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Supreme Court to Determine Fate of the ACA - A Peek Into the Crystal Ball

by Vita, on November 11, 2020

Just as the nation is facing the COVID-19 global pandemic, the Affordable Care Act (ACA) is once again in the limelight. On November 10, the U.S. Supreme Court will take up California v. Texas and hear arguments on whether the ACA is constitutional, in whole or in part. The case will address two things:

  1. Penalty-Less Individual Mandate: The constitutionality of the individual mandate now that the penalty for not having coverage has been zeroed out.
  2. Severability: Whether the individual mandate is so central to the rest of the ACA that it cannot be severed from the rest of the law (if it is considered unconstitutional) or whether the entirety of the statute would be invalidated in the absence of the individual mandate.

Case History

The Supreme Court already addressed the constitutionality of the ACA back in 2012. At that time, the court upheld the constitutionality of the ACA's penalty on individuals who do not comply with the mandate to have health coverage (the so-called individual coverage mandate) as a justifiable exercise of Congress' power to tax. The key issue here was that the law expressed the fine for not carrying health insurance as a “penalty” and not expressly as a “tax.” The ruling at that time was that the penalty was sufficiently “tax-like” to fall under Congress’ power to levy taxes. Thus, the individual mandate was upheld on the grounds that the fine for not carrying health insurance was, in fact, a tax.

Why Does This Matter?

Had the fine not been deemed a tax, then the law would have to be interpreted as Congress mandating behavior (to purchase health insurance). However, Congress’ power is limited to “expressed powers” and not general powers, and there is no expressed power to compel or mandate certain behaviors. Levy taxes, yes. Mandate behavior, no. Thus, the determination that the Individual Mandate was deemed constitutional hangs on the fact that the fine is considered a tax.

Enter the Zero Tax

In December 2017, President Trump signed into law the Tax Cuts and Jobs Act which eliminated the ACA's penalty on individuals who lack health coverage. At this stroke of a pen, the thread by which the Individual Mandate’s constitutionality hung was eliminated.

Crystal Ball Option #1: ACA Falls

So, what are the likely or potential outcomes? Without question, the case is complex. That said, several important facts are relevant to consider:

  1. The constitutionality of the individual mandate was upheld based on the penalty being a tax. The federal court which most recently invalidated the individual mandate portion of the ACA concluded that, “the individual mandate, unmoored from a tax, is unconstitutional.”
  2. There is no longer a tax.
  3. The argument brought forth by the challengers is that if the constitutionality of the individual mandate was upheld based on the tax, and there is no longer a tax, then it stands to reason that the change in the tax would render the individual mandate unconstitutional.

What about Severability?

If the individual mandate were found to be unconstitutional, the question becomes whether the individual mandate can be “severed” from the rest of the law or whether it is so central to the foundation of the law that the entire law would be invalidated by the demise of that one provision. Writing for the majority in the 2012 opinion, Chief Justice Roberts addressed the issue of severability in a detailed analysis, reaching the conclusion that the individual mandate was, in fact, not severable from the rest of the law. Importantly, none of the other justices offered dissenting opinions addressing this issue. This lays a foundation of uniform thought on the bench regarding the severability issue.

What Happens if the ACA is Invalidated?

If the individual mandate were found to be unconstitutional and not severable from the rest of the ACA, the entirety of the law would be invalidated. This would include many popular provisions of the law including:

  • Protections for people with pre-existing conditions
  • Funding for premium subsidies
  • Funding for Medicaid expansion.
  • Small group reforms
  • Coverage mandates (free preventive care, no lifetime limits, caps on out-of-pocket cost sharing, dependent coverage to age 26, etc.)

If the law were invalidated, Congress could pass legislation to restore key provisions of the law. Such action would render moot any Supreme Court determination to the contrary. This, of course, assumes Congress is aligned on the provisions to restore and has the votes to push such legislation through.

Crystal Ball Option #2: ACA is Upheld

Oral arguments were heard by the Supreme Court on November 10, 2020. While there has been speculation that they newly-conservative-leaning Supreme Court would lean toward invalidating the law, feedback from the oral arguments was less definitive than some had expected. Early feedback from Chief Justice Roberts and Justice Kavanaugh indicate that they see a possible path to invalidate the individual mandate but consider it severable from the law, thus enabling the remainder of the law to stand. This argument would suggest that since 2017 the ACA has actually been operating without the individual mandate (because the penalty has been zeroed out) and it has not imploded. Therefore, it has effectively proven that it is severable. Justice Alito offered the analogy of an airplane:

At the time of the first case, there was strong reason to believe that the individual mandate was like a part in an airplane that was essential to keep the plane flying, so that if that part was taken out the plane would crash. But now the part has been taken out and the plane has not crashed . . . So, how would we explain why the individual mandate in its present form is essential to the operation of the act?"

There is also a possibility that the Supreme Court will determine that Texas and the other GOP-led states that brought the challenge don’t, in fact, have standing to sue in the first place. There was some discussion on this issue in the hearing as well.

Ultimate Fate

The ACA’s fate is now in the hands of the Supreme Court. The court is expected to rule on this case before the end of the term in June 2021. In the meantime, the ACA remains fully in effect, and all employer provisions and reporting requirements remain enforceable.

Topics:Employee Benefits

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