Case preview: Justices will consider constitutionality of ACA’s individual mandate again

This article is the first entry in a symposium previewing California v. Texas.

Since Congress passed the Affordable Care Act in 2010, the Supreme Court has reviewed six cases testing various parts of the law or the regulations that flow from it. One week after Election Day, the court will hear oral argument in a seventh.

The newest challenge, California v. Texas, will be the second time the justices review the constitutionality of the ACA’s individual mandate – the requirement that virtually all Americans buy health insurance. As of 2019, there is no longer any financial penalty for the failure to comply with that requirement, but the mandate language itself remains on the books. A group of 18 states with Republican attorneys general or governors, led by Texas, contend not only that the mandate is unconstitutional and must be thrown out, but that the rest of the ACA must go with it.

Background

Three provisions are at the heart of the ACA. One provision, known as the guaranteed-issue provision, bars insurance companies from denying coverage for pre-existing conditions. A second provision, known as the community-rating provision, prohibits insurers from charging individuals more because of their health status. To avoid a scenario in which people would wait until they got sick to buy insurance, because they knew that insurance companies would still have to cover them at a reasonable price, the ACA also included the individual mandate, which as originally enacted required most Americans to obtain health insurance or pay a penalty to the Internal Revenue Service.

In 2012, the Supreme Court, by a vote of 5-4, rejected a challenge to the constitutionality of the individual mandate in National Federation of Independent Business v. Sebelius. A majority agreed with the challengers that the Constitution’s commerce clause does not give Congress the authority to require Americans to buy health insurance. But Chief Justice John Roberts, in a decision joined by the court’s four more liberal justices, upheld the mandate on the ground that it imposed a tax on individuals who do not obtain insurance – a power that Congress does possess. The four remaining justices – Antonin Scalia, Anthony Kennedy, Clarence Thomas and Samuel Alito – would have ruled that the mandate was unconstitutional and would have invalidated the entire ACA.

Opponents of the ACA tried unsuccessfully to repeal part or all of the ACA several times, including one effort in July 2017 that was disrupted by a dramatic “no” vote from Sen. John McCain (R-Ariz.), shortly after surgery for brain cancer. In December 2017, Congress passed the Tax Cuts and Jobs Act, which (among other things) reduced the tax for failing to obtain health insurance – known as a “shared-responsibility payment” – from $695 to zero. The elimination of the penalty took effect on Jan. 1, 2019.

After Congress zeroed out the penalty, Texas and the other states filed a lawsuit in federal district court in Texas against the federal government. The lawsuit was joined a few months later by two individuals, Neill Hurley and John Nantz, who dislike their insurance plans but continue to buy policies that comply with the ACA to satisfy what they describe as their “legal obligations.” The challengers argued that because Congress reduced the penalty for failing to obtain insurance to zero, the mandate could no longer be justified as a tax. It was now simply a command to buy health insurance and was therefore unconstitutional, they said. And if the mandate is unconstitutional, they continued, the rest of the ACA must also be struck down.

The federal government did not defend the mandate, but it initially disagreed with the challengers that the entire law should be declared unconstitutional. The Trump administration argued in district court that the guaranteed-issue and community-rating provisions should be invalidated along with the mandate, but that all other provisions of the ACA – such as a provision expanding Medicaid – should remain intact. The district court ruled that the mandate is unconstitutional because the 2017 law’s elimination of the penalty converted the mandate into a “standalone command” to buy health insurance, which Congress cannot do. Moreover, the district court concluded that the mandate cannot be separated from any of the other ACA provisions and that, as a result, the entire ACA must be struck down.

On appeal at the U.S. Court of Appeals for the 5th Circuit, the Trump administration changed its position and defended the district court’s conclusion that the individual mandate is inseparable from the entire ACA. The administration also raised new arguments about the proper remedy in the case. It argued that the federal government should be barred from enforcing only the provisions of the ACA that injure the challengers. And it said that an injunction barring enforcement of ACA provisions should apply only in the states that sued to challenge the law.

In a 2-1 ruling in December 2019, a panel of the 5th Circuit agreed with the district court that the current version of the mandate is unconstitutional now that the penalty for failure to obtain insurance is zero. But the 5th Circuit ordered that the case should be sent back to the district court for another look at whether the entire ACA is invalid as a result.

The House of Representatives and a group of Democratic-controlled states, led by California, had entered the case to defend the law. After the 5th Circuit’s decision, they asked the Supreme Court to weigh in immediately, telling the justices that the lower court’s ruling had created “paralyzing uncertainty” that “likely will persist for years if the Court does not grant review now.” The justices declined to fast-track the petitions for review filed by the House and California to allow the cases to be argued and decided in the term that ended last summer. Instead, they set the case for argument on Nov. 10.

The question of standing

Before the justices can turn to the main questions in the case – whether the mandate is still constitutional and, if not, what should happen to the rest of the ACA – they must resolve a threshold question: whether the challengers have a legal right to sue, known as standing.

Hurley and Nantz contended that they have a right to sue because the ACA’s command to buy insurance requires them “to spend money every month they otherwise would not” – which is a “quintessential” injury giving them a right to sue. What’s more, the federal government added, individuals like Hurley and Nantz have limited options for insurance coverage as a result of the ACA, which raises their costs.

Texas argued that it has standing because it has introduced “reams of evidence” about the economic costs inflicted by the mandate and the obligations that accompany it – for example, increased costs to states when people comply with the mandate by enrolling in Medicaid, as well as the paperwork required by the IRS. The ACA also blocks the states from enforcing their own health-care-related laws and policies, such as the insurance pools that Texas created for high-risk individuals.

The House and California countered that the challengers do not have standing. They argued that Hurley and Nantz do not have standing to challenge the mandate because they don’t have to do anything at all. If they choose not to purchase health insurance, they will not have to pay any penalty – and accordingly, the injury they claim to suffer from purchasing ACA insurance is entirely self-inflicted.

Texas and the other states don’t have standing, the House and California continued, because they are claiming that the mandate imposes costs on them, but those claims rest on “a foundation of untenable speculation.” Texas can’t manufacture a legal right to sue based on costs that result from other parts of the ACA, such as paperwork requirements, because those requirements “expressly serve reporting purposes that have nothing to do with” the mandate. Even if the mandate were struck down, the House and California noted, Texas and the other states would still be subject to those requirements.

The constitutionality of the mandate

If the justices agree with the challengers that at least one of them has standing to challenge the mandate, then they will move on to decide whether the mandate as currently drafted is constitutional.

The House condemned the challenge as “yet another effort by those who oppose the ACA for policy reasons to use the courts, rather than the democratic process, to undo what Congress has done.” In NFIB v. Sebelius, the House and California explained, the Supreme Court concluded that the mandate gave individuals a choice: They could buy health insurance or pay the penalty. Nothing about the 2017 law that eliminated the penalty, they added, changed the mandate “from a choice into a command.”

Texas and the Trump administration responded that if there is no penalty for failing to obtain insurance, the mandate can no longer be a tax. It “lacks the ‘essential feature’ of any tax,” they argued: It doesn’t raise any money, no one pays the Treasury Department anything and the IRS doesn’t enforce it. And if it doesn’t do any of those things, they concluded, it is just a command to buy health insurance – which, put another way, is a command to participate in commerce, which the Supreme Court has said is unconstitutional.

The make-up of the Supreme Court has changed significantly since the court upheld the mandate in 2012. Kennedy, who voted to strike down the mandate, has been replaced by Justice Brett Kavanaugh. In 2011, while Kavanaugh was on the U.S. Court of Appeals for the District of Columbia Circuit, he heard a challenge to the individual mandate in a case that raised the same issues as NFIB. The majority upheld the mandate; Kavanaugh dissented from that ruling, but on the ground that the challengers should first have had to pay the tax and then bring a lawsuit asking for a refund. Kavanaugh’s dissenting opinion also suggested that Kavanaugh might have reached the same result that Roberts did – that the mandate was constitutional as a tax.

The Supreme Court’s newest justice, Amy Coney Barrett, replaced Justice Ruth Bader Ginsburg, who joined Roberts in upholding the mandate in NFIB. Although Barrett has not weighed in on the constitutionality of the mandate as a judge, in a 2017 law review article she did suggest that she might vote to invalidate it, writing that in NFIB Roberts had “pushed the Affordable Care Act beyond its plausible meaning to save the statute.”

The severability doctrine

If there are five votes to strike down the mandate, then the justices must decide the final and most consequential question, known as severability: whether the mandate can be separated from the rest of the ACA, or whether some or all of the ACA must also be invalidated along with it. The justices tackled severability issues twice last term in different contexts. In Seila Law v. Consumer Finance Protection Bureau, the court ruled that the structure of the CFPB violated the Constitution, but the justices left the rest of the provisions of the law governing the CFPB in place. Writing for the court, Roberts emphasized that the severability doctrine is “a scalpel rather than a bulldozer,” so that courts will try to excise “any problematic portions while leaving the remainder intact.” Courts should assume, Roberts concluded, that the validity of the entire law does not hinge on the validity of the provision deemed unconstitutional “unless there is strong evidence that Congress intended otherwise.”

A few days later, in Barr v. American Association of Political Consultants, the court ruled that a 2015 exception to a general ban on robocalls to cellphones violates the First Amendment. The challengers had argued that the whole ban on robocalls should be struck down, but instead the justices, in an opinion by Kavanaugh, severed the exception from the statute, leaving the rest of the law in place. Although the law banning robocalls contained a specific provision addressing severability, Kavanaugh also discussed the severability doctrine more generally. Kavanaugh indicated that there is a “a decisive preference for surgical severance rather than wholesale destruction,” which avoids the problem of courts becoming legislators in deciding how much of the law to invalidate or leave in place. “Constitutional litigation,” Kavanaugh wrote, “is not a game of gotcha against Congress, where litigants can ride a discrete constitutional flaw in a statute to take down the whole, otherwise constitutional statute.”

In the current ACA case, the House emphasized that the challengers are asking the Supreme Court “to invalidate the entirety of the most transformative public health-care law of the last half-century because they view a single sentence in it as unconstitutional.” If the mandate is unconstitutional, the House and California contended, then it must be separated from the rest of the ACA – and the rest of the ACA must survive. The key question in deciding whether the mandate can be severed, they asserted, is what Congress intended. And here, they told the justices, there is “no doubt” that Congress would have wanted the rest of the ACA to remain in place if the mandate were invalidated, because that is “precisely the arrangement that Congress itself created.”

The House and California emphasized that there were several times when Congress considered legislation that would have repealed part or all of the ACA, but it declined to do so. Instead, Congress reduced the penalty for failure to obtain health insurance to zero, leaving the rest of the ACA in place. A “friend of the court” brief from economic scholars told the justices that not only did Congress understand that the ACA could function without a penalty for the uninsured, but it has in fact done so: Since the beginning of 2019, when the elimination of the penalty went into effect, the scholars explained, the market for individual health insurance has remained stable.

Texas and the Trump administration pointed to the Supreme Court’s decision in NFIB indicating that the mandate is “essential” to the functioning of the ACA. In particular, they said, the guaranteed-issue and community-rating provisions of the ACA originally were not expected to exist or function without the mandate. And without those essential provisions, they continued, the rest of the ACA can’t function either. Removing the mandate alone would upset the balance of costs and benefits that the rest of the major provisions seek to achieve. The minor provisions would then also have to be invalidated, including because there is no reason to believe that Congress would have passed them without the rest of the ACA, the challengers argue.

At Barrett’s confirmation hearings last month, a central part of the strategy for Democratic senators was portraying Barrett, based on her writings on the ACA, as a likely vote against the mandate. While declining to comment on her views about the current challenge, Barrett seemed to suggest that the heart of the case would be over whether the mandate could be severed from the rest of the ACA – a topic on which she has not written.

Legal experts of various political leanings — and stakeholders from across the health care industry – have raised doubts about the challengers’ severability argument. Former U.S. Solicitor General Paul Clement, who is on President Donald Trump’s list of potential Supreme Court nominees, has indicated that the challengers face a “real uphill battle” in arguing that the entire ACA should be struck down. Meanwhile, “friend of the court” briefs supporting the House and California warned the court of serious consequences if the challengers are successful. A group of health insurance plans told the justices that invalidating the ACA would “cause significant uncertainty and instability in the best of circumstances,” and doing so “in the midst of a global health pandemic and economic turmoil … would be reckless and dangerous.”

A decision in the case is expected sometime next year.

This post was originally published at Howe on the Court.