Federal Judge in Texas Strikes Down "Obamacare"

Federal Judge in Texas Strikes Down "Obamacare"

Ever since the passage of the Patient Protection and Affordable Care Act of 2010, it has been in Republican crosshairs. Campaign promises to repeal “Obamacare” have been routine talking points for Republicans running in federal elections. The GOP-controlled House of Representatives has, in fact, voted to repeal the Act several times. However, when Republicans did control all three branches of government in 2017, they were unable to repeal the ACA due to dissenting votes of Susan Collins, Lisa Murkowski and John McCain.

However, a December 14 decision by Judge Reed O’Connor on behalf of the federal district court for the Northern District of Texas may have done more to attempt to overturn the ACA than 7 years of GOP efforts. While the case will no doubt be appealed, and may end up in the Supreme Court, Judge O’Connor has ruled the ACA unconstitutional and thus void.

To tell this remarkable story, we must first backtrack and discuss first the 2012 Supreme Court decision upholding the Act, National Federation of Independent Businesses v. Sebelius.

The Affordable Care Act, in its entirety, is almost too complicated for a single human to understand as its text spanned close to a thousand pages. But in its conception, its idea is simple. It aimed to improve health insurance, make it available to more people and lower premiums by:

1.    Setting stricter rules under which policies must operate, to stop “abusive” policies. Among these rules was the important requirement that health insurance companies cover those with pre-existing conditions.

2.    Set up healthcare exchanges to create a robust marketplace for health insurance;

3.    Expand Medicaid to assist people who cannot afford insurance to receive it for free, or at a subsidized rate; and

4.    Require people who can afford it to purchase health insurance.

This last idea, known as the “individual mandate” was considered critical by Congress. To create a robust insurance system where sick people are covered, there must be sufficient moneys coming from healthy people’s premiums. If healthy people would opt out and only get insurance when they got sick, the admonition went, the premiums paid into the systems would be woefully inadequate to sustain the system. It must be recalled that insurance, by its nature, is a cost-spreading mechanism.

To coerce healthy people to buy health insurance, the individual mandate required all people to have health insurance, though those with low incomes and various other classes of people are exempt. To enforce the mandate, those who are not exempt and don’t have insurance were required to pay a “shared responsibility payment” that varied based on income and family size and ranged from $325 to $2,085 (or higher) based on the circumstances.

In 2011, a consortium of public and private actors sued, seeking a declaration that the ACA is unconstitutional. The case, officially titled National Federation of Independent Businesses v. Sibelius, came to be known in popular culture as “the Obamacare case.” The plaintiffs argued that Congress’ asserted justification for the law, its Constitutional power to “regulate commerce among the several states” did not justify forcing people to buy insurance. Despite Congress’ commerce power having generally been interpreted broadly and although it is virtually undisputed that health insurance is an important component of commerce, a slim majority of 5 Supreme Court justices agreed with the plaintiffs. While Congress could regulate the health insurance industry, the Court ruled, the commerce power doesn’t allow Congress to force people to engage in commerce.

Nevertheless, the Supreme Court upheld most of the Affordable Care Act. Another slim majority, in a controversial opinion authored by Chief Justice John Roberts, held that the “shared responsibility payment” assessed against those without insurance was akin to a tax and thus fell within Congress’ power to tax even if it didn’t fall within the commerce power. The Court cited the fact that the penalty was collected by the IRS as part of the income tax process, that the shared responsibility payment was in the Internal Revenue Code and that those who were not required to file because of low incomes were exempt. Thus, the heart of the Affordable Care Act was upheld, though a section that required states to contribute to the Medicaid expansion was struck down as being overly coercive.

Fast forward to 2017. In December of that year, Congress passed, and President Trump signed, the Tax Cuts and Jobs Act of 2017. Among many other things, the law reduced to zero the “shared responsibility payment,” thus taking the teeth out of the individual mandate. While news outlets routinely reported that the individual mandate had been repealed, it had not. In fact, due to the manner in which the 2017 Act was passed (budget reconciliation), it could not repeal the individual mandate. It could only lower taxes. So, it, simply lowered the shared responsibility payment to zero. Though there’s no mechanism with which to enforce it, the individual mandate technically is still on the books. On this seemingly insignificant technicality, the fate of entire ACA may turn.   

Interestingly, and key to the present case, a four-justice dissent in the Sibelius case not only would have struck down the individual mandate but would have struck down the entire ACA on the grounds that the mandate was so critical to the functioning of the Act that erasure of this key component makes the ACA untenable. Though this question of severability was the subject of lengthy debate in the parties’ briefs and in oral arguments, it was irrelevant to the 5-justice majority since the individual mandate was upheld.  

The December 14 decision by Judge O’Connor, a decision on a motion in a case brought by another large group of public and private stakeholders, re-examined the Affordable Care Act in light of the 2012 decision and the Tax Cuts and Jobs Act of 2017.

The decision is based on the fact that, while the Supreme Court upheld the “shared responsibility payment” as a tax, that tax is no longer being assessed. The court observed that the mandate was allowed, despite being outside of Congress’ commerce power, because it was tied to a tax. As of the 2017 Act, though, that tax is gone. As it is no longer being enforced by a tax, Justice Roberts’ rationale no longer applied – the mandate cannot be justified under Congress’ taxing power. The defendants, a group of mostly “blue” states and federal agencies, argued that the tax is still there, it’s just at zero right now, but might be raised in the future. The court dismissed that argument, observing that “until there is a change in law, there is no shared responsibility payment. True, Congress may re-instate the payment in the future, but that would be a change in the law. The court cannot rule on a hypothetical counterfactual. It may only say what the law is, not what it someday could be.”   

Very well, the ACA proponents argued, there may no longer be a tax, but now that there was no coercion, shouldn’t the commerce clause problem disintegrate? After all, Congress isn’t forcing people to engage in commerce any more, so the commerce clause problems articulated by Justice Roberts are no longer relevant. Not so fast, Judge O’Connor ruled. While the penalty was now zero, the individual mandate is still on the books. A government mandate is still a government mandate, whether it’s enforced or not. Federal law still says that people “shall” have health insurance. The court observed “It is the attribute of law… that it binds; it states a rule regarded as compulsory” and cited a Congressional Budget Office study that opined that compliance with the law is “generally observed even when there is little of no enforcement.”

Having ruled the individual mandate unconstitutional under the commerce power and no longer supported by the taxing power, Judge O’Connor turned to the issue of severability. Could a now-toothless individual mandate be so critical to the ACA that its demise must, perforce, carry down with it the entire Act?

Yes, ruled Judge O’Connor. The intent and importance of the mandate at the time it was passed was what counted, not the fact that it was not being enforced. Judge O’Connor cited liberally from the 4-justice dissent in Sebelius and from the Congressional records and period studies and supporting documents to demonstrate that the individual mandate was viewed as critical to the Act at the time. Judge O’Connor posited that “the 2010 Congress expressed through plain text an unambiguous intent that the Individual Mandate not be severed from the ACA.”

For good measure, Judge O’Connor argued that the 2017 Congress that passed the Tax Cut and Jobs Act held a similar view of the mandate.

The court opined that to look at each point in the ACA and to speculate on whether the mandate was critical to that provision would constitute guess work and observed that the “minor provisions are mere adjuncts to the individual mandate. The mandate, the Judge ruled, “is so interwoven with the regulations that they cannot be separated.”

The opinion thus ruled that the individual mandate is not severable from the rest of the ACA. As such, the entire ACA must be struck down as unconstitutional.

Surely, it seems that Judge O’Connor’s opinion turns on extremely fine points and technicalities (such as the critical distinction between the individual mandate and the shared responsibility payment). But the issues raised by the case are intellectually fascinating and their interpretations and resolutions will have a virtually immeasurable impact on the American healthcare system.

It is certain that this decision will be appealed to the Fifth Circuit Court of Appeals and may very well end up back in the US Supreme Court, where Chief Justice Roberts once again appears poised to be the swing vote. Regardless of the outcome, we will be watching the legal analyses involved closely.