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A Comprehensive Review of the Latest Affordable Care Act Hearing

In the Affordable Care Act hearing on July 9, the defendants focused on TCJA to defend the bill’s constitutionality while the plaintiffs clarified the government’s position on a remedy.

Kelsey Waddill
By
Published: 15 Jul 2019

As the 5th Circuit deliberates whether the Affordable Care Act is constitutional — particularly the severability of individual mandate to acquire essential coverage — here are some of the key arguments from each side.

Background

The debate revolves around the following line in the ACA: “An applicable individual shall for each month beginning after 2013 ensure that the individual, and any dependent of the individual who is an applicable individual, is covered under minimum essential coverage for such month.”

However, also significant are two legal cases: the National Federation of Independent Business v. Sebelius (NFIB) decided in 2012 and the Tax Cuts and Jobs Act (TCJA) passed in 2017.

In NFIB, Chief Justice Roberts determined that the individual mandate was unconstitutional in that it “compels individuals to become active in commerce by purchasing a product, on the ground that their failure to do so affects interstate commerce.” However, he concluded that it was salvageable because there is a penalty for not purchasing insurance which can be considered a tax.

TCJA called this into question by zeroing out the tax penalty on the individual mandate. Setting the tax to $0 gave rise to the question: Is it still a tax? If not, is the individual mandate still constitutional? Lastly, if the individual mandate is stricken from the ACA, does the rest of the statute remain constitutional?

In December 2018, a district court in Texas found the entire law unconstitutional. The ruling was appealed to the Fifth Circuit Court in Louisiana where the oral arguments were heard last Tuesday.

For more on the background leading up to the oral arguments, see our summary of the three major questions the court must decide.

The Defense

California and the House argued that Texas does not have standing because they have not proven that the mandate, stripped of a tax penalty, will force residents of the plaintiffs’ states to enroll in Medicaid or the Children's Health Insurance Program (CHIP).

One of the defense’s primary arguments was that the individual mandate was not a command, but rather similar to a “precatory provision” which is stated like a command but is in fact optional and nonbinding.

The defendants relied heavily on the TCJA.

“All the court has to do is look at the text of the TCJA, see that Congress zeroed out the only thing that made the individual mandate enforceable—that is the beginning and the end of the severability analysis,” the defendants argued. “These other things that we’ve pointed to—like the statements from members of Congress, like the 2017 CBO report, like the failed efforts at repeal—are just supporting pieces for us. This court’s analysis can begin and end with the TCJA.”

The Supreme Court said it is not a mandate but a choice, California and the House reasoned: Individuals either get health insurance or pay the tax. By zeroing out the tax, the Supreme Court did not annul the choice.

In NFIB, Chief Justice Roberts viewed the mandate unlawful unless it was viewed as a tax. He looked at the mandate as a command to buy insurance which cannot be justified by the commerce clause or the necessary and proper clause. Now in a post-TCJA setting, with the penalty tax removed from the individual mandate, the defendants argued it was the court’s duty to see how they could salvage the individual mandate — that the courts are required to give an interpretation for and try to preserve law.

California and the House reminded the court that the burden of proof was on the plaintiffs, not the defendants.

The Plaintiffs

Whereas the defendants drew heavily from TCJA, the plaintiffs claimed their argument rested on the ACA’s text itself.

“If the court were to go back to the law library and pull out a current copy of the US code as it stands today this court would see a command to the American people to maintain minimum essential coverage, it would see no revenue raising capability of that law, and it would see an inseverability clause saying that this mandate is essential.…If Congress thought that conclusion was wrong it could’ve gone back and it could’ve excised the individual mandate from the law, it could’ve excised the inseverability clause from the law. It hasn’t done any of that….If Congress believed that the inseverability  clause was no longer appropriate, if it believed that the individual mandate was no longer the law, it had a duty to excise that statute from the law.”

One major question was the federal government’s position on a remedy, particularly the “stay” granted by the district court which allows the ACA to remain in effect until the court procedure has decided its constitutionality. The federal government’s position is unique as it does not defend the federal law in this case.

The court sought to clarify the federal government’s stance on what would be the remedy, if the court favored the plaintiffs’ position.

The federal government replied that while its view is that the entire act is inseverable, the judgment itself might be limited to only applying to the plaintiffs. Declaring the ACA invalid is “a little overbroad” and “the remedy should also be limited to the injuries that are established by the plaintiffs,” the government argued.

 “We think it’s great that the stay is in place,” the federal government said. “This is a very complicated program. It is multifaceted, obviously. It’s a significant part of the economy. And that was important to the United States. As far as compliance with a declaratory judgment that is final but on appeal—I think that raises complicated issues and I think we’d be appreciative of the existence of the stay so those things don’t need to get sorted out until there’s a final ruling and the case is fully resolved and the appeals are exhausted.”

Tension Between Government Branches

Tension between the judicial and legislative branches grew over the course of the hearing. The case came to an emotional climax with Judge Engelhardt’s question during the defendants’ rebuttal: “Why does Congress want the Article 3 judiciary to become the taxidermist for every legislative big game accomplishment that Congress achieves? Congress can fix this. It could’ve fixed it after NFIB.”

To which the defendant’s reply was: “The Supreme Court has said to you: ‘No, Congress doesn’t have to fix this; you can fix it. And the Supreme Court has told you how to do it: maintain everything you can that can stand on its own and be constitutional. The Supreme Court has ordered you to do that.”

Other Opinions

American Health Insurance Plans (AHIP) released a statement following the conclusion in support of the Affordable Care Act and condemning the Texas district court’s ruling.

“That ruling is misguided and wrong, and if permitted to stand, it would result in massive disruption to all Americans with health coverage today. That includes people with preexisting conditions, those who receive coverage through their employer, and Medicare and Medicaid enrollees, as well as those who buy their own coverage.”

AHIP submitted an amicus brief to the court in April in which it listed the effects that invalidating the ACA would have on the individual market, group plans, Medicaid, and Medicare. It argued that the individual mandate was not necessary to the statute as a whole and that to strike down the ACA would “result in massive disruption to patients and other health care stakeholders.”

Continuing Effects of the ACA

The ramifications of the ACA continue to undergo analysis as it remains in effect until the courts decide its fate.

The Kaiser Family Foundation (KFF) released an analysis of the ACA’s High-Cost Plan Tax (HCPT) on Friday in the event that the ACA remains in effect until 2022 when the tax would be applied. The HCPT targets high-cost plans provided through employers. Such plans provide health benefits that are not taxable. The Congressional Budget Office (CBO) reported that high cost plans deny the government $300 billion in tax revenues. 

Also referred to as the “Cadillac Plan Tax”, HCPT is a 40-percent tax on employers-sponsored health plans that exceed a given threshold.

Should the HCPT take effect in 2022, 21 percent of employers will have at least one plan eligible for taxation, 31 percent if flexible savings accounts (FSAs) are included in the estimation. Furthermore, the report anticipates that this number will grow to 28 percent (or 35 percent) in 2025 and 37 percent (or 46 percent) in 2030, with the parenthetical statistics including FSAs in the count.

“In addition to raising revenue to fund the expansion of coverage under the ACA, the HCPT provides powerful incentives to control health plans costs over time, whether through efficiency gains or shifts in costs to workers in the form of higher deductibles and other patient cost-sharing. While many employers do not expect that the tax will take effect in 2022, others are already amending their health programs in anticipation. If the HCPT is not delayed again, we can expect employers will continue to modify their offerings to limit their liability,” KFF’s researchers conclude.

CMS also reported on the ACA’s effects recently when it declared that the ACA’s risk adjustment system “worked as intended” in benefit year 2018.

This summary highlights the primary arguments of each side. To hear the full argument, the hearing’s recording is available online. According to traditional 5th Circuit process, the court’s decision could be announced this fall.

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