Fifth Circuit Issues ACA Ruling, But Severability Question Remains

On December 18, 2019, a divided three-judge panel of the US Court of Appeals for the Fifth Circuit issued its decision in Texas v. United States, No. 19-10011, a case presenting once again the question whether the Affordable Care Act (ACA) is constitutional and sustainable. The court held that the individual mandate is unconstitutional, but it reversed the district court’s conclusion that the mandate cannot be severed from the ACA, and remanded to the district court for further proceedings on that critical issue. The practical consequence of the Fifth Circuit’s ruling is to preserve the ACA without the mandate, at least for the time being.

The California Attorney General’s office has indicated that it will seek expedited review by the US Supreme Court. The challengers may cross-petition on the question of severability, likewise urging Supreme Court review before the end of the current term in June. But with the district court’s severability holding now vacated, the Supreme Court is less likely to feel pressured to hear the case expeditiously, if at all. It is presently too early to predict the likelihood of Supreme Court review. But if the case is returned to the district court for further proceedings, we can expect another decision on severability in the coming months, all but ensuring subsequent appeals absent an intervening legislative fix.

Background

In 2012, in NFIB v. Sebelius, the Supreme Court upheld the ACA’s individual health insurance mandate against several constitutional challenges. The Court held that Congress lacks authority under the Commerce Clause of the Constitution to require individuals to purchase health insurance, standing alone. But it held that the law could be upheld under Congress’s taxing power, because the mandate is structured as a tax penalty—termed an “individual shared responsibility payment”—that applies if a taxpayer does not have health insurance.

In February 2018, 20 states led by Texas sued the federal government, once again challenging the constitutionality of the ACA’s individual mandate. The plaintiff states contend that the individual mandate has been made unconstitutional by Congress’s passage of the Tax Cuts and Jobs Act (TCJA) in 2017, which set the amount of the tax penalty for taxpayers without health insurance at zero. In light of the TCJA, they argue, the mandate can no longer be considered an exercise of Congress’s taxing power, because there is no tax. The plaintiffs further argue that the individual mandate was not severable from the rest of the ACA and that, as a result, the entire ACA should be struck down.

In the district court, the federal government agreed with the plaintiffs’ position and declined to defend the constitutionality of the individual mandate. The government argued, however, that most of the provisions of the ACA were severable from the individual mandate, apart from the provisions dealing with preexisting conditions. Sixteen other states and the District of Columbia, led by California, intervened in the district court to defend the constitutionality of the ACA.

In December 2018, the district court granted partial summary judgment in favor of the plaintiff states, holding that the ACA must be struck down in its entirety. The district court concluded that the individual mandate is no longer a valid exercise of Congress’s taxing power because, now that the amount of the penalty is zero, the mandate will not produce any revenue for the government. And it held that because the individual mandate is “essential” to the ACA, the proper remedy was to invalidate the ACA in its entirety. The ACA remained valid and effective because the district court also issued only a declaratory judgment, and not an injunction order halting the ACA.

The intervenor states—joined by four new intervening states and the United States House of Representatives—appealed the district court’s decision to the Fifth Circuit. The federal government also initially appealed the decision, but after filing its appeal, the federal government changed its position on severability, informing the Fifth Circuit that it now believes that the entire ACA must be struck down. The federal government thus argued for affirmance of the district court’s decision.

Issues Presented

The parties’ briefs raised three principal issues for the Fifth Circuit’s consideration: (1) Whether the plaintiff states have standing to challenge the constitutionality of the ACA; (2) whether the individual mandate remains constitutional in light of Congress’s decision in the TCJA to set the penalty for noncompliance with the mandate at zero; and (3) whether, if the individual mandate is unconstitutional, it is severable from the other provisions of the ACA.

The Fifth Circuit’s Decision

Standing. The Fifth Circuit concluded first that the plaintiff states had standing to challenge the ACA. “Though the plaintiffs and the federal defendants are in almost complete agreement on the merits of the case,” the court reasoned, “the government continues to enforce the entire Act,” and “[t]he federal government has made no indication that it will begin dismantling any part of the ACA in the absence of a final court order.” What is more, according to the Fifth Circuit, there is ample evidence that each of the states is incurring costs to comply with the ACA. Most notably, the mandate “causes people to buy insurance, which increases the administrative costs of the states to report, manage, and track the insurance coverage of their employees and Medicaid recipients.” Thus, according to the court, the states had standing to seek the invalidation of the law despite the federal government’s agreement that the law should fall.

The court held also that the states that had intervened as defendants had standing to appeal the district court’s decision. “[T]he district court’s judgment, if ultimately given effect, would: (1) strip these states of funding that they receive under the ACA; and (2) threaten to hamstring these states in possible future litigation because of the district court judgment’s potentially preclusive effect.” This was adequate, in the Fifth Circuit’s view, to support standing to appeal. Having reached that conclusion, the court sidestepped the question whether the House of Representatives also had standing.

Unconstitutionality of the Individual Mandate. The Fifth Circuit next concluded that the individual mandate is unconstitutional in its current form. The court based its decision principally on an interpretation of National Federation of Independent Business v. Sebelius, 567 U.S. 519 (2012). The court described that opinion as “extremely fractured,” but pieced together separate statements that it concluded require invalidating the mandate. In particular, the court explained that the Chief Justice held that the mandate could not be justified under either the Commerce Clause or the Necessary and Proper Clause. Although no other justice joined that part of his opinion, the dissent of Justices Scalia, Kennedy, Thomas, and Alito reached the same conclusions. Thus, according to the Fifth Circuit, “[a] majority of the court . . . concluded that the individual mandate is not constitutional under either” of those clauses. And because failing to comply with the mandate no longer results in a tax, it cannot be justified by Congress’s taxing power.

Severability. Finally, on perhaps the most impactful question, the Fifth Circuit reversed the district court’s holding that the remainder of the ACA had to fall with the individual mandate. At a general level, the severability question asks whether Congress would have passed a given statute even with an invalidated provision struck from it; if the answer is no, the whole statute must fall with the invalidated provision. The district court held that the individual mandate was not severable; the Fifth Circuit expressed unease with that holding. Severability is a challenging inquiry into hypothetical congressional intent, as opposed to the usual bread-and-butter of determining what a statute means. The court expressed particular uneasiness undertaking the severability analysis in the context of “an extensive, complex, and oft-amended statutory scheme.”

At bottom, the court of appeals concluded that the district court’s severability analysis was “incomplete” and required a do-over. That was so in two respects, according to the court. “First, the [district court] opinion gives relatively little attention to the intent of the 2017 Congress, which appears in the analysis only as an afterthought despite the fact that the 2017 Congress had the benefit of hindsight over the 2010 Congress: it was able to observe the ACA’s actual implementation.” And “[s]econd, the district court opinion does not do the necessary legwork of parsing through the over 900 pages of the post-2017 ACA, explaining how particular segments are inextricably linked to the individual mandate.” The Fifth Circuit thus affirmed the district court’s holding with respect to the individual mandate but vacated the district court’s invalidation of the entire statute.

Judge King dissented. She would have held that the challengers lacked standing, that the individual mandate is constitutional, and that even if it weren’t, it would be severable

Immediate Practical Impact and Next Steps

The practical impact of the Fifth Circuit’s decision will be limited in the near term. Further appellate proceedings before the Supreme Court are nearly certain, as the California Attorney General has signaled his intent in media interviews to file a petition for expedited Supreme Court review. Whether the Supreme Court will grant review on an expedited basis, on a slower timetable, or at all remains to be seen. In the meanwhile, the status quo will remain. In all events, the Fifth Circuit’s judgment means, at most, that the individual mandate is un¬enforceable; the remainder of the ACA will remain in place pending Supreme Court review or, if the court declines to take the case, further proceedings before the district court.

The deadline for filing a petition for consideration by the Supreme Court is 90 days from the date of decision. The 90-day period can be extended up to 60 days, but the Attorney General of California has indicated that he intends to move faster. At this point in the Court’s calendar, it would be a significant challenge for the case to be heard during the current 2019-20 term, but not unheard of. More likely, the Court would either deny the petition (waiting for the case to return after the district court’s remand proceedings are concluded), or grant review and set the case for argument in the fall of 2020 for a decision by June of 2021. Either way, an ultimate decision by the Supreme Court is unlikely before 2021.

Looking Beyond the Remand or the Supreme Court

While the Supreme Court is likely to be the ultimate judicial arbiter of this dispute, stakeholders should understand that it might not be the final word. Even if the Supreme Court ultimately invalidated the entire law (an unlikely outcome given the Fifth Circuit’s punt on the issue of severability), it would not mean immediate chaos will ensue. All three branches of government have tools at their disposal to deal with the fallout from a wholesale invalidation of the ACA.

While Republicans in Congress have generally been supportive of repealing the ACA, and of the pending challenge, a significant cohort likely would be troubled by the prospect of an immediate, total unraveling of the law. Senator Thom Tillis (R-NC) has already introduced the “Protect Act,” S.1125, a law that would re-establish pre-existing condition protections, guaranteed issuance requirements, community rating and other popular insurance reforms. Twenty-four Republican senators have joined as cosponsors, revealing some consternation over political blowback that might ensue should Title I of the ACA be undone.

Senate Republicans also could restore a tax penalty to the mandate to resolve the claim that the law is no longer constitutional under Congress’ taxing authority. Because the plaintiffs’ claims in Texas v. United States depend on the fact that Congress set the tax penalty for noncompliance with the individual mandate at zero, Congress likely could undo any decision striking down the law on that basis by setting the penalty at some greater amount. Many Republicans in Congress, along with the White House, would be loath to save the ACA, and even more loath to do so by enacting a new tax, but they could do so on a short-term basis to buy time to figure out next steps.

The administration’s position also has been shifting, and could shift further when a case reaches the Supreme Court. The administration most recently asserted some parts of the ACA should remain intact, and that the court should invalidate the ACA only in the states that brought the suit. The administration could bring these or other arguments to the Supreme Court, should it get to that point. Moreover, it may not be this administration arguing before the Supreme Court. If the Court hears argument in the case during its 2020-21 Term, a Democratic administration may take the reins in the meanwhile and switch (again) to defending the ACA. The Court may take a potential “changing of the guard” into account in scheduling oral argument and briefing deadlines, signaling deference to the political process. Any administration, regardless who it is, could petition the Court delay an effective date of a ruling to allow it time to implement whatever decision the Court ultimately reaches.