Supreme Court Upholds the ACA (Benefit Minute)

Posted in: Benefit Minute, Employee Benefits

On June 17, 2021 the Supreme Court issued their long awaited decision in the case of California v Texas.  The case was initially filed in early 2018 based on the pending elimination of the Affordable Care Act’s (ACA) individual mandate penalty.  Three years later, in a 7-2 decision, the Court declined to consider the merits of the plaintiffs’ arguments regarding the individual mandate’s constitutionality as they determined neither the plaintiff states nor the individual plaintiffs had sufficient standing to bring the legal challenge at all.  As a result, the Court sent the case back to the district court with orders to dismiss it, leaving the ACA intact and unchanged.

Background Information

In 2012, the Supreme Court upheld the individual mandate as a constitutional exercise of Congress’ taxing powers, stating that the mandate could be read as an option to maintain health insurance or pay a tax because the penalty for not complying produced revenue for the government and had other attributes of a tax.  By upholding the individual mandate, other ACA provisions closely tied to the mandate (e.g. guaranteed issue, community rating) were also upheld.   In 2017, Congress reduced the individual mandate penalty to zero effective January 1, 2019.  As a result, several Republican-led states and certain individuals sued to invalidate the individual mandate and some or all of the ACA provisions that were tied to it.

The Standing Requirement

The United States Constitution provides federal courts with the power to adjudicate only genuine cases and controversies. Therefore, to have sufficient standing to bring a case before the courts, a plaintiff is required to assert a personal injury which is fairly traceable to the defendant’s allegedly unlawful conduct and which is likely to be rectified by the requested relief.  When a plaintiff does not demonstrate sufficient standing to bring a lawsuit, the courts are precluded from hearing the case, and the case is dismissed.

The Individual Plaintiffs

The two individual plaintiffs were seeking relief from the economic harm of having to purchase health insurance. They argued that obtaining minimum essential coverage is still a legal requirement which commands them to buy health insurance and so they purchased health insurance solely to comply with that law.

However, the Court concluded that even if it was assumed that their purchase of health insurance satisfied the personal injury requirement, that conduct could not be fairly traced to any unlawful government action.  This is because the individual mandate has no means of enforcement against them presently, or in the future (as long as the mandate penalty is zero).

As stated in Justice Breyer’s opinion, IRS enforcement only relates to the taxpayer’s failure to pay the penalty, not the taxpayer’s failure to maintain minimum essential coverage.  Due to this, there has not been, and could not be in the future, any enforcement of the individual mandate penalty against them.  In Justice Breyer’s own words “the plaintiffs have not shown that any kind of Government action or conduct has caused or will cause the injury they attribute to §5000A(a).”  Even though these plaintiffs did purchase health insurance, this was not the result of any action of the government, real or threatened, so the traceability requirement could not be satisfied, and standing was not present.

The State Plaintiffs

The state plaintiffs also alleged the individual mandate imposed economic harm on them, due to increased enrollment in state benefits and other administrative expenses tied to the individual mandate.  The Court rejected their argument and determined that the plaintiff states failed to show how the removal of the penalty would lead to the harms claimed by them.

The opinion spent some time discussing the lack of evidence provided by the plaintiff states in support of their claim that the unenforceable individual mandate still led to a financial injury on the states.  Much of the plaintiff states’ evidence was in the form of twenty-one statements from state officials, of which only four linked additional state costs to the individual mandate.  However, those four were made prior to the individual mandate penalty being set to zero, when the individual mandate remained enforceable.  Ultimately the Court did not see sufficient evidence provided by the plaintiff states linking the harms claimed to the now unenforceable individual mandate.

Justice Breyer reasoned that a penalty might have led some otherwise unmotivated individuals to enroll in state provided benefit programs.  However, he did not see how an individual mandate with no penalty would create the same behavior in such individuals that were otherwise inclined to forego enrolling in those benefits.

Another claimed basis of standing for the plaintiff states was the burdens imposed on the plaintiff states by complying with other aspects of the ACA.  This claim was rejected by the Court as many of those obligations arise and operate under the employer mandate.  Since that provision of the law operates separately from the individual mandate and would continue to even if the individual mandate was unconstitutional, it was not a basis for standing.  As Justice Thomas pointed out, while the plaintiff states may oppose the employer mandate, they were challenging the constitutionality of the individual mandate only, not other provisions of the ACA.

Justice Alito’s Dissent

Justice Alito, joined by Justice Gorsuch, dissented in the case. They looked to a different theory of how standing could be found by flipping the order of the analysis.  They first determined that that individual mandate could not be severed from other provisions of the ACA that caused harm to the plaintiff states, resulting in standing.  Having found standing, they concluded that the individual mandate should be found unconstitutional based on the reduction of the penalty to zero.  Further, the dissent determined any provisions of the ACA which were inextricably linked to the individual mandate would also be unenforceable against the state plaintiffs.

Looking Forward

The majority declined to consider the theory offered by the dissent (standing through inseverability) as this question was not raised in the lower courts.  While it is difficult to predict what will happen in the future, this case is unlikely to be the last challenge to the ACA. It is possible states hostile to the ACA may continue to bring challenges, using this decision as a guide on how to present their arguments so that the merits of the case are decided by the Supreme Court.