A Preliminary Decision in the Newest Lawsuit Challenging the Affordable Care Act

On December 14^th, a decision was published in the Texas v. U.S. case that challenged the validity of the Affordable Care Act (ACA). The case – which was brought by 20 states (“plaintiff states”) and later joined by two individual plaintiffs – contends that the “zeroing out” of the shared responsibility penalty through the 2017 tax bill (Tax Cuts and Jobs Act) made the individual mandate, and in turn the entire ACA, unconstitutional. With the Department of Justice refusing the fully defend against the claims, Attorney Generals from 16 states and the District of Columbia (“intervenor states”) were permitted to intervene in the case as defendants.

Judge O’Connor, who presided over the case, issued a partial summary judgement on three key issues in the case, holding that:

1. The individual plaintiffs have “standing” to challenge the constitutionality of the individual mandate. The judge found that the legal obligation to purchase insurance remained and was meaningful enough to require action and cause harm despite the lack of a penalty. The judge did not rule on the standing of the plaintiff states.
2. As it no longer triggers a tax, the individual mandate is no longer constitutional. The Supreme Court had found in National Federation of Independent Businesses v. Sebelius that the individual mandate was constitutional as an exercise of Congress’ taxing power, because the mandate triggers the shared responsibility penalty which functions as a tax.  Judge O’Connor held that with the penalty set at zero starting in 2019, it can no longer be considered a tax and, therefore, the individual mandate is no longer an exercise of Congress’ taxing power. He also held that mandate still cannot be found constitutional based on the Commerce Clause, despite the fact that there is no longer a penalty compelling action. In seeming contradiction with his findings about the ongoing impact of and potential for harm from the mandate, the judge held that because the mandate “does nothing,” it cannot be justified on the basis of it having an impact on interstate commerce.
   
3. The individual mandate is not severable from the remainder of the ACA and, therefore, the entirety of the law is invalidated. Judge O’Connor held that the mandate is “essential to” and, therefore, inseverable from the ACA, pointing to evidence that he believes indicates that Congress (both in 2010 and 2017) viewed the mandate as central to the ACA and intended for the ACA as a whole only to stand if the mandate itself (as opposed to the penalty) remained part of the law. He also noted that the mandate is necessary to maintain the stability of the market in light of consumer protections like guaranteed issue, community rating, the prohibition against preexisting condition exclusions and nondiscrimination provisions. He also pointed to manners in which the mandate balances out and supports other provisions of the ACA and expressed hesitance to parse out which provisions of the ACA are inextricably tied to the mandate and which are not.

It is worth noting that ideologically diverse legal scholars filed a brief in support of the arguments in defense of the ACA against the challenges raised and have raised questions about the breadth of the ruling.

The ruling is significant and sweeping in its impact, as it puts the entirety of the ACA in peril. Beyond the individual mandate, consumer protections (such as the prohibition on preexisting condition exclusions, guaranteed issue and community rating), and other private insurance provisions of the ACA (such as the right for dependent children up to age 26 to stay on their family plans, the Essential Health Benefits, and the advance premium tax credits), the ruling also impacts totally unrelated provisions–for example, the Medicaid expansion, the closing of the Medicare Part D donut hole, and the creation of a pathway for approval of biosimilars.

Though the decision has sent reverberations throughout the health care industry and health policy world, the ruling has no practical impact at this point. Because the decision does not address all claims raised by the lawsuit, it is not a final order, and Judge O’Connor did not “enjoin” ongoing enforcement of the ACA. The intervenor states have already announced that they will appeal the case and, immediately following the ruling, the administration confirmed that it will continue to enforce the law.

However, the intervenor states have expressed concern that there will be confusion and resulting disruption when the elimination of the penalty goes into effect on January 1, 2019, if the judge does not make an explicit statement regarding the continuing applicability and enforcement of the ACA requirements, benefits and protections pending appeal. In response to that request, Judge O’Connor is now considering whether to “stay” his decision (confirming that the law remains in effect across the nation), whether to enter a partial final judgement and allow for an immediate appeal of the decision issued, and how to address the remaining, undecided claims. Two of the remaining claims also center around the constitutionality of the individual mandate (the plaintiffs also argued that the ACA lacks a rational basis given the zeroing out of the shared responsibility penalty in violation of Due Process under the Fifth and Tenth Amendments); the other two claims seek the invalidation or injunction of ACA regulations and enforcement if the ACA is ruled unconstitutional.

All eyes now turn to the ongoing proceedings at the District Court level and the eventual appeal(s) and future decisions. At the same time, a companion suit filed by the Attorney General of Maryland against the Federal administration remains at the District Court level, regarding its failure to defend against the Texas suit and asking that the zeroing out of the penalty be found unconstitutional . Ultimately, it is likely that this issue will again end up at the Supreme Court.

Published by Lisa Kaplan Howe

Lisa Kaplan Howe (J.D.) is a Senior Advisor who has spent her career working in health law and policy. At PCG, she focuses on statutory and regulatory analysis and strategic advising, particularly related to health care policy. Lisa has provided subject matter expertise to support state health care reform efforts, including policy development and regulatory support for health insurance Marketplaces and state insurance plan management efforts, Medicaid expansion and Medicaid Waivers (including DSRIP Waivers) and State Innovation Waivers. Lisa led PCG’s work with the New Hampshire Insurance Department relative the state’s Section 1115 Medicaid Waiver to provide coverage to newly-eligible adults through the Marketplace and continues to support the states’ Marketplace plan management work. In those roles, Lisa has served as the chief advisor and policy expert related to Medicaid and private insurance law to the New Hampshire Insurance Department, helping to identify, analyze and lead strategic consideration of federal opportunities and requirements. Lisa is also part of the team helping to design Colorado’s Delivery System Reform Incentive Payment (DSRIP) program. Ms. Kaplan Howe also provides broad policy and regulatory support to PCG’s other health care clients across the country, analyzing policy and regulatory developments, providing strategic advice relative to regulatory questions, and drafting policy briefs and position papers. Lisa is a managing editor of PCG’s monthly health practice area newsletter, Health Policy News. Prior to joining PCG, Lisa served as Policy Director at New Hampshire Voices for Health, where she led legislative and regulatory analysis, strategic planning, and implementation of the organization’s policy agenda. Her work included drafting bills, amendments, testimony, and communications and testifying at hearings. Lisa also held the positions of Private Market Policy Manager and Consumer Health Policy Coordinator at Health Care for All of Massachusetts. While there, she managed private insurance market policy work and was a member of the organization’s internal health reform team. Lisa also practiced law in the Ropes & Gray health care department, advising health care provider and insurer clients. View all posts by Lisa Kaplan Howe