Health+Benefits the November 2020 issue

The Future of the ACA—Ironic Intent?

The 2017 elimination of the tax penalty and ensuing constitutional challenge could prove to be the ACA’s saving grace.
By Scott Sinder Posted on October 30, 2020

The loss of Justice Ruth Bader Ginsburg and her likely replacement by 7th Circuit judge Amy Coney Barrett has led many to wonder whether this widely overlooked case may now actually become the ACA’s death knell.

I think the answer likely is no. Ironically, I think the case may hasten congressional efforts to fortify the ACA if the Democrats sweep the November elections as many pollsters are projecting (although all such projections must, of course, be viewed with skepticism in light of recent prognostication failures).

Let’s go back to the beginning. President Obama signed the Patient Protection and Affordable Care Act into law March 23, 2010. Just one week later, the Health Care and Education Reconciliation Act of 2010 enacted a series of ACA “fixes,” including revisions to the individual mandate tax penalties.

From the outset, the individual mandate, which required every U.S. citizen to maintain qualifying healthcare coverage or pay a tax, was the most controversial aspect of an already very controversial law. In 2012, the Supreme Court issued its opinions in NFIB v. Sebelius. Chief Justice John Roberts, writing for himself only, found that, while the “individual mandate” was not viable under the Commerce Clause, it was a constitutionally permissible exercise of Congress’s taxing authority because an individual could choose to pay the tax and not purchase the “mandated” health insurance. The court’s other conservative justices—Samuel Alito, Anthony Kennedy, Antonin Scalia and Clarence Thomas—viewed the mandate as unconstitutionally compelled commercial activity; whereas, its liberal justices—Stephen Breyer, Ginsburg, Elena Kagan and Sonia Sotomayor—wrote that the mandate was a perfectly permissible exercise of Congress’s constitutional commerce power authority. The mandate thus was upheld by a 5-4 vote with Roberts as the deciding vote.

Even if Ginsburg had been sitting to hear the case, it appears likely that the court’s conservative justices—including Roberts—will conclude that imposition of the individual mandate outside the scope of Congress’s taxing authority is unconstitutional.

After over 70 failed attempts to repeal the law in its entirety, a Republican-led Congress succeeded in attaching a provision to the 2017 reconciliation bill that kept the individual mandate in place but eliminated the tax penalty for non-compliance. The magic of reconciliation bills is that they are filibuster-proof, requiring only a simple majority to move through the Senate rather than the 60 votes typically required. The catch, however, is that they are restricted to spending and revenue provisions, not broader policy authorizations. So, in 2017, lacking any Democratic support in the Senate and relying on the 50-vote threshold, Congress zeroed out the tax penalty instead of repealing the mandate itself.

The current challenge before the Supreme Court is a product of that 2017 tax penalty repeal. The plaintiffs—now 18 Republican state attorneys general and governors—argue that without the tax payment option, Roberts’ opinion supporting the mandate as a choice to comply or pay a tax no longer applies. Defenders of the mandate, in contrast, assert that compliance with the mandate is now completely voluntary, as there is no applicable non-compliance enforcement mechanism.

The district court agreed with the plaintiffs. The 5th Circuit—in a 2-1 decision—affirmed that holding.

The more interesting aspect of the case, though, is what happens to the rest of the law. President Trump’s Department of Justice initially argued before the district court that only the preexisting conditions and community rating provisions of the ACA are tied to the mandate and must thus fall along with the mandate. But the plaintiffs argued that the 2010 Congress that enacted the ACA legislated a complex scheme of mutually reinforcing bargains that could not stand at all without the individual mandate at its core. The court sided with the plaintiffs and issued a ruling nullifying the ACA in its entirety.

Despite DOJ’s argument for affirmation of that ruling based on its adoption of the plaintiffs’ severance position, the 5th Circuit found the lower court’s severance analysis wholly inadequate and remanded the case for a broader inquiry into that question. The 5th Circuit was particularly troubled by the lower court’s reliance on only the legislative intent surrounding the initial enactment of the ACA with no evaluation whatsoever of Congress’s intent in repealing the mandate’s tax penalty or its decision to leave the rest of the law intact.

Both 5th Circuit holdings will be before the Supreme Court in November. Even if Ginsburg had been sitting to hear the case, it appears likely that the court’s conservative justices—including Roberts—will conclude that imposition of the individual mandate outside the scope of Congress’s taxing authority is unconstitutional. The presumptive elevation of Barrett to the court only further solidifies the likelihood of that outcome.

The severability issue is, however, much more complex. There are three things worth noting.

  1. In several recent cases, the court has remanded severability issues for further exploration as the 5th Circuit ordered here.
  2. That is because severability generally is favored. Roberts, Alito and Brett Kavanaugh all wrote opinions last term noting that the goal should be—to the extent possible—to preserve Congress’s intended outcome. Severability, they each have argued in their own way, should be denied only if it is clear that Congress intended that the law at issue be treated as a whole.
  3. Ironically here, those who voted for the 2017 tax penalty repeal generally opposed the law in its entirety, but the most natural intent inference is that the enacting Congress must have believed that the ACA could function without an enforceable individual mandate, or it should not have repealed only the tax penalty.

Perhaps the most notable aspect of the Supreme Court case is the timing. Although the case will be argued in November, if past is prologue, it is unlikely a decision will be issued until late March or early April at the earliest. If the Democrats do win the White House and regain control of the Senate, there will be enormous pressure to “fix” the ACA before the Supreme Court rules, which could both moot the case and ensure that there is no disruption in coverage for those insured under the ACA.

The ultimate irony here is that the 2017 elimination of the tax penalty and the ensuing constitutional challenge ultimately could prove to be the ACA’s saving grace. The one thing I know for certain: that clearly was not their intent.

Scott Sinder Chief Legal Officer, The Council; Partner, Steptoe Read More

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