You may have seen the news that the Department of Justice is no longer defending the Affordable Care Act against a challenge that, now that the penalty is being eliminated, the individual mandate is unconstitutional including certain protections for people with pre-existing conditions. We wanted to provide a quick explanation of what’s going on to help you better explain the developments to your clients.

Yet Another Lawsuit

On February 26, a group of 20 red states filed a lawsuit claiming that because the individual mandate penalty has been reduced to zero, the mandate is now unconstitutional, which makes the entirety of the ACA unconstitutional. When the Supreme Court ruled in June, 2012 that the individual shared responsibility requirement was constitutional under Congress’ authority to impose a tax, a big part of its argument was that the mandate is in fact a tax because it generates at least some revenue for the federal government. Now that the penalty will be reduced to zero starting in 2019, cutting off the revenue, the plaintiff’s argument is that it is no longer a tax and is therefore unconstitutional since the government cannot require citizens to purchase a particular product.

The Justice Department agrees and has decided not to fight the case. As the New York Times explains, the “Justice Department has a long tradition of defending statutes enacted by Congress, regardless of whether it supports the policies reflected in those laws.” Not this time.

Can the other provisions survive without the mandate?

In a 22-page brief filed with the court on June 7, the Justice Department actually takes the argument a step further. Drawing on Justice Roberts’ majority opinion in the 2015 King v. Burwell case, in which ACA opponents lost their argument that the premium tax credits should only be available through state exchanges, not through the federal Marketplace, the Trump administration argues that guarantee issue and community rating cannot survive without the individual mandate. The Supreme Court ruled 6-3 in King v. Burwell that nationwide premium tax credits were, in fact, the intent of Congress because they work in conjunction with the guarantee issue provision and the individual mandate. Here’s what Justice Roberts said:

Congress made the guaranteed issue and community rating requirements applicable in every State in the Nation, but those requirements only work when combined with the coverage requirement and tax credits. It thus stands to reason that Congress meant for those provisions to apply in every State as well.

In short, the Court’s argument was that insurance carriers cannot be required to take on everyone who wants health insurance unless the government requires healthy people to sign up for coverage too, so the individual mandate is essential. And people cannot be required to purchase coverage they cannot afford, so the premium tax credits are also an essential ingredient. Congress would not deliberately design the law to fail, so it clearly intended for all three components to be in place, regardless of whether an individual purchases coverage through a federal or state exchange.

The New Argument

Working backward, the Justice Department reasons that since the individual mandate, in its opinion, is now unconstitutional, guaranteed issue and community rating must also be eliminated since they are inseverable from the individual mandate. Though the brief does not call for the elimination of the premium tax credits, it does ask the court to find the rule that insurance companies cannot decline people with health conditions or charge them more based on their health status to be unconstitutional.

While this argument might seem a little far-fetched to some people, especially since experts agree that the elimination of the individual mandate will not destroy the market as carriers already have the additional risk of adverse selection factored into their 2019 premiums, there is a real chance that the court will side with the plaintiffs. This is especially true since the Trump Administration and the Justice Department will not provide a defense against this lawsuit.

Here’s what the Justice Department said

Among the points made in the Department of Justice’s court filing were:

• The TCJA eliminated the penalty for failing to purchase minimum essential coverage (starting in 2019), but left untouched the statutory “[r]equirement to maintain minimum essential coverage.”
• Critically, however, the Supreme Court’s saving construction of the individual mandate as a tax is no longer available.
• As of 2019…the individual mandate will be unconstitutional under controlling Supreme Court precedent holding that “[t]he Federal Government does not have the power to order people to buy health insurance.”
• Congress’s own “findings establish that the guaranteed-issue and community-rating provisions are inseverable from the minimum coverage provision.”
• The remainder of the ACA, however, can stand despite the invalidation of those provisions.

Why the Administration might be wrong

An article in Modern Healthcare explains why the court may disagree with the argument made in the Justice Department’s filing:

Abbe Gluck, a Yale University law professor, noted that the doctrine of severability is based on congressional intent, but the legal question, in this case, shouldn't focus on Congress' intent in 2010 when lawmakers passed the ACA. Instead, the court should focus on 2017 when Congress zeroed out the individual mandate penalty but did not touch the pre-existing condition and community rating provisions. "A court doesn't now have to guess whether Congress wanted the rest of the statute to remain standing," Gluck said. "Congress told us that by leaving it intact. 

California will provide a defense against the lawsuit

As the Washington Post reports, California Attorney General Xavier Becerra has pledged “to redouble his efforts as the Affordable Care Act’s leading defender,” saying that the Trump administration has gone AWOL and has abandoned the millions of Americans who depend on the ACA’s consumer protections. Becerra is not alone, though. Democratic attorney generals from around the country have vowed to defend the ACA, and the court did rule in May that they can “intervene” in this case. Long story short, there will be a defense in this lawsuit, even though the federal government will not be part of it.

More Market Uncertainty

Many believe that this case will ultimately work its way to the Supreme Court, and both sides seem to be preparing for that battle. In the meantime, this case is one more thing that will create uncertainty in the market, and when there is uncertainty prices usually go up. We’ll let you know if we hear of any other important developments.