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September 16, 2021 Issue: Summer 2021

California v. Texas: Supreme Court Finds No Standing for Plaintiffs to Challenge ACA Minimum Essential Coverage Provision

By Hillary Webb, Slevin & Hart P.C., Washington, DC

Introduction

On June 17, 2021, the Supreme Court issued a 7-2 decision in California v. Texas, holding that the individual and state plaintiffs did not have standing to challenge the constitutionality of the Patient Protection and Affordable Care Act (“ACA”). Specifically, the Court held that neither the state plaintiffs (Texas and 17 other states   that originally brought the lawsuit) nor Neill Hurley and John Nantz (the individual plaintiffs) had standing to challenge the constitutionality of the ACA because they did not demonstrate a past or future injury that could be traced to the enforcement of the ACA’s minimum essential coverage requirement under Section 5000A(a). This holding rendered the ACA safe again for now, although there appear to already be some new challenges to the law brewing.

Background

In 2018, the state plaintiffs filed suit in the Northern District of Texas against the Secretary of Health and Human Services and the Commissioner of Internal Revenue, arguing that the ACA’s minimum essential coverage requirement became unconstitutional when Congress set the monetary penalty for failure to obtain coverage to $0 in the Tax Cuts and Jobs Act of 2017. They argued that neither the Commerce Clause, the Tax Clause, nor any other enumerated power in Article I of the Constitution, grants Congress the power to enact such a requirement absent an enforcement mechanism. They also argued that the minimum essential coverage requirement is not severable from the rest of the ACA and, therefore, that the entire ACA is unconstitutional.  The plaintiffs sought (1) a declaration that the minimum essential coverage provision in Section 5000A(a) of the ACA is unconstitutional, (2) a finding that this provision is not severable from the rest of the ACA, and (3) an injunction against enforcement of the rest of the ACA. The individual plaintiffs joined after the state plaintiffs filed the suit, and then California and 15 other states   plus the District of Columbia (“state intervenors”) intervened to defend the ACA’s constitutionality.

The District Court found that the individual plaintiffs had standing to challenge the ACA’s constitutionality, holding that the minimum essential coverage provision under Section 5000A(a) was unconstitutional and not severable from the rest of the ACA. The Fifth Circuit agreed with the District Court that the plaintiffs had standing and that Section 5000A(a) was unconstitutional, but found the District Court’s severability analysis “incomplete,” remanding the case to the District Court for further proceedings to determine whether the remainder of the ACA was severable from the minimum essential coverage provision. The Fifth Circuit directed the District Court to “explain with more precision what provisions of the post-2017 ACA are indeed inseverable from the individual mandate” and to consider the relief suggested by the defendants—to enjoin the enforcement of only the provisions that harm the plaintiffs or to declare the ACA unconstitutional only with respect to the plaintiffs.

After the Fifth Circuit issued its decision, the state intervenors petitioned the Supreme Court for certiorari and the Supreme Court ultimately reversed the Fifth Circuit’s judgment with respect to standing and remanded with instructions to dismiss the case.  The Supreme Court did not reach the merits of the case, instead holding that none of the plaintiffs had standing to bring the suit in the first place, focusing largely on the “traceability” prong of the Court’s jurisprudence on standing.

Majority Opinion

As described further below, Justice Breyer’s majority opinion, in which Chief Justice Roberts and Justices Thomas, Sotomayor, Kagan, Kavanaugh, and Barrett joined, essentially boiled down to the following reasoning: since the statutory provision challenged by the plaintiffs had no means of enforcement, there was no potential for action by the government that caused or would cause the injuries claimed by the plaintiffs; therefore, the plaintiffs had no standing because their injuries were not “fairly traceable to the defendant’s allegedly unlawful conduct.”

A.  Individual Plaintiff Standing

The Court began by examining the arguments put forth by the individual plaintiffs, who claimed that their particularized individual harm was the payment of monthly insurance premiums as a result of statutory language that “commands them” to buy health insurance. Even assuming a pocketbook injury existed, the Court took issue with the traceability requirement. The Court pointed out that the cases used by the plaintiffs to support their claim of standing were not applicable because they all related to the ACA when the penalty for failure to obtain minimum essential coverage under Section 5000A(a) was enforceable. The Court noted that the cases cited by the plaintiffs “tell us nothing about how the statute is enforced, or could be enforced, today.” The Court emphasized that its precedent has required a party to assert an injury that is the result of a law’s actual or threatened enforcement. Here, the Court found that since there was no longer a penalty for failure to obtain minimum essential coverage, there was no government action whatsoever that could cause injury, either actual or threatened. Instead, there was “only the statute’s textually unenforceable language,” which was insufficient to demonstrate standing.

The Court further rejected the plaintiffs’ claim to Article III standing based on their failure to meet the “case-or-controversy” requirement. The Court described this requirement to mean that the dispute, at a minimum, must be “real and substantial” and “admit of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts.” According to the majority, there was no case or controversy, because the plaintiffs could not obtain damages, nor would they have been able to seek such an injunction because the provision at issue was not enforceable. The majority opined that to find standing to attach to an unenforceable statutory provision would amount to “an advisory opinion without the possibility of any judicial relief,” which would have practical implications. The Court, therefore, held that the individual plaintiffs did not have standing.

B.  State Plaintiff Standing

The state plaintiffs claimed two pocketbook injuries: (1) an indirect injury based on the increased use of state-operated medical insurance programs and the associated costs and (2) a direct injury from increased administrative and related expenses required by the minimum essential coverage provision. As with the individual plaintiffs’ standing analysis, the majority focused here on the traceability of the alleged injuries and concluded that the state plaintiffs failed to show that they suffered any “injury fairly traceable to the defendant’s allegedly unlawful conduct.”

i.     Indirect Injury. The state plaintiffs claimed they were indirectly injured because the minimum essential coverage provision caused more residents to enroll in state-sponsored insurance programs (i.e., Medicaid, CHIP) and that the states were then required to pay a share of the costs of providing services to these individuals.  The Court found that the state plaintiffs failed to demonstrate that actual action taken by the federal government caused a substantial risk of harm.  Notwithstanding the fact that this failure would have been sufficient grounds to conclude that the state plaintiffs lacked Article III standing, the Court noted that the facts also failed to show that Section 5000A(a), which had no potential for a penalty, could cause any injury that was traceable to the unconstitutional conduct of the government.

In prior decisions, the Court held that where causality depends on an independent third party—here, an individual’s decision to enroll in a state-sponsored insurance program—standing was not precluded, but typically substantially more difficult to establish.   The Court found that the facts failed to show that Section 5000A(a) could cause any injury by increasing the number of enrollees. Given the other benefits offered by the state-sponsored programs and the fact that there was no penalty for failing to enroll in coverage, the Court concluded that “neither logic nor intuition suggests” that the minimum essential coverage requirement would be the cause of an individual’s decision to enroll in state-sponsored coverage. The Court further noted that of the 21 statements of state officials submitted by the states as factual evidence supporting their claim, only four alleged that added state costs were attributable to the minimum essential coverage requirement, and those four statements referred to a period when the penalty under Section 5000A(a) was in effect. Based on the failure to demonstrate that any government action resulted in a harm to the states, the Court found that the states failed to show that an unenforceable mandate was, or would somehow be, the cause of increased state costs due to an increase in their residents enrolling in state-sponsored insurance programs, thus failing the traceability requirement.

ii.  Direct Injury. The state plaintiffs also claimed injury resulting from  direct costs incurred as a result of the minimum essential coverage requirement, including providing state health plan beneficiaries with information about their coverage and the cost of providing the IRS with that information. The Court rejected these claims because these requirements are not imposed by the minimum essential coverage provision of the ACA at issue, but by other parts of the ACA. Therefore, the government’s conduct was not fairly traceable to the enforcement of the allegedly unlawful minimum essential coverage provision.

The state plaintiffs also set forth other pocketbook injury claims; for example, offering minimum essential coverage to their full-time employees, increased Medicaid expenditures due to expanded eligibility, and the additional expenditures required by ACA’s “vast and complex rules and regulations.” For the Court, these allegations failed for the same reason—these provisions operate independently of the minimum essential coverage requirement, so they were not traceable to the enforcement of the minimum essential coverage provision.

Thomas Concurrence

Justice Thomas began his concurring opinion by noting that the Court “has gone to great lengths to rescue the [ACA] from its own text,” calling the ACA’s history in the Supreme Court “dubious.” However, he characterized the Court’s decision in California v. Texas not as “once again rescuing” the ACA, but instead as simply an adjudication of the claims brought by the plaintiffs, which did not identify any unlawful action that injured them.  Justice Thomas emphasized his view that the Court erred in its previous decisions on the ACA, but that it came to the correct conclusion in this case because the plaintiffs failed to demonstrate that their injuries were traceable to unlawful conduct.

In reviewing the prior ACA cases before the Court,  Justice Thomas noted the seemingly contradictory arguments that defenders of the ACA have put forward regarding the minimum essential coverage requirement. He agreed with the dissenting opinion that, for those who have defended the ACA, “the mandate has transformed from the cornerstone of the law into a standalone provision.”  Justice Thomas, however, diverged from the dissenting opinion on the plaintiffs’ entitlement to relief. Justice Thomas agreed with the majority that the plaintiffs had not carried the burden to present an injury that is traceable to a particular unlawful action.

In the dissenting opinion, as described in more detail below, Justice Alito also agreed with that analysis, but he argued that the plaintiffs’ standing could be established through “inseverability.” Justice Thomas concluded that this theory of “standing-through-inseverability” should not be addressed because (1) the plaintiffs did not raise it below and the lower courts did not discuss it, (2) this theory was not raised in the state plaintiffs’ opening brief before the Court, and (3) the Court had not addressed this theory in any detail in the past, but instead it had been relied upon “through implication.” Justice Thomas noted that the “standing-through-inseverability” argument is only a valid theory to the extent inseverability is treated as an “exercise of statutory interpretation,” which the plaintiffs did not raise previously.

Alito and Gorsuch Dissent

In his lengthy dissent, with which Justice Gorsuch joined, Justice Alito described the case before the Court as “the third installment in our epic Affordable Care Act trilogy,” characterizing the case as what he called another “improbable rescue” of the ACA.

Justice Alito described the issue in this case as “the daunting problem of a ‘tax’ that does not tax,” and disagreed with the majority’s view that the plaintiffs were not entitled to sue for lack of standing. He reviewed the “burdensome” financial obligations that the ACA imposes on states in their capacity as employers, including penalties for not offering the opportunity to enroll and the documentation required to be submitted to the IRS, and also called the majority’s holding on standing a “fundamental distortion of [the Court’s] standing jurisprudence.” He argued that, while the individual plaintiffs’ claim to standing was novel, the state plaintiffs’ claim to standing was “straightforward and meritorious.”

Of the three prongs of standing, Justice Alito also believed that the dispute in this case turned on traceability. The majority’s argument, he argued, “rests on a patent distortion of the traceability prong of [the Court’s] established test for standing.” He concluded that, because the ACA’s requirements were enforced by the federal government and caused the states to incur costly obligations, the state plaintiffs met the traceability requirement necessary to show standing. Justice Alito went on to state that “[t]here is nothing novel about the state plaintiffs’ claims” but “[w]hat is new and revolutionary is the rule the Court has concocted to sink those claims.”

Justice Alito took particular issue with the majority’s interpretation of the traceability rule—the majority stated the rule as requiring a showing that the “[g]overnment’s conduct in question is . . . ‘fairly traceable’ to enforcement of the ‘allegedly unlawful’ provision of which the plaintiffs complain—§5000A(a).” Justice Alito argued that the Court misstated the rule from the case it cites for this requirement, and that the actual rule required a “personal injury fairly traceable to the defendant’s allegedly unlawful conduct,” which he interpreted to mean that the plaintiffs’ injury must have been traceable to the defendant’s conduct and that the defendant’s conduct must have been “allegedly unlawful.” He further argued that “allegedly unlawful” means that the plaintiff must allege that the defendant’s conduct was unlawful, and that requiring plaintiffs to show that the conduct was unlawful on the merits to satisfy standing, which is what Justice Alito appeared to interpret the majority to hold, would be “absurd.”

Justice Alito concluded that he would hold that the state plaintiffs had standing to challenge the ACA provisions that were inseparable from the minimum essential coverage requirement. Having concluded that the state plaintiffs had standing to sue, Justice Alito’s dissent then considered the merits of the suit, concluding that, since the penalty is now set at $0, the minimum essential coverage provision was no longer justified under Congress’s taxing power. Therefore, he reasoned, it was clearly unconstitutional, as were the other ACA provisions that were “inextricably linked” to the mandate.

Final Thoughts

The decision in California v. Texas is yet another defeat for opponents of the ACA. Chief Justice Roberts, and Justices Thomas, Kavanaugh, and Barrett joining the Court’s more liberal Justices signals that future attempt to invalidate the ACA are unlikely to succeed on the basis that the individual mandate (or any single provision of the ACA) is unconstitutional and inseverable from the remainder of the law.

So it appears, for now, that the ACA is once again safe after this third installment of the so-called “Epic Affordable Care Act Trilogy.” It is unlikely, however, that this is the final chapter of challenges to the ACA. Notably, individuals and business entities brought suit in March 2020 in the Northern District of Texas (the same court in which California v. Texas originated) to challenge the ACA’s preventive services mandate. In February 2021, the District Court ruled that both classes of plaintiffs that brought suit had standing to challenge the ACA: the “religious-objector” plaintiffs (those that object to paying for health insurance plans that cover contraceptives, PrEP drugs, and other preventive care services for religious reasons) and the “free-market” plaintiffs (those that object to paying for health insurance plans that include contraceptive and other preventive care coverage that they do not want or need). Among the claims the District Court allowed to proceed were the plaintiffs’ Appointments Clause claim,   their Vesting Clause claim,   their nondelegation doctrine claim,   and their Religious Freedom Restoration Act (“RFRA”) claim.   A March 22, 2021 scheduling order for the case sets deadlines for late 2021 and early 2022, so we can expect to know more in the coming months. Despite this and other likely challenges, the Supreme Court’s most recent decision in California v. Texas can be viewed as a win for supporters and defenders of the law.

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