The Court held that this payment for not having health insurance was not a "penalty" because it does not punish the individual for an unlawful act, but is instead a use of the tax code to encourage behavior, much like other aspects of the tax code such as tax deductions and credits for certain behaviors and circumstances.
In a surprising move, the Court ruled 7-2 against Obamacare's expansion of Medicaid to 133% of the Federal poverty line. The court took issue with the way Obamacare coerces states to accept the new funding levels by threatening to cut all current Medicaid funding for states that do not comply.
Prior to this ruling, the constitutional limit on Congressional spending was only theoretical. In South Dakota v. Dole, 483 U.S 203 (1987), the Court said that Congressional spending would be unconstitutional if it effectively coerced states into agreeing to a federal program. In that case they ruled that Congress had not gone that far.
But this is the first case where the Supreme Court has drawn a line in the sand and told Congress that their actions constitute unconstitutional coercion of the states. Says Chief Justice Roberts,
In this case, the financial "inducement" Congress has chosen is much more than "relatively mild encouragement"—it is a gun to the head.The conservative justices on the bench (Scalia, Kennedy, Thomas, and Alito) would have thrown out Obamacare in its entirety solely on this issue. But the Chief Justice, along with Ginsburg, Breyer, Sotomayor, and Kagan, merely severed the part of Obamacare that threatens withholding current funds to states that do not agree to expansion.
Nathan Paul Mehrens is counsel for Americans for Limited Government and previously served in the U.S. Department of Labor under President George W. Bush.