If you are a health care leader, a board member, or just someone interested in understanding health care in the U.S., you need to know about this case!

Texas v. United States

I have written about this case, a huge existential threat to the Affordable Care Act (“ACA”), on a number of occasions. Even before this case attracted much media attention, and even though many legal scholars dismissed the challenge as being very weak, I was advising readers of my prior blog to take notice and follow along, as I believed it was a sleeper and had a very significant likelihood of success.

Republican attorneys general and governors of 20 states (Idaho is not a party to this suit) brought a constitutional challenge to the individual mandate (the provision that requires that people, with some exceptions, maintain ACA-compliant health insurance or pay a penalty) after Congress reduced the penalty to $0 in the 2017 Tax Cuts and Jobs Act.

The ACA had withstood a constitutional challenge in 2012 when the U.S. Supreme Court agreed that the mandate to purchase insurance could not be sustained under the Commerce clause or the Necessary and Proper clause of the U.S. Constitution, but ruled that the individual mandate was a constitutional act of Congress based on its taxing power. The Court construed the penalty to be a tax to save the ACA from being ruled unconstitutional. Key to that finding was the fact that the penalty raised revenue for the government.

After the penalty was reduced to zero, those challenging the law argued that it could no longer be construed as a tax. Because Congress has no constitutional power to compel Americans to purchase something, if this penalty is no longer a tax, the provision is no longer constitutional. The district court judge who heard the case agreed.

When a provision of a law is unconstitutional, courts must determine whether the illegal provision can be severed from the law, allowing the remainder of the law to stand without the unconstitutional provision. Separation of powers calls on courts to preserve laws passed by Congress when possible, but the judge in this case determined that the individual mandate was so integral to the law as a whole that the ACA must be struck down in its entirety.

That precipitated an appeal to the U.S. Court of Appeals for the Fifth Circuit (“Fifth Circuit”), and a panel of Fifth Circuit judges ruled 2-1 to affirm the lower court’s ruling that the individual mandate was unconstitutional but that the judge’s severability analysis was not thorough and exacting enough. The court of appeals remanded the case (sent the case back) to the lower court judge to go through a provision-by-provision analysis to determine which portions of the ACA must also be struck down, which may or may not result in the same conclusion as his original ruling.

The court of appeals’ ruling that the individual mandate was unconstitutional was not a surprise. It had been my hope that the court would, in so ruling, determine that the remainder of the ACA was severable and allow the ACA to stand without the mandate. This would preserve guaranteed issue (people cannot be turned down for insurance based on pre-existing conditions) and community rating (people cannot be charged more because of their pre-existing conditions).

At the time the ACA was enacted in 2010, it was understood that the mandate would be critical to ensure that insurance companies could have a sufficient risk pool if they could not deny those with pre-existing disease and could not charge more for them. The logic was that many more insured would be needed, particularly the young and healthy who could help subsidize care for older and sicker individuals through their premiums.

It was a reasonable policy, but what became clear with time was that the carrots – advance premium tax credits and subsidies – were likely more persuasive than the stick – the individual mandate’s penalty. Even after the penalty was reduced to zero, ACA plans have remained fairly stable in enrollment (preliminary numbers suggest that enrollment for 2020 may only be down about 2 percent from last year and that last year, premiums went up by only about 5 percent attributable to removal of the mandate’s penalty).

Senators and representatives have suggested that when the penalty was reduced to zero in 2017, there was not a belief that this would upend the ACA; part of the criticism of the district court judge was that he seemed to place his emphasis on the intent of the 2010 Congress in enacting the ACA (strong belief that the ACA could not function without the individual mandate), as opposed to the 2017 Congress that zeroed out the penalty (when there was much less concern that the ACA could not function without the penalty).

The Trump administration is largely not defending the law, and Republicans have no replacement bill that can pass both chambers of Congress and be signed by the president in the event that the ACA is struck down. The American health-care delivery system would undergo tremendous changes if the ACA were to be struck down: People could be denied insurance based on pre-existing conditions, people who were able to get insurance could be charged more for the insurance or their pre-existing condition could be subject to waiting periods or riders, children up to age 26 would no longer be assured of coverage on their parent’s insurance policy, the prohibition against annual and lifetime limits of coverage would go away, Medicaid expansion would no longer be funded and the public insurance exchanges would no longer be funded, just to name some of the changes.

The Democratic states that are defending the ACA could take one of three actions: (1) allow the case to proceed on remand and then appeal the case again once the lower court judge issues his new ruling; (2) request an en banc hearing (a hearing before the entire Fifth Circuit); or appeal the case to the U.S. Supreme Court.

The first option would likely take a long time (perhaps a year) and would result in continued uncertainty about the survivability of the ACA and would mean the case will not be decided prior to the 2020 election.

The second option is discretionary on the part of the Fifth Circuit Court, and I doubt it would be granted. Even if the Court were to grant a hearing en banc, the Court as a whole is even more conservative in my judgment than the three judges involved in the recent ruling, and therefore, I would not expect a better or different outcome.

The third option, the option the Democratic states chose, is discretionary on the part of the Supreme Court. The Court grants very few of these requests, and I suspected that since this case has not finished running through the lower courts, the Supreme Court would be reluctant to take it up. However, it was possible that the Court would decide to grant the appeal given the magnitude of importance of this case and the fact that its current state leads to a great deal of uncertainty.

If the Supreme Court had granted the request (which would require four justices to agree to hear it), unless the Court agreed to expedited review (which would require five justices to agree), a decision would still not be likely prior to the 2020 elections. If the Court did agree to hear the case and expedite it, we could have had a decision by summer.

The Democratic states filed the necessary request with the Supreme Court, including a request for expedited review, and the Court denied the request for expedited review last week.

This was not a surprise. The only part of the decision that I believe is ripe for review has to do with the constitutionality of the individual mandate without a penalty. To me it seems clear that it is not constitutional, and it would be very surprising to me were the Supreme Court to hold otherwise.

But to me, that is not the important question. Even if the individual mandate must be struck, as I stated above, most everyone agrees that the mandate’s penalty is not necessary for the ACA to continue to operate as intended. The important question is the severability question.

If the mandate can be severed from the ACA, we are in business. Almost nothing will change. However, if it is not severable, and even if just the guaranteed issue and community rating provisions of the ACA must fall with the mandate, the American health-care delivery system will be very seriously disrupted. Because the appeals court did not address severability, we generally would not consider this issue ready for Supreme Court review. The Supreme Court certainly could decide the issue, but it would be highly unusual.

Meanwhile, the ACA continues to be the law of the land, and we enter into the 2020 election with very different views between Republicans and Democrats (and even within the Democratic party) as to how to solve our health-care challenges. Unfortunately, the national discussion is misguided. Despite the fact that health care is the number one issue for voters and their concern is how to pay for it, Republicans have focused their efforts on eliminating or crippling the ACA, and Democrats have focused on how to provide more coverage and what benefits should be included. There could not be a wider disconnect between the voters and their elected officials, and neither party has a plausible solution to our health-care spending problem. I will write more about this next week.

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