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The No-Legged Stool? ACA Declared Unconstitutional in Surprise Decision

The Patient Protection and Affordable Care Act (ACA) has proven to be quite resistant to attempts to dismantle it, but on December 14, 2018, a federal judge in Fort Worth, Texas, may have finally accomplished what the president, Congress, various state and federal regulators, and assorted other statutory assassins have previously been unable to do. In Texas v. United States of America, Judge Reed O’Connor agreed with a key argument advanced by the attorneys general of Texas and 17 other states and concluded that the ACA in its entirety is invalid. For a law whose very existence now is largely attributable to the Supreme Court of the United States’ prior focus on what a tax is, it is ironic that the argument that saved the ACA may ultimately prove to be its undoing, albeit with some unexpected help from Congress.

Background

The ACA’s life thus far has been marked by controversy, uncertainty, and a number of near-death experiences, beginning with its first trip to the Supreme Court in National Federation of Independent Businesses v. Sebelius. In Sebelius, the Court considered a challenge to the constitutionality of the ACA’s individual mandate under Congress’s power to regulate interstate commerce and famously (or infamously, depending on one’s perspective) found that this directive compelling most adults to purchase and maintain health insurance or pay a penalty was a tax despite never actually being thought of or labeled as such. Chief Justice John Roberts was the architect of this notion and effectively saved the ACA from ruination by finding that Congress did in fact have authority to impose the individual mandate under its taxing power. Crucially, Roberts’s opinion essentially defined a “tax” as a government mandate that raises revenue, something the individual mandate has and will continue to do through December 31, 2018. Had the Tax Cuts and Jobs Act of 2017 (TCJA) not been passed, this might have been the final word on the matter.

As part of the TCJA, Congress left the individual mandate intact but reduced its penalty to zero, effective January 1, 2019. Technically, this means that people are still expected to maintain health insurance in 2019 and beyond, but there will no longer be a monetary penalty for failing to do so.

At the time the ACA was enacted, most of those who drafted and approved the law considered the individual mandate to be a fundamental component of its overall structure—perhaps so important to the success of the law as a whole that the ACA could not operate if the individual mandate were not included. By virtue of the fact that Congress was unable to actually repeal the ACA yet apparently believed that it could effectively gut the individual mandate via the TCJA without disturbing the rest of the ACA (a polite fiction, but one with some amount of truth to it, as it turned out), one might reasonably come to the conclusion that by mid-2017, the individual mandate’s significance in the ACA firmament was significantly reduced from what it was in 2010.

The Latest Attempt

It is in this setting that Texas Attorney General Ken Paxton and his band of merry mischief-makers began yet another challenge to the ACA, this time seeking to turn the constitutional underpinnings of the ACA against the act itself, with an assist from the TCJA. The logic behind this is as follows: if the individual mandate is constitutional only because it is a tax (i.e., a government mandate that raises revenue), then once the TCJA eliminates the mandate’s revenue-raising mission, it is no longer a tax and is therefore unconstitutional. Further, if the individual mandate is integral to the ACA but is invalid, so is the rest of the law, even the many aspects of it whose constitutional bona fides were never in dispute. While the ACA has spawned a sizable group of observers since its enactment, the members of which hold quite diverse views about its merits (or lack thereof), the conventional wisdom regarding this latest challenge was that it was too clever for its own good and wouldn’t get anywhere. Enter Judge O’Connor.

The Decision

Judge O’Connor’s opinion focuses on three primary areas, at least two of which are likely to receive close scrutiny during the inevitable appeals process: whether the parties advancing the challenge have standing and whether the individual mandate is severable from the remainder of the ACA. A prerequisite for remaining inside the federal courts is standing, essentially that the party making the claim has suffered a legally recognized and concrete injury that can be remedied by the court. The parties themselves were a bit late to the standing party and did not raise it as a substantial issue during the course of the preliminaries of the case, but Judge O’Connor assessed the issue and concluded that despite a very plausible argument that this is a no-harm, no-foul situation, the plaintiffs actually did suffer an injury as a result of the continued existence of the now-toothless individual mandate. For Judge O’Connor, the presence of an unconstitutional mandate on the plaintiffs was a sufficient offense to their constitutional sensibilities to confer standing for their claims. Standing is a complex aspect of federal jurisdiction, and reasonable minds differ regarding how to apply its doctrines, but early reaction to Judge O’Connor’s decision on this point among the ACA commentariat suggests that the U.S. Court of Appeals for the Fifth Circuit—the appeals court that will probably next have custody of the case—may take a somewhat different view, potentially resulting in the dismissal of the case.

The bulk of Judge O’Connor’s opinion focuses on the centrality of the individual mandate to the ACA’s structure and whether it would be possible to sever that part of the law while leaving the remainder intact. This is no small issue since many of the most popular and widely used ACA provisions—e.g., coverage of adult children through age 26, prohibition of preexisting condition limitations, access to cost-free preventive care, extension of Medicaid benefits—would be eliminated along with the individual mandate. That this issue would be central to the case is not unexpected since the ACA’s structure has been likened to a three-legged stool, balanced on the employer mandate, the individual mandate, and the healthcare exchange system. Moreover, the individual mandate was seen as a key bargaining chip to assure the insurance industry’s support for the law; without that support, the ACA might never have been enacted.

As a general rule, federal courts are expected to exercise their powers to strike down constitutionally suspect laws with a certain amount of precision rather than rejecting them on a wholesale basis. The exception to this rule applies where the provision at issue is integral to the rest of the law; in other words, where it would be impossible to excise the offending provision without killing the statutory patient. Judge O’Connor dwelt at length on this issue and concluded that Congress did indeed consider the individual mandate to be essential to the ACA’s overall structure, at least circa 2010. What the opinion does not do is spend much time assessing the congressional view of the individual mandate following its amendment in 2017 via the TCJA, and it may be that the absence of fuller consideration of the individual mandate’s diminished status will ultimately doom Judge O’Connor’s conclusions on appeal. However important the individual mandate may have been at the ACA’s birth, it is difficult to ascribe great significance to it after the TCJA eliminated its sting.

While Judge O’Connor’s resolution of the severability issue may not withstand close scrutiny, it is less clear if the individual mandate itself will survive even in its present, more modest circumstances. There has long been bipartisan agreement that the mandate was constitutionally infirm, and since its revenue-raising character was eliminated, it has been difficult to discern strong support for—or even a need to maintain—the mandate going forward.

Whither Goest Thou, ACA?

Judge O’Connor’s decision appears to have been somewhat unexpected, and its issuance late on a Friday evening (and on the penultimate day of the open enrollment period for the healthcare exchanges) sent both pundits and administration officials scrambling. Complicating matters is the fact that Judge O’Connor’s decision does not compel (or prohibit) any action, at least not yet. Although the plaintiffs had requested the issuance of a national injunction against further enforcement of the ACA, Judge O’Connor instead ruled in favor of the plaintiffs on a declaratory basis. Essentially, he concluded that the ACA in its entirety was unconstitutional, but he has not yet directed any further action in support of that conclusion. At the moment, it is unclear exactly how the decision may operate in practice, and it is possible that it will be supplemented with the requested injunction or else stayed by Judge O’Connor or the Fifth Circuit pending further proceedings. Following issuance of the decision, administration officials announced that business would be continuing as usual for the ACA until the legal process reaches a final resolution. Of course, if Judge O’Connor’s decision is ultimately upheld by either the Fifth Circuit or the Supreme Court, all bets are off regarding the fate of the country’s healthcare system. We do live in interesting times.

Key Takeaways

So what does all of this mean for employers right now?  We have said words to this effect in response to prior nearly-successful attempts on the ACA’s life, and we repeat them now: until a final decision has been issued concluding that the ACA is repealed, unconstitutional, or otherwise invalid and ineffective, the ACA is the law of the land. This means that employers will want to continue counting hours, coding their Forms 1095-C, and otherwise complying with the many provisions of the ACA that are not the individual mandate until further notice. Rest assured that we will be keeping a close eye on developments in this case and providing more updates as the ACA’s fate becomes clearer (or not).

© 2019, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.

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About this Author

Timothy Verrall, Ogletree Deakins Law Firm, Data Privacy and Employment Law Attorney
Shareholder

Timothy G. Verrall is a shareholder in the Houston office of Ogletree Deakins where he advises a diverse range of clients on a wide variety of employee benefit plan issues arising under ERISA, the Internal Revenue Code, and related federal and state laws including the following:

  • Employee Benefit Plan Design & Administration. Representation of public, private, non-profit, and governmental employers in connection with the design, implementation, and administration of retirement, health and welfare...

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