Judge Graham’s Deft Analysis of Economic Activity

In my post yesterday, I did not discuss dissenting Judge Graham’s intriguing treatment of the “class of activities” being regulated by Congress. In it, he makes three moves.

First, he rejects the utility of the activity-inactivity line as a constitutional distinction:

Much has been made in this litigation of the distinction between activity and inactivity. The Supreme Court has often employed the word “activity” to describe the regulatory subjects of Congress’s power over interstate commerce. Yet I do not interpret those cases as drawing a constitutional line between activity and inactivity. That distinction would suffer from the same failings as the “direct” and “indirect” effects test of prior Commerce Clause jurisprudence. See NLRB v. Jones & Laughlin Steel Corp. (1937) (rejecting the direct/indirect distinction and stating that the question of Congress’s authority is “necessarily one of degree”); Lopez (Kennedy, J., concurring) (noting that questions of constitutional law are often “not susceptible to the mechanical application of bright and clear lines”). Imposing an activity/inactivity line could hinder Congress in future cases from removing burdens on commerce that certain classes of individuals have passively enabled.

Second, he then identifies the “class of activities” as the decision not to purchase health insurance.

Congress here attempts to regulate a class of individuals who have refrained from purchasing health insurance. The conduct being regulated is the decision not to enter the market for insurance. Plaintiffs have not bought or sold a good or service, nor have they manufactured, distributed, or consumed a commodity.

Third, in the crucial move, he asks whether this class of activities is “economic” as it must be under Lopez and Morrison and concludes that it is not.

In the government’s view, plaintiffs’ financial planning choices and position on risk are quintessentially economic in nature because they inevitably lead to cost-shifting when the uninsured obtain care they cannot afford. The mandate concerns a failure to pay for services obtained, argues the government, not a failure to engage in economic activity.

This argument deftly switches the focus from the private, non-commercial nature of plaintiffs’ conduct (the decision to be uninsured) to the perceived economic effects of their absence from the insurance market. Certainly, plaintiffs’ conduct may be considered in the aggregate with the conduct of similarly-situated individuals, see Raich; however, the Commerce Clause cannot be satisfied when economic activity is lacking in the first instance.

This is itself a “deft” move by Judge Graham. Lopez and Morrison rejected the proposition that an activity was “economic” solely because it affected interstate commerce. In Raich, despite some hard questioning of me during oral argument by Justice Souter, who was making this argument, Justice Stevens instead relied on a 1966 Webster’s dictionary definition of “economic” rather than the economic effects theory.

“It is true that decisions not to purchase insurance are in some sense economic ones,” Judge Graham continues. “They are choices about risk and finances. When viewed in the aggregate, these decisions have economic consequences.” But nevertheless,

Lopez and Morrison rejected a view of causation whereby the cost-shifting to society caused by violent conduct can satisfy the substantial effects test. See Lopez (rejecting the government’s “costs of crime” and loss of “national productivity” reasoning); Morrison (same). The government fails to show why a view of cost-shifting caused by risky conduct should fare any better. The problem with the government’s line of reasoning here is that it has no logical end point. . . .

Judge Graham then responds to the government’s contention that “a decision not to buy insurance is more clearly financial in nature than the acts of crime at issue in Lopez and Morrison.”

But the statutes struck down in Lopez and Morrison at least waited to impose their criminal penalties until the commission of the acts that allegedly caused the cost-shifting. Here, several layers of inferences must materialize for the government’s cost-shifting reasoning to work, but the mandate waits for none of them. See Lopez (rejecting as too attenuated a substantial effects theory that “pile[s] inference upon inference”). The mandate and its penalty are not conditioned on the failure to pay for health care services, or, for that matter, conditioned on the consumption of health care. Congress instead chose a more coercive and intrusive regulation. The proper object of Congress’s power is interstate commerce, not private decisions to refrain from commerce.

In other words, the financial decision not to buy insurance — even if it be considered “activity” and even if it can be characterized as “economic” on the basis of its economic effects (though the latter is barred by Lopez, Morrison, and Raich) — does not have a substantial affect upon interstate commerce until a person presents himself for treatment at an emergency room and is unable to pay for it. Until that point there is no cost shifting, and no economic consequences.

So, while seemingly eschewing any general bar on reaching “inactivity,” Judge Graham is focusing on one particular type of inaction: “private decisions to refrain from commerce.” If the cost-shifting of carrying a gun within a 1000 feet of a school are too remote and attenuated to constitute economic activity, then even more remote and more attenuated is the decision to refrain from entering the marketplace at all. At least until a person who has refrained from market activity seeks medical care and cannot pay for it. Such an event may or may not happen, and if cost-shifting justifies regulation under the Commerce Clause, the point when cost-shifting occurs would provide a line circumscribing Congressional power.

In this analysis, while not acting figures prominently in this analysis of remoteness, no general activity-inactivity principle need be established. It is not any or every inactivity that is beyond the commerce power, it is the decision to refrain from engaging in economic activity that is too remote.

Judge Graham’s conclusion that the decision to refrain from entering the marked is noneconomic activity raises the issue of whether it could be reached under Justice Scalia’s theory, in his concurring opinion in Raich, that Congress can reach even noneconomic activity when doing so is essential to a broader regulation of interstate commerce. In what could be considered a fourth step in his analysis, Judge Graham addresses this issue in a footnote:

Justice Scalia has stated that under the Necessary and Proper Clause, “Congress may regulate even noneconomic local activity if that regulation is a necessary part of a more general regulation of interstate commerce.” Raich (Scalia, J., concurring). I do not believe that this view of the Necessary and Proper Clause would save the mandate. As Judge Vinson correctly explained, an attempted exercise of power – the mandate – cannot be justified because it is “necessary” to cure the economic disruption caused another part of the legislation – the “guaranteed issue” provision, ACA § 1001.

This response raises separate and additional issues. But we must bear in mind that this essential to a broader regulatory scheme theory is quite underdeveloped. No doubt Justice Scalia never anticipated how the unprecedented economic mandates imposed here would fit within his analysis.

So Judge Graham’s opinion is very interesting indeed. I am not completely confident that I have accurately unpacked each step in his analysis. But I am unaware of any party challenging the individual mandate who has offered this exact analysis to date (though some parties have made the “cost shifting” point in his third step, and I have contended that the regulation of economic inactivity is too “remote” to be reached under the “necessary” prong of the Necessary & Proper Clause). Whether or not his approach is ultimately satisfactory, however, it is well worthy of careful study and discussion.

All three opinions in the Sixth Circuit vindicate the normal procedure of letting cases develop in the district courts and courts of appeals before they are heard by the Supreme Court. And it also highlights a benefit of having twelve appellate court judges on four courts of appeals panels, as well as all the parties who are appearing before them, thinking hard about this thorny constitutional question.

Comments are closed.