California v. Texas, 2021 WL 2459255 (U.S. 2021)
The U.S. Supreme Court has rejected an attempt to invalidate the Affordable Care Act (ACA). The challengers (two individuals and several states) contended that, after the Tax Cuts and Jobs Act reduced the individual shared responsibility penalty to zero beginning in 2019 (see our Checkpoint article), the requirement for individuals to maintain minimum essential coverage (referred to as the “individual mandate”) was unconstitutional because it no longer was defensible under Congress’s taxing power—the Court’s basis for upholding the individual mandate in an earlier ACA legal challenge (see our Checkpoint article). They asserted that, because the individual mandate was essential to the operation of the ACA, its removal invalidated the entire law. A trial court in Texas agreed and ruled that the individual mandate was unconstitutional, the remaining ACA provisions could not be severed, and the entire ACA must fall (see our Checkpoint article). An appellate court agreed that the individual mandate was unconstitutional but sent the case back to the trial court to determine whether other provisions of the ACA could be severed from the individual mandate and remain in effect (see our Checkpoint article).
The Court dismissed the case, holding that the challengers lacked standing to pursue their case because they failed to show that they suffered an injury attributable to the challenged provision. Addressing the individuals’ claims, the Court noted that, because the individual shared responsibility penalty had been “zeroed out,” neither the IRS nor any other federal agency could seek a penalty against those who fail to purchase minimum essential coverage. Therefore, the individuals’ alleged injury (the cost of purchasing health insurance) could not be fairly traced to the now-unenforceable individual mandate. Regarding the states’ claims, the Court identified two types of injuries allegedly caused by the individual mandate: (1) increased use and costs of state-operated medical insurance programs (such as Medicaid) and (2) increased administrative expenses. The Court concluded that the substantial benefits associated with the state-operated programs were reason enough for residents to enroll, and that the states had failed to demonstrate that the now-unenforceable mandate would cause their residents to enroll in valuable programs that they would otherwise ignore. In discussing the increased administrative expenses identified by the states, the Court focused on the expense of reporting minimum essential coverage under Code § 6055 and offers of coverage by applicable large employers under Code § 6056. Because these reporting requirements are not imposed by, and operate independently of, the individual mandate, the Court held that the associated expenses were not fairly traceable to the mandate.
EBIA Comment: Many observers initially dismissed this challenge to the ACA as farfetched, but the lower court victories raised the case’s profile and created uncertainty about the law’s future. By deciding the challenge on procedural grounds, the Court avoided having to tackle (again) the ACA’s constitutionality or untie its complex and intertwined provisions. For group health plans, the decision maintains the status quo. More than ten years after its enactment, the ACA has proved its staying power. For more information, see EBIA’s Health Care Reform manual at Sections I.D (“Judicial Challenges to Health Care Reform”) and XXIX (“Shared Responsibility for Individuals (Individual Mandate)”).
Contributing Editors: EBIA Staff.