American Journal of Law & Medicine

No Healthcare Penalty? No Problem: No Due Process

I. INTRODUCTION The Patient Protection and Affordable Health Care Act ("Act"), which mandates all individuals to have health insurance and "penalizes" (1) those who do not, is unconstitutional for five well-documented and well-argued reasons:

1. The mandate for individuals to purchase healthcare ("Mandate") exceeds Congress's power to regulate commerce among the several states under the Commerce Clause (2) of article I, section 8, clause 3 of the U.S. Constitution. (3)

2. The penalty imposed on individuals who fail to honor the Mandate ("Penalty") is an unconstitutional direct tax because it is unapportioned, as required by article I, section 1, clause 3, (4) and by article 1, section 9, clause 4. (5)

3. The Penalty does not satisfy the Necessary and Proper Clause of article I, section 8, clause 18. (6)

4. The Act violates the Tenth Amendment reservation of unenumerated powers to the states and to the people. (7)

5. The mechanical, procedural aspects of the Penalty violate the due process guarantee in the Fifth Amendment. (8)

This Article focuses on the fifth reason: the lack of procedural due process. So far, all courts (9) and almost all commentators (10) have failed to discuss this fatal flaw.


Contrary to what many have argued, the heavy burden in this litigation is on the government because it must win all the following issues:

1. Commerce: If the Court finds the Mandate violates Congress's power to regulate commerce, the Act would necessarily fail: without the Mandate, the remainder serves little purpose and much harm. Even if the Court found the provision severable (which would be a mistake), the remaining provisions would likely die politically. (11) Consider the Act's requirement of pre-existing condition coverage in health insurance plans. (12) Without the Mandate, the Penalty would be superfluous: section 5000A(b)(1) imposes the penalty only on those who fail to satisfy the section 5000A(a)(1) mandate. Thus, without the Mandate, nothing would exist to penalize. (13) Healthy people could wait to purchase insurance until they had a serious condition. That is akin to allowing homeowners to wait to purchase fire insurance until their house is on fire. This alone would cause all health insurance policies to be actuarially unsound--an intolerable situation which Congress would have to fix. (14)

2. Unapportioned Direct Tax: If the Court finds the Penalty to be an unapportioned direct tax, the Act would similarly fail: without the Penalty, the Mandate is meaningless. Without the Penalty, the Mandate is unenforceable because the only enforcement mechanism is the Penalty. (15) An unenforceable mandate is not a mandate but a suggestion. Widespread polling data suggests how unpopular the Mandate is. (16) Common sense suggests many individuals would ignore the healthcare suggestion, particularly young and healthy ones. (17)

3. Necessary and Proper: Even if the Court finds the Mandate consistent with Congress's power to regulate commerce, and even if the Court further finds the Penalty not to be a tax, the Court could (and should) nevertheless find the Penalty as either unnecessary or improper. The Commerce Clause is not self-actuating; by itself, it grants no enforcement power. (18) In contrast, the taxing power is self-actuating; it includes the power to lay and collect taxes. (19) To enforce regulations of commerce, Congress must justify the regulation as both necessary and proper. (20) If the government fails to carry that burden, both the Mandate and the Penalty fail. If the Mandate fails, the Act (or at least most of it) also fails.

4. Tenth Amendment: If the Court were to find that the Act violates the Tenth Amendment reservation of unenumerated powers to the states and to the People, the Act would fail. (21)

5. Procedural Due Process: If the Court were to find the Act's procedures for Penalty enforcement lacking procedural due process, the Penalty itself must fail and with it, the Mandate, which would become "the Suggestion." In turn, serious portions of the Act--such as pre-existing condition coverage (22)--would arguably become unpalatable; without the Mandate, but with pre-existing condition coverage, all health insurance plans would become unsound and would either disappear or become far more expensive. (23)

Conventional wisdom has been to place the heaviest burden on the Act's opponents who allegedly must win all arguments. (24) To the contrary, the government must defend and win on all fronts: any one of the above five fatal flaws is sufficient to stop the Act.


The Internal Revenue Service (IRS) has the power to assess and to collect the penalty for failing to have adequate health insurance. (25) Unlike other taxes and penalties, the lack-of-health-insurance penalty has virtually no procedural protections for individuals subjected to it. (26)

The IRS must notify the individual of its assessment and intent to collect before it may collect the amount assessed. It need provide neither a formal nor an informal hearing, no opportunity to respond, no opportunity to litigate the issue in a court, nor even a significant waiting period prior to collection. (27) Instead, if the IRS believes an individual lacks health insurance and thus owes the Penalty, it must notify him or her of such and then it may collect the amount due. (28) An individual only has the right to seek a refund administratively after payment. (29) If that fails, the individual may then sue for a refund in either federal district court or the Claims Court. (30) The individual will have the burden of proof. (31) Arguably, this amounts to the civil equivalent to a criminal presumption of guilt. (32)


States have standing to assert the Penalty is an unconstitutional unapportioned direct tax. (33) Apportionment is an interest of the states much more than of the People. (34) As such, if anyone has standing to raise the issue, states do. The Court of Appeals for the Fourth Circuit improvidently dismissed the Commonwealth of Virginia. (35) The Supreme Court must reverse that aspect of the case. Even if the Court finds the Penalty not to be a tax, surely Virginia has the right to contest the issue.


Tax procedure differs substantially from that of other legal matters; hence, graduate tax programs all have (or should have) required courses in procedure. Traditionally, one who asserts an action must proceed and has the burden of proof. (36) Alas, tax law is very different. For most taxes--particularly for income taxes (37) and for most excises (38)--the taxpayer has a very limited opportunity for prejudgment review. (39)


Typically, (40) the government initiates an audit, either by correspondence or in the field. Tax law imposes significant administrative burdens on the government during an audit, but it also grants substantial administrative powers. If the government and the taxpayer disagree, eventually--again, in most cases--the IRS issues a "Notice of Deficiency." (41) More commonly, tax practitioners refer to this as a ninety-day letter, or as a taxpayer's ticket to Tax Court. (42)

A taxpayer has ninety days from the date of the letter's issuance (not its receipt) to file a petition in the Tax Court. (43) Failure to file timely is jurisdictional: the Tax Court has no power to entertain a late-filed petition. (44) If the taxpayer fails to file timely, the IRS has the power to assess the tax asserted in the Notice of Deficiency. (45) An assessment acts as a judgment. (46)

This last point is critical: the administrative branch need not obtain a court judgment before it can proceed to collect a tax. (47) This is not only unusual, but it is surprising to many taxpayers, including attorneys. For example, if the government were to assert that someone committed a crime, it must charge him and then give him an opportunity for a trial. (48) If the government were to assert that someone breached a contract and thus owed the government money (perhaps the person provided services in a public park or museum), it would have to sue the alleged breacher. (49) The government would have the burden of proof and the obligation to proceed in a court with jurisdiction over the person, as well as the obligation to provide adequate notice. (50) Similarly, if the government believed someone committed a tort against it (perhaps he or she damaged public property), it would again have to sue that person. (51) The government would thus have the burdens of proceeding, proof, and notification.

For taxes, however, all is different. The government must generally grant administrative hearings and then substantial notice of what it seeks in terms of the amount and type of tax, as well as the year or return involved. The government cannot proceed further with assessment, collection, or liens until ninety days after the issuance of the notice. (52) If the taxpayer objects, the taxpayer must proceed, the taxpayer must notify the government, and the taxpayer has the burden of proof. (53) To receive a jury trial, as supposedly guaranteed by the Seventh Amendment, (54) a taxpayer must first pay the deficiency, file for a refund, endure administrative proceedings, and then sue in district court(55)--again with the burdens of proceeding, proof, and notification. (56)

These traditional procedures are well-documented (57) and almost universally accepted. (58) Other than tax protestors, no one seriously objects that they lack procedural due process.


For some taxes--most commonly trust fund taxes(59)--the procedural protections afforded taxpayers are much more limited. (60) For these, the government has no duty--indeed, it has no power--to issue a notice of deficiency or a ticket to Tax Court. Instead, the government has the power to assess and to collect the tax. (61) It could voluntarily entertain a taxpayer protest; however, no statute requires such a procedure. Until 1998, (62) taxpayers who objected had to pay the tax and then seek an administrative refund. (63) If denied the refund, they could then sue in district court (or the Claims Court), where they had the burdens of proceeding, proof, and notification. (64)

This extraordinarily limited procedural protection existed for years prior to the 1998 amendments creating collection due process hearings. (65) Some authorities questioned the prior procedures on due process grounds. (66) Indeed, the issue prompted considerable controversy among members of Congress. (67) On June 25, 1997, a national commission chaired by Senator Kerry and Representative Portman issued A Vision for a New IRS. (68) The report, which was critical of many IRS practices, resulted in the Internal Revenue Service Restructuring and Reform Act of 1998, (69) also known as the Taxpayer Bill of Rights III. Alas, while the proposed act passed the House, (70) it failed in the Senate. It failed because Chairman Roth of the Senate Finance Committee refused to cooperate in bringing the proposal to the floor for a vote. (71) He refused because he questioned the due process protections provided in IRS collection proceedings. The issue became quite political and was the subject of many discussions in tax circles. Others clearly wanted to move the bill through to the President. Roth, however, prevailed. After further Finance Committee hearings in 1998, the bill passed, but with substantial new provisions for "Collection Due Process" procedures. (72) While legislative history is often of limited use, this particular history seems very helpful. Senator Roth specifically questioned whether the existing IRS collection procedures satisfied due process. (73) The Senate Finance Committee held hearings on that specific issue. …

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