is that -- you might think you're a perfectly healthy and that you're not -- that you're being forced to subsidize somebody else, but this is not a market in which you can say there's an 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 -- >> i was posing that question, that doesn't apply to a lot of what your 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. >> congress has -- 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 implicate the

question whether congress is engaging in economic regulation and solving an economic problem. >> 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? >> well, while they're young and healthy, that would be true, but they're not going to be young and healthy forever. they're going to be on the other side of that actuarial at some point and you don't know which among that group is going to be hit by the bus or get the definitive diagnosis. >> you tyke into account some will be hit by bus, some in that group are going to unexpectedly

contract or be diagnosed with a disease 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're going to be required to pay. >> so you can't just justify this on the basis of their trying to shift their costs off to other people. can you? >> well, the people in that class get benefits, too, justice alito. they get the guaranteed issued benefit they would not otherwise have, which is an enormously valuable benefit and in terms of the subsidy rationale, 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 versus of the commerce power in a way in which some people paid rates that were much higher than their costs to subsidize -- >> only if you make phone calls. >> well, right, 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 the cord upheld and wright with dairy. you can look at those as forced transfers. i suppose it's theoretically true you could raise your kids without milk, but the reality you have to go to the store to buy milk and you're subsidizing somebody else. >> this is especially true, isn't it? because in this context, the subsidizers become the subsidized? >> that's what i was trying to make. you're wung and healthy but you don't stay that way and this system works over time. i don't think it's a fair characterization of it and it comes back to a problem -- >> people aren't stupid. they're going to buy insurance later. they're young and need the money now. when they think they have a substantial risk of incurring high medical bills they're buy insurance like the rest of us.

but i don't know why you think that they're never going to buy it. >> that's the problem, justice scalia. and that's exactly the experience that the states had that made the imposition of guaranteed and community rating not only the ineffectual but highly counterproductive. rates, for example, in new jersey doubled or tripled. went from 180,000 people covering this market down to 80,000 people covered in this market. kentucky, every insurer left the market and the reason for is that 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 need it 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 -- insurance coverers, fewer and fewer until the system ends. it's not a situation in which you're conscripting, forcing insurance companies to cove very large numbers -- >> could you solve that problem by simply not requires the

insurance company to sell it to somebody who has a condition that is going to require medical treatment, or at least 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. >> that seems to me to say, justice scalia, that's the problem here. that's -- it 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 -- >> whatever problems congress' economic regulation produces, whatever they are, i think congress can do something to counteract them. here, requiring somebody to enter the insurance -- >> it's not a problem of congress' creation. the problem is in a you have 40 million people who cannot get affordable insurance through the means that the rest of us get affordable insurance. congress, after a long study, careful deliberation, and

viewing the experiences of the states in a way they tried to handle this problem, adopted a package of reforms. guaranteed issue and community rating, and subsidies, and minimum coverage, package of reforms that solved that problem. i think it's highly artificial to view this as a problem of congress' own creation. >> is your argument limited to insurance or means of paying for health care? >> yes. it's limited to insurance. >> now, why is that? once you establish that you have a market for health care, i would suppose congress' power under the commerce clause meant they had a broad scope in terms of how they regulate that market? and it could be -- it would be going back to loughner if we were put in a 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' 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 it's a market and congress can require people to participate in it as some would say or as you would say some are already participating in it, it seems to me we can't say there are limitations over what congress can do under its power just like in every other area given deference that we accord to congress in this area all bets are off and you can regulate that market in any rational way. >> but this is insurance as a method of payment for health care services. >> exactly. you're worried, that's the area that congress has chosen to regulate. there's this health care market. everybody's in it. so we can regulate and it wae'r going to look into a serious problem how people can pay for it. next year they can decide, everybody's in the market. we're going to look at a

different problem now and this is how we'll regulate it and we can compel people to do things, purchase insurance in this case. something else in the next case, because we've accepted the argument that this is a market in which everybody participates. >> mr. chief justice, let me answer that and then if i may i'd like to move to the tax power argument. >> can i tell you, something else. what the something else is, everybody la to exercise, because there's no doubt that lack of exercise causes illness and that causes health care costs to go up. so the federal government says, everybody has to join an exercise club. that's the something else. >> 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 consumption of anything in a market. >> 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' 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. >> but i think it's common ground between us and the respondents that this is an interstate market in which everybody participants and they agree that congress could impose the insurance requirement at the point of sale. this is just a question of timing and 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 health care. >> unless i'm missing something. i think you're just repeating the idea that this is the regulation of the methods of payment, and i understand that argument. and 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' 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 were regulate this market but only with respect to prices, but only with respect to means of credibility? no. once you're in the interstate commerce and can regulate it, pretty much all bets are often. >> but we agree congress can regulate this, orissa regulates it, hipaa regulates it. it's in various ways already. 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 in the commerce power? and the answer is yes, because we are not advocating for a power that would allow congress to -- >> could you just say, before you move on, could you express your limited principle as simply as you possibly can? congress can force people to purchase a product where the failure to purchase the product

has a substantial affect on interstate commerce if -- what? if this is part of a larger regulatory scheme? is that it? anything more? >> we got two, and they're different. let me state them. first, b with respect to the comprehensive scheme, congress 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 -- very much like wickered 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 is 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 are the principling we're advocating for and in fact the conjunction of two of them here that makes this, we think, a strong case on the commerce clause. >> and the rooms, could you turn to the tax clause? >> yes. >> i have looked for a case that involves the issue of whether something denominated by congress as a penalty was never the less 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? >> well i think i would point the court to the licensed tax case where it was just the nominated a fee and not a tax 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 one imposing -- >> license fees. fees for a hunting license. everybody knows those are taxes. i mean, i don't think there's as much of a difference between a fee and a tax. as there is between a penalty and a tax. >> 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 constitutional

exercise of the power. with respect to the question of characterization, this is in the internal revenue code, it is administered by the irs. it is paid on your form 1040 on april 15th. >> but yesterday you told me you listed a number of penalties that are enforced through the tax code that are not taxes, and they're not penalties related to taxes. >> they may still be exercise of the -- exercises of the taxes 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 points you in the opposite direction and beyond that, you're -- 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 -- >> already said it wasn't a tax. didn't he? >> justice scalia, two things

about that. first, seems to me what matters is what power congress was exercising and i think it's clear that they were exercising tax power as well as -- >> you're making two arguments. number one, it's a tax. two, even if it isn't a tax it's within the taxing power. i'm addressing the first. is it a tax or isn't it a tax? the president didn't think. >> the president said it wasn't it ought to be understood as an incentive to get insurance. it isn't fair to say whether this is a matter of the taxes power or not. >> the tax is to raise revenue. a tax is a revenue-raising device and the purpose of this action is to get people into the health care with 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 what this penalty -- this penalty is designed to affect conduct. the conduct is, buy health protection, buy health insurance, before you have any need for medical care. that's what the penalty's designed to do. not to raise revenue that is true, justice ginsburg. that sass 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. the mortgage deduction works that way, when the mortgage deduction is 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 powers. >> i suppose, though, one question is whether the determined efforts of congress not to refer to this as a tax makes 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? >> i don't think 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 a result of the taxing power in his response to point of order. the senate voted 60-39 on that proposition. legislative history is replete with members of congress explaining that this law is constitutional as an exercise of the taxing power was attacked, as a tax by its opponents. so i don't think this is a situation where you can see that congress was avoiding any mention of the tax power. one thing if congress explicitly

disavowed an exercise of the tax power, given that it hasn't done so seems to me that it's not only fair to read this as an exercise to the tax power but this court has got an obligation to construe is as an exercise of the tax power if it can be up4e8d. >> why didn't congress call it a tax, then? you're telling me they thought of it as a tax, defended it on the tax power. why didn't they say it was a tax? >> 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, clebted by the irs on april 15th. i don't think this is a situation in which you can say -- >> that's the reason. that he thought it would be more effective if they call ttd a penalty. >> there's nothing i know of that illuminates that. >> the practice goes back to, is this simply anything raising revenue that congress can do? >> no. >> there has to be a --

>> and i think that, of course, the constitution impossesses some. got to be uniformed. can't be a tax on exports. if it's a direct tax it has to be apportioned, beyond that the limiting principle of the court is identified from drexel furniture to kurth ranch that it can't be punishment, punitive in the guise of a tax, and there are three factors, of course, identified to look at that. first is the sanction and how disproportionate it is to the conduct. the second is whether the c enter and third, administrative apparatus out there to enforce the tax. now -- against drexel furniture, the tax was 10% of the company's profits even if they had only one child laborer for one day. a enforced by department of labor not just collected by the internal revenue service. here you don't have any of those things. 9 penalty is calculated to be no more than, at most, the

equivalent of what one would have paid for insurance. there's no sienta requirement, no force out there. >> can't that be viewed as a tax if it does impose a requirement on people who are not subject to the penalty or the tax? >> i think it could, for the reasons i discussed yesterday. i don't think it can or should be read that way, but if there's 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, radioactive waste, as setting a predicate and then the other provisions were merely incentives to get the predicate met. >> are you saying all the discussion we had earlier how this is one big uniform scheme in the commerce clause, wlau,

blah, blah you blah, 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? >> it used its powers together to solve the problem of the market not -- >> yeah, but you didn't need that. you didn't need that. if it's a tax, raising money is enough. >> it is justifiable under its taxing power. >> okay. >> thank you, general. >> we'll take a pause for a minute or so, mr. verrilli. >> why don't we get started. again.

mr. clement. >> mr. chief justice, and may it please the court, the mandate represents an unprecedented effort by congress to compel individuals to enter commerce in order to better regulate commerce. the commerce clause gives congress the power to regulate existing commerce. it does not give congress the far greater power to compel people to enter commerce, to create commerce essentially in the first place. now, congress, when it passed the statute, did make findings about why it thought it could regulate the commerce here. and it justified the mandate as a regulation of the economic decision to forgo the purchase of health insurance. that is a theory without any limiting principles. >> do you accept your -- the general's position that you have conceded that congress could say if you're going to consume health services, you have to pay

by way of insurance? >> that's right, justice sotomayor. we say consistent with 220 years of this court's jurs prooud jurisprudence, if you regulate, that's within congress' power. >> what do you do with the impossibility of buying insurance at point of consumption? virtually, you force insurance companies to sell it to you? >> well, justice, i think there's two points to make on that. one is, a lot of the discussion this morning so far proceeded on the asurchs if the om thing at issue is emergency room visits and the only thing imposed it catastrophic care coverage, but as the chief justice indicate the earlier, a lot of the insurance covered is for ordinary preventative care, ordinary office visits, those are the things one can predict. a big part of market is regulated here that wouldn't pose the problem that you're suggesting. but even as to emergency room visits, it certainly would be possible to regulate at that point.

you could simply say through a mandate on the insurance companies, you have to provide people to come in. this will about high-risk pool and maybe share it amongst yourselves or something. people simplely have sign up at that point and that would be regulating at the point of sale. >> now it seems as though you're just talking about a matter of timing. that congress can regulate the transaction and the question is, when does it make best sense to regulate that transaction? and congress surely has it within its authority to decide rather than at the point of sale, gishen an insurance-based mechanism it makes sense to regulate it earlier? it's just a matter of timing? >> well, justice kagan, we don't think it's a matter of timing alone and we think it has significant substantive effects. in kwong tri congress tried to t point of sale, the one group it wouldn't capture, those that don't want to purchase health insurance and don't plan on using services in the near term. congress wanted to capture those people. those people are essentially the

golden geese that pay for the entire lowering of the premium. >> is the government's argument this -- and maybe i'm -- i won't state it accurately. it is true that the non-insured young adult is, in fact, an actuarial reality any so far as our allocation of health services in so far as the way health insurance companies figure risks? that person who's sitting at home in his or her living room doing nothing san actuarial reality they can and must be measured for health service purposes. is that their art? >> well i don't know justice kennedy, but if it is there's at least two problems with it. one is as justice alito's question suggested earlier, somebody not in the insurance market is irrelevant as a rick. look at the people not in the insurance market and we'd find the relatively yuck, relatively

healthy would have a certain pool of actuary risks that lead to lower premiums. the people captured by guaranteed rating and community guaranteed issue and community rating would presumably have a higher risk profile and higher premiums. one of the things congress sought to accomplish here was to force individuals into the insurance market to subsidize those already in it to lower the rates. that's just not my speculation. that's finding i as 43a of the government's brief, that has a statute. a clear finding. >> doesn't that work? that work the way social security does? let me put it this way. congress in the '30s saw a real problem of people needing to have old-age and survivors' insurance. and, yes, they did it through a tax, but they said, everybody's got to be in it, because if we don't have the healthy in it,

there's not going to be the healthy to pay for the ones who become old or disabled or widowed. so they required everyone to contribute. it was a big fuss about that in the beginning, because a lot of people said, maybe some people still do today. i could do much better if the government left me alone. i'm going to the private market. i buy an annuity. i make a great investment and, they're forcing me to pay for this social security that i don't want, but that's constitutional. so if congress could see this as a problem when we need to have a group that will subsidize the once we're going to get the benefits -- it seems to me you're saying the only way that can be dub is if the government does it itself, it can't involve the private market it can't involve the insurers. if it wants to do this social security as its model, the

government has -- has to be government takeover. we can't have the insurance industry in it. is that your position? >> no, i don't think it is, justice ginsburg. i think there are other options available. the most straightforward one, figure out what amount of subsidy to the insurance industry is necessary to pay for guarantee the issue and community rating. once we calculate the amount of that subsidy we could have a tax that spread generally through everybody to raise the revenue to pay for that subsidy. that's the way we pay for most subsidies. >> if we have an exemption, could the government say, everybody pays a share of health care responsibility payment to offset all the money that we're forced to spend on health care, we, the government. but anybody who has an insurance policy is exempt from that tax. cot government do that? >> the government might be able to do that. i think it might raise some issues about whether or not that would be a valid exercise of the

tax -- >> we get tax credit for having solar powered homes. we get tax credit for using fuel-efficient cars. why couldn't we get a tax credit for having health insurance and saving the government from caring for us? >> well i think it would depend a little how it was formulated but my concern would be the constitutional concern would be that it would just be a disguise impermissible direct tax, and i do think -- i don't want to suggest we get to the taxing power too soon, but i think it's worth realizing that the taxing power is limited in the ability to impose direct taxes and the one thing i think the frame worst have clearly identified as a correct tax is a tax on not having something. the framing generation was divided werther a tax on carriages was a direct tax on not. hamilton thought it was.