Health Reform WK-EDGE ACA individual mandate unconstitutional; remanded for further study of severability
Friday, February 14, 2020

ACA individual mandate unconstitutional; remanded for further study of severability

By Robert B. Barnett Jr., J.D.

The lower court was ordered to "employ a finer-toothed comb" in order to "conduct a more searching inquiry into which provisions of the ACA Congress intended to be inseverable from the individual mandate."

The Fifth Circuit, in a 2-1 opinion, has upheld the Texas federal district court’s ruling that the individual mandate in the Patient Protection and Affordable Care Act (P.L. 111-148) (ACA) was unconstitutional. The Fifth Circuit also, however, remanded the case to the district court for a more detailed analysis of whether the individual mandate was severable from the ACA without declaring the entire law invalid (State of Texas v. U.S., December 18, 2019, Elrod, J.).

Background. The ACA contains a provision giving individuals a healthcare choice. They can either purchase health insurance or they can pay to the IRS what is called in the law a "shared responsibility payment." The mandate was written into the law to broaden the health insurance risk pool to include the young and healthy, who would otherwise wait until an injury or illness to buy health insurance. Numerous efforts by Republican congressmen to repeal the law failed.

Separately, ACA opponents filed lawsuits for the same effect, with one reaching the Supreme Court in National Federation of Independent Business v. Sebelius, 567 U.S. 519 (2012), (see Court upholds ACA, but modifies Medicaid expansion, July 2, 2012). In that case, Chief Justice Roberts joined with the four more liberal justices to rule that the ACA was constitutional on the ground that the "shared responsibility payment" was, in effect, a tax, and, therefore, a proper exercise of Congress’s taxing powers. In so ruling, Chief Justice Roberts, joined by none of the more liberal justices, rejected arguments that Congress had authority under the Interstate Commerce Clause or the Necessary and Proper Clause to enact the shared responsibility payment.

In 2017, the Republican Congress enacted the Tax Cuts and Jobs Act, which included a provision amending the ACA to zero out the shared responsibility payment. Thus, the payment remained on the books but the amount to be paid to the IRS was always $0. Shortly thereafter, two private citizens and 18 Republican-controlled states filed suit against the U.S. to have the ACA declared unconstitutional on the ground that the shared responsibility payment was no longer a tax because it was set at $0. At this point, the positions became murky because the defendant U.S., now under President Trump, agreed with the position taken by the 18 plaintiff states. As a result, 16 Democrat-controlled states, plus the District of Columbia, intervened in the case to try to save the ACA.

The Texas district court ultimately ruled that (1) all the various parties had standing, (2) the individual mandate was now unconstitutional, and (3) the individual mandate was inseverable from the rest of the ACA, thus rendering the entire ACA invalid (see Federal judge lets ACA fall, saying Congress sawed off its last leg, December 17, 2018). The decision was stayed pending appeal, which the 16 intervenor states did, to the Fifth Circuit. On appeal, the Democrat-led U.S. House of Representatives also intervened to defend the ACA.

Standing. The case raised several procedural issues, including whether a live case or controversy existed, whether the plaintiffs had standing to sue, whether the 16 states and the District of Columbia had standing to intervene, and whether the House of Representatives had standing to intervene. The Fifth Circuit agreed with the lower court that all parties had standing and that, as a result, a valid case or controversy existed. The plaintiff states had standing because they suffered financial expenses as a result of the ACA, while the intervenor states had standing because they would also suffer financially if the ACA were declared invalid. The individual plaintiffs had standing because they were being mandated to purchase insurance. As for the House of Representatives’ standing, which was being considered for the first time, the Fifth Circuit said it would "pretermit the issue" because the issues the House raised were identical to the issues the state intervenors, who had standing, raised.

Individual mandate. Turning to the merits, the Fifth Circuit agreed with the lower court in concluding that the individual mandate was no longer a constitutional exercise of congressional power, in lieu of the zeroing out of the shared responsibility payment. Trying to piece together the various constituencies in the Supreme Court’s Sebelius decision, the Fifth Circuit concluded that a majority of justices had rejected the idea that the Interstate Commerce Clause or the Necessary and Proper Clause were sources of congressional authority for the payment. That left only the taxing authority. The Fifth Circuit agreed with the Texas court that, now that the shared responsibility payment amount was set at $0, the tax authority argument was no longer applicable. The tax authority argument used by Roberts, therefore, could no longer save the individual mandate’s constitutionality.

Severability. A much thornier question for the Fifth Circuit was severability. Would severing the individual mandate render the entire law invalid, as the Texas court had found, or could the law survive without the individual mandate? In the court’s opinion, the lower court failed to carry out "the inherently difficult task of severability analysis in the specific context of this case." For example, the lower court failed to "explain with precision" how particular portions of the ACA as it existed post-2017 rose or fell on the constitutionality of the individual mandate. The lower court erred when it focused only on the 2010 labeling of the individual mandate.

In addition, according to the Fifth Circuit, the defendant U.S. undertook a "significant change in litigation position" by arguing for the first time on appeal that the entirety of the ACA was inseverable from the individual mandate, in effect agreeing with the plaintiffs. They also argued for the first time on appeal that any remedy should be limited to enjoining enforcement of the ACA only to the extent that it harmed these particular plaintiffs. The intervenor states, on the other hand, continued to argue that every provision was severable from the individual mandate. As a result, for all of these reasons, the Fifth Circuit ordered the lower court to "employ a finer-toothed comb on remand and conduct a more searching inquiry into which provisions of the ACA Congress intended to be inseverable from the individual mandate." The Fifth Circuit also ordered the lower court to consider the changes in legal position by the federal defendants as it related to the scope of relief.

Dissent. The dissent saw the issues raised on appeal more simply. First, the dissent would have ruled that none of the plaintiffs had standing. Even if they had standing, the dissenting judge would have ruled that the individual mandate was constitutional, though unenforceable. Furthermore, because it was unenforceable, the individual mandate was severable from the rest of the ACA on the ground that, by zeroing out the amount rather than repealing the entire law, Congress expressed its intent that it be severable. Forcing the lower court to pore over the 900 pages all over again to extract congressional intent was a waste of judicial resources.

The lower court judgment, therefore, was affirmed in part and vacated in part, and it was remanded for further proceedings.

The case is No. 19-10011.

Attorneys: Kyle Douglas Hawkins, Office of the Attorney General, for State of Texas., State of Alabama and State of Arizona. August E. Flentje, U.S. Department of Justice, for the United States and U.S. Department of Health and Human Services.

Companies: U.S. Department of Health and Human Services

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