Supreme Court Hears Oral Arguments on Affordable Care Act (Benefit Minute)

Posted in: Benefit Minute, Employee Benefits

On November 10, the Supreme Court heard oral arguments in the ongoing case of Texas v. California. The litigation centers on whether the individual mandate imposed by the Affordable Care Act (ACA) remains constitutional after elimination of the related tax penalty, and what impact finding it unconstitutional would have on the remainder of the ACA.

Background of the Litigation

In 2012, the Supreme Court decided the case of NFIB v. Sebelius which upheld the constitutionality of the ACA and the ACA’s individual mandate. The Supreme Court determined that the individual mandate would be unconstitutional as a command by Congress to obtain health insurance, but would be constitutional when construed as an exercise of Congress’ taxing power since the individual mandate had all the elements of a tax.

The 2017 Tax Cuts and Jobs Act (TCJA) reduced the penalty for failing to comply with the ACA’s individual mandate to zero dollars starting in 2019. As a result, several individuals, Texas and other states sued on the basis that the individual mandate was no longer constitutional as it could no longer be construed as a tax.

The U.S. District court agreed with Texas and the other plaintiffs by declaring the individual mandate unconstitutional, and determining that the entire ACA must also be struck down. On appeal, the 5th Circuit affirmed the unconstitutionality of the individual mandate, but sent the case back to the District Court to further review whether some or all of other ACA provisions also had to be struck down because they were so closely tied to the individual mandate (severability).

In an unusual twist, the federal government sided with Texas and chose not to defend the ACA.  Instead, an attorney representing the House of Representatives joined with California in defending the individual mandate and the ACA.

Issues before the Court

The Supreme Court agreed to hear the case before the District Court reissued its decision.  The Court heard oral arguments for over two hours on three major questions:

  • whether the plaintiffs had standing to bring the lawsuit;
  • whether the individual mandate is constitutional after the tax penalty was reduced to zero; and
  • if the individual mandate is determined to be unconstitutional, whether the rest of the ACA can be severed from that provision or some/all of the ACA must be struck down with it.

The Question of Plaintiff’s Standing

A substantial portion of the oral arguments focused on whether the plaintiffs had standing to bring the lawsuit.  In general, plaintiffs have standing to bring a lawsuit when they can show an injury was suffered based in the conduct of the defendant which the Court can remedy.

The Justices questioned what injury is created by an individual mandate which carries no penalty and what relief they could grant for those alleged injuries. If the Court finds a lack of standing for the plaintiffs, the case will be dismissed and the ACA will remain unchanged.

Constitutionality of the Individual Mandate

The Justices seemed to accept that the individual mandate no longer satisfies the criteria to be construed as a tax as set out in NFIB, so they focused on what the provision now is and what Congress may have understood it to be when they passed the TJCA.  They raised several questions that focused on whether the individual mandate could be read as a choice (not an unconstitutional command) and whether the provision as it currently exists is simply an exhortation that does not create a legal obligation to act.

Justice Kagan appeared skeptical of the plaintiff’s argument that the individual mandate was ever construed as a command under NFIB. Her interpretation was that people were presented with a choice under the ACA: obtain insurance or pay a tax.  In her view, the removal of the tax made the statute less coercive, which could not logically make it into more of a command.

From the oral arguments, it is not clear how a majority of the Justices will decide on the issue of the continued constitutionality of the individual mandate.

Severability of the Individual Mandate from ACA

Perhaps the most important question before the Court is the extent to which the individual mandate, if found to be unconstitutional, can be severed from the remainder of the ACA. The plaintiffs argued that when the ACA was enacted it contained an implied inseverability clause based on its legislative findings, so if the individual mandate falls, the entire ACA must as well.

While Justices Kagan, Breyer and Sotomayor would likely favor severability if that question is answered, what Chief Justice Roberts and Justice Kavanaugh said during oral arguments is important as they could end up being the deciding votes on the question.  Chief Justice Roberts focused on the fact that when Congress reduced the individual mandate penalty to zero, they did not even try to repeal the rest of the ACA. Justice Kavanaugh stated his view that this seemed to be a very straightforward case for severability under the Court’s precedents.

A decision is not expected until the spring, and it is possible a future Congress could take action to render the litigation moot before a decision is issued, for example by reinstating an individual mandate tax penalty to take effect at some point in the future.  The final composition of the Senate (to be determined after the Georgia run-offs) may make this easier or more difficult to accomplish if Congress is inclined to act.

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