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Health Care Reform:

Health Insurance & Affordable Care Act

Health Care Hearings: Day 1 Focuses on Tax

U.S. Supreme Court Debates Whether Individual Mandate Penalty Is a Tax

WebMD Health News

March 26, 2012 -- In the first day of arguments before the U.S. Supreme Court on the constitutionality of the Affordable Care Act, the issue was about whether the law's penalty for not purchasing health insurance is essentially a tax.

Why is that important? Because if it is a tax, then the court can't rule on it until it goes into effect in 2014 and someone sues for a refund, which then delays any rulings regarding the entire law until 2015.

But today the Obama administration told the nine justices that a penalty for failing to obtain health insurance coverage should not bar them from ruling on the case later this year.

Its line of reasoning? This can get confusing. U.S. Solicitor General Donald Verrilli Jr., representing the administration, said today that the penalty is a penalty ... but it is also like a tax. More on that to come.

The Anti-Injunction Act

The law has come under legal attack in more than two dozen federal lawsuits. One suit, filed by 26 state officials together with the National Federation of Independent Business, has traveled all the way to the Supreme Court.

Specifically, the court heard arguments this morning about the health reform law’s relationship to another law called the Anti-Injunction Act (AIA), which bans lawsuits that attempt to block the assessment or collection of a tax.  

A federal appeals court in Richmond, Va., cited the law last year when it declared that it was premature to rule on the constitutionality of the individual mandate -- the part of the law requiring people to buy health insurance -- until the first penalty is actually paid in 2015.

Allowing the case to be heard, it ruled, could open the door to more tax suits that would “wreak havoc” on the government’s ability to raise revenue.

The need to collect revenue was not lost on Justice Stephen Breyer today.

“Taxes are, for better or for worse, the life's blood of government,” said Breyer.

When a Penalty Is Not a Tax

In his 30 minutes before the high court, Verrilli argued that the penalty is not subject to the tax act  because “penalty” is the word Congress explicitly chose to use in the text of the law. 

In what may seem like an about face -- but is instead more of a legal high-wire act -- Verrilli will argue Tuesday the opposite: that the penalty is indeed a tax.  Here’s why: Tuesday’s hearings will focus on whether the law’s individual mandate, which requires nearly all Americans to buy health insurance, is constitutional.

To make its case, the Obama administration will say that apart from the tax act, the mandate operates as a tax law, which strengthens its argument that the mandate is justified under Congress’ constitutional authority to tax. 

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