“It turns out that this shift to save the law may have reduced the threshold to amend it from the 60 votes normally required in the Senate for regular legislation to 51 through the reconciliation process, depending on what several courts say during the next year or two.”
William G. (Bill) Stuart
Director of Strategy and Compliance
June 21, 2018
The constitutionality of the Affordable Care Act is in question again. The law has survived multiple attempts by opponents to invalidate the law in whole or key provisions during the past six years, though not without some serious wounds. Will it survive again?
In the 2014 case of National Federation of Independent Business (NFIB) v. Sebelius (then the secretary of Health and Human Services), the Obama administration defended the individual mandate before the Supreme Court by claiming that the president and Congress had the power under the Constitution’s Commerce Clause to force Americans to purchase medical coverage or pay a fine. NFIB argued that the Commerce Clause does not grant the government the right to force Americans to purchase a product.
By a 5-4 majority, the Supreme Court ruled against the Obama administration. The Chief Justice, John Roberts, then saved the ACA. He joined the majority in declaring the law unconstitutional under the Commerce Clause, writing, “Construing the Commerce Clause to permit Congress to regulate individuals precisely because they are doing nothing would open a new and, potentially vast domain to congressional authority. Congress already possesses expansive power to regulate what people do. Upholding the Affordable Care Act under the Commerce Clause would give Congress the same license to regulate what people do not do. The Framers knew the difference between doing something and doing nothing. They gave Congress the power to regulate commerce, not to compel it. Ignoring that distinction would undermine the principle that the Federal Government is a government of limited and enumerated powers. The individual mandate thus cannot be sustained under Congress’s power to “regulate Commerce.”
Justice Roberts wasn’t finished, though. Later in his concurring opinion, he wrote, “Every reasonable construction must be resorted to, in order to save a statute from unconstitutionality.” In other words, he wrote that he felt obligated to go beyond the arguments presented by the government and look at alternative routes to preserve a law passed by Congress as constitutional.
The chief justice found that alternative route by ruling that the individual mandate was a constitutional exercise of congressional authority under the Constitution’s taxing power. Under this line of argument, the mandate was not a vehicle to force Americans to purchase insurance, but rather a penalty if they failed to buy coverage. It turns out that this shift to save the law may have reduced the threshold to amend it from the 60 votes normally required in the Senate for regular legislation to 51 through the reconciliation process, depending on what several courts say during the next year or two.
The Obama administration had rejected this concept of the penalty as a tax in oral arguments before the nine justices mere months prior the June 2012 decision. Nevertheless, Justice Roberts’s argument, along with the opinions of Justices Breyer, Ginsburg, Sotomayor and Kagan, who all found the law constitutional under the Commerce Clause, saved the day. The decision didn’t, as many ACA supporters claimed, hold that the ACA itself was constitution. It did state that the individual mandate was constitutional.
That wasn’t the end of challenges to the ACA. In that same 2012 ruling, the Court rejected the Obama administration’s claim that the law mandated that states expand eligibility in their Medicaid programs to include able-bodied adults with incomes below 100% of the federal poverty level. And in a 2015 case, King v. Burwell (Mrs. Burwell was then the secretary of HHS), the Court affirmed the constitutionality of advance premium tax credits (premium subsidies) through marketplaces run by the federal government, though the law distinguished between state-run and federal-run marketplaces and allowed the subsidies in only the state-run markets.
The King v. Burwell case was the last attempt at a major court challenge to the constitutionality of the ACA, until now.
The Tax Cut and Jobs Act of 2017
The controversial partisan tax cut enacted in late 2017 by slim Republican majorities in the House and Senate included a provision that reduced the tax for failing to maintain insurance to zero. The bill didn’t eliminate the individual mandate penalty/tax. Instead, it just set it at zero. This distinction is important because it means that a future Congress can adjust the levy upward in a general revenue or tax bill rather than attempt to reinstate the mandate itself in a health-care or omnibus bill.
But because the tax is reduced to zero beginning in 2019, the question is this: If a tax doesn’t raise revenue, is it a tax?
This seemingly insignificant question has become the focal point of a suit arguing that the absence of a financial penalty beginning in 2019 effectively wipes out the tax. And if the tax, the thread holding the individual mandate constitutional, is set at zero, then the provision is no longer constitutional.
On to Texas
In Texas v. Azar, 20 states have sued the federal government, claiming that the individual mandate is unconstitutional. The basis of their case to rehash this issue:
First, a tax is a tax only if it raises revenue. Justice Roberts made this point clear in his concurring NFIB v. Sebelius decision.
Second, the Tax Cut and Jobs Act of 2017 reduced the monetary penalty for not purchasing medical coverage to zero, beginning in 2019. Thus, the tax no longer raises revenue.
Third, according to the argument made by the Obama administration before the Court in 2012, the guaranteed-issue and community-rating provisions are inseverable from the minimum coverage provision, according to the Trump administration’s brief. Therefore the individual mandate, guaranteed-issue and community-rating should all be declared null and void as of Jan. 1, 2019.
While the Trump administration favors eliminating those three provisions and leaving the balance of the ACA intact, including advance premium tax credits and Medicaid expansion in states that have adopted that measure, among other elements of the law, others see the suit as a means of achieving what they’ve failed to accomplish through the legislative process. They want the entire ACA declared unconstitutional.
The Trump administration’s refusal to defend a challenge to federal law is unusual, but not unprecedented. The Obama administration, for example, didn’t defend the Defense of Marriage Act for the same reason that Attorney General Sessions give for not defending the ACA: The government’s position is indefensible.
More than a dozen organizations have written amicus (“friend of the court”) briefs in support of the law. They include hospital and other provider groups, America’s Health Insurance Plans, AARP, Service Employees International Union, small business organizations and various groups focused on specific diseases. Their reasons are clear: They have invested (financially, emotionally and socially) heavily in the environment created by the ACA. They don’t want to experience the chaos that would ensue if the law were overturned in full or the three key provisions were declared unconstitutional.
An influential group of five lawyers drafted an amicus brief arguing against the plantiff’s case. Two of the lawyers who oppose the current suit supported declaring key parts of the law unconstitutional in the 2012 and 2015 Supreme Court challenges.
A far smaller number of groups have written briefs in support of the challenge to the law. They are primarily conservative groups that have never liked the ACA and see an opportunity to achieve partial or total repeal through the judicial process after failing to see legislation to amend or overturn the ACA approved.
The location of the case is no accident. The federal district court in Texas is notoriously conservative, and Judge Reed O’Connor has shown a decided lack of support for the ACA in previous cases. An appeal would be heard by the Fifth Circuit, perhaps the nation’s most conservative circuit court with 10 Republicans (four appointed by President Trump) and only five Democrats.
One of the issues that the court will consider is the intention of Congress, not just the 111th Congress that passed the original Patient Protection and Affordable Care Act of 2010, but also the 115th Congress that passed the Tax Cut and Jobs Act last year. Intent is important. The Obama administration argued in 2012 that guaranteed issue and community rating were inseverable from the individual mandate, reflecting its interpretation of Congress’s intent in 2010. That argument was designed to preserve the individual mandate by demonstrating the severe disruption to the individual market if the Supreme Court overturned the individual mandate.
What was the intent of the 115th Congress when it passed tax reform that reduced the penalty to zero for failing to purchase insurance? Both Senate Majority Leader Mitch McConnell and Sen. Lamar Alexander, the chair of the powerful Senate Health, Education, Labor, and Pensions (HELP) committee, have indicated that Republicans did not intend to invalidate the individual mandate when they wiped out the penalty in the tax-cut legislation.
What would happen if the court decides in favor of Texas and the other 19 states and two individuals who have brought the suit and declares the individual mandate unconstitutional and the guaranteed-issue and pre-existing-conditions provisions inseverable (and therefore also null and void)? Or, more dramatically, that the entire ACA rests so strongly on these pillars that, without them, the entire law is invalid.
With federal protections for guaranteed-issue policies regardless of pre-existing conditions gone, we would revert to the law before the ACA. Nearly half the states currently have rules requiring guaranteed issue or barring pre-existing-condition clauses or both. Those laws, which were pre-empted by stronger provisions in the ACA, would provide protection absent the ACA.
The federal Health Improvement Portability and Accountability Act (HIPAA) of 1996 would offer additional protection against pre-existing-condition clauses in group insurance. And it would set off a mad scramble in some states to add or strengthen laws that offer protection to individuals in the nongroup and group markets.
In states without these protections, the nongroup and small-group markets are likely to split into two distinct risk pools. With the Trump administration’s loosening restrictions on association health plans (allowing small employers with only a tenuous link to band together to purchase insurance) and short-term plans (used by nongroup buyers to provide coverage for a short-term period of time), these alternative forms of coverage are likely to adopt medical underwriting guidelines (thus eliminating guaranteed-issue protection) and delay coverage for pre-existing conditions. The result will be less expensive alternatives to ACA plans.
The ACA plans are likely to continue their death spiral of covering the most expensive patients with pre-existing conditions and active treatment of chronic conditions. Premiums for these plans will rise sharply as healthy applicants are attracted to the much lower premiums under association and short-term coverage.
With no penalty for not purchasing coverage and exploding premiums, some applicants, especially those who qualify for little or no premium subsidies, are likely to go without coverage. They will place a burden on hospitals when they show up at emergency rooms to receive unexpected care.
Speaking of premium subsidies, they may not survive a successful challenge to the ACA in some states. Under current law, subsidies are pegged to the second-lowest premium among Silver plans. Without guaranteed issue provisions and medical underwriting permitted, each applicant receives rates based on her personal risk, rather than a single rate based on age. With the premium for the second-lowest Silver plan’s varying with each applicant, the HealthCare.gov system wouldn’t be able to calculate a premium subsidy without some major reprogramming. That’s an administrative rather than a legal issue, but it’s a major roadblock to successfully calculating premium credits in a new landscape.
Without guaranteed issue, the rating bands (currently the premium for the oldest applicants can’t exceed three times the premium for the youngest applicants) would expend well beyond 1:3. And other factors like sex and occupation would likely creep back into the rating formulas. These changes would have negative impacts on women, sicker patients and older people. By contrast, without these forced cross-subsidies, the law would benefit men, as well as healthier and younger people generally.
The potential disruption isn’t limited to nongroup and small-group markets. Critics of the suit point out that it will create a new round of “job lock” in states that don’t have strong pre-existing-condition clauses and guaranteed issue. It’s estimated that between 52 million and 130 million Americans have conditions that fall under the pre-existing definition. While HIPAA protects them while they’re on group coverage, they are at risk if they leave their group plan to work independently or to care for a family member or themselves and must purchase nongroup coverage.
What Are the Prospects?
The 17 state attorneys general (including those in Massachusetts, Connecticut, Rhode Island, New York, New Jersey, Delaware, Washington DC, and Virginia in Benefit Strategies primary market area) defending the ACA in this court action, led by California’s Xavier Becerra, will present a vigorous defense of the law. They will have their work cut out for them, given the plaintiff’s choice of the court of jurisdiction. The betting odds are that Judge Reed O’Connor, a President George W. Bush appointee, will rule in favor of the plaintiffs. If the 17 states appeal to the circuit court, they’re likely to lose there as well, given the composition of the court.
The 17 states’ best shot is likely at the Supreme Court. The composition of the court has barely changed since the 2012 ruling (Justice Scalia passed away in 2016 and was subsequently replaced by Justice Neil Gorsuch, who rules as Scalia would have on many issues). Nevertheless, an appeal may be a year or two away, and the court could change dramatically during that time. Justice Ginsberg has faced health challenges and is age 85. There have been rumors that Justice Anthony Kennedy, age 81, is contemplating retirement. If so, he likely would do so in time to allow a Republican president to nominate his successor. And the potential that the Republicans could lose their 51-49 effective control of the Senate, however unlikely, in this year’s mid-term elections would change dramatically the justice whom President Trump could nominate as a replacement for any justice leaving the court.
What would rock state insurance markets would be uncertainty heading into 2019. Insurers are awaiting some direction (perhaps a district court decision this summer) before finalizing participation in ACA marketplaces and the corresponding premiums in 2019. Some state legislatures would have to call special sessions after their annual adjournment to consider pre-existing-condition and guaranteed-issue protections absent the strong ACA protections. And questions surrounding the healthcare.gov Web site to calculate premium subsidies would add further confusion to the markets.
Keep an eye on the news for further action in this developing story.
What We’re Reading
Want to learn more about pharmaceutical pricing and the role of rebates? Click here.
Prior to the ACA, Massachusetts was the only state with a mandate to purchase medical coverage. Now that the federal penalty will be reduced to zero in 2019, states are looking to pass laws to mandate coverage as a means of stabilizing insurance markets. Read more here.