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The legal case you need to know about

By Dr. David C. Pate, News and Community
July 2, 2019

This is the fourth time I have written about this case, which should say something.

I first wrote about it almost exactly a year ago, on July 3, 2018, in a post titled, “Is this little-noticed case the downfall of the ACA?”

Since then, the case has gone to trial in federal district court, garnered national media attention and been decided, with the judge ruling that the Affordable Care Act (ACA) is unconstitutional and must be completely struck down.

The case is State of Texas, et al v. United States of America, et al. It is now on appeal to the 5th U.S. Circuit Court of Appeals and few doubt, because of the significance of this case, that it is on its way to the United States Supreme Court. Oral arguments are scheduled for the week of July 8.

What the case is about

This case was initially brought by 20 states – Idaho was not among the plaintiffs – asking the court to rule the ACA unconstitutional because Congress passed a law that zeroed out the penalty associated with the individual mandate (i.e., the provision in the ACA that requires most people to purchase ACA-compliant health insurance).

In addition, plaintiffs asserted that because the individual mandate is no longer enforceable (because there no longer is a penalty associated with it) and because the individual mandate was so integral to the functioning of the entire law, not only should the individual mandate be struck down as unconstitutional but the entire ACA should be struck down.

The district court judge agreed with plaintiffs, ruling the individual mandate unconstitutional and agreeing that the provision was so integral to the rest of the law that the ACA must be struck down in its entirety.

If upheld on appeal, this will obviously create a major disruption to the American health-care delivery system. Among other things, it would eliminate guaranteed coverage (people could not be denied health insurance because of preexisting conditions), community rating (people cannot be charged more based on their health conditions), Medicaid expansion and a number of other provisions.

To understand why the judge ruled the individual mandate unconstitutional, here is some background and some constitutional law.

This is not the first time the constitutionality of the ACA has been challenged. The Supreme Court decided a case in 2012 in which the major issue was whether Congress had the constitutional authority under the Commerce Clause to require people to purchase insurance (which the individual mandate required).

Our U.S. Constitution is one of limited powers. The Constitution places limits on what each of the three branches of government – the executive, legislative and judicial branches – can do. Congress must have a constitutional power to enact any law that it passes.

The Commerce Clause allows Congress to pass laws that regulate business between and among the states. It is a broad power, but traditionally has been viewed as regulating commerce that is already occurring. In 2012, the question was whether Congress could require individuals to enter into commerce by requiring them to make a purchase, in this case, of insurance.

The Court held that it could not, but saved the individual mandate from being ruled unconstitutional by looking to another constitutional power – the ability of the federal government to tax – and decided that because, among other things, the law assessed a penalty associated with the failure to purchase ACA-complaint health insurance, compliance or noncompliance with the requirement is reported on the individual’s income tax return, the penalty is assessed by the IRS and the penalty provides revenue to the federal government, the individual mandate could be saved from being ruled unconstitutional under the Commerce Clause by being considered an exercise of Congress’ taxing power.

So when in 2017 Congress repealed the penalty but left the individual mandate intact, plaintiffs asserted that the only basis upon which the Supreme Court had determined the individual mandate to be constitutional – Congress’ taxing power – was no longer applicable because there was no penalty for the IRS to collect and no revenue to be generated from non-compliance with this requirement. The district court agreed.

What to look for from the Court of Appeals

There are several challenges to the lower court judge’s decision:

Can the individual plaintiffs (not the states) challenge a law for which there is no penalty?

This is an interesting question, for lawyers at least. To make a complicated matter simple, generally one must suffer a harm for a court to grant relief. Generally, this is not a difficult standard to meet, but at face value in this case, the very reason this lawsuit is being brought – because there no longer is a penalty, the individual mandate is not a tax and therefore it is an unconstitutional act by Congress – means that these plaintiffs will suffer no economic harm.

Plaintiffs argue that they are law-abiding citizens and as such, feel compelled to comply with the individual mandate whether there is a penalty or not and thus, they are purchasing insurance that is ACA-compliant and thus more expensive than the insurance they would buy if the individual mandate did not require them to do so.

Further, the very act of having to report whether they have been insured during the tax year with ACA-compliant insurance is enough of an impact on them to give the court jurisdiction to decide this case.

This is an important question, because unless this jurisdictional hurdle is met, the court has no authority to decide the case. If the 5th Circuit decides that the plaintiffs cannot bring a case because there is no financial penalty to them, then the court would vacate the decision of the lower court and that would be the end of it.

My prediction

I can’t think of another situation where a law has been challenged that was not associated with a fine or jail time, so I will be curious to see how the 5th Circuit addresses this. They may sidestep answering this question and find that the private plaintiffs do have the right to bring the suit because of a general rule that if one plaintiff has the right to sue (so-called “standing”), that is sufficient to confer standing on the part of all the plaintiffs; I think it is an easier case to decide that the states do have standing to bring the suit.

Now that the penalty is eliminated, is the individual mandate unconstitutional?

I’ve explained this issue above.

My prediction

I think that the argument is very compelling. When few were following this case a year ago, the argument seemed strong to me and I thought the court would embrace this reasoning. It did, and I believe that this part of the decision will be upheld by the appellate courts, including the Supreme Court.

If the individual mandate is unconstitutional, must the entire ACA be struck down?

In legalese, this issue is called severability. In other words, if a provision within a law is found to be illegal or unconstitutional, whether other portions can be cut out or severed from the law and the rest of the law be allowed to stand. Sometimes, Congress places a severability clause in a statute it enacts indicating that if one part of it is found unconstitutional, the rest of the law should be allowed to stand. Congress did not include such a provision in the ACA.

When analyzing severability issues, the general rule is that courts should give preference to severability if it seems possible and if in the court’s judgment, Congress would have intended that, in this instance, what the Congress thought in 2010 when it enacted the ACA.

There are very good reasons to believe that Congress felt that the individual mandate was integral to the functioning of the law and likely did see it as essential to the operation of the law so as to ensure that people did not wait until they were sick to purchase health insurance which insurance companies would then be obligated to provide, given the requirements of guarantee issue and community rating.

My prediction

I think that this is the part of the judge’s decision that will be overturned on appeal.

First, it was the 2017 Congress that zeroed out the penalty, not the 2010 Congress, and so it is the intent of the 2017 Congress that the court should look at.

It is entirely clear what the 2017 Congress intended, because they passed the law to specifically lower the penalty to zero, surely realizing that without the penalty there was no way to enforce the individual mandate, which they must not have seen as integral to the functioning of the law. With all the experience with the ACA after its enactment, policy experts were coming to the conclusion that the individual mandate did not appear to be as critical to the operation of the ACA as previously thought.

I predict that the 5th Circuit will uphold the lower court’s decision as to the individual mandate being unconstitutional but will reverse the lower court on the issue of severability, meaning that the rest of the ACA will be allowed to stand.

Expect this case to be appealed to the United States Supreme Court – and expect the same outcome. I might, however, revise my prediction for how the Supreme Court will decide this case if the 5th Circuit’s opinion comes to a different conclusion that seems well reasoned. Stay tuned; I’m watching this one closely and will be writing more.

About The Author

David C. Pate, M.D., J.D., previously served as president and CEO of St. Luke's Health System, based in Boise, Idaho. Dr. Pate joined the System in 2009 and retired in 2020. He received his medical degree from Baylor College of Medicine in Houston and his law degree from the University of Houston Law Center.