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From Health Law Daily, December 17, 2018

Federal judge lets ACA fall, saying Congress sawed off its last leg

By Bryant Storm, J.D.

The Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) is unconstitutional following the repeal of the legislation’s individual mandate penalty under the Tax Cuts and Jobs Act of 2017 (TCJA) (P.L. 115-97), a federal district court judge in Texas ruled. The court accepted the argument of 18 state attorneys general and two republican governors that the individual mandate penalty was "essential to" the ACA, rendering the health reform law "untenable" in its absence. Although the court granted the states’ motion for summary judgment regarding the ACA’s constitutionality, leaving the remainder of the ACA invalid, the court denied the states’ request for an injunction, opening a question about the future of marketplace enrollees and the law’s preexisting condition protections. In a separate statement, White House Press Secretary Sanders said: "We expect this ruling will be appealed to the Supreme Court. Pending the appeal process, the law remains in place," (Texas v. U.S., December 14, 2018, O’Connor, R.).

Mandate. Section 1501 of the ACA established a requirement for individuals to maintain "minimum essential coverage." The requirement—commonly known as the "individual mandate"—was given teeth through a tax penalty called the "shared responsibility payment," which was imposed on non-exempt individuals who chose to disobey the mandate. However, the penalty was struck down by Congress through a piece of budget reconciliation legislation—the TCJA. Specifically, section 11081 of the TCJA reduced the ACA’s shared responsibility payment to zero, effective January 1, 2019.

Complaint. Following Congress’ action, 18 state attorneys general and two Republican governors filed a lawsuit challenging the balance of the ACA. Leaning on various majority and dissenting opinions within National Federation of Independent Business v. Sebelius, 567 U.S. 519 (2012), (see Court upholds ACA, but modifies Medicaid expansion, July 2, 2012), the states asserted that in NFIB, the Supreme Court narrowly upheld the individual mandate in Section 1501, ruling that without the penalty, the ACA would become an unconstitutional exercise of federal power (see 20 states seek repeal of entire ‘unconstitutional and irrational’ACA, February 27, 2018). The defendants—including state attorneys general from 16 pro-ACA states and the District of Columbia—challenged that reasoning, asserting that when Congress reduced the shared responsibility payment to zero, Congress intended to leave the rest of the law standing.

NFIB. The district court agreed with the plaintiff state attorneys general that, in the NFIB case, the Supreme Court ruled the individual mandate was beyond the scope of Congress’ commerce powers, but within the scope of Congress’ tax powers. The Supreme Court ruled, in that case, that the shared responsibility payment fell under the tax powers because: (1) it is paid into the treasury through tax returns; (2) the amount is determined by factors including taxable income; and (3) the payment "yields the essential features of any tax." Thus, the court reasoned, although the individual mandate found footing after the NFIB case in Congress’ tax power, Congress took that foundation away with the TCJA. Thus, the court held, because the individual mandate no longer has the features of a tax, after the TCJA repealed the shared responsibility payment, there is no longer a constitutional basis for the mandate.

Commerce. Finding that the individual mandate no longer had support under Congress’ tax power, the court looked again at the assertion that the individual mandate could find constitutional backing through Congress’ commerce powers. The court quickly dismissed the idea, finding that the defendants were arguing "that Congress regulates interstate commerce when it regulates nothing at all." Although the court acknowledged the existence of a distinction between the ACA’s individual mandate and the shared responsibility payment (or individual mandate penalty) the court concluded, in the absence of the penalty, the mandate "serves a standalone command that continues to be unconstitutional."

Severability. As part of its determination as to whether the remainder of the ACA is severable from the individual mandate, the court asked which version of congressional intent controlled the issue—the 2010 Congress which passed the ACA or the 2017 Congress which passed the TCJA.

Beginning with the earlier Congress, the court found an expression of "unambiguous intent that the individual mandate not be severed from the ACA." The defendants countered the position, noting the unlikelihood that Congress desired "the extraordinary disruption that would be caused by a finding of inseverability." The court disagreed and explained that Congress intended to achieve the goals of the ACA—increased coverage, lower premiums—through a very specific mechanism: the individual mandate and its penalty. Additionally, the court was persuaded that Congress deemed the individual mandate inseverable because, on three occasions, Congress called the provision "essential" and noted that its absence would undercut federal regulation of the health insurance market. Thus the court reasoned that the text of the ACA, itself, was alone sufficient to support a finding that the individual mandate is inseverable from the ACA. The court explained that to leave the ACA intact without the individual mandate would be "wildly inconsistent" with Congress’ goals.

Regarding the 2017 Congress’ intent, the court reasoned any inquiry "unhelpful" because all the 2017 congress wanted to do was "pass a tax cut." However, the court recognized that while the 2010 Congress enacted the ACA, the 2017 Congress "sawed off the last leg it stood on."

Thus, the court held because the mandate is unconstitutional, the entirety of the ACA is unconstitutional and invalid.

Response. Matt Eyles, president and CEO of America’s Health Insurance Plans (AHIP) called the decision "misguided and wrong." He noted that the opinion, "denies coverage to more than 100 million Americans, including seniors, veterans, children, people with disabilities, hardworking Americans with low-incomes, young adults on their parents’ plans until age 26, and millions of Americans with pre-existing conditions."

Travis Jackson, a partner in King & Spalding’s health practice, told Wolters Kluwer that "Judge O’Connor’s ruling throws the baby out with the bathwater. Holding the entire ACA unconstitutional because Congress zeroed out the tax penalty associated with the individual mandate smacks of a results-oriented approach that threatens the economic stability of the entire health care system. The good news for providers is that the ACA remains the law for now, and Judge O’Connor’s decision will likely be reversed on appeal. The bad news is that President Trump has praised the decision on Twitter. While the administration says nothing about the ACA will change pending appeal, providers should pay close attention to administrative officials charged with enforcing the ACA to make sure the President’s praiseworthy tweets don’t translate into new administrative policy."

The case is No. 4:18-cv-00167-O.

Attorneys: Darren L. McCarty, Office of the Attorney General, for Texas, Alabama and Arizona. Brett Shumate, US Department of Justice, for the United States, Department of Health & Human Services and U.S. Interval Revenue Services.

Companies: Texas; Alabama; Arizona; Department of Health & Human Services; U.S. Interval Revenue Services

MainStory: TopStory CaseDecisions HealthReformNews TexasNews

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