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Explaining the Pending Lawsuit Against ObamaCare

03/28/2019

In December, Judge Reed O’Connor released an opinion in Texas v. United States that struck down the Affordable Care Act (ACA), more commonly known as “ObamaCare,” because the individual mandate had been gutted by Congress in the 2017 Tax Cuts and Jobs Act. The rest of the law, he wrote, is “inseverable and therefore invalid.” The opinion represents the biggest legal threat to ObamaCare in nearly seven years.

Since Judge O’Connor’s opinion was released and the subsequent stay was issued, the House approved a rules package that includes language allowing the chamber to defend the law in federal courts. The U.S. Court of Appeals for the Fifth Circuit, which currently has the case on appeal, has granted the House’s request to join the case in defense of the law over the objection of the Trump administration. On Monday, the Trump administration’s Department of Justice wrote in support of Judge O’Connor’s opinion, marking the first time it has taken a formal position in the case.

So, what’s this case about? In February 2018, the attorneys general from several states -- including Texas, Georgia, and Arizona -- filed a lawsuit arguing that two aspects of the ACA, guaranteed issue and community rating, are unconstitutional based on the congressional action to eliminate the penalty levied against an individual who failed to purchase a government-approved health insurance plan. The provision is known as the “individual mandate,” or the “individual shared responsibility payment.”

The Supreme Court, in NFIB v. Sebelius (2012), determined that the penalty associated with the individual mandate was a tax. But Court’s opinion also noted the importance of the individual mandate because of the guaranteed issue and community rating requirements. In King v. Burwell (2015), the opinion of the Court noted, “Congress found that the guaranteed issue and community rating requirements would not work without the coverage requirement.”

For those unfamiliar with the ACA, Section 1201 guaranteed the issuance of a health insurance policy to any individual who applies, regardless of that individual’s health status. This includes individuals with preexisting conditions. The section also included restrictions on community rating, prohibiting health insurers from using certain information about the individual, including health status and gender, to determine risk and premiums.

Passed by Congress and signed into in December 2017, the Tax Cuts and Jobs Act, in Section 11081, eliminated the penalty for failing to comply with the individual mandate effective beginning tax year 2019. Now, the individual mandate remains in statute, in 26 U.S.C. 5000A, but it will have no penalty associated with noncompliance.

One of the problems with the ACA is that it didn’t have a severability clause. Such language is inserted into the legislative text of a bill to protect against a future challenge in which a court may determine that a law is unworkable without some key feature that the court itself has struck down. Even the Obama administration recognized this problem.

Although the Obama administration argued in a brief submitted in NFIB v. Sebelius, that the Supreme Court “need not consider the issue of severability,” an argument was made to limit the impact of finding that the individual mandate was unconstitutional that two specific Title I provisions, guaranteed issue and community rating, were inseverable. Of course, this argument was rendered moot when the Court upheld the mandate.

Judge O’Connor rested on a few different points to come to his decision. He writes that the individual mandate was “keystone” of the ACA. He points to different aspects of 42 U.S.C. 18091, which states the importance of the individual mandate -- or “requirement,” as it’s called in the statute -- in three ways:

  • (2)(A): “In the absence of the requirement, some individuals would make an economic and financial decision to forego health insurance coverage and attempt to self-insure, which increases financial risks to households and medical provider.”
  • (2)(F): “By significantly reducing the number of the uninsured, the requirement, together with the other provisions of this Act, will lower health insurance premiums.”
  • (2)(H): “The requirement is an essential part of this larger regulation of economic activity, and the absence of the requirement would undercut Federal regulation of the health insurance market.”

“All told, Congress stated three separate times that the Individual Mandate is essential to the ACA. That is once, twice, three times and plainly. It also stated the absence of the Individual Mandate would ‘undercut’ its ‘regulation of the health insurance market,’” Judge O’Connor writes. “Thirteen different times, Congress explained how the Individual Mandate stood as the keystone of the ACA. And six times, Congress explained it was not just the Individual Mandate, but the Individual Mandate ‘together with the other provisions’ that allowed the ACA to function as Congress intended.”

Judge O’Connor also points to the Supreme Court’s decision in NFIB v. Sebelius. The Court recognized that the individual mandate was central to the ACA’s Title I regulations, specifically guaranteed issue and community rating. “The guaranteed-issue and community-rating reforms do not, however, address the issue of healthy individuals who choose not to purchase insurance to cover potential health care needs. In fact, the reforms sharply exacerbate that problem, by providing an incentive for individuals to delay purchasing health insurance until they become sick, relying on the promise of guaranteed and affordable coverage,” Chief Justice Roberts explained.

“The reforms also threaten to impose massive new costs on insurers, who are required to accept unhealthy individuals but prohibited from charging them rates necessary to pay for their coverage. This will lead insurers to significantly increase premiums on everyone,” he added. The other eight justices on the Court agreed, in separate concurrences and dissents, that the individual mandate was essential to make these two provisions work.

But Judge O’Connor takes it further by finding that the entire law is inseverable because the various provisions work together in a manner that is reliant on the individual mandate. This includes major provisions like the health insurance subsidies and Medicaid expansion, as well as minor provisions.

When it comes to the Tax Cuts and Jobs Act, Judge O’Connor explains that Congress didn’t outright repeal the individual mandate, although it eliminated the penalty, or 42 U.S.C. 18091, which noted the importance of the individual mandate. The defendant, which is the State of California, argued that severability was intended by Congress by not repealing those statutes.

Of course, the Tax Cuts and Jobs Act was passed in a way that would prohibit the repeal of statutes that didn’t have a direct spending or revenue impact. A finding, which is what 42 U.S.C. 18091 is, couldn’t have been repealed in the Tax Cuts and Jobs Act. Similarly, the individual mandate couldn’t have been repealed through this process. The revenue provision -- the actual part of the statute with the specified penalty -- could be changed, however.

“In some ways, the question before the Court involves the intent of both the 2010 and 2017 Congresses. The former enacted the ACA. The latter sawed off the last leg it stood on,” Judge O’Connor explains. “But however one slices it, the following is clear: The 2010 Congress memorialized that it knew the Individual Mandate was the ACA keystone; the Supreme Court stated repeatedly that it knew Congress knew that; and knowing the Supreme Court knew what the 2010 Congress had known, the 2017 Congress did not repeal the Individual Mandate and did not repeal § 18091.”

There’s some doubt among even ObamaCare opponents that Judge O’Connor’s decision will be upheld because it’s so broad. A more narrow order wouldn’t have completely eliminated ObamaCare, but it would have unraveled it to the point at which it would have been unworkable and caused major disruption in the individual market.

The Fifth Circuit has Texas v. United States on appeal. We’re not sure when arguments will take place, but with the administration now actively involved and supporting the opinion issued by Judge O’Connor, we’re betting that whatever the decision is in the Fifth Circuit, there will be an appeal and the Supreme Court will eventually consider the case.