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Appeals Court Declares ACA Individual Mandate Unconstitutional

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A three-judge panel at the 5th U.S. Circuit Court of Appeals Wednesday that the Affordable Care Act’s individual mandate is unconstitutional, but the panel left open the possibility that much, or even most, of the Obama-era law could survive the death of the mandate provision.

The court sent the case, Texas v. Azar, back down to the district court, so that the district court look again at whether the individual mandate provision can be removed from the rest of the ACA.

(Related: Texas ACA Case Could Re-Open Medicare Part D Donut Hole)

The panel also found that:

  • The individual mandate provision is now an ordinary law, not a tax, because the mandate violation penalty has been zeroed out.
  • A group of states that opposes the individual mandate has standing to challenge the provision.
  • A group of states that supports the provision has standing to defend it.

The History

The ACA individual mandate provision, or “individual shared responsibility” provision, initially required many people to own what the government classifies as solid major medical coverage or else pay a penalty. Congress passed a tax bill in 2017 that included a provision setting the penalty at zero.

ACA critics challenged the mandate through a case that reached the Supreme Court in 2012.

In a ruling on that case, the Supreme Court held that a federal law that blocks challenges to new taxes protected the individual mandate provision, because the penalty was a tax.

Critics of the provision say that, now the new tax law has set the individual mandate penalty at zero, the individual mandate is no longer a tax and can no longer benefit from the legal protection accorded to federal taxes.

In 2012, ACA supporters argued that keeping the individual mandate penalty in place was vital to helping the rest of the ACA expand access to health coverage and lower the cost, by pushing many relatively young, healthy people to pay for coverage.

(Related: Supreme Court Upholds Health Care Law)

Most ACA health coverage programs came to life in 2014. Now that the programs have been in place for more than five years, some insurers and others have suggested that the ACA system seems to be strong enough to continue to operate, at least temporarily, without the use of an official individual mandate.

The Players

Texas Attorney General Ken Paxton is leading a coalition of states that has challenged the ACA individual mandate.

California Attorney General Xavier Becerra is leading a coalition of states that’s defending the law.

Democrats now control the U.S. House of Representatives, and the House has been arguing in support of the individual mandate and the rest of the ACA.

The Justice Department originally asked the courts to declare the ACA individual mandate unconstitutional but to leave most of the rest of the law intact. The department later moved to drop efforts to defend the ACA.

The 5th Circuit Ruling

The 5th Circuit panel has sided with the individual mandate provision’s critics on the current nature of the mandate.

“The individual mandate is unconstitutional because it can no longer be read as a tax, and there is no other constitutional provision that justifies this exercise of congressional power,” according to an opinion by Judge Jennifer Walker Elrod.

Elrod writes that the 5th Circuit decision “breaks no new ground,” as the mandate was “originally cognizable as either a command or a tax. Today, it is only cognizable as a command.”

More on this topic

Judge Carolyn Dineen King writes that she agrees with the bulk of the majority’s ruling but dissents on “remanding on severability,” or the move to ask the court whether the individual mandate provision can be split from the rest of the ACA.

Many ACA critics argue that the ACA contains no severability provision, and that, if one provision is found to be unconstitutional, the rest of the law must of the law. The ACA includes some provisions with a direct effect on ordinary major medical insurance, but others — such as funding for efforts to fight flu pandemics, and a provision that’s phasing out the Medicare Part D drug program “donut” hole, or gap in coverage between when ordinary benefits end and catastrophic benefits begin — that have nothing to do with ordinary commercial health coverage.

King says the severability of the ACA individual mandate provision is an issue the panel could review de novo.

“Regardless of whether the ACA is good or bad policy, it is undoubtedly significant policy,” King wrote. “It is unlikely that Congress would want a statute on which millions of people rely for their health care and livelihoods to disappear overnight with the wave of a judicial wand.”

U.S. District Judge Reed O’Connor of the Northern District of Texas ruled in December 2018 that the 2017 tax law, which eliminated the penalty for individual mandate violations, rendered the entire ACA unconstitutional.

King criticized O’Connor’s decision in her dissenting opinion, labeling it “textbook judicial overreach.”

“The majority perpetuates that overreach and, in remanding, ensures that no end for this litigation is in sight,” she wrote.

The three-judge panel seemed wary of the law during oral arguments back in July. The only judge appointed by a Democratic president, King, did not ask any questions during arguments.

The two Republican-appointed judges, Elrod and Kurt Engelhardt, peppered attorneys from all parties with questions, including whether the individual mandate could be severed from the rest of the ACA.

Some legal experts suggested that the panel could rule to strike down the individual mandate, while ruling in favor of keeping the rest of the law in place.

Shortly before oral arguments were held, the panel raised the question of whether the states and the House had standing in the case. That debate over standing took a significant amount of time during the oral arguments.

The Future

The 5th Circuit’s decision likely sets the groundwork for former U.S. Solicitor General Don Verrilli, who was hired by the House for the current litigation, to return to the Supreme Court. Verrilli successfully defended the ACA when a challenge to the law came up at the Supreme Court in 2012.

Some thought the case would come up at the Supreme Court at the height of the 2020 election campaign season. The new ruling sending the case back to the district court could slow the progress of the case.

Becerra said he plans to appeal the 5th Circuit ruling to the Supreme Court.

The Washington Post reported in October that federal officials are planning to try to moderate the effects of any ruling with major effects on the ACA by asking for a stay.

— Read Trump Administration Asks 5th Circuit to Let All of ACA Dieon ThinkAdvisor.

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