INSIGHT: Fate of Obamacare in Limbo Following Invalidation of Individual Mandate

The December ruling by the U.S. Court of Appeals for the Fifth Circuit that the individual mandate is unconstitutional has, in and of itself, a marginal practical effect. Instead, the greater significance of the decision will lie in its effect on other ACA provisions.

In a 2-1 decision, the Fifth Circuit agreed with the district court that the individual mandate was unconstitutional. It did not, however, invalidate the ACA in its entirety. Instead, it sent the case back to the district court for a more granular analysis of whether particular ACA provisions should survive and for a review of new positions on remedies advocated by the Trump administration on appeal, which include limiting relief to the states that brought the litigation and to the particular injuries incurred by the plaintiffs in the case.

The much anticipated decision has virtually no immediate consequences, but sets the stage for an election-year debate about the future of the ACA and a potential high-stakes U.S. Supreme Court review.

District Court: Mandate No Longer a Tax

In its 2012 NFIB v. Sebelius decision, the Supreme Court ruled that the individual mandate was a constitutional exercise of Congress’s taxing power. However, in 2017, Congress enacted the Tax Cuts and Jobs Act. Among its many Internal Revenue Code changes, this act reduced the amount of the individual mandate assessment to zero dollars.

Following this change, 18 states and two individuals brought a new challenge to the constitutionality of the individual mandate and the ACA, as a whole. In summary judgment, the U.S. District Court for the Northern District of Texas decided that because the individual mandate no longer collected any revenue for the government, it no longer functioned as a tax and could no longer be justified by Congress’s taxing power.

Drawing on legislative history from the adoption of the ACA in 2010, the court found the individual mandate was so essential to other ACA provisions that the rest of the act could not be severed from the individual mandate, and the entire ACA was unconstitutional.

An Uncertain Future

Having invalidated the ACA, as a whole, in its previous ruling, the district court is still likely to see other significant provisions of the act as inseverable from the individual mandate. These provisions include some of the basic market protections introduced by the ACA and the employer shared responsibility provision (often called the “employer mandate”), which requires larger employers to pay a tax-based assessment if they do not offer health coverage that meets certain standards to their full-time employees.

How the district court will respond to the new limitations on remedies proposed by the administration is less predictable. Acceptance of those limitations could raise various questions. For example, will they result in a patchwork application of key ACA provisions, with certain rules applying in some states, but not others? Will that sort of application affect the standing of states that have intervened in the litigation to defend provisions of the Affordable Care Act?

High Court Review Sought

The district court may never have the chance to rule on these matters. Parties seeking to uphold the ACA (California, certain other states, and the U.S. House of Representatives) have petitioned the Supreme Court to review the Fifth Circuit decision. The Supreme Court denied their request for an expedited review, which means that the question of whether the Supreme Court will take the case at this stage of the proceedings remains open and, if it takes the case, the earliest that the court will hear arguments will be next term.

The Supreme Court now includes two justices (Neil Gorsuch and Brett Kavanaugh) who did not participate in the 2012 NFIB deliberations. They replace two justices who voted to strike down the entire ACA in that case. If they take similar views to those who formerly occupied their seats on the court, the focus of attention will again be on Chief Justice John Roberts, who authored the controlling opinion in NFIB.

Any Supreme Court review will likely need to wrestle with issues raised in the dissent to the Fifth Circuit decision. That dissent argued that:

• The plaintiffs did not prove standing (sufficient in a summary judgment action) to bring the lawsuit;
• The zero-dollar individual mandate remains a tax rule within Congress’s power to enact, albeit one without any currently enforceable consequence; and
• The individual mandate may be severed from the remainder of the ACA (based, in part, on Congress’s actions and statements in 2017, when it set the assessment to zero dollars, but did not otherwise repeal and replace the act).

The timing of the next steps matters. The actions taken by the parties and the courts will play out against the backdrop of 2020 political campaigns. The fate of the ACA will likely be a subject that affects those elections, and the results of those elections could determine the fate of the Affordable Care Act.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Edward I. Leeds is counsel at Ballard Spahr in Philadelphia. Leeds is an employee benefits and healthcare lawyer who counsels clients on the design, administration, and taxation of health and other welfare benefit plans. He advises clients about compliance with the Affordable Care Act, HIPAA, HITECH, COBRA, cafeteria plan rules, and other legal requirements.