Since Congress passed the Patient Protection and Affordable Care Act1 (PPACA) and then-President Obama signed it into law in March 2010, PPACA has faced repeated legal challenges. On three separate occasions the U.S. Supreme Court reviewed PPACA.2 In each case, PPACA emerged from the Supreme Court bruised, but also more settled as a matter of law. The fate of PPACA appeared conclusively decided following the failed efforts to repeal and replace the law in 2017. Heading into the 116th Congress and 2020 election cycle, attention on Capitol Hill and in Washington policy circles was moving towards a debate on the merits of “Medicare for all.”3
This all changed on the evening of Friday, December 14, 2018 when Judge Reed O’Connor of the Federal District Court in the Northern District of Texas refocused the nation’s attention on PPACA. Judge O’Connor issued a declaratory judgment4 holding the shared responsibility provision (also referred to as the “Individual Mandate”), and with it, PPACA, to be unconstitutional.5
The decision is notable not only for its breadth, but also for its timing, released on the eve of the final day of open enrollment for the 2019 plan year. The Department of Health and Human Services (HHS)6 and Centers for Medicare & Medicaid Services (CMS) Administrator Seema Verma7 quickly notified the public that the decision did not affect 2019 open enrollment. This decision comes on the heels of midterm elections where healthcare was the top issue for voters.8 The incoming Democratic majority in the U.S. House of Representatives has promised to make healthcare a top issue in the 116th Congress.9
Judge O’Connor did not issue an injunction and PPACA remains in place while the case is appealed to the United States Court of Appeals for the Fifth Circuit. This case is likely to again bring PPACA to the Supreme Court. In the meantime the ruling has left states, insurers, health systems, and the millions of Americans who have benefitted from the law in limbo. Even states historically critical of PPACA were quick to reassure residents that action would be taken to protect those with pre-existing conditions.10
Regardless of the ultimate outcome, Judge O’Connor’s decision has once again put questions surrounding the future of PPACA at the forefront of the American healthcare debate.
President Obama signed PPACA into law on March 23, 2010. Later that same day 13 states filed a lawsuit against the Obama administration, alleging that the requirement under section 5000A of the Internal Revenue Code that applicable individuals maintain minimum essential coverage (the Individual Mandate) or make a shared responsibility payment (the penalty) was unconstitutional. The government argued that Congress had the authority to impose the Individual Mandate under the Constitution’s Commerce Clause, the Necessary and Proper Clause, or the power to lay and collect taxes. The case reached the Supreme Court, and on June 28, 2012 the Court upheld the constitutionality of PPACA, with a 5-4 majority holding that the Individual Mandate and the penalty provisions could be read together as a tax provision.11 The Court also held that states could not be penalized for failing to implement PPACA’s requirement to expand Medicaid to non-elderly adults with household income up to 138 percent of the federal poverty level.12
The Tax Cuts and Jobs Act (TCJA),13 signed into law by President Trump on December 22, 2017, eliminated the penalty associated with failing to maintain minimum essential coverage under PPACA’s Individual Mandate beginning January 1, 2019. At the same time, Congress left in place the Individual Mandate and the rest of PPACA. On February 26, 2018, a group of 20 states,14 led by Texas Attorney General Ken Paxton, filed a lawsuit against the Trump administration seeking to have PPACA declared unconstitutional.15 The states alleged that the elimination of the Individual Mandate penalty in the TCJA without a corresponding elimination of the Individual Mandate rendered the entire PPACA unconstitutional. Two individual plaintiffs, Neill Hurley and John Nantz, joined the lawsuit and alleged that even without the tax penalty they would continue to purchase health insurance because the Individual Mandate remained in place.
In May 2018, Judge O’Connor granted a Motion to Intervene filed by 17 Democratic attorney generals from 16 states16 and the District of Columbia.17 They argued that intervention was proper because the federal government may not adequately represent their interests, specifically regarding the severability of the shared responsibility provision from the rest of PPACA.
On June 7, 2018, the U.S. Department of Justice (DOJ) unexpectedly announced that it would no longer defend the constitutionality of section 5000A of PPACA, the Individual Mandate. While sharing the view of the states and individual plaintiffs that the Individual Mandate is unconstitutional, DOJ took the more limited position that the Individual Mandate is inseverable from only the guaranteed issue and community rating requirements (which protect individuals with pre-existing conditions). Therefore, the rest of PPACA is severable and should remain in place. DOJ announced its policy change in a three-page letter18 to Congress and a brief in response to the plaintiffs’ motion for a preliminary injunction.19
This left the intervening states to defend the constitutionality of PPACA.
Judge O’Connor’s Opinion
Oral arguments were held on September 5 and on Friday evening, December 14, Judge O’Connor declared that without the tax penalty, the Individual Mandate is rendered unconstitutional. He also held that because the Individual Mandate is “essential” to PPACA and inseverable from the rest of the law, the entire PPACA is unconstitutional.20 Judge O’Connor issued a declaratory judgment and did not enjoin the law, meaning that it remains in place, at least for the time being.
At the beginning of his opinion, Judge O’Connor offered a summation of the basis for his decision:
Resolution of these claims rests at the intersection of the ACA, the Supreme Court's decision in NFIB, and the TCJA. In NFIB, the Supreme Court held the Individual Mandate was unconstitutional under the Interstate Commerce Clause but could fairly be read as an exercise of Congress's Tax Power because it triggered a tax. The TCJA eliminated that tax. The Supreme Court's reasoning in NFIB—buttressed by other binding precedent and plain text—thus compels the conclusion that the Individual Mandate may no longer be upheld under the Tax Power. And because the Individual Mandate continues to mandate the purchase of health insurance, it remains unsustainable under the Interstate Commerce Clause—as the Supreme Court already held.21
Judge O’Connor’s analysis begins by examining the standing of the two individual plaintiffs. The plaintiffs alleged a harm resulting from having to comply with the Individual Mandate to purchase minimum essential coverage, despite effective January 1, 2019 there will no longer be a financial penalty. The intervening states (and the American Medical Association and other physician groups in an amicus brief)22 argued that the plaintiffs lacked a cognizable injury because it was their voluntary choice to purchase minimum essential coverage. PPACA always offered applicable individuals a choice in section 5000A of the Internal Revenue Code (section 1501 of PPACA): maintain minimum essential coverage, make a shared responsibility payment, or obtain an exemption.23 In NFIB, Chief Justice Roberts concluded that PPACA does not require an individual to purchase health insurance:
Neither the Affordable Care Act nor any other law attaches negative legal consequences to not buying health insurance, beyond requiring a payment to the IRS. And Congress's choice of language—stating that individuals “shall” obtain insurance or pay a “penalty”—does not require reading § 5000A as punishing unlawful conduct. It may also be read as imposing a tax on those who go without insurance.24
Without the penalty in place beginning January 1, 2019, there is no negative consequence to an individual failing to maintain minimum essential coverage. However, Judge O’Connor disagreed, and found that the obligation to maintain minimum essential coverage remains a regulatory burden on the plaintiffs and therefore they suffer a cognizable injury.25 He did not address whether the plaintiff states have standing.
Judge O’Connor then turned to the constitutionality of the Individual Mandate. He found “that both plain text of the ACA and Supreme Court precedent dictate that the Individual Mandate is now unconstitutional under” either Congress’s Tax Power or the Interstate Commerce Clause of the Constitution.26
Examining the Tax Power, Judge O’Connor begins by noting that the requirement to maintain minimum essential coverage and the tax penalty are separate provisions under section 5000A. In NFIB, the Court had viewed the Individual Mandate as a tax because of its trigger to impose a tax when an individual fails to maintain minimum essential coverage. Judge O’Connor pointed to the lack of an exaction after December 31, 2018 following the implementation of the TCJA, which sets the tax penalty to $0, and concluded that without it, the Individual Mandate provision is unconstitutional. He stated that “[t]he saving construction in NFIB was available only because § 5000A(a) triggered a tax.”27 Because the Individual Mandate no longer “triggers a tax,” the saving construction no longer exists and the Tax Power no longer supports the Individual Mandate.28
Judge O’Connor then turned to whether the Individual Mandate may be upheld under the Interstate Commerce Clause of the Constitution. The intervening states had argued that following the elimination of the tax penalty, PPACA no longer compels the purchase of minimum essential coverage. Therefore, it may be upheld under the Interstate Commerce Clause. Judge O’Connor rejected this argument, noting that the Individual Mandate remains a part of PPACA and applicable to the plaintiffs, who feel obligated to comply with the law. He stated that “the fact that many individuals will no longer feel bound by the Individual Mandate does not change either that some individuals will feel so bound - such as the Individual Plaintiffs here - or that the Individual Mandate is still law.”29
Congress only eliminated the shared responsibility payment and left the requirement to maintain minimum essential coverage in place. Therefore, Judge O’Connor concluded that the Individual Mandate “now serves as a standalone command that continues to be unconstitutional under the Interstate Commerce Clause.”30
Finally, Judge O’Connor addressed whether the Individual Mandate is severable from the remainder of PPACA or whether the entire law is unconstitutional. In the most controversial part of his decision, Judge O’Connor declared the entire law unconstitutional. He found that both the 2010 and 2017 Congresses believed the Individual Mandate is so “essential” to PPACA that the law may not stand without it.31
The Supreme Court has a strong presumption of severability. Judge O’Connor acknowledged that the Supreme Court has “frequently severed unconstitutional provisions from constitutional ones.”32 The intervening states and an amicus brief submitted by a bipartisan group of law professors argued that finding the Individual Mandate inseverable would be improper when “Congress itself has essentially eliminated the provision in question and left the rest of a statute standing.”33 In short, they argued that by eliminating the Individual Mandate penalty in the TCJA and leaving the rest of PPACA in place, Congress made clear that the Individual Mandate is no longer essential to the operation of PPACA.
Judge O’Connor’s analysis focuses heavily on the intent of Congress in 2010, when PPACA was passed and signed into law. In support, the opinion cites to congressional findings regarding the requirement to maintain minimum essential coverage contained in section 1501 of PPACA.34 He described that “Congress stated three separate times that the Individual Mandate is essential to the ACA”35 and “[o]n the unambiguous enacted text alone, the Court finds the Individual Mandate is inseverable from the Act to which it is essential.”36
Judge O’Connor pointed to the Supreme Court’s decisions in NFIB and King and their representations that the Individual Mandate, guaranteed issue, and community rating provisions are interdependent to infer that the provisions are inseverable. He cited heavily to the dissent in NFIB, which believed that the Individual Mandate and Medicaid expansion were so critical to the design of PPACA that the law becomes inoperative without them. The opinion references the earlier concerns about what would happen to the insurance market were the mandate to be eliminated but the remainder of PPACA to remain in place.
The opinion states that the 2017 Congress “further entrenched” the “unambiguous intent” that the Individual Mandate could not be severed from the rest of PPACA.37 Judge O’Connor indicated that searching for the intent of the 2017 Congress related to severability would be a “fool’s errand” because it couldn’t repeal any part of PPACA through the budget reconciliation process used to pass the TCJA.38 Judge O’Connor pointed to the fact that Congress did not repeal the Congressional findings at 42 U.S.C. § 18091 and “did nothing to repudiate or otherwise supersede the Supreme Court’s NFIB and King opinions detailing the Individual Mandate’s essentiality to the ACA.”39 The 2017 Congress may have preserved the Individual Mandate because it is “’essential’ to the ACA.”40
In concluding that the Individual Mandate cannot be severed from the remainder of PPACA, Judge O’Connor stated:
In a December 17 filing, the intervening states quickly asked the District Court to clarify that the December 14, 2018 order “does not relieve the parties to this litigation--or any other State, entity, or individual--of their rights and obligations under the ACA until the trial court proceedings and appellate review are complete.”42 The intervening states also asked Judge O’Connor to enter a partial final judgment or to certify the December 14 partial summary judgment for interlocutory appeal. The plaintiffs43 and federal government44 also asked Judge O’Connor to stay the proceedings and permit an interlocutory appeal. On December 30, 2018, Judge O’Connor entered a final judgment and stayed the proceedings45 and the intervening states promptly filed an appeal in the Fifth Circuit Court of Appeals.46
The Democrats in the U.S. House of Representatives were clear about their plans to intervene in the case following the midterm elections in November 2018.47 Representative Nancy Pelosi (D-CA), Speaker of the House in the 116th Congress, stated at the time that:
When House Democrats take the gavel, the House of Representatives will move swiftly to formally intervene in the appeals process to uphold the life-saving protections for people with pre-existing conditions and reject Republicans’ effort to destroy the Affordable Care Act.48
On the first day of the 116th Congress, the House of Representatives filed a Motion to Intervene as a defendant, in order to “defend the validity of the ACA.”49 Interestingly, the House of Representatives is represented by former Solicitor General of the United States Donald B. Verrilli Jr., who successfully defended PPACA in the NFIB and King v. Burwell cases.
The State of Maryland, led by Attorney General Brian Frosh, has filed a separate lawsuit against the Trump administration that seeks a declaratory ruling that PPACA remains constitutional.50 That case is before Judge Ellen Hollander in the United States District Court for the District of Maryland. 51
In the wake of the decision, President Trump tweeted that “[a] confirming Supreme Court Decision will lead to GREAT HealthCare results for Americans.”52 At the time this article was written, there is not a consensus view on what a PPACA alternative would look like.53 The White House issued a statement that included its expectation that this case will end up before the U. S. Supreme Court:
Obamacare has been struck down by a highly respected judge. The judge's decision vindicates President Trump's position that Obamacare is unconstitutional. Once again, the President calls on Congress to replace Obamacare and act to protect people with preexisting conditions and provide Americans with quality affordable healthcare. We expect this ruling will be appealed to the Supreme Court. Pending the appeal process, the law remains in place.54
The Secretary of HHS, Alex Azar, also issued a statement that the agency would continue to administer and enforce PPACA:
The recent U.S. District Court decision regarding the Affordable Care Act is not an injunction that halts the enforcement of the law and not a final judgment. Therefore, HHS will continue administering and enforcing all aspects of the ACA as it had before the court issued its decision. This decision does not require that HHS make any changes to any of the ACA programs it administers or its enforcement of any portion of the ACA at this time. As always, the Trump Administration stands ready to work with Congress on policy solutions that will deliver more insurance choices, better healthcare, and lower costs while continuing to protect individuals with pre-existing conditions.55
Legal scholars that have focused on PPACA were critical of Judge O’Connor’s decision.56 It is anticipated that after a decision from the Fifth Circuit Court of Appeals, the case will be appealed to the Supreme Court. The last time the Supreme Court examined PPACA, Chief Justice Roberts concluded his decision in King v. Burwell by stating the following:
Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter.
Implications of the Decision
Judge O’Connor’s decision left the healthcare markets uncertain about the future of PPACA. On the Monday following Judge O’Connor’s decision, the uncertainty was reflected in the stock market as hospital and insurer stocks lost value.57 PPACA implemented protections and programs beyond the regulation of the health insurance market. Thirty-six states and the District of Columbia have expanded their Medicaid programs under PPACA to individuals with household income up to 138 percent of the federal poverty level.58 More than 15.3 million individuals have enrolled in Medicaid or CHIP following expansion.59 In addition, PPACA created the Center for Medicare and Medicaid Innovation (CMMI) that implements models to test innovative payment and service delivery models.60 CMMI has been used by the Obama and Trump administrations in testing payment and delivery reforms, including bundled payments, accountable care organizations, and the Trump Administration’s plans to lower drug prices.61 The decision would eliminate PPACA’s popular consumer protections such as the prohibition on annual and lifetime limits, the prohibition on pre-existing condition exclusions, coverage of preventive services without cost sharing, the reduction of the cost of prescription drugs for seniors with Medicare, and the ability for parents to keep children on their health insurance until age 26.62
Insurers participating in the Exchanges are again expected to be profitable in 2018,63 more insurers are participating in 201964 despite the effective elimination of the Individual Mandate, and premiums are relatively stable.65 Nonetheless, close to nine years after the enactment and subsequent implementation of PPACA by insurers, health systems, employers, consumers, and state and local governments, Judge O’Connor’s decision has the potential to be enormously disruptive to the American healthcare system.
In the meantime, after close to nine years of implementation, and well beyond the point where PPACA’s reforms and consumer protections have become intertwined with the American healthcare system, a legal challenge has again left the fate of PPACA in doubt.
9 Peter Sullivan, Five Health-Care Priorities for Dems in Next Congress, The Hill, Nov. 26, 2018, available at https://thehill.com/policy/healthcare/417947-five-health-care-priorities-for-dems-in-next-congress.
14 Alabama, Arizona, Arkansas, Florida, Georgia, Indiana, Kansas, Louisiana, Mississippi, Missouri, Nebraska, North Dakota, South Carolina, South Dakota, Tennessee, Texas, Utah, West Virginia, Wisconsin, and Governor Paul LePage of Maine (who left office at the end of 2018).
32 Texas at p. 35, citing to INS v. Chadha, 462 U.S. 919, 931-35 (1983); Alaska Airlines v. Brock, 480 U.S. 678, 684-97 (1987); New York v. United States, 505 U.S. 144, 186–87 (1992); and Buckley v. Valeo, 424 U.S. 1, 108–09 (1976).
33 Brief of Amici Curiae Jonathan H. Adler, Nicholas Bagley, Abbe R. Gluck, Ilya Somin, and Kevin C. Walsh in Support of Intervenors-Defendants’ Opposition to Plaintiffs’ Application for Preliminary Injunction, available at https://theincidentaleconomist.com/wordpress/wp-content/uploads/2018/06/Texas-v.-US-Law-Profs-Amicus-Br.pdf.
47 Sheryl Gay Stolberg, Robert Pear and Abby Goodnough, Ruling Striking Down Obamacare Moves Health Debate to Center Stage, NY Times, Dec. 15, 2018, available at https://www.nytimes.com/2018/12/15/us/politics/obamacare-ruling-health-care.html.
48 Pelosi Statement on District Judge Ruling in GOP Lawsuit Against Pre-Existing Condition Protections and the Affordable Care Act, Dec. 15, 2018, available at https://www.democraticleader.gov/newsroom/121418-4/.
54 Richard Gonzales, Federal Judge Strikes Down Affordable Care Act as Unconstitutional, NPR, Dec. 14, 2018, available at https://www.npr.org/2018/12/14/677000626/federal-judge-strikes-down-affordable-care-act-as-unconstitutional.
56 See Nicholas Bagley, The Latest ACA Ruling is Raw Judicial Activism and Impossible to Defend, The Washington Post, Dec. 15, 2018, available at https://www.washingtonpost.com/opinions/2018/12/15/latest-aca-ruling-is-raw-judicial-activism-impossible-defend/?noredirect=on&utm_term=.87578632af32; Jonathan H. Adler, Breaking: District Court Judge in Texas Holds ACA is Unlawful, The Volokh Conspiracy, Dec. 14, 2018, available at https://reason.com/volokh/2018/12/14/breaking-district-court-judge-in-texas-h; Abbe R. Gluck and Jonathan H. Adler, What the Lawless Obamacare Ruling Means, NY Times, Dec. 15, 2018, available at https://www.nytimes.com/2018/12/15/opinion/obamacare-ruling-unconstitutional-affordable-care-act.html?rref=collection%2Fsectioncollection%2Fopinion&action=click&contentCollection=opinion®ion=stream&module=stream_unit&version=latest&contentPlacement=3&pgtype=sectionfront.
58 Status of State Action on the Medicaid Expansion Decision, Kaiser Family Foundation, Nov. 26, 2018, available at https://www.kff.org/health-reform/state-indicator/state-activity-around-expanding-medicaid-under-the-affordable-care-act/?currentTimeframe=0&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D.
59 September 2018 Medicaid & CHIP Enrollment Data Highlights, Medicaid.gov, available at https://www.medicaid.gov/medicaid/program-information/medicaid-and-chip-enrollment-data/report-highlights/index.html.
62 Kaiser Family Foundation Health Tracking Poll – November 2018: Priorities for New Congress and the Future of the ACA and Medicaid Expansion, Kaiser Family Foundation, available at https://www.kff.org/health-reform/poll-finding/kff-health-tracking-poll-november-2018-priorities-congress-future-aca-medicaid-expansion/.