The Department of Justice (DOJ) announced on June 7, 2018 that it will no longer defend the constitutionality of section 5000A of the Affordable Care Act (ACA), a.k.a. the individual mandate. DOJ announced its policy change in a three page letter to Congress and a brief in response to the plaintiff’s motion for a preliminary injunction filed in the case of Texas v. United States and California (Civil Action No. 4:18-cv-00167). (HL Pulse discussion here). Attorney General Jeff Sessions states in the letter to Congress that this position is taken “with the approval of the President of the United States.”
Following the elimination of the shared responsibility payment in the Tax Cuts and Jobs Act (Pub. L. No. 115-97), twenty Republican state attorney generals filed a lawsuit alleging that without the tax penalty the ACA is rendered unconstitutional. They also argue that the individual mandate is inseverable from the remaining provisions of the ACA and ask the Court to invalidate the entire law and its implementing regulations. Two individual plaintiffs have joined the lawsuit and allege that even without the tax penalty they will continue to purchase health insurance because the individual mandate remains in place. Recently, two employers in Tennessee sought to intervene in support of the plaintiffs. In May, Judge Reed O’Connor of the Federal District Court for the Northern District of Texas granted a Motion to Intervene filed by seventeen Democratic attorney generals from sixteen states and the District of Columbia. The states argued that intervention was proper because the federal government may not adequately represent their interests, specifically regarding the severability of the shared responsibility provision. The intervening states are now left to defend the constitutionality of the ACA.
In his letter to Congress, Attorney General Sessions stated that “the Executive Branch has a longstanding tradition of defending the constitutionality of duly enacted statutes if reasonable arguments can be made in their defense” but concluded that “this is a rare case where the proper course is to forego defense of Section 5000A(a).” Reporting and commentary have referenced the coincidental timing of the Motion to Withdraw as counsel of record by the three career DOJ attorneys that had previously represented the government in this case. The government is now advocating a position that would eliminate two ACA provisions that have bipartisan support: guaranteed issue and community rating. These provisions require insurers to cover individuals without consideration of their medical history and to offer premiums that vary based only on family size, geography, tobacco usage, and age (with a maximum age band of 3:1). Elimination of these provisions would permit insurers to deny coverage to individuals based on their medical history or underwrite policies based on medical history. The Republican efforts to repeal and replace the Affordable Care Act in 2017 would not have eliminated these requirements.
The DOJ brief agrees with the plaintiffs’ argument that the elimination of the penalty renders the individual mandate unconstitutional. The Supreme Court in NFIB v. Sebelius (567 U.S. 512 (2012)) found that the shared responsibility penalty could be interpreted to be a tax because it raises revenue. Without the raising of revenue the saving construction is no longer possible. Therefore the remaining mandate is a “command to buy insurance”, which the Supreme Court held the Federal Government does not have the power to do. The brief cites to findings in NFIB and King v. Burwell (135 S. Ct. 2480) about the closely intertwined nature of the individual mandate, guaranteed issue, and community rating requirements. As a result, the provisions are not severable. The DOJ breaks with the plaintiffs on two of their positions. The brief argues that the individual mandate, guaranteed issue, and community rating provisions are severable from the remainder of the ACA. This position would leave in place the Medicaid expansion, the Exchanges, and other reforms to Medicare and Medicaid contained in the ACA. The government also argues that because the shared responsibility payment remains in place until January 1, 2019, a preliminary injunction is not warranted. Instead, the DOJ asks the Court to issue a declaratory judgment that the individual mandate, guaranteed issue and community rating requirements will be invalid on January 1, 2019.
On the same day, the intervening states filed their brief opposing the plaintiffs’ motion for a preliminary injunction. The states argue that the requirement to maintain minimum essential coverage remains constitutional. The shared responsibility payment was one of “several” factors that the NFIB court found to resemble a tax. The plaintiffs are not harmed because without a penalty, individuals are no longer required to buy insurance. If there is not a requirement to maintain minimum essential coverage, the mandate is not a command to buy insurance, and therefore the mandate is not unconstitutional. Plaintiffs are also not harmed because they will now be required to pay a tax of $0. Additionally, by zeroing out the penalty instead of eliminating the penalty completely, Congress retained the option to reinstate the penalty in future years. This is similar to other instances in which Congress has delayed or suspended a tax, such as the Cadillac tax or the health insurer fee. The intervening states argue that it is the residents of their states that will suffer imminent harm: the states would “lose over half a trillion dollars in federal funds for healthcare, uncompensated care costs would rise by over a trillion dollars, six million of their residents would be kicked off of their Medicaid coverage, tens of billions of dollars in tax credits to subsidize purchasing health insurance would disappear, and millions of residents with preexisting health conditions would become unable to purchase or access health coverage.” The intervening states also argue that Congress’ failure to eliminate other provisions of the ACA when the Tax Cuts and Jobs Act was passed “demonstrates a clear congressional intent to preserve the remainder of the ACA.”
The change in policy is likely to cause further uncertainty for insurers ahead of the June 20 deadline to submit initial qualified health plan applications.