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.
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.