California v. Texas

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Brief Summary: This case challenges the constitutionality of the Patient Protection and Affordable Care Act (ACA) as a whole.

Overview: The ACA contains a provision that requires everyone to maintain a minimum level of health insurance or pay a tax penalty, commonly referred to as the individual mandate. The constitutionality of this provision has long been a point of contention. In 2012, the U.S. Supreme Court affirmed the validity of the provision in the landmark case, National Federation of Independent Business v. Sebelius. In that case, the Court held that the individual mandate was a constitutional exercise of Congress’s taxing power.

In 2017, Congress enacted the Tax Cuts and Jobs Act (TCJA), which reduced the penalty for failing to maintain insurance coverage to $0, effective in 2019. In February 2018, Texas and 19 other states filed suit in the U.S. District Court for the Northern District of Texas, requesting injunctive relief. In particular, they asked the court to hold that the ACA is unlawful in its entirety and enjoin its operation. They claimed that the individual mandate is now no longer a tax given that the penalty was reduced to $0 and is, therefore, unconstitutional. They further asserted that the rest of the ACA and its accompanying regulations are inseverable from the individual mandate and unconstitutional as well. In other words, the rest of the law could not stand on its own without the individual mandate. The defendant, the federal government, did not defend against the plaintiffs’ claims regarding the individual mandate’s constitutionality but did initially argue that only two of the ACA’s provisions are inseverable from the individual mandate: the guaranteed issue and community rating provisions. The guaranteed issue provision requires insurance providers to issue health plans to any applicant regardless of health status or outside factors, and the community rating provision prevents health insurers from varying premiums based on health status or other factors. As such, these two provisions make up what is commonly referred to as the preexisting condition protections. California and 15 states filed suit as intervenors, arguing that the individual mandate should not be deemed unconstitutional because it is still a tax even if it does not continuously produce revenue. They also argued that if the Court determined that the individual mandate was unconstitutional, then the proper remedy would be to strike the TCJA amendment as unconstitutional and revert back to the prior statutory provision.

Court Updates: U.S. District Court for the Northern District of Texas – Opinion, Dec. 14, 2018

The court held in favor of the plaintiffs by finding that the individual mandate is not a constitutional exercise of Congress’s Tax Power because it no longer “produces at least some revenue” for the federal government. The court declared that the individual mandate is essential to and inseverable from the remaining provisions of the ACA, and therefore, the entire law must be invalidated.

U.S. Court of Appeals for the Fifth Circuit – Opinion, Dec. 19, 2019

The court held in favor of the plaintiffs in part by upholding the lower court’s finding that the individual mandate is not a constitutional exercise of Congress’s Tax Power. The court remanded the issue of severability to the district court to provide additional analysis of the provisions of the ACA as they currently exist. In other words, the District Court will need to determine which specific provisions of the ACA, including ACA regulations, should be invalidated.

Current Status: In late 2019, the U.S. Court of Appeals for the Fifth Circuit upheld the lower court’s ruling in California v. Texas that the ACA’s individual mandate is an unconstitutional exercise of Congress’s Tax Power. The Fifth Circuit sent the case back to the District Court to determine which other sections of the ACA and its regulations should also be struck down. In response, on January 3, 2020, a coalition of state attorneys general requested that the Supreme Court of the United States expeditiously review the Court of Appeals’ ruling. On January 10, 2020, the U.S. Solicitor General asked the Supreme Court not to hear the case, and instead, to allow the District Court to make a determination first. On March 2, 2020, the Supreme Court granted certiorari. On April 3, 2020, the Court extended the briefing schedule in light of the COVID-19 public health emergency. Initial briefs are now due in May and oral arguments are expected in October.

Impact: This lawsuit could result in the entire ACA being invalidated. This would eliminate protections for people with pre-existing conditions, subsidies to help individuals purchase health coverage, Medicaid expansion, the provision allowing dependents to be covered by their parents’ insurance policies up to the age of 26, the requirement for health plans to cover preventive services with no cost-sharing, the requirement that health plans to cover essential health benefits, the prohibition on health plans imposing annual and lifetime limits on coverage, the requirement for health plans to maintain a medical loss ratio, and the cap on out-of-pocket costs, among other consumer protections.

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