The Affordable Care Act: Up for a Final Vote?

Two upcoming votes may decide the future of the Affordable Care Act (ACA) and the availability and affordability of health care in the United States. The first is the November 2020 election, where attitudes toward the ACA may influence voters’ choices, especially in light of their experiences with the COVID-19 epidemic and movements to eradicate structural racism. The second vote belongs to the U.S. Supreme Court in two cases consolidated under the name California v. Texas. These cases ask whether the Tax Cuts and Jobs Act, Pub. L. No. 115-97 (December 22, 2017), which zeroed out the tax for failure to have minimum health insurance coverage, rendered the ACA’s individual mandate unconstitutional, and, if so, whether the entire ACA must fall.

Our future health care system depends on both votes. The Supreme Court may impose boundaries on the exercise of government power, but voters will decide whether government takes any responsibility for the health of its people. 

Background

For more than a decade, the minimum essential coverage requirement, commonly known as the individual mandate, has been a key point of controversy over the ACA, symbolizing ideological and political disagreements over government assistance to low-income populations, federal regulation of private industry, and the legacy of President Obama. 26 U.S.C. §5000A(a) requires everyone (with exceptions) to be covered by a private or public health benefit program meeting ACA standards. 26 U.S.C. §5000A(b) requires those who are not so covered to pay a fee (“shared responsibility payment”) to the Treasury. 26 U.S.C. §5000A(c) sets forth the amount of that fee.

On June 28, 2012, in a 5-to-4 decision, the Supreme Court upheld the fee for being uninsured as a constitutional tax in National Federation of Independent Business v. Sebelius. Chief Justice Roberts and four dissenting justices (Scalia, Kennedy, Thomas, and Alito), however, concluded that the individual mandate provision in §5000A(a) was not a constitutional exercise of Congress’s power to regulate interstate commerce. They found that the Commerce Clause limited Congress to regulating those already engaged in commerce (e.g., health care providers and insurers); it did not extend to requiring individuals to enter commerce or penalizing those who don’t.

However, Justice Roberts, joined by Justices Ginsburg, Breyer, Sotomayor, and Kagan, held that the “penalty” for not having health insurance coverage was merely a tax within Congress’s taxing power. The taxing power can be exercised broadly to encourage conduct promoting the general welfare, such as allowing tax deductions for dependents and employers who provide employee group health insurance plans. Congress can also discourage disfavored actions, as by imposing taxes on tobacco products. The individual mandate merely gave taxpayers a choice to either obtain coverage or pay the tax.

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In NFIB v. Sebelius, Justice Roberts, joined by the four dissenting justices, also held that the ACA provisions expanding Medicaid eligibility (to all individuals under age 65 with incomes less than 138 percent of the federal poverty level) constituted unconstitutional coercion of the states under the spending power. Rather than sever the ACA sections establishing Medicaid expansion or voiding the entire ACA, however, the decision simply struck down the possible (but improbable in practice) penalty of losing all federal Medicaid funding for states that did not expand eligibility. This made Medicaid expansion optional for all states. Thirty-six states with democratic-majority legislatures or governors and the District of Columbia have expanded their Medicaid programs, with a 37th in the works. The holdouts were all red states, although some have obtained waivers to partially expand on different terms.

In 2008, nearly 15 percent of the population (44 million people) had no health insurance. According to the Census Bureau, by 2017, 92.1 percent of the population was covered, dropping slightly to 91.5 percent in 2018. Between 2010 and 2018, 18.6 million non-elderly uninsured people obtained health coverage through the ACA marketplace exchanges and Medicaid expanded eligibility. The newly insured population could have been even larger had more states expanded their Medicaid programs. Figure 1 below shows the correlation between states that did not expand Medicaid and those with higher rates of uninsurance.

Republican legislators have tried, without success, to repeal the ACA since it was signed into law on March 10, 2010. The 2016 election of President Trump prompted renewed attempts to abolish the ACA through 2017. Congress and federal agencies have chipped away at several ACA requirements and restricted enforcement of others, but health care and insurance systems continue to operate under its framework and the law remains largely intact.

The Tax Cuts and Jobs Act (TCJA) was the most concrete threat to the ACA. It reduced the dollar amount of the tax in §5000A(c) to zero, eliminating any financial penalty for failure to enroll in a health benefit program beginning January 1, 2019. Doubtless, supporters of TCJA believed that the absence of a penalty would encourage many people to drop their health coverage, leaving predominantly high-risk and costly populations in the new ACA private insurance market. This made sense in theory (and was the original reason for including the individual mandate): Insurers would have to raise premiums, triggering a new round of enrollee exits and yet higher premiums, resulting in an insurance death spiral that would collapse the ACA private insurance market and demonstrate the futility of the ACA framework. However, it did not work out that way.

The commercial health insurance industry favored expanding its market through the ACA exchanges to compensate for the declining market in fully insured employer plans. The ACA provided several programs to protect insurers against large, unpredictable losses. Congress and the Department of Health and Human Services (HHS) withdrew funding from two of these programs, but with the help of ACA tax credits for enrollees, enough insurers were able to offer plans and keep the ACA market functioning. The Supreme Court later found that the federal government improperly refused to make payments to insurers in one of these programs (called risk corridors). Courts may come to a similar conclusion with respect to HHS’s failure to pay insurers federal subsidies for out-of-pocket cost sharing (e.g., deductibles, copayments) incurred by low-income enrollees. Today, insurers offering health plans on the ACA exchanges are profitable and the market is stable.

Thus, the ACA has been a qualified success. It did not restructure the health care or insurance systems. Rather, it made incremental changes, enabling new private insurance options with federal subsidies and expanding Medicaid with 90 percent (initially 100 percent) federal financing. Public health improved by several measures. To some, the ACA represents a progressive step toward social insurance and social solidarity. To others, it symbolizes federal overreach and promises higher taxes. Both groups are counting on either the Supreme Court or the next election to support their position.

California v. Texas: ACA in the Supreme Court Again

Texas, with 16 other states and two individuals, used the TCJA as a new opportunity to challenge the individual mandate, filing suit in the U.S. District Court for the Northern District of Texas. Judge Reed O’Connor found that the requirement to have health insurance coverage could no longer be the basis for a tax because no tax is payable now. He declared the entire ACA invalid. Judge O’Connor relied, somewhat unusually, on the opinion of the dissenting justices in NFIB v. Sebelius that the individual mandate was “essential to and inseverable from” the rest of the ACA, such that no part of the act could operate without it.

On December 18, 2019, a three-judge panel of the United States Court of Appeals for the Fifth Circuit affirmed (2 to 1) the district court decision that the individual mandate itself was now unconstitutional but remanded the case to seriously reconsider which, if any, other ACA sections should also be struck down. En banc rehearing was denied.

Instead of defending the federal law, the U.S. Departments of Justice and HHS agreed that the individual mandate was unconstitutional. They first asked that only the sections addressing the individual mandate, guaranteed-issue, and community rating be severed, but later decided that the entire ACA should be declared invalid. Led by California, 19 states, the District of Columbia, and Kentucky Governor Andy Beshear intervened to defend the ACA, as did the U.S. House of Representatives. The Supreme Court accepted their petition for a writ of certiorari, consolidating two cases under the name California v. Texas.

With its October oral argument docket already set, the Supreme Court will not issue a decision until after the November 2020 election or even the January 2021 presidential inauguration. Although unlikely, it might stay out of the fray by sending the case back to the lower court for reconsideration, further delaying any final judgment.

There are two substantive and one jurisdictional question before the Court:

Individual Mandate. Both the district court and the court of appeals concluded that Congress’s authority under the Commerce Clause does not include the power to require individuals to obtain health insurance coverage, citing Chief Justice Roberts opinion in NFIB v. Sebelius. The chief justice is not likely to change his view of the limits of the Commerce Clause, and at least four other justices are likely to agree.

Thus, the threshold issue is whether the individual mandate can still be deemed to be a constitutional exercise of Congress’s taxing power when Congress has eliminated any dollar amount due as a tax. ACA challengers (respondents before the Supreme Court) argue that a tax of zero dollars cannot produce any revenue and therefore cannot function as a tax. ACA supporters (petitioners) argue that Congress did not repeal the tax provision itself, §5000A(a), (b), or (c), and could amend §5000A(c) to require a dollar amount of tax in the future.

Chief Justice Roberts may not want to be responsible for extinguishing so major a policy initiative as the ACA. When initially saving the ACA in NFIB v. Sebelius, he wrote that courts have a “duty to construe a statute to save it, if fairly possible.” NFIB v. Sebelius, 567 U.S. 519, 574 (2012) (Roberts, C.J.). If the Court does save the individual mandate as part of a constitutional exercise of the taxing power, the remaining issues become moot.

Severability. If the individual mandate is not upheld as the premise for a tax, the more contentious issue is whether that single section of the ACA can be severed, with or without a few closely related provisions, or whether the entire act must be invalidated. The ACA text covers more than 900 pages of amendments to multiple federal statutes, many of which have nothing to do with commercial insurance.

Severability is a matter of law. The ACA has no express provision on severability, so both petitioners and respondents argue about Congress’s intent, itself a fraught exercise. Respondents focus on the Congress that originally enacted the ACA in 2010, arguing that it found the individual mandate so essential to the purpose of the ACA that the entire law must fall with it. But Congress made that “essentiality” argument to support using its power under the Commerce Clause, which the Court rejected in NFIB. Still, respondents claim, “Without the mandate, Congress determined [in 2010], these major reforms do not work.” Except that they do work. As the Congressional Budget Office predicted in 2017, even if the individual mandate were repealed, that alone would not destabilize the individual marketplace.

Petitioners look to congressional intent in 2017 and the current insurance market. Congress changed the tax dollar amount to zero in December 2017 but did not repeal any sections of the ACA, effectively severing that provision. Wholesale invalidation of the ACA is difficult to justify legally or empirically. Congress has never gained enough votes to repeal the ACA entirely. It held votes on repealing the Cadillac tax on expensive employer-sponsored plans and the medical device tax without repealing anything else. Arguably, Congress has demonstrated that it believes that single sections can be severed, in fact or in effect, without disturbing the rest of the ACA.

Moreover, with respect to severability, eliminating the penalty on states (loss of all federal Medicaid funding) for not expanding Medicaid is analogous to eliminating the penalty for not having health insurance. Notably, the Court in NFIB v. Sebelius effectively severed mandatory Medicaid expansion; it did not even consider that striking down application of the Medicaid penalty could be grounds for voiding the entire ACA. Because the Medicaid expansion covers many more people than the ACA marketplace plans, it would seem to be a more important linchpin of the act than the individual mandate.

An in-between possibility is to sever §5000A plus one or two related sections—specifically the requirements that insurers guarantee issuance of policies to anyone, regardless of a person’s health risks, and charge community-rated premiums, which do not vary with health status (with limited adjustments for age, location, and smoking). However, the industry seems to be functioning well even with these two constraints in place today.

Standing. The Court could avoid the substantive questions by finding that the respondents (original plaintiffs) do not have Article III standing to bring their claims. The lower courts properly found that the petitioner-intervenor states had standing because they could lose substantial federal funding ($418 billion from Medicaid alone over the next decade) if the entire ACA is invalidated. The respondents’ standing, however, rested on questionable grounds. The respondent states claimed injury from the administrative expense of printing and issuing tax forms verifying which of their state employees had health coverage. Two individual plaintiffs claimed harm from being compelled by the law to spend money to buy coverage, despite their voluntary purchase in the absence of any penalty for noncompliance. These are thin reeds on which to hang the “injury in fact” required for standing, but the Supreme Court may agree, if only to finally dispose of the substantive issues.

The 2020 Election

The health care and insurance industries account for about 18 percent of U.S. gross domestic product. Today, 297 million Americans are covered by public or private health insurance. Thanks to the ACA, people losing their jobs, including during the COVID-19 epidemic, can get ACA marketplace plans, possibly with tax credits, or, if income-eligible in some states, Medicaid expansion or Children’s Health Insurance Program coverage. These plans cover testing and treatment for COVID-19.

A Supreme Court decision striking down the ACA would result in massive disruption of health care delivery and financing, with predictable negative consequences for patients, hospitals, community health centers, Medicaid expansion programs, and private health insurance. Millions of Americans could lose their health benefits: 14.8 million who could not afford to buy insurance without federal tax credits or cost-sharing subsidies; 12 million in the Medicaid expansion program; and 3 million of their children. Those numbers are increasing as the COVID-19 pandemic closes businesses and employees lose their health insurance along with their jobs. Not surprisingly, Black and Hispanic Americans are disproportionately harmed.

With fewer enrollees, private health plans will likely return to some pre-ACA insurance practices, such as refusing non-group coverage to high-risk persons, limiting covered benefits, capping annual and lifetime dollar amounts of benefits, and denying or limiting coverage for pre-existing medical conditions. Pre-ACA, non-group and employer-sponsored plans often excluded coverage of preventive care, maternity care, and mental health and substance use disorder treatment. Up to 51 percent (133 million) of non-elderly Americans have pre-existing health conditions, including cancer, diabetes, asthma, high blood pressure, and pregnancy. Significantly, America’s Health Insurance Plans, the industry’s trade association, argues that the ACA is a bell that cannot or should not be unrung.

Meanwhile, states already losing tax revenues from the COVID-19 epidemic and economic recession would be faced with paying for a growing number of people newly eligible for the regular Medicaid program. Medicare Part D cost sharing would return, requiring seniors to pay thousands of dollars for essential medicines. Current Medicare payment methods to reduce provider costs would be reversed. Rural and safety net hospitals and community health centers would lose funding and possibly face bankruptcy. A wholesale dismantling of the ACA would also end many non-insurance reforms, such as nutrition labeling on food products, public health programs, nursing home accountability, programs to reduce fraud and waste, grants for training health workers, health worker loan assistance, primary care, access to medicines for underserved communities, and research to improve care.

Public opinion polls indicate majority support for the reforms that the ACA instituted. A CNN telephone survey on June 3–5, 2020, found that 69 percent of respondents who were registered voters said that health care was an extremely or very important issue in voting for a president in 2020. Broken into democratic and democratic-leaning voters compared with republican and republican-leaning voters, 85 percent of the former and 49 percent of the latter ranked health care an extremely or very important election issue. Democrats argued that they won a majority of seats in the House of Representatives in 2018 because voters worried that a republican majority in Congress would repeal the ACA. They could make the same argument in this election.

A win for Democrats may entrench the ACA in American health policy in ways that echo Social Security and Medicare. Democratic presidential candidate Joe Biden favors an incremental approach that would add a public option to the ACA, increase subsidies, and expand Medicare eligibility to people over age 60. President Trump and his administration are on record as supporting the wholesale repeal of the ACA. A republican win in the White House and a majority of Senate seats may reenergize efforts to repeal the ACA entirely and block other federal initiatives to regulate health care or health insurance. The next president’s appointments to the Supreme Court will also affect health care, including reproductive rights, as well as efforts to eradicate systemic racism in employment, housing, credit, and education.

Conclusion

Whatever the outcome of the election and the Supreme Court decision, Congress will face pressure to improve the health care system. The Court may set the parameters for the exercise of federal power, but within those parameters, the people must decide what the government is responsible for and how it will fulfill that responsibility. Voters’ experience with COVID-19, unemployment, and health insurance can only raise the salience of access to health care. Historically, access to care has depended on access to health insurance programs, both public and private. The growing popularity of various Medicare for All proposals suggests that the public will not let Congress off the hook.

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