERAL VERRILLI: 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 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.

GENERAL VERRILLI: 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 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?

GENERAL VERRILLI: 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 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?

GENERAL VERRILLI: Well, no, 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 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 SCALIA: Only if you make phone calls.

GENERAL VERRILLI: Well, right. But — but everybody — to live in the modern world, everybody needs a telephone. And 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 KAGAN: And this is especially true, isn’t it, General -­

GENERAL VERRILLI: — because that’s a judgment Congress has made.

JUSTICE KAGAN: — Verrilli, because in this context, the subsidizers eventually become the subsidized?

GENERAL VERRILLI: 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 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 SCALIA: These people not stupid. They’re going to buy insurance later. They’re young and need the money now.

GENERAL VERRILLI: But that’s -­

JUSTICE SCALIA: When they think they have a substantial risk of incurring high medical bills, they’ll buy insurance, like the rest of us.

GENERAL VERRILLI: But that’s — that’s -­

JUSTICE SCALIA: I don’t know why you think that they’re never going to buy it.

GENERAL VERRILLI: 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 SCALIA: You could solve that problem by simply not requiring the insurance company to sell it to somebody who has a condition that is going to require medical treatment, or at least not — not require them to sell it to him at a rate that he sells it to healthy people.

But you don’t want to do that.

GENERAL VERRILLI: But that seems to me to say, Justice Scalia, that Congress — that’s the problem here. And that seems to me -­

JUSTICE SCALIA: It’s a self-created problem.

GENERAL VERRILLI: — to say that Congress cannot solve the problem through standard economic regulation, and that — and I do not think that can be the premise of our understanding of the Commerce Clause.

JUSTICE SCALIA: Whatever -­

GENERAL VERRILLI: This is an economic problem.

JUSTICE SCALIA: — 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.

GENERAL VERRILLI: This is not a — it’s not a problem of Congress’s creation. 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 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 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 ROBERTS: Is your argument limited to insurance or means of paying for health care?

GENERAL VERRILLI: Yes. It’s limited to insurance.

CHIEF JUSTICE 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 -­ 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.

GENERAL VERRILLI: But this is insurance as a method of payment for health care services. And that

CHIEF JUSTICE ROBERTS: Exactly. You’re worried -­

GENERAL VERRILLI: And that’s -­

CHIEF JUSTICE ROBERTS: 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.

GENERAL VERRILLI: Mr. Chief Justice, let me answer that, and then if I may, I’d like to move to the tax power argument.

JUSTICE SCALIA: Can I tell you what the something else is so — while you’re answering it?

(Laughter.)

JUSTICE SCALIA: 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 join a — an exercise club. That’s the something else.

GENERAL VERRILLI: No. 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 a market. And -­

CHIEF JUSTICE ROBERTS: Right. Right. 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.

GENERAL VERRILLI: But I think it’s common ground between us and the Respondents that this is an interstate market in which everybody participates.

CHIEF JUSTICE ROBERTS: Right.

GENERAL VERRILLI: And they agree 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 -­

CHIEF JUSTICE ROBERTS: Right. No, I think you’re just -­

GENERAL VERRILLI: — show up to get health care. And that -­

CHIEF JUSTICE 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 -­

GENERAL VERRILLI: And it is -­

CHIEF JUSTICE ROBERTS: 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.

GENERAL VERRILLI: But we agree Congress can regulate this market. ERISA regulates this market. HIPAA regulates this market. 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 ALITO: Could you just -­

GENERAL VERRILLI: Yes.

JUSTICE ALITO: 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?

GENERAL VERRILLI: We’ve got -­

JUSTICE ALITO: Is that it?

GENERAL VERRILLI: We’ve got -­

JUSTICE ALITO: Is there anything more?

GENERAL VERRILLI: 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 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 SOTOMAYOR: General, could you turn to the tax clause?

GENERAL VERRILLI: Yes.

JUSTICE 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?

GENERAL VERRILLI: 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 imposing -­

JUSTICE 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.

GENERAL VERRILLI: And that, and — and I think in terms of the tax power, 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 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.

GENERAL VERRILLI: They may still be exercise of the tax — exercises of the taxing power, Justice Ginsburg, 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 — 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 SCALIA: The President said it wasn’t a tax, didn’t he?

GENERAL VERRILLI: 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 the — they were exercising the tax power as well as -­

JUSTICE 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.

GENERAL VERRILLI: What the President said -­

JUSTICE SCALIA: Is it a tax or not a tax? The President didn’t think it was.

GENERAL VERRILLI: 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 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.

GENERAL VERRILLI: That — that is true, Justice Ginsburg. That is also true of the marijuana tax that was upheld 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 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 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?

GENERAL VERRILLI: 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, too, 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 to 39 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 ROBERTS: Why didn’t Congress call it a tax, then?

GENERAL VERRILLI: Well -­

CHIEF JUSTICE 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?

GENERAL VERRILLI: They might have thought, Your Honor, that calling it a penalty as they did would make it more effective in accomplishing its objectives. 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 ROBERTS: Well, that’s the reason. They thought it might be more effective if they called it a penalty.

GENERAL VERRILLI: Well, I — you know, I don’t — there is nothing that I know of that illuminates that, but certainly -­

JUSTICE SOTOMAYOR: General, the problem goes back to the limiting principle. Is this simply anything that raises revenue, Congress can do?

GENERAL VERRILLI: No. There are certain limiting principles under the -­

JUSTICE SOTOMAYOR: So there has to be a limiting principle as to when -­

GENERAL VERRILLI: — 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 the 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 administrative apparatus out there to enforce the tax.

Now, in Bailey against 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 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 ALITO: Can the — can the mandate be viewed as a tax if it does impose a requirement on people who are not subject to the penalty or the tax?

GENERAL VERRILLI: 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 it is the view of the Court that it can’t be, then I think the right way to handle this case is by analogy to New York against United States, in which the — the Court read the shall provision, shall handle low level radioactive waste as setting the predicate, and then the other provisions were merely incentives to get the predicate met, and so -­

JUSTICE 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?

GENERAL VERRILLI: It — it used its powers together to solve the problem of the market not -­

JUSTICE SCALIA: Yes, but you didn’t need that.

GENERAL VERRILLI: — providing affordable coverage -­

JUSTICE SCALIA: You didn’t need that. If it’s a tax, it’s only — raising money is enough.

GENERAL VERRILLI: It is justifiable under its tax power.

JUSTICE SCALIA: Okay. Extraordinary.

GENERAL VERRILLI: If I may reserve the balance of my time.

CHIEF JUSTICE ROBERTS: Thank you, General.

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

GENERAL VERRILLI: 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 an 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 the means that will work, the means that it saw worked 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

CHIEF JUSTICE ROBERTS: Thank you, General.

Counsel, we’ll see you tomorrow.

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