Tuesday, December 14, 2010

Judge Hudson's Misguided Focus on "Activity"

By Mike Dorf

In striking down the individual mandate provision of the Patient Protection and Affordable Care Act, Judge Hudson reached a conclusion that I think is pretty clearly wrong, as I've noted before and as I'll unpack a bit more below.  But first I should say that en route to that conclusion, Judge Hudson did get something important right: He rejected the federal government's argument that because the Act was challenged on its face, it had to be upheld unless, pursuant to United States v. Salerno, the Act would be invalid in any set of circumstances to which it might be applied.  Judge Hudson cited the Supreme Court's decision in City of Chicago v. Morales for the proposition that the Salerno no-set-of-circumstances test is not generally the law.  (Morales and other opinions by Justice Stevens in turn cite my 1994 Stanford Law Review article for this proposition.)  Even more importantly, Judge Hudson pointed out the oddity of judging the question of whether a law falls within the powers of Congress by how it affects particular individuals in particular cases.  I believe he is right on this point too, although he did not really address the fact that the Supreme Court sometimes treats questions of Congressional power on an as-applied basis.  (Consider, e.g., Tennessee v. Lane.)  So while I commend Judge Hudson for his logic in rejecting the federal government's attempt to apply a narrow facial standard here, I don't think he adequately dealt with the (somewhat confused) Supreme Court case law on how to evaluate facial challenges to Congressional power.

On the merits, Judge Hudson's analysis of the Commerce Clause issue strikes me as profoundly mistaken.  He seized on the fact that prior precedents--especially the Lopez and Morrison cases--talked about federal power to regulate "economic activity," treating "activity" as a constitutional requirement. The federal government had argued that the right focus for analysis is not, as Virginia claimed, discrete decisions not to purchase health insurance, but each person's overall set of decisions, over the course of a lifetime, about how to fund his or her healthcare: whether by purchasing private insurance, finding a job that provides health insurance, receiving govt health insurance, or by simply imposing costs on the system by periodically walking uninsured into an ER.  The government said that each of us--including those who, for discrete periods, are uninsured--is engaged in economic activity involving health care and health care costs in the aggregate.

That strikes me as a good argument but it struck Judge Hudson as a bad one.  Nor did Judge Hudson consider what I regard as a still stronger argument for sustaining the mandate: There is no constitutional prohibition on Commerce Clause regulation of inactivity, at least where that inactivity is economic in nature.  Judge Hudson accorded talismanic significance to the fact that prior cases had used the phrase "economic activity," without ever pausing to explain why the government cannot regulate inactivity that is in its nature economic.  Consider, in this regard, the provisions of federal labor law and federal antitrust law that have been construed to forbid secondary boycotts .  A boycott, of course, is economic inactivity--a refusal to purchase goods or services from the target--in exactly the same way that the non-purchase of health insurance is economic inactivity.  Under Judge Hudson's analysis, such prohibitions are constitutionally invalid, even though no one even thought to question them on these grounds during the decades they have been enforced.

But doesn't the case law require that the underlying predicate for regulation be some sort of affirmative activity?  The short answer is no.  Although the cases talk about "economic activity," that's only because the predicate for regulation in the prior cases happened to be activity rather than inactivity.  Consider a quite closely related question.  In Gonzales v. Raich, the Supreme Court for the first time defined the "economic" aspect of "economic activity," borrowing from Webster's dictionary: "the production, distribution, and consumption of commodities."  Does this mean that the purchase of services is not economic activity for Commerce Clause purposes?  Of course not.  The Court in Raich had before it a case involving a commodity (marijuana) and so it chose a definition that focuses on commodities.  In a subsequent case involving services the Court will undoubtedly say that they are included too.  In the meantime, it would take a particularly obtuse district court judge to think that because of the definition in Raich, services are not covered by "economic activity."  Likewise, the use of the term "activities" must be understood as a product of the context of the cases in which the term was used, rather than any consideration of the constitutional difference between activity and inactivity.

At best, the question whether Congress can regulate "inactivity" is an open one--and thus one would have expected that Judge Hudson would have offered some functional explanation why regulation of economic inactivity is beyond the scope of Congressional power.  But he did not, simply relying on the language of the earlier cases taken out of context.  One could make a libertarian argument against Congressional power to regulate inactivity, but it's hardly clear that the Commerce Clause incorporates strongly libertarian views, and even if it did, for reasons I have previously laid out, the libertarian objections to the individual mandate are weak.

Finally, I should say that I found Judge Hudson's tax analysis utterly unpersuasive but nonetheless defensible.  He invokes Lochner-era cases that narrowly construe the ability of Congress to impose taxes that have a regulatory purpose, and then he goes on to say that because the Act calls the tax a "penalty," it is not within Congress's taxing power.  This view has been superseded by more recent cases that uphold taxes imposed for clearly regulatory purposes, so long as the law had some revenue-raising purpose, even a very modest one.  But I find Judge Hudson's analysis here defensible nonetheless because the older cases have not been formally overruled, and as I have noted recently in discussing the Prop 8 litigation and Baker v. Nelson, lower courts have very little freedom to say that an old Supreme Court case is no longer good law.  Still, because Judge Hudson should have sustained the Act under the Commerce Clause, he shouldn't have had to reach the taxing power question.


egarber said...

Is it a foregone conclusion that standing has been properly established in these cases -- or could the SCOTUS reject the whole thing on those grounds, or because of ripeness concerns?

egarber said...

The secondary boycot analogy is interesting. I think it illuminates the better question. Rather than activity vs non-activity, perhaps it's more about whether the entity is by default a player in commerce. A labor union is arguably engaged in commerce by its very existence, no matter its behavior, whereas an individual could be thought to exist a step away from it. In other words, maybe the distinction is whether the player is on the field or not when the game starts.

AC said...

Under this interpretation, the commerce clause has no boundaries. If economic and non-economic activity can be regualted, then only intrastate commerce is exempt. Even with some opinions of the Rhenquist court in the 1990's on intrastate commerce, the commerce clause as you describe it is tantamount to authoritarianism.

egarber said...

Andrew, I don't think it's economic vs non-economic activity. It's active vs no-active economic behavior. Two different things.

egarber said...

non-active I mean.

Michael C. Dorf said...

Andrew: I think you are conflating two quite different points, one legitimate, the other hyperbolic. The legitimate point is that modern Commerce Clause doctrine--regardless of how the courts ultimately resolve the individual mandate question--leaves a very small domain in which Congress cannot regulate. That seems at odds with the structure of Article I, Sec. 8 and the 10th Amendment. And that explains why Justice Thomas would substantially roll back most of modern Commerce Clause doctrine. The core problem with his view is not interpretive but practical: The lines he would draw (e.g., between manufacturing and transportation) are artificial in a modern economy. Thus it's significant that he's on his own in Commerce Clause cases. But at least his position is coherent.

Your second point is hyperbolic. To say that a federal government not bound by judicially enforceable internal limits on the scope of the Commerce Clause is "authoritarian" uses that word highly idiosyncratically. There remain judicially enforceable rights-based checks on federal power, as well as political safeguards. Further, under federal constitutional doctrine, all 50 states have a police power subject to no internal limits; yet it would not be fair to characterize all state governments as "authoritarian" in virtue of that fact.

Paul Scott said...

The thing that strikes me is that it seems clear that congress could authorize a tax credit of $x conditioned upon having health insurance. They also can clearly raise everyone's taxes by a flat $x.

Since the combination of those two things is 100% identical to the current scheme, I don't understand the complaint as to form. Both set at exactly the same amount, the minimum dollars one must spend on health care.

The other interesting part of this, and perhaps Republicans are banking on Democratic support for a repeal, is that the only group this hurts are insurance companies. My reading of the legislation makes the constitutionality of this provision immaterial to the bill's other provisions. If somehow this "individual mandate" is actually struck ultimately by the SCOTUS then as far as I can see, it just means insurance companies will be stuck with a good number of people only getting insurance when the need arises.

Francis Sohn said...

Professor, I understand and appreciate the criticism of Justice Thomas's position as artificial to a modern economy, but I don't understand why (or even if you are asserting that) such "artificiality" makes Justice Thomas's position incorrect, or perhaps, why that means it should not be applied anyway.

That is, I'm sure I could think of several instances where a given view of a constitutional provision would seem "artificial" if applied to then-prevailing social conditions, and were nonetheless applied because they were "right" in whatever sense that that word matters.

To put a point to it, if "artificiality" of one's view of a constitutional provision relative to prevailing social conditions is not always a reason to say that such a view should not be applied, how do we know when to apply an "artificial" view and when not to in a principled way?

Michael C. Dorf said...


1) At the end of his opinion, Judge Hudson specifically adopted your point that the mandate is severable.

2) The worry would be that insurance companies would simply stop writing health policies without the mandate. This sort of thing has happened periodically in various states in various insurance markets, when state regulation has been too burdensome.

3) Therefore, in order to avert such a crisis, Congress would have to make up the difference through general revenues, but presumably the new Congress won't do that. Thus, a big chunk of the law would come tumbling down.

BDG said...

Thanks, Mike. I don't agree that the Child Labor Tax Case is still good law; I think it was overruled by Dole, as I've argued elsewhere:

But I guess Dole doesn't specifically say, "by the way, of course this also applies to other cases that rely on the same logic as Butler," so perhaps the CLTC is still valid in a very technical sense.

Michael C. Dorf said...

Francis: I was speaking mostly descriptively rather than normatively. I agree with you that artificiality per se is not a problem. E.g., it's quite artificial to divide the world of human action into expressive actions and non-expressive actions, and to give First Amendment protection to the former but not the latter--but we do it because the First Amendment draws that line.

In the CC context, the lines that Justice Thomas would draw--and that were probably assumed by the framers--made sense when much economic activity was localized, as it still was in the 18th century. But since the late 19th century, long supply chains have made those distinctions virtually meaningless. Where is a t-shirt "manufactured" if the cotton for it is grown in Texas, then shipped to China where it is spun, woven, sewed, and dyed, then shipped to a distributor in California, who sends it on to a retailer in New Jersey, who adds custom lettering using lettering imported from another factory in China, before selling it to a New York resident? By contrast with the lines we might draw with respect to free speech, here it is hard to see how the values of federalism would be served by breaking up regulatory authority over this complex chain of production+shipment into distinct parts. (There's a recent Planet Money episode that traces a t-shirt through these sorts of steps.)

Paul Scott said...

The thing is, the crisis you suggest (and I think that is right - insurance companies would stop operating in States where it was not profitable to do so) would not just effect the economically disenfranchised. Rich people wouldn't be able to get health insurance either. So the very rich might not care, but Republican interests start well before the very rich (for those, that is, that are Republican for reasons other than hating gays and the like).

I am just not sure the political reality is that the legislation fails. Admittedly my view is assuming a world where Democrats don't cave in on every issue and I know we largely do not live in that world, but it seems that at least one reasonable path success with this litigation could take is towards single payer.

AC said...

Using the word authoritarian was pushing a point too far. On you point of state police power: while federal consitutional doctrine might not impose limits on that police power, I beleive the 50 individual states do, through constitutions, case law, etc.

With regard to any pratical hurdles with implimentation of a Thomas view of the Commerce Clause, I would agree that the modern economy blurs the lines in areas of manufacturing, transportation, etc. more that those lines were blurred 200 years ago. However, those lines do still exist. Furthermore, if the Court in Morrison found that criminal activity was not sufficiently economic activity, how can the decision (or non-decision) to not purchase health insurace rise to that level? Does the Raich decision and Wickard v. Filburn essentially leave no open areas free of interstate commerce?

Michael C. Dorf said...

Andrew: I agree that states are also limited by state constitutions, but not uniformly through the mechanism of enumerated powers. E.g., the NY Constitution's Article I, Section 1 simply states "The legislative power of this state shall be vested in the senate and assembly." There are then some specific prohibitions on what the legislature can do, but the default rule is legislative power, not its absence.

W/r/t Lopez and Morrison, those cases both involved "activity" but not "economic" activity. As I say in the post, I think the better reading of those cases is that the Court was focusing on the economic/noneconomic line, not the activity/inactivity line. It's theoretically possible to argue for an activity/inactivity line; Randy Barnett has been most vigorous in doing so. But I don't think that line is currently in the case law.

egarber said...

Furthermore, if the Court in Morrison found that criminal activity was not sufficiently economic activity, how can the decision (or non-decision) to not purchase health insurace rise to that level?

One thing I keep coming back to is the default position of the individual when it comes to healthcare. Because hospitals are required to treat the very ill at no cost by law, we're all default members of the insurance market -- i.e., if you fail to carry insurance, that itself is an economic decision to pass costs onto other (affirmative) market players. So not carrying insurance is very much an economic activity.

My paradigm sort of ties to Mike's post about the context for rational government behavior. Here, other parts of the law -- free care for the uninsured -- make mandates more rational, the same way the absence of draconian adoption laws makes denying "marriage" to gay people *less* rational (that perversion aside).

I guess the follow-up question to my proposal is this: if there were no laws requiring free treatment, if we just let people die in the street, would that make mandates less rational as a matter of commerce clause authority?

Paul Scott said...

"Required to treat" and "treatment is free" are two different things. Hospitals may be required to treat the uninsured, but that does not mean a debt accruing from the patient to the hospital has not been created.

Paul Scott said...

Furthermore, the general state of things is that we let people "die on the streets." The "hospitals must treat" generally applies only to acute, emergency issues. The obligation, generally, is to stabilize and ensure that any immediate concerns are met. If you walk into an ER either 1. with no emergency or 2. with a chronic condition (say liver failure), you are going to be out of luck. Absent insurance (self or otherwise) you are getting stabilized, not treated and prepped for a liver transplant.

egarber said...

Paul, if I understand you, that's what I mean. The decision to not carry insurance is an economic one, because you're passing on real costs when you land in the ER.

egarber said...


Yes. Please don't read what I said as a moronic Rush Limbaugh claim -- "the uninsured are already covered." That's obviously bullshit, for the reasons you cite.

I'm merely illustrating the nexus with commerce.

egarber said...

Adding to Paul's point, when you do receive treatment, it's too late and ridiculously expensive.

TR Reid's book, "the Healing of America" has this story about a woman who died from lupus.

When she contracted it, she couldn't work, so she lost her job and her insurance. Left on her own, her condition was a prohibitive pre-existing condition, so she was turned down by every insurance company she pursued in the open market. Near the end of her life, she finally received ER treatment. Several unsuccessful and costly operations later, she died.

For a fraction of those late-term costs, a preventive scheme would have enabled her to live a full life.

egarber said...

My last comment rounds the whole thing out. Without mandates, we can't make the provision banning denial of pre-existing conditions work, because people will just wait until they get sick to sign up.

Somebody -- maybe Mike -- wrote about that connection as also establishing a commerce nexus.

ok. my comment quota is up. gonna now try to unravel the Cliff Lee deal (I'm a Braves fan) :)

AF said...

Isn't there an even simpler response to the "inactivity" argument: the individual mandate doesn't regulate the inactivity of not purchasing health insurance, it regulates the activity of purchasing health insurance -- by mandating it. On what authority or logic is a mandate not a type of regulation?

I'm surprised the government didn't make this argument. The government's argument, while clearly correct, is relatively easy to reject if you are committed to a narrow interpretation of the "economic activity" language in Lopez. But even under this narrow interpretation, it's indisputable that purchasing health insurance is "economic activity" and that the statute mandates it. So the real question is not whether Congress may regulate inactivity, but rather whether Congress may regulate economic activity by means of a mandate. And there is literally nothing in modern Congress Clause jurisprudence that suggests it cannot.

Michael C. Dorf said...

Great discussion everyone. I'm going to try to get some real work done now, but I'll continue to read comments as they come in.

Bob Law Blog said...

Regarding your antitrust argument, the Supreme Court has always been careful in the boycott area to preclude liability for truly unilateral inaction. See the Colgate doctrine for example. The prohibited "activity" has always been some concerted refusal to deal. There are some section 2 cases about unilateral refusals to deal but they generally always require some activity such as ceasing a prior dealing arrangement. See Aspen Skiing or Trinko as classic examples.

I agree that as a philosophical matter the distinction between activity and inactivity is hazy at best. But at the very least, it was a widely accepted concept at the founding.

Joe said...

"widely accepted concept at the founding"

I have read a lot on this subject, including those who discussed the founding p.o.v., and I don't see it.

The fact is that unless you refuse to look beyond a single tree to even a portion of the forest, "activity" is being regulated here. The fear this will mean no limits is specious, since even w/o political limits, you have many constitutional limits, such as those found in the BOA. It is not the Commerce Clause or nothing.

And, I admit to not knowing law regarding boycotts, but the discussion here underlines this is not truly a "unilateral" action either. It involves us making various choices involving other people.

The attempt to make distinctions at some point is mostly artificial. There is some "reason" for it, but the reason is makeweight.

gdp said...

If the Constitution is a "contrivance" as Chancellor Wilson defined it, how do we avoid the artifice? One thing for sure, he would not have confused "economic activity" with "commerce", the former exploding the latter out of control and Constitutional context, despite the "modern" jurisprudence. It is easy to argue consistency where one has already relinquished, sacrificed or compromized more basic and fundamental distinction at a higher level of scrutiny. The fallacy of petitio principii, assuming that as true which is to be proven, is rampant in the commentary.