National Federation of Independent Business v. Sebelius
The Supreme Court upheld the Affordable Care Act's requirement that most Americans carry health insurance, but not under Congress's power to regulate commerce. Instead, the Court said the penalty for going without insurance could be read as a tax, which Congress does have the power to impose.
At the same time, the Court ruled that Congress went too far in threatening to strip states of all their existing Medicaid funding if they refused to expand the program to cover more low-income adults, calling that threat unconstitutionally coercive. States could still accept the new Medicaid money and rules, but could no longer be forced to choose between full expansion or losing everything.
How it got here: A federal district court struck down the mandate and the whole law; the Eleventh Circuit upheld the Medicaid expansion but agreed the mandate was unconstitutional, severing it from the rest of the Act.
The Case in Depth
What happened
In 2010 Congress passed the Affordable Care Act to expand health insurance coverage and control health costs. Two provisions were challenged: the individual mandate, requiring most people to carry health insurance or pay a penalty, and the Medicaid expansion, which required states to cover many more low-income adults or risk losing all federal Medicaid funds. Twenty-six states, individuals, and a small-business group sued, arguing Congress lacked the constitutional power to enact either provision.
The question before the Court
Could Congress require nearly all Americans to buy health insurance or pay a penalty, and could it cut off all of a state's Medicaid money if the state refused to expand the program?
Why it matters
Roughly 20 million people eventually gained coverage through the law's insurance markets and Medicaid growth, but the ruling also let states opt out of the Medicaid expansion without losing existing funds — leading many states, especially in the South, to decline it for years and leaving millions of low-income adults in a coverage gap. The decision also set a rare limit on how forcefully Congress can condition federal money on states adopting new programs.
What changes now
The ruling was final on the merits: the individual mandate stood as a tax, and states could accept the Medicaid expansion's funding and rules without risking their pre-existing Medicaid money if they declined. Many states subsequently chose not to expand Medicaid for years, creating uneven coverage gaps nationwide. Congress later set the mandate's penalty to zero in 2017, and the mandate's tax-power basis was tested again in later litigation.
What this does not decide
The Court explicitly said it was not judging whether the Affordable Care Act was good policy, only whether Congress had the constitutional power to enact it. The mandate ruling does not authorize Congress to compel purchases of other products, since the majority relied on the mandate being reinterpreted as a tax, not a commerce-power command.
Concurrences and dissents
Dissent in part — Justice Ginsburg
Justice Ginsburg agreed the mandate was valid as a tax but argued the Chief Justice was wrong to say the Commerce Clause could not also support it, calling that reasoning an unnecessary and overly narrow throwback to discredited pre-New Deal rulings. She also dissented from the holding that the Medicaid expansion was unconstitutionally coercive, arguing Congress has long had the power to expand Medicaid by amendment and that states had ample notice conditions could change.
Dissent — Unsigned
Justices Scalia, Kennedy, Thomas, and Alito argued the entire Affordable Care Act should fall. They contended the mandate exceeded the commerce power because it compelled commerce rather than regulating it, that it could not be salvaged as a tax because Congress plainly wrote it as a penalty for unlawful inaction, and that the Medicaid expansion was coercive and inseverable from the rest of the statute, requiring the whole law's invalidation.
Dissent — Justice Thomas
Justice Thomas joined the joint dissent but wrote separately to reiterate his long-held view that the Court's 'substantial effects' test for Commerce Clause power is itself inconsistent with the Constitution's original meaning, arguing that broader flaw is what let the government claim virtually limitless commerce authority in this case.
How the Court got there
The legal reasoning, step by step
- The Court first held that the Anti-Injunction Act, which normally blocks lawsuits over taxes until after they're paid, did not bar this case because Congress had labeled the mandate's charge a 'penalty,' not a 'tax,' for that statute's purposes.
- Turning to the Commerce Clause, the Court reasoned that Congress's power to 'regulate' commerce assumes there is already some commercial activity to regulate; requiring people who are doing nothing to enter a market and buy a product was, in the Court's view, compelling commerce rather than regulating it.
- The Court likewise rejected the argument that the mandate was a 'necessary and proper' piece of the law's insurance reforms, reasoning that letting Congress create the very commercial activity it wanted to regulate would give it essentially unlimited power over individual conduct.
- Because a statute should be read to avoid a constitutional problem if a reasonable alternative reading exists, the Court considered whether the mandate could instead be understood as a tax on the choice to go without insurance, even though the law called it a 'penalty.'
- Applying a functional test that looks past labels to how a charge actually operates, the Court found the payment behaved like a tax: it was modest in amount, had no requirement of willful wrongdoing, and was collected by the IRS through ordinary tax procedures — so it could stand as a valid exercise of the taxing power.
- On the Medicaid expansion, the Court applied the rule that federal spending conditions must leave states a genuine choice; because losing all existing Medicaid funds for declining the expansion amounted to what the Court called 'economic dragooning,' it held that specific enforcement mechanism unconstitutional and limited the remedy to preventing that all-or-nothing penalty.
Doctrinal impact
Cases affected by this decision
Distinguishes South Dakota v. Dole (483 U. S. 203)
The Court said the mild highway-fund conditions in Dole were unlike the Medicaid threat, which crossed into coercion.