The focus of the three days of hearings is the “individual mandate” – the requirement in the Patient Protection and Affordable Care Act that almost all Americans either obtain health insurance by 2014 or pay a penalty. However, the 19th-century law provides that “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person.” It was designed to make sure the flow of tax collection necessary to keep the government running was not disrupted by lawsuits.

Monday’s hearing addressed the questions of whether the penalty for failure to obtain health insurance is a tax, and, if so, whether the Anti-Injunction Act means that courts cannot address its legality until someone is actually required to pay it.

The atmosphere at the court was “electric,” James Napoli, an attorney in the Washington, D.C., office of management law firm Proskauer Rose, who attended the argument, told SHRM Online.  “All of the justices were engaged.” As to the potential outcome, Napoli said, “My initial impression is that the justices will find that the Anti-Injunction Act does not apply. The question is how far they will go in making that determination.”

Lawyer Appointed to Argue Challenge Must Be Delayed

The lawyer representing the Obama administration and the lawyer representing the challengers to the law have always agreed that the court should decide the case now, but a panel of the 4th U.S. Circuit Court of Appeals disagreed when a challenge to the health care law was before that court. The Supreme Court, therefore, ordered arguments on the issue, appointing Robert Long, of the Washington law firm Covington & Burling, to present the argument that the Anti-Injunction Act bars immediate action by the court.

Presenting his case first, Long told the justices, “The Anti-Injunction Act imposes a pay first, litigate later rule that is central to federal tax assessment and collection. The act applies to essentially every tax penalty in the Internal Revenue Code. There is no reason to think that Congress made a special exception for the penalty imposed by” the health care reform law. He argued both that the law was “jurisdictional” meaning that courts are powerless to hear suits barred by it even if both sides agree to proceed – and also that the penalty imposed by the reform law was a “tax.”

In support of his argument, he pointed to the law's provision that the fine will be assessed and collected by the Internal Revenue Service, along with other tax payments, and that the penalty bore all the key characteristics of a tax.

But many of the justices seemed skeptical.

Justice Stephen Breyer asked Long whether he thought the Anti-Injunction Act applied in the health case because the 19th-century law was intended to prevent interference with a revenue source. The individual mandate penalty, Breyer said, isn't intended to be a revenue source.

Justice Sonia Sotomayor seemed to agree, noting that the penalty was mainly designed to get people to buy insurance not to raise revenue. "If it's successful, nobody will pay the penalty," she said.

In response, Long pointed to projections that the penalty would raise some funds and also said that if it had been called a tax in the health law, "there would be absolutely no question that the Anti-Injunction Act applies."

Justice Sotomayor pointed out that other provisions in the health reform law are called taxes. Long replied that he didn’t think that was evidence that Congress wanted to apply the Anti-Injunction Act selectively.

Government Claims Penalty Is Not a Tax

Next, the U.S. Solicitor General, Donald B. Verrilli Jr., representing the Obama Administration, argued that although the 1867 act is jurisdictional, it does not apply to the mandate and its penalty because they do not fit within its specific terms.

“This case presents issues of great moment, and the Anti-Injunction Act does not bar the Court's consideration of those issues. That is so even though the Anti-Injunction Act is a jurisdictional limit that serves what this Court” has described as “an exceedingly strong interest in protecting the financial stability of the federal government.”

Justice Samuel Alito Jr. made a note of the difference between what the federal government was arguing Monday and what it was expected to argue on Tuesday. He said that, for jurisdictional purposes, the government is arguing that the insurance mandate penalty is not a tax. But, he added, that on Tuesday the administration will claim that, for constitutional purposes, the penalty does function like a tax.

Verrilli replied that the arguments were different because the two legal questions were different.

Justice Ruth Bader Ginsburg said that if the government is right that the insurance mandate penalty is not a tax, then the court doesn’t need to answer the harder question about how to interpret the Anti-Injunction Act. She stated, ““This is not a revenue-raising measure, because, if it’s successful, they won’t – nobody will pay the penalty and there will be no revenue to raise.”

Verrilli agreed.

Napoli told SHRM Online that he found this exchange significant. When Justice Ginsburg expressed her opinion that the required payment was a penalty and not a tax, the other justices seemed to agree that “this was the right answer.”  He said that he expected the court to rule on the Anti-Injunction Act issue on these fairly narrow grounds – finding the penalty is not a tax and therefore the law does not apply to bar the lawsuit.

Challengers Agree that Litigation Can Proceed

Arguing last, Gregory G. Katsas, representing the challengers (26 states, the National Federation of Independent Business and four individuals), agreed with the government that litigation can proceed now, rather than wait until 2014.

Katsas, of the law firm Jones Day in Washington, D.C., argued that it was irrelevant whether the penalty qualified as a tax, because the challengers' lawsuit targeted the requirement to carry insurance, not the penalty for failing to do so.

Chief Justice John Roberts Jr. said that distinction seemed senseless, because the penalty was the only consequence for disregarding the mandate. Otherwise, the law would be “completely toothless,” he said. “Buy insurance or else,” he said. “Or else—nothing.”

Katsas argued that there were other injuries potentially resulting from the obligation to carry insurance. He said the coverage mandate was likely to drive thousands of low-income Americans to sign up for Medicaid, the joint federal-state program that the Affordable Care Act expands. Florida alone, he said, would have to spend an additional $500 million per year or more on such individuals.

Two Days of Argument Remain

On Tuesday, March 27, the court will focus on the constitutionality of the individual mandate. On Wednesday morning, the court will address, whether, if the individual mandate fails, the rest of the law must be struck down as well. On Wednesday afternoon, the court faces the issue of whether Congress had the authority to impose conditions on the states in expanding the Medicaid program.

Judging from the first day, Napoli made a few predictions about days two and three. “I think the justices clearly indicated that they are going to want to explore whether the penalty is a tax for constitutional purposes,” he said. “The government will be brought to task on how to make that distinction,” he added. “I also think that the challengers are going to have a battle themselves. It is clear to me that the justices are well prepared for this; they are asking all of the right questions.”

The justices are interested in deciding this case one way or the other, Napoli concluded. “I don’t think that the Anti-Injunction Act gets in the way."

Joanne Deschenaux, J.D., is SHRM’s senior legal edito