Ronald Dworkin has an article defending the constitutionality of the Patient Protection and Affordable Care Act in the New York Review of Books that offers an excellent primer on the relevant issues. There are two sections I'd recommend in particular. First, in Section II Dworkin does the most lucid job I've seen so far in explaining why the "activity/inactivity" distinction made by the challengers is so weak:
The rhetorical force of their examples, about making people buy electric cars or broccoli, depends on a very popular but confused assumption: that it would be tyrannical for any government to force its citizens to buy what they do not want. In fact both national and state governments steadily coerce people to do just that through taxation: they make them buy police and fire protection and pay for foreign wars whether they want these or not. There is no reason in political principle why government should not make people pay directly for its services through insurance rather than indirectly through the mechanics of taxation: direct payment would be no greater compromise of freedom. In fact Massachusetts does make people buy health insurance: that mandate is at the core of that state’s apparently successful health care program, on which the national act was partly based. Almost no one suggests that the Massachusetts mandate is unconstitutional. [...]
If we do not need a limiting constitutional principle to stop a state from outrageous economic legislation, we do not need any such principle to stop the national Congress, within its proper sphere, either. The Court can allow Congress, as it allows Massachusetts, to mandate health insurance without finding a constitutional barrier to a national compulsory broccoli purchase. Politics supplies the appropriate check in both cases. So we must turn to the genuinely important question, the second question I distinguished. What is Congress’s proper sphere of control in health care matters?
The principle I described—the principle of state control over local matters—dictates the answer. It requires that Congress show that the commerce it seeks to regulate has a profound impact on the national economy. National regulation of health care easily passes that test.
Dworkin is clearly right. The whether Congress is regulating "activity" or "inactivity" is completely irrelevant to the "limiting principle" actually required by the Constitution -- namely, that Congress not invade purely local matters. The fact the challengers concede that more coercive regulations of the health care market are properly national and not just local settles the question of whether the PPACA is a valid exercise of the commerce power -- it is. The "activity/inactivity" distinction is an ad hoc political argument, made to distinguish the PPACA from other major federal programs that would tunr the Republican Party into an irrelevant rump if they were held unconstitutional by Republican appointees to the Supreme Court. But is has no constitutional significance.
Dworkin also convincingly argues in Part 4 that the PPACA should also be seen as a valid exercise of the congressional spending power, regardless of what label its supporters (though, it's worth noting, not the opponents who now claim that it is not an exercise of the taxing power) label it. I would add that the distinction being drawn between "penalty" and "tax" enforcement underscores the utter triviality of the constitutional issues at stake. If the individual mandate is structured as a "penalty" American freedom is over and the state capitals might as well close up shop, but if it's structured as a "tax" then it's a perfectly appropriate exercise of long-entrenched federal powers? This is not a serious argument.
Alas, as Dworkin also notes while the constitutional issues involved in the challenge to the ACA are trivial the effects of striking down the ACA would not be. Congress will not force anybody to purchase broccoli or a 2007 Chrysler Sebring if the PPACA is upheld. But if it's struck down, many Americans will die or suffer needless illness and disability. These policy consequences would be disturbing if the constitutional arguments against the PPACA were compelling; given that the constitutional arguments are weak or silly striking the bill down would be outrageous. I wish I shared Dworkin's confidence that Kennedy will not go down this road.