A group of twenty states has filed a lawsuit against the Trump administration alleging that the Affordable Care Act (ACA) is unconstitutional. Plaintiffs take the position that the elimination of the individual mandate penalty in the Tax Cuts and Jobs Act (Pub. L. No. 115-97), without a corresponding elimination of the individual mandate, renders the ACA unconstitutional. The case was filed in the United States District Court for the Northern District of Texas on February 26, 2018.
President Obama signed the ACA into law on March 23, 2010. Later that same day thirteen states filed a lawsuit against the Obama administration, alleging that the requirement under section 5000A of the Internal Revenue Code that applicable individuals maintain minimum essential coverage (the individual mandate) or make a shared responsibility payment (the penalty) was unconstitutional. The Government argued that Congress had the authority to impose the individual mandate under the Constitution’s Commerce Clause, the Necessary and Proper Clause, or the power to lay and collect taxes. The case reached the Supreme Court and on June 28, 2012, the Court upheld the constitutionality of the ACA, with a 5-4 majority holding that the individual mandate and the penalty provisions could be read together as a tax provision. NFIB v. Sebelius, 567 U.S. 519. The Court also held that states could not be penalized for failing to implement the ACA’s requirement to expand Medicaid to non-elderly adults with household income up to 138 percent of the federal poverty level.
In their complaint, many of the same states that were plaintiffs in the NFIB case now argue that the elimination of the individual mandate penalty renders the remaining law unconstitutional. The Tax Cuts and Jobs Act of 2017, signed into law on December 22, 2017, zeroes out the penalties in 5000A(c) of the Internal Revenue Code beginning in 2019. The states argue that because the penalty no longer raises any revenue, it can no longer be considered a tax. In NFIB, the majority noted that raising revenue was “the essential feature of any tax.” 567 U.S. at 564. Therefore, without the revenue created by the penalty, the states argue the individual mandate is unconstitutional.
The states present several arguments to demonstrate an injury resulting from the ACA’s requirements and the remaining regulatory regime. The states argue they incur an injury from the imposition of federal standards that override state-based policy, for example, the provision of essential health benefits by all individual and small group health insurance plans and the market reforms such as guaranteed issue, community rating, and the prohibition on preexisting condition exclusions. They focus on the burden of “corrective actions” taken by states to offset harms to their insurance markets such as reduced competition and increasing premiums they allege is the result of the ACA.
The states also allege that they have been harmed from increased enrollment in Medicaid and the Children’s Health Insurance Program. The complaint states: “Because of the individual mandate and the ACA, many individuals became eligible for Medicaid, or may have been previously eligible but opted not to enroll. Either way, the individual mandate requires millions more to enroll in Medicaid, imposing additional costs on the States.” This is often referred to as the “woodwork” or “welcome mat” effect. It is unclear how a favorable ruling would provide a remedy for non-expansion states because the additional Medicaid beneficiaries are eligible under the more restrictive eligibility requirements in these states.
Finally, the states argue the ACA has harmed them in their role as large employers. The requirement to provide minimum essential coverage to employees has curtailed the states’ ability to consider other coverage options. It has also led to increased enrollment by state employees, causing additional expense to the states. The states allege harm from the 40 percent excise tax on high cost employer-sponsored coverage (commonly referred to as the “Cadillac Tax”) contained in section 4980I. This provision has yet to go into effect and has been delayed twice. Most recently, Congress in the Bipartisan Budget Act of 2018 (Health Law Pulse summary here) delayed implementation until 2022.
The states argue that because the ACA does not contain a severability clause, the Court should find the entire law unconstitutional. In support, the states heavily rely on the dissenting opinion in NFIB. The states maintain that the Supreme Court has recognized the inseparable nature of the individual mandate from the other core requirements of guaranteed issue and community rating, and without the individual mandate penalty the remaining features of the ACA will no longer operate as Congress intended. The plaintiffs argue that without the individual mandate penalty the “ACA is an irrational regulatory regime governing an essential market” and thus should be declared unconstitutional. The states ask the Court for declaratory and injunctive relief.
The Supreme Court has upheld the constitutionality of the ACA twice. First in NFIB and again in King v. Burwell, 135 S.Ct. 2480 (June 25, 2015), in which case the Court in a 6-3 opinion affirmed the ACA’s premium tax credits are available to qualified individuals purchasing coverage through Exchanges created by the federal government.