Appellate Court Hears Texas Case Finding Affordable Care Act “Invalid”

On July 9, 2019, oral arguments were made in front of a three-judge panel of the Fifth Circuit Court of Appeals as to whether the trial court’s decision that the entire Affordable Care Act is invalid should be affirmed or reversed. The potential outcome of the case has great significance and policymakers are eagerly awaiting the decision.

Legal Issues Involved in the Case

The case presents a number of important legal issues, including the following:

• Whether the court has jurisdiction of the case
• Whether the parties have legal standing
• Is the mandate unconstitutional
• If the mandate is found to be unconstitutional, whether this portion of the ACA can be severed from the remainder of it

History of the Case

The original case, Texas v. United States, was filed in 2018 by 20 Republican state attorneys general, along with Republican governors from the following states:

• Alabama
• Arizona
• Arkansas
• Florida
• Georgia
• Indiana
• Kansas
• Louisiana
• Maine
• Mississippi
• Missouri
• Nebraska
• North Dakota
• South Carolina
• South Dakota
• Tennessee
• Texas
• Utah
• West Virginia
• Wisconsin

As part of the case, the plaintiffs challenged the constitutionality of the individual mandate. When Congress enacted the Tax Cuts and Jobs Act of 2017, they zeroed out the individual mandate penalty, beginning in 2019. Congress repeatedly attempted to repeal the ACA in 2017 but was not successful. Instead, the tax reform bill was adopted in December 2017 through the budget reconciliation process. The plaintiffs argue that the mandate is unconstitutional without the penalty. The penalty requires taxpayers who did not have insurance to pay a penalty unless there met certain exceptions. In a prior case, the Supreme Court held that the mandate was constitutional because it fell under Congress’ authority to tax and spend.

The plaintiffs argue that the mandate is so important to the ACA that it cannot constitutionally be severed from the remainder of the law, which would require that the court strike down the entire law. They asked the district court to prevent the Department of Health and Human Services and the Internal Revenue Service from enforcing the Affordable Care Act. They also asked the court to invalidate the ACA’s guaranteed issue and community rating provisions, as well as the mandate.

In April 2018, two individual plaintiffs were joined in the case. These individuals are residents of Texas who purchased unsubsidized marketplace coverage. They object to having to comply with the mandate but want to obey the law, even though the individual mandate penalty has now been eliminated.

In May 2018, Democratic state attorneys general from the following states were permitted to intervene in the case:

• California
• Connecticut
• Delaware
• District of Columbia
• Hawaii
• Illinois
• Kentucky
• Massachusetts
• Minnesota
• North Carolina
• New Jersey
• New York
• Oregon
• Rhode Island
• Vermont
• Virginia
• Washington

These individuals wanted to ensure that constituents in their states have continued access to health care and prevent possible ramifications if the Affordable Care Act was deemed unconstitutional.

In June 2019, the Department of Justice partially agreed with the plaintiffs involved in the case and chose not to defend the constitutionality of the individual mandate and other important clauses in the Affordable Care Act, including the provisions related to guaranteed issue and community rating, the ban  on pre-existing condition exclusions and discrimination based on health status.

In September 2018, oral arguments were presented in front of a federal judge in the Northern District of Texas. In December 2018, he found in favor of the plaintiffs, finding the entire ACA to be invalid. He later reaffirmed the decision while issuing a stay. The case was then appealed to the Fifth Circuit in January 2019 by the Democratic attorneys general and the Department of Justice. Additional attorneys general from Colorado, Iowa, Michigan and Nevada, as well as the House of Representatives were permitted to intervene to defend the Affordable Care Act. Maine and Wisconsin withdrew from the case. Then, in March 2019, the Department of Justice agreed that the Affordable Care Act should be invalidated, following up with a brief on the matter in May in which it echoed the plaintiffs’ position and the rationale of the Texas district court. It emphasized that it did not want the entire Affordable Care Act to be invalidated but only to the extent that the provisions injure the plaintiffs, like its insurance reforms but not criminal statutes for healthcare fraud or anti-kickback violations.

Information on Oral Arguments

Each side presented its side of the case and its answers to the four general issues involved in the case during oral argument in July 2019. Each party had 45 minutes to present its case with this time period having to be split between the individual plaintiffs, the Department of Justice and the plaintiff states dividing their 45 minutes and the intervenor states and the House of Representatives splitting its 45 minutes. The parties had all submitted multiple briefs that further explained their rationale. The positions of the parties on the main issues include the following:

Jurisdiction

The parties all agreed the Fifth Circuit had jurisdiction to hear the case and that the case should proceed even though the federal government has largely shifted its position to support the plaintiffs’ side. The parties agreed that there is an ongoing controversy between the plaintiffs and the federal government.

Standing

If the court determines that there is not an ongoing controversy, it will then decide if the intervenor states or the House of Representatives have standing, which would require showing that it suffered an injury that is traceable to the conduct of the adverse party. The defendants argue that the individual plaintiffs do not have standing because the lack of a penalty shows that they are not being injured by the mandate.

Constitutionality of the Mandate

There is disagreement between the parties as to the constitutionality of the mandate. Some say that the individual mandate does not meet the factors described in another case to consider it a tax that is within Congress’ tax power. Additionally, the trial court rejected the argument that the mandate could be upheld under the Commerce Clause. The intervenor states argue that the mandate is constitutional and point to the face that the Supreme Court upheld it in 2012 before it went into effect. Additionally, the  intervenor states argue out that the zeroed-out penalty removes taxpayers’ compulsion to purchase insurance. The intervenor states argue that if the mandate is found unconstitutional, that the proper remedy is for the court to reinstate the prior penalty of $695.

Severability of the Mandate

If the mandate is determined to be unconstitutional, the next step is to determine whether this provision can be removed from the ACA or if the entire ACA will be considered invalid. Previous court rulings support courts to look to the congressional intent of the law. The Eleventh Circuit Court of Appeals has previously held that the mandate was unconstitutional but that it was severable, so the remainder of the ACA could remain intact. The intervenor states argue that congressional intent is clear because Congress zeroed out the penalty in 2017 while retaining the rest of the law. However, the plaintiffs argue that the Congress in 2010 intended for this provision to be inseverable.

Next Steps

Because a finding that the mandate is unconstitutional and inseverable could result in the entire dismantling of the ACA and the loss of insurance for millions of Americans, many people are anxiously awaiting the decision. The Fifth Circuit could make any number of significant decisions that would alter the path, including:

• Dismissing the case based on lack of jurisdiction or standing
• Vacating the trial court’s decision
• Affirming the trial court’s decision
• Upholding the Affordable Care Act but strike down the mandate
• Striking down the mandate and other provisions
• Striking down the entire Affordable Care Act

The parties will likely request a stay if any portions of the ACA are struck down by the court. Then, the case could be appealed to the United States Supreme Court, which could then decide whether to hear the appeal or not.