December 17, 2018

U.S. District Judge Reed O’Connor, appointee of President George W. Bush, ruled on Friday that the entire Affordable Care Act is unconstitutional now that Congress eliminated a penalty for those who forgo health insurance. Republicans eliminated the ACA’s penalty for not having coverage last year, although the measure doesn’t go into effect until 2019. Mandatory health coverage was core tenet of the original law, intending to draw healthier people into the insurance pool to help offset the costs of sicker enrollees. The Supreme Court has upheld the ACA as constitutional based on Congress’s taxing power.

Litigation has been quietly working its way through the judicial system for several months in pursuit of a court with a disposition sympathetic to the argument that the ACA should be rendered unconstitutional. The plaintiffs are operating under two key conditions that have changed since the law’s passage. The first was the initial Supreme Court ruling in the case of NFIB v. Sebelius, where Justice Roberts cast the deciding vote declaring the individual mandate a tax instead of a fee, preserving the ACA’s constitutionality under the United States Congress which has an express purview for taxation. Given the determination that the law’s viability relies on this “tax,” the Supreme Court generally upheld the ACA absent some provisional adjustments such as qualifications for the Medicaid expansion. Secondly however, the Congress passed tax reform legislation in 2018 that amended the tax code provision for the individual mandate, making it non-revenue bearing.

The essential argument made before the United States District Court for the Northwestern District of Texas is that the mandate does not generate revenue as a tax and no longer stands as a keystone of the broader ACA, rendering it null and void.

 

Key things to know as we proceed from here:

  • This was a declaratory judgment, not an injunction. Hence, it is not binding or enforceable in either Texas or any other part of the country. As such, nothing changes with the ACA or any of its current provisions or regulations. Administrator Verma reaffirmed this over the weekend, expressing that the ACA remains the law of the land.
  • This case will need to make additional judicial stops, including the 5th Circuit Court of Appeals and possibly the Supreme Court of the United States. The framing for this case will remain focused on the nature of the “tax” itself. Technically, the individual mandate remains under the U.S. tax code, even if it does not generate revenue. This is because Republicans’ tax reform was passed using a Senatorial process called “reconciliation,” which doesn’t require a filibuster-proof majority, but does limit the composition of legislation. As a result, the “tax” could not be repealed, only re-structured to eliminate its ability to generate revenue.
  • Though nothing changes with the ACA until further judicial deliberation, this decision constitutes another disorienting change to insurance markets and individuals who access healthcare services through Medicaid or the exchanges. After declining enrollment numbers and a dizzying array of messaging and programs (generally stemming from the Trump Administration’s executive order allowing for Association Health Plans and Short Term Health Plans), insurance markets will continue to operate with some uncertainty in the weeks and months ahead. This may not have a material impact, but it will add to the noise.

 

Bottom Line: The judge entered a declaratory judgment, not an injunction, which means that the decision has no impact unless it is upheld on appeal. The appeals process could take as long as a year. The prevailing view amongst the lead legal analysts is that, at a minimum, the portion of the opinion striking down the entire law based on its invalidation of the (now penalty free) individual mandate provisions will be struck down. It is therefore status quo for now and the early betting favors the same going forward absent additional statutory changes.

On the one hand, this obviously is an existential threat. On the other hand, this decision by a conservative District Court judge in Texas has been expected, and our legal team’s judgment is that it is unlikely to be upheld – even in the event that it is heard by an increasingly conservative Supreme Court. We will obviously watch its progression with great interest, and are constantly ready to engage in the debates surrounding all aspects of health care reform. But the fact that the judge made a sweeping decision on an issue that could have had a surgical response does not bode well for this decision to stand on appeal.  It does however, continue to stoke the partisan political divide in Washington, making comprehensive reforms even more difficult to envision.