Last year the legislative effort to repeal and replace the Affordable Care Act collapsed, and it seemed that the ACA’s most important protection – non-discriminatory access to health insurance for people with pre-existing health conditions – was saved. Now Americans once again are facing an existential threat to this most basic guarantee. The cause: a lawsuit filed in February, 2018, by 20 states to overturn the ACA in its entirety as an unconstitutional act of Congress. The triggering event for this sweeping and seemingly incomprehensible claim made in Texas v Azar -- given the Supreme Court’s 2012 decision upholding the constitutionality of the ACA -- is the Tax Cuts and Jobs Act of 2017, that, among other changes, zeroed out the tax penalty imposed on nearly all people who have access to affordable health insurance but fail to purchase it. While the tax law made the ACA tax penalty unenforceable, it made no other changes other than untethering the law from actual revenue collection.
But according to the Azar plaintiffs, eliminating the tax penalty actually transformed the ACA tax from a constitutional law into an unconstitutional mandate that Congress has no power to impose; they argue that a tax law is legal only if it is truly a tax law – that is, only if it actually collects revenue. The plaintiffs then used this point as a springboard to make the further argument: that the constitutionality of the entire ACA hangs on its tax provision, which was designed to ensure a healthy enough insurance risk pool to support a more regulated insurance system that is open to all, including people who are sick. According to plaintiffs, with the demise of the ACA tax, two additional consequences follow: first, the ACA in its entirety becomes illegal; and second, the ACA is doing so much harm to states that its operation must be immediately enjoined – the insurance reforms, the premium and cost sharing subsidies, the Medicaid expansion funding, expansion of Medicare Part D prescription drug coverage, the special grants to expand community health centers and the National Health Service Corps, the Public Health Trust Fund, expanded community benefit obligations for tax-exempt nonprofit hospitals, and more.
Frankly -- even factoring in the point that no federal case brought by so many states ever can be taken lightly – this lawsuit seemed especially improbable. Why would zeroing out the tax penalty – a vital issue to be sure, given the need for a healthy risk pool to make health insurance work, but nonetheless a single provision in a massive law – make the rest of it unconstitutional? After all, when Congress included the change to the tax penalty in the Tax and Jobs Act, it said nothing – not in statute, not in legislative history – to suggest that this change would end other provisions of the ACA such as market reforms, subsidies, Medicaid funding, or anything else. A purely cynical view might be that by zeroing out the tax, ACA opponents knew they were setting up a lawsuit to go after the underlying mandate itself and the rest of the ACA. After all, in its 2012 decision upholding the mandate’s constitutionality, and later in the 2015 case challenging the legality of federal premium tax subsidies in states that did not operate their own Marketplaces, the Supreme Court had alluded to the crucial role played by the tax penalty in making possible the ACA’s vital protections for the sick. But probably a better answer to why Congress wiped out the penalty while leaving the underlying mandate on the books is that the procedural rules governing the legislative process allowed lawmakers to include provisions that carry direct and measurable budgetary effects (that is, changes to the financial penalty) but not to make substantive changes whose effects are more indirect and speculative (in this case, removing the underlying mandate itself).
Not only are the plaintiffs’ legal arguments difficult to understand; one also has to wonder what, exactly, could be the serious harms that would befall states were the ACA to continue in effect while their legal arguments are being hashed out. States claim in their brief that not only are they right on the law but also that they deserve an immediate injunction. Asking a federal court to enjoin an entire Act of Congress is extraordinary to begin with; even more so is arguing that harm is so great and so vastly outweighs other considerations that a plaintiff deserves an immediate injunction. Here, the equities all would appear to be against the plaintiffs, considering how many people would be injured were the premium subsidies and federal Medicaid funding to end. Virtually all plaintiff states rely on the federal Marketplace and don’t spend money on their own systems. Virtually none of them has invested in the Medicaid expansion. To be sure, there are Medicaid reforms (those that streamline the enrollment and renewal process) that apply to all states. Perhaps they mean that federal insurance regulations are doing great damage to their insurance markets, but how could such a speculative argument overshadow elimination of Medicaid for 15 million expansion enrollees or premium tax subsidies for 11 million people or protections against being barred from buying an individual insurance policy for health reasons?
In sum, the seeming absurdity of the legal claims, coupled with the overwhelming lack of justification for granting an immediate injunction against the ACA’s continuing operation, made the entire venture in this latest legal assault on health reform seem out of sync with reality. As a result, aside from the 20 Republican Attorneys General who brought the suit, the 16 Democratic Attorneys General who have been granted the right to intervene in the case, and perhaps, the amici (friends of the court) on both sides, the case received only limited coverage.
But as the public has learned from nearly a decade of ACA-related litigation, a massive constitutional challenge to a vast and complex law can be like a rollercoaster ride – with wild dips and swings. On June 7, one of those big swings occurred.
The defendant in the case is HHS Secretary Alex Azar; as in other landmark ACA cases it is often the HHS Secretary who becomes the named defendant because it is HHS that is primarily charged with enforcing the law. And of course, the Secretary is represented by the United States Department of Justice. On June 7th the Trump administration DOJ finally filed its response to the plaintiffs’ claims that the entire ACA was unconstitutional and had to be enjoined immediately from further operation. In its brief, the DOJ agreed with the plaintiffs, taking the position that the 2017 tax law had essentially eliminated the legal basis for treating the individual mandate as a constitutional tax, converting the provision into an unconstitutional mandate. DOJ went on to argue, however, that the proper remedy was not an immediate injunction against the entire ACA, but simply a declaration that the constitutional basis for the mandate will go away in 2019, when the tax penalty drops to zero. Furthermore, DOJ argued, the only provisions of the ACA that must fail when the tax repeal goes into effect are its prohibition against denying coverage for people with pre-existing conditions or charging sick people higher rates (guaranteed issue and community rating). The rest of the law, DOJ argued, can remain.
What does this all mean? To be sure, the administration appears to be willing to let survive the tax subsidies, federal funding for the Medicaid expansion, and the scores of other ACA health and health care reforms. But second, the administration appears to have gone after arguably the single most crucial part of the ACA – the very protections for the sick that the 2017 repeal and replace legislation would have upended and that ultimately drove so much of the successful and widespread resistance to the attack.
As Tim Jost notes in his blog for the Commonwealth Fund, there is reason to belief that the federal judge hearing this case will be highly sympathetic to the views of the plaintiff states and the defendants. The implications are enormous for the 52 million Americans protected by the ACA’s ban on discrimination against the sick.
And of course the problems go on from there. This is the time that insurers start submitting bids for the policies they sell in the individual market. What should they do if the court eliminates their obligation to fairly treat people with pre-existing conditions? Assuming they continue to honor the federal law (a declaration by a federal trial court certainly would be appealed right away), then how should they set their premiums in the meantime? Of course, the Justice Department offers no answer. It is worth noting that several career DOJ lawyers withdrew from the case rather than sign the brief, presumably because refusing to defend the law was itself indefensible. Indeed, the brief claims that the guaranteed issue and community rating provisions must fall because when it wrote the ACA, Congress expressed the belief regarding the importance of the relationship. From the law’s point of view, an opinion regarding the importance of relationships is not the same as clear legislation making the relationship one that cannot survive if both sides do not. The ACA contains no such language, nor did the tax law. It is no wonder that in the end the brief for the administration was signed by political appointees, not career lawyers.
What the tax law did, as Tim points out, was to make the mandate unenforceable, not unconstitutional, a key argument made by California’s Attorney general. And since the Congressional Budget Office recently has concluded that the insurance market can survive in a stable form even without the mandate, there simply is no justification for what the Trump Administration has done. As the Washington Post has pointed out, the most significant fallout from the Administration’s position may be felt in the mid-term elections, given the importance of health insurance as an issue for voters. This fact just adds to the mystery of this latest, thoroughly destructive move.