Update: On December 16, 2018, Judge O'Connor issued a scheduling order indicating his intent to move forward with the Texas case. His Friday decision, discussed in more detail below, addressed only the first of five claims made by the plaintiffs. As such, it may not be considered a "final" order. This has implications for the timing of when an appeal can be filed with the Fifth Circuit Court of Appeals. California and other Democratic attorneys general could still seek an immediate appeal, but Judge O'Connor may need to approve the appeal request (which he may or may not do). In the order, Judge O'Connor asks the parties to meet and confer by December 21 and then propose a schedule for resolving the remaining four claims by January 4, 2019. 

On December 14, 2018—the eve of the final deadline for the 2019 open enrollment period in most states—Texas federal district court judge Reed O’Connor issued a highly anticipated decision in Texas v. Azar, a lawsuit challenging the constitutionality of the individual mandate and, with it, the entire Affordable Care Act (ACA).

Judge O’Connor concludes that, since Congress has eliminated the fine for not complying with the individual mandate, the mandate is no longer permissible under Congress’s taxing power and is thus unconstitutional. Because the individual mandate is “essential” to and inseverable from the ACA, the judge declares, the entire law is invalid.

Judge O’Connor, who sits in the Northern District of Texas, does not enjoin the ACA. This means that the law’s provisions remain in effect in all 50 states and DC. The decision is likely to be stayed and appealed quickly to the Fifth Circuit Court of Appeals (pending resolution of some potential procedural issues) and presumably the Supreme Court of the United States.

Background

More than six years ago, the Supreme Court released its decision in National Federation of Independent Businesses (NFIB) v. Sebelius, the first of a number of high-profile Supreme Court decisions on the ACA. In that 2012 decision, the Supreme Court upheld the individual mandate and struck down the law’s mandatory Medicaid expansion. In upholding the individual mandate by a 5-4 vote, the Court, led by Chief Justice John Roberts, rejected the theory that the mandate was permissible under Congress’ power to regulate interstate commerce. Instead, the Court construed the mandate as a tax, concluding that it was valid under Congress’ authority to tax and spend.

In NFIB, Chief Justice Roberts discussed at length how the individual mandate looked and operated like a tax. He concluded that Congress could not force people to purchase health insurance but could tax those who fail to do so. A dissenting opinion written jointly by Justices Antonin Scalia, Anthony Kennedy, Clarence Thomas, and Samuel Alito—which the plaintiffs in Texas rely on heavily—would have rejected the individual mandate and, with it, the entire ACA.

Texas represents an attempt to revisit NFIB. Texas was filed in February 2018 by 20 Republican state attorneys general and governors as well as two individuals. These states are Alabama, Arizona, Arkansas, Florida, Georgia, Indiana, Kansas, Louisiana, Mississippi, Missouri, Nebraska, North Dakota, South Carolina, South Dakota, Tennessee, Texas, Utah, West Virginia, Wisconsin, and Governor Paul LePage of Maine. The two individual plaintiffs are residents of Texas and were added to the lawsuit later, in April 2018.

Plaintiffs challenge the constitutionality of the individual mandate now that the penalty for failing to have health insurance will be $0 beginning in 2019. The individual mandate penalty was zeroed out during enactment of the Tax Cuts and Job Acts (TCJA), the Republican tax reform bill enacted in December 2017 through the budget reconciliation process. The plaintiffs argue that the penalty-less individual mandate is no longer constitutional under NFIB because it can no longer be construed as a tax. They further argue that the now unconstitutional mandate cannot be severed from the rest of the ACA; thus, if the mandate falls, so too should the rest of the law.

DOJ Declines To Defend Key ACA Provisions

In an unusual move, the Department of Justice (DOJ) agreed with the plaintiffs that some, but not all, of the ACA should be struck down. The DOJ decided not to defend the constitutionality of the individual mandate and noted its belief that certain additional provisions of the ACA are inseverable from the mandate: guaranteed issue, community rating, the ban on preexisting condition exclusions, and discrimination based on health status. The loss of these protections from the ACA would be devastating for many people with preexisting conditions.

President Trump and other federal officials have strenuously argued that they are not undermining protections for preexisting conditions. However, Judge O’Connor’s opinion correctly characterizes the DOJ as arguing that “the individual mandate is unconstitutional and inseverable from the ACA’s pre-existing-condition provisions.”

Intervenor States

In May 2018, Judge O’Connor allowed Democratic state attorneys general from 16 states and DC to intervene in the case. These states are California, Connecticut, DC, Delaware, Hawaii, Illinois, Kentucky, Massachusetts, Minnesota, New Jersey, New York, North Carolina, Oregon, Rhode Island, Vermont, Virginia, and Washington. Given the DOJ’s position, the intervenor states were the only party arguing to uphold all of the ACA. The intervenor states argued that the mandate remains constitutional and, even if it is not, it is entirely severable from the ACA. Previous posts include a more detailed explanation of the parties’ positions.

Current Postures

Judge O’Connor heard oral argument in early September. The DOJ had asked Judge O’Connor to hold off on a broad ruling until after December 15, the end of this year’s open enrollment period through HealthCare.gov, to avoid introducing “chaos in the insurance markets.” In addition, the DOJ had asked that a declaratory ruling be limited to the constitutionality of the individual mandate beginning in 2019 and that any question of the remedy or scope of severability be deferred until 2019.

The plaintiff states had asked for a preliminary injunction against the individual mandate and, with it, the entire ACA. Judge O’Connor denied this request and, instead, construed that request as a motion for partial summary judgment, which he granted. The intervenor states had opposed this conversion to a summary judgment ruling and had asked for more time to fully brief issues such as standing and validity under the Commerce Clause. Judge O’Connor’s opinion is dismissive of this request, noting only that the intervenor states “adequately” briefed these issues and addressed them at oral arguments.

The Decision

Judge O’Connor reaches three conclusions: 1) the plaintiffs have standing to sue; 2) the individual mandate is no longer permissible under Congress’s taxing power and is unconstitutional; and 3) the individual mandate is essential to and inseverable from the entire ACA, meaning the entire law is declared invalid. This post discusses each of these conclusions in turn.

Standing

A plaintiff must have standing to bring a lawsuit in federal district court in the first place. To show standing, a plaintiff must have suffered an injury that is fairly traceable to the conduct of the defendant that is likely to be redressed by a favorable decision. 

The intervenor states and the American Medical Association (AMA), joined by other physician groups in an amicus brief, challenged the standing of both the plaintiff states and the individual plaintiffs. They argued that the individual plaintiffs did not have standing to sue because the harm they faced was self-inflicted. Put another way, the individual plaintiffs could choose to purchase coverage or not and they will pay zero dollars in penalties if they choose to be uninsured beginning in 2019. By choosing to purchase coverage even without the penalty, they are trying to manufacture an injury and standing.

Judge O’Connor rejects this argument, concluding that the individual plaintiffs are the “object” of the individual mandate because they are being required to purchase and maintain health insurance. He also notes that a showing of an economic injury is not required and that standing can be shown where a federal law deters the exercise of a constitutional right. A declaration that the individual mandate is unconstitutional would, in Judge O’Connor’s mind, redress this injury by freeing the individual plaintiffs from “arbitrary governance.”

This analysis has already been criticized by conservative legal scholars, such as Jonathan Adler, who noted that Judge O’Connor “completely botched the relevant analysis, concluding the plaintiffs have standing to challenge a provision of a law that has no legal effect.” Without a penalty or legal sanction for failing to comply with a law, there is no injury to these individual plaintiffs. Judge O’Connor reaches the opposite conclusion “only by ignoring the actual operation of the law.”

In a perplexing move, Judge O’Connor devotes no attention to whether the plaintiff states have standing to sue. The individual plaintiffs were not original parties to the litigation, which was initially brought only by the plaintiff states. The individual plaintiffs were added to the lawsuit nearly two months after it was filed, likely with the goal of bolstering the plaintiffs’ claim of standing.

Instead, Judge O’Connor focuses solely on whether the two individual plaintiffs have standing. He does so under the theory that one party with standing is sufficient to satisfy Article III’s case-or-controversy requirement; thus, not every party needs to show standing. This theory, that “one good plaintiff is enough,” has faced criticism. After concluding that the two individual plaintiffs have standing, Judge O’Connor simply notes that “the case-or-controversy requirement is met.” He includes no discussion of whether—or not—the plaintiff states have standing to sue.

Constitutionality Of The Individual Mandate With $0 Penalty

Judge O’Connor concludes that the individual mandate cannot be saved under Congress’s tax power or its Commerce Clause power and is unconstitutional under either provision.

Tax Power

The opinion makes a distinction between the individual mandate and the individual mandate penalty, noting that the 2010 Congress intended for the two to be distinct. In Judge O’Connor’s view, the 2017 Congress solidified this intent when it zeroed out the penalty but did not repeal or eliminate the mandate itself.  He believes that the separation between the mandate and the penalty is consistent with the Supreme Court’s analysis in NFIB. Because the individual mandate included the penalty—which was found to be a functional tax—the entire individual mandate could be viewed as a valid exercise of the tax power.

With this distinction made, Judge O’Connor concludes that the individual mandate under the TCJA does not meet the factors laid out in NFIB to be construed as a tax. These factors were that 1) the penalty was paid to the Treasury department when taxpayers filed their tax returns; 2) the amount owed was determined by “familiar factors” and assessed and collected in the same manner as taxes; and 3) the penalty resulted in “the essential feature of any tax” by producing at least some revenue for the government. With the penalty set at $0, Judge O’Connor concludes that the individual mandate no longer meets these factors and thus no longer “triggers a tax” beginning in 2019.

Commerce Clause

The intervenor states had argued that the individual mandate could now be sustained under the Commerce Clause because there is no longer any compulsion to purchase coverage now that the penalty will be $0 beginning in 2019. Judge O’Connor rejected this argument in large part because he understood the states’ argument to be that the individual mandate was no longer compulsory so it “does absolutely nothing.” Because it “does nothing,” it cannot be found to regulate interstate commerce.

Severability

Setting aside long-standing severability doctrine, Judge O’Connor concludes that the individual mandate is inseverable from the remainder of the ACA and declares the entire ACA to be invalid.

Supreme Court precedent on severability directs courts to limit damage to a statute and be guided by congressional intent. The Eleventh Circuit Court of Appeals, in concluding that the individual mandate was unconstitutional but severable from the ACA in 2011, noted “the Supreme Court’s strong presumption of severability” and the “overwhelming majority of cases” where the Supreme Court has opted to sever a constitutionally defective provision from the remainder of the statute. The Eleventh Circuit ultimately used this “well-established” doctrine to find the mandate to be severable “as a matter of judicial restraint.” 

The intervenor states—and many amici—argued that congressional intent in this case is clear: Congress itself zeroed out the mandate’s penalty in 2017 but left other provisions of the ACA undisturbed. Because the Congress of 2017 acted, it is clear what lawmakers intended and the court need not guess which provisions they would have severed or not. The plaintiffs and DOJ argued that the intent of the Congress that passed the ACA in 2010 should control.

In a curveball, Judge O’Connor concludes that both the 2010 Congress (which passed the ACA) and the 2017 Congress (which passed the TCJA) intended for the mandate to be inseverable from the entire ACA. He believes that the 2010 Congress expressed its unambiguous intent that the mandate not be severed from the ACA and that the 2017 Congress “further entrenched” the intent of the 2010 Congress.

2010 Congress

As evidence of the 2010 Congress’s “unambiguous intent,” Judge O’Connor points to congressional findings enacted as part of the ACA. These findings note that the mandate is “essential” to creating effective health insurance markets “in which improved health insurance products that are guaranteed issue and do not exclude coverage of pre-existing conditions can be sold” and “that do not require underwriting and eliminate its associated administrative costs.” The findings also note that the mandate is “an essential part of this larger regulation of economic activity” and the absence of the mandate “would undercut federal regulation of the health insurance market.”

According to Judge O’Connor, these findings show that Congress believed the mandate was a cornerstone of the ACA and that the mandate worked together with the law’s other provisions. Because the mandate was essential to the ACA, Congress intended it to be inseverable from the rest of the ACA.

Judge O’Connor does not grapple at all with the fact that the congressional findings are limited to the ACA’s health insurance provisions. These findings do not address, for instance, the ACA’s provisions related to Medicaid, Medicare, the Food and Drug Administration, or public health. Yet, in striking the entire ACA, Judge O’Connor seems to conclude that these limited congressional findings mean that the mandate is “essential” to every component of the ACA—from the approval of biosimilars to closing the Medicare prescription drug donut hole to preventing and treating elder abuse.

This severability analysis—whereby an entire complex law is struck down based on an isolated amendment to only one part—flies in the face of long-standing severability doctrine, which counsels judicial restraint. Judge O’Connor sidesteps this inquiry altogether by later suggesting it is “impossible” to know which “minor” provisions of the ACA Congress would have passed absent the individual mandate but that this “level of legislative guesswork” is “plainly beyond the judicial power.” It is worth noting that the characterizations of various parts of the ACA as “major” or “minor” are based entirely on Judge O’Connor’s opinion, not a rigorous examination of the ACA or its legislative history.

Judge O’Connor further cites Supreme Court precedent to bolster his conclusion of the ACA’s “complete inseverability” from the mandate. He asserts that many Supreme Court justices already consider the mandate to be inseverable from at least the ACA’s preexisting condition protections based on opinions written in NFIB or King v. Burwell. Judge O’Connor cites language from various opinions explaining the Justices’ rationale in these cases. He mostly notes language stating that the mandate was tied to key ACA provisions such as guaranteed issue and community rating.

However, a majority of the Supreme Court has not opined on severability of the ACA, Judge O’Connor’s assertions notwithstanding. The judge construes prior statements from Justices that describe how the ACA was designed to operate to be statements on the inseverability of the ACA. With the exception of the dissenters in NFIB (where four Justices actually opined on severability), this proves too much.

As with the constitutionality analysis above, Judge O’Connor relies heavily on the dissent in NFIB, which he acknowledges was the only block of Justices to fully consider severability. These dissenters used what some have referred to as “a hip-bone-connected-to-the knee-bone analysis of the entire ACA.” They argued that the individual mandate and Medicaid expansion are “central to [the ACA’s] design and operation” and that the ACA’s other provisions would not have been enacted without them, leaving the entire law inoperative. As such, they would have found the mandate to be unconstitutional and struck down the entire ACA.

Judge O’Connor also seems to argue that upholding the ACA without the individual mandate would change the “effect” of the ACA “as a whole.” He cites a parade of horribles that would occur if the mandate were eliminated but the ACA remained in place. Among other ill effects, he raises the alarm that insurers would face billions of dollars in ACA taxes without an expanded risk pool and there would be massive losses to hospitals because of uncompensated care.

The irony, of course, is that we are actually facing this scenario for 2019. The mandate penalty is zeroed out and the ACA is intact, and none of these horribles has occurred. In fact, quite the opposite has occurred. The marketplaces are at perhaps their most stable point, and the Trump administration has actively touted higher insurer participation, a slight drop in nationwide average benchmark premiums, and fewer areas of the country with only one insurer. Judge O’Connor ignores this reality.

2017 Congress

Turning to the 2017 Congress, Judge O’Connor states that Congress did not repeal any part of the ACA and thus it is unknowable what Congress intended in 2017. He again distinguishes between repeal of a part of the ACA and the more limited use of the budget reconciliation process to zero out the penalty. The latter, Judge O’Connor suggests, is not a repeal of the individual mandate itself, only of the penalty. He believes this distinction is important because the congressional findings noted above point to the mandate rather than the penalty. With the mandate still in place, he believes it remains at the heart of the ACA.

By his reasoning, both the 2010 and 2017 Congress intended to preserve the mandate (even if not the penalty) because the mandate is essential to the ACA. To accept the intervenor states’ argument that the 2017 Congress intended to sever the mandate, one would have to view the penalty as the mandate itself. This, he believes, is incorrect. He also notes that the 2017 Congress did not repeal the congressional findings on the “essentiality” of the mandate and did nothing to “repudiate or otherwise supersede” the NFIB and King opinions regarding the mandate’s essentiality to the ACA.

Implications And Next Steps

Judge O’Connor does not enjoin the ACA, meaning its provisions remain in effect, and the decision will be appealed quickly. The California attorney general has already indicated his intent to appeal the decision. It is unclear whether the DOJ—which lost its argument that much of the ACA was severable from the individual mandate—will appeal the decision.

From here, the case will likely move to the Fifth Circuit Court of Appeals (although a few questions remain about procedural issues that still need to be addressed) and likely up to the Supreme Court. At the same time, parallel litigation over the DOJ’s decision not to defend the ACA continues in Maryland (the latest on that lawsuit is here). The Texas decision does raise a question over whether the Trump administration will continue to enforce the ACA, but so far, the answer appears to be yes.

In the meantime, consumers can still enroll in health insurance for 2019 through HealthCare.gov through today’s deadline, they should still pay their premiums, and consumers should expect that the ACA’s protections continue to apply in every state. This was affirmed by a statement from the Centers for Medicare and Medicaid Services early on the morning of December 15. The statement noted that the decision is “still moving through the courts,” the “marketplaces are still open for business, and we will continue with open enrollment,” and “there will be no impact to enrollee’s current coverage or their coverage in a 2019 plan.”

What provisions are theoretically affected by the decision? In striking down the entire ACA, Judge O’Connor’s decision would eliminate every ACA provision in all 50 states and DC. This includes the ACA’s protections for people with preexisting conditions (such as guaranteed issue, community rating, and coverage of the essential health benefits package), the federal subsidies for low-income people to purchase private health insurance, and Medicaid expansion. Combined, these provisions alone have expanded health insurance to millions of Americans. Judge O’Connor also strikes down highly popular parts of the ACA, such as covering dependents on a parent’s health insurance plan up to age 26.

The effects will be far felt. At least some of these provisions—such as the ACA’s ban on annual and lifetime limits, the coverage of preventive services without cost-sharing, and the ban on preexisting condition exclusions—apply to many employer-based plans. Further, the judge’s decision is not limited to the ACA’s insurance-related provisions: the decision also invalidates ACA provisions that closed the Medicare drug donut hole, created the Center for Medicare and Medicaid Innovation, required restaurant menu labeling, and authorized a pathway for biosimilar approval at the Food and Drug Administration.

Judge O’Connor’s decision, if it survives appeal, will have far-reaching consequences that will severely destabilize the nation’s health care system and state insurance markets across the country. In striking down the entire ACA, he ignores the will of Congress and puts consumer protections for millions of people at risk.

Judge O’Connor’s opinion contains only a cursory analysis of major legal issues, such as standing and congressional intent. By not even considering the standing of the plaintiff states, the judge pits the alleged harm to only two individuals in a single state against the ACA’s protections for millions of people nationwide. Nor does he grapple at all with the statements of multiple Republican members of Congress who, in passing the TCJA, clearly stated their intent only to eliminate the individual mandate penalty. He gives no consideration to the fact that Congress had tried and failed to extensively repeal the ACA for many months leading up to enactment of the TCJA.

The idea that an unelected judge could accomplish what Congress repeatedly failed to do through a lawsuit over a small amendment disregards the will of Congress. This could be precisely the reason why the Supreme Court (or any other court) could be loath to walk this plank, especially on the ACA. In King v. Burwell, Chief Justice Roberts ended his majority opinion upholding the availability of premium tax credits in states with the federal marketplace by citing Marbury v. Madison and noting that “in every case we must respect the role of the legislature, and take care not to undo what it has done.”

This is one reason why ideologically diverse legal scholars—those who oppose and support the ACA and have argued for its invalidation or validation in other lawsuits—joined together to support the intervenor states on severability. Judge O’Connor’s decision, if affirmed, would create a dangerous precedent for Congress and the public whereby a small tweak to an existing law could mean that the court invalidates it entirely. This, as the legal scholars put it, turns the process of federal legislating into “an all or nothing” proposition that severely erodes the hallmarks of separation of powers. As Jonathan Adler puts it, Judge O’Connor’s decision in many ways is “the conservative equivalent of so-called #Resistance judicial opinions that have embraced questionable legal arguments deployed to subvert objectionable Trump Administration policies.”

Judge O’Connor tries to have it both ways based on what the 2017 Congress failed to do. On the one hand, he states that this Congress did not repeal the individual mandate itself. He takes this inaction to be an affirmation of what he views as the 2010 Congress’s intent: that the mandate is essential to the ACA. In his view, this failure of Congress to repeal the full mandate is critical in Texas. On the other hand, he rejects the idea that Congress’s failure to otherwise repeal or amend the ACA beyond the penalty is at all meaningful. He does not even grapple with the import of this inaction, especially given the fact that Congress tried and failed to do so for the many months leading up to the TCJA.