Last week, the US Supreme Court heard oral arguments in the case of California v. Texas about the constitutionality of the Affordable Care Act’s (ACA) individual mandate to purchase health insurance coverage, which some states are challenging because Congress eliminated the tax penalty associated with the mandate.

Based on the justices’ questions during oral arguments, many legal analysts consider it unlikely that the entirety of the ACA will be struck down. However, exactly how the Supreme Court will rule cannot be predicted – as evidenced by the court’s 2012 decision in NFIB v. Sebelius that made the ACA’s Medicaid expansion a state option. With a decision not expected until spring 2021, states must operate their health programs under a veil of uncertainty in the coming months and be prepared for a range of possible rulings. 

Background

Spearheaded by Texas, 18 Republican-led states and two individuals are challenging the ACA’s constitutionality, and the Trump Administration’s Department of Justice (DOJ) is also supporting the challenge. Their main argument centers on a change that was made through the 2017 enactment of the Tax Cuts and Jobs Act (TCJA), which included a provision to reduce the ACA’s individual mandate penalty to zero dollars. They contend that because the 2012 Supreme Court case NFIB v. Sebelius upheld the constitutionality of the ACA based on Congress’ taxing power, now that there is no revenue associated with the mandate penalty, it can no longer be considered a tax and consequently the individual mandate is unconstitutional. The plaintiffs also argue that because the individual mandate is so crucial to the ACA, the entire law should be ruled unconstitutional. 

Defending the ACA is a group of Democratic attorneys general from 21 states and the Democratic-led US House of Representatives.

• For a detailed report on the background and evolution of the case, read the Kaiser Family Foundation’s report, Explaining California v. Texas: A Guide to the Case Challenging the ACA.
• For information about the potential implications for state health policy if the entire ACA is struck down, read this National Academy for State Health Policy (NASHP) blog, You Can’t Unring a Bell – Implications for States if the Supreme Court Upends the Affordable Care Act and view/download this slide deck, A Review of the ACA’s Key Provisions and the Potential Implications of the Supreme Court’s Overturning the Law.

Key Questions before the Supreme Court

• The court must first determine if at least one state or individual plaintiff has standing to bring the lawsuit.
• If they do, then the court will decide whether or not the individual mandate is constitutional – and if the justices decide it is, then the ACA will stand.
• If a majority of the court rules that the individual mandate is unconstitutional, then its next decision relates to severability. 
  • The court will decide whether the individual mandate can be severed, leaving the rest of the ACA in effect without the mandate. 
  • Or, if a majority of justices decide it cannot be severed, then they will determine whether only parts of the law or all of it must be struck down. (It also is possible that the Supreme Court could send the issue of severability back to the lower courts to determine.)

Key Points from Oral Arguments

Do plaintiffs have standing? A number of the justices’ inquiries focused on the question of standing – specifically whether the challengers have a legal right to sue because the mandate as it exists now causes substantial harm to them. The challengers’ argument is that the 18 states have standing because of increased costs associated with the mandate, such as when more individuals enroll in Medicaid to comply with it and the administrative costs of filing paperwork needed to meet the ACA’s reporting requirements. The two individual plaintiffs contend they have standing because they believe they are obligated to purchase health coverage due to the mandate and incurred costs in doing so. 

As noted in SCOTUSBlog’s analysis of the oral arguments, the justices appeared somewhat divided on the issue of the challengers’ claim of standing, and their discussion centered on the Trump Administration’s additional argument that the plaintiffs have standing because they are injured by other parts of the ACA that are directly connected to the mandate. As noted by Justice Elena Kagan, given that Congress often passes legislative packages that cover many different issues, it would be significant “if you can point to injury with respect to one provision and you can concoct some kind of inseverability argument, then it allows you to challenge anything else in the statute.”

Speaking on behalf of the states defending the ACA, California Solicitor General Michael Mongan argued that the two individual plaintiffs lack standing because, without an enforcement mechanism, the mandate no longer compels them to purchase insurance. Regarding whether the 18 state challengers’ have standing, Mongan argued they have not demonstrated that they have faced greater costs due to the mandate.

Is the individual mandate constitutional? The state challengers’ main argument is that because the Supreme Court’s 2012 decision centered on whether the mandate was a valid exercise of Congress’ taxing power, with the mandate no longer generating federal revenue, it is now unconstitutional. Also, the challengers argued that the specific language used in the text of the mandate obligates individuals to purchase coverage, despite the fact there is no longer a penalty for not buying health insurance. 

In contrast, the ACA’s defenders argued that the mandate is not a command to purchase health coverage, and that because Congress removed the financial penalty associated with the individual mandate, it is “toothless” and effectively inoperative. Mongan noted that Congress has “routinely created inoperative provisions – And they haven’t been viewed as constitutionally problematic because they don’t alter legal rights or responsibilities or bind anyone.”

Justice Kagan cited the court’s 2012 ruling that the mandate was constitutional, and that with the TCJA’s removal of the mandate’s financial penalty, “Congress has made the law less coercive”. She added that because of this, it does not seem valid to now deem the mandate unconstitutional.

Is the individual mandate severable from the ACA? The challengers argued that even though there is no enforceable penalty now, the text of the ACA indicates that the individual mandate is inextricably tied to its functioning. Some of the justices appeared to agree with this assessment, noting that in the 2012 case, the ACA’s defenders contended that the mandate was essential for ensuring successful operation of the ACA. 

In response, the ACA’s defenders highlighted the ACA’s carrot-and-stick approach – noting that even though the financial penalty (the stick) has been nonexistent since 2019, enrollment in the health insurance marketplaces has remained relatively stable, most likely due to the “carrots” (the marketplace subsidies and insurance protections) emerging as more effective than originally anticipated. Additionally, they noted that the Congressional Budget Office (CBO) determined in 2017 that the ACA’s insurance markets would continue to function the same regardless of whether Congress chose to reduce the penalty amount to zero or fully eliminate the mandate provision. 

Noteworthy because of their potential to side with the court’s three liberal-leaning justices, Chief Justice John Roberts and Justice Brett Kavanaugh appeared to question the argument by the challengers that the elimination of the mandate penalty effectively invalidates all of the ACA. They emphasized that it did not seem that Congress intended the entire ACA to fall when it zeroed out the mandate penalty under the TCJA considering it chose not to repeal the full law at that time. Justice Kavanaugh also commented that the court’s prior decisions related to severability could serve as an argument for not striking down the entire ACA if the mandate is found to be unconstitutional, saying, “I tend to agree with you that it’s a very straightforward case for severability under our precedents, meaning that we would excise the mandate and leave the rest of the act in place.”

Next Steps

A decision may not come until the end of the court’s term in June 2021 and there are a range of potential outcomes. However, as a Health Affairs analysis of the oral arguments pointed out, it appears likely that if even if the court decides the individual mandate is unconstitutional, many of the justices’ comments related to the severability of the mandate appear to indicate that the court could decide to keep the rest of the ACA in place. 

As states await the outcome, state-based marketplaces and Medicaid programs are focusing on enrolling individuals in coverage, while also continuing to respond to the challenge of increasing COVID-19 cases and preparing for the distribution of an eventual COVID-19 vaccine. The incoming Biden Administration will need to be poised to work with states to respond to the implications of the court’s ruling if parts or all of the ACA are struck down.