Industry Buzz: ACA Constitutionality Is Back in Play

After a series of court setbacks, Republicans challenging the constitutionality of Obamacare, aka, the Affordable Care Act (ACA) are back at it. And this time they may win.

Beating a Dead Horse?
The issues in this new case are the same as before, namely, the constitutionality of the individual mandate and entire ACA. Six years ago, the U.S. Supreme Court upheld the individual mandate as constitutional, reasoning that the mandate plus the penalty for not having health insurance constitute a federal tax and thus a constitutional exercise of Congress's constitutional powers to tax [National Federation of Independent Business v. Sebelius].

But things have changed since Sebelius. On Dec. 20, 2017, Congress passed the Tax Cuts and Jobs Act establishing the mandate penalty at $0 starting in 2019. The new case contends that a zero penalty is not a tax and thus no longer supportable as an exercise of Congressional taxing powers. And since the individual mandate isn't severable from the rest of the ACA, the entire ACA should be struck down as unconstitutional.

And then there's the legal defense team. Needless to say, the Trump Justice Department is far less dedicated to defending the ACA than its predecessor. The DOJ agrees that 16 parts of the ACA should be struck down. Where it differs from the plaintiffs is in deeming two parts of the law constitutional and worth defending. But with such a lukewarm endorsement, it's hardly surprising that attorney generals from 16 states and the District of Columbia have intervened in the lawsuit to bolster the ACA's defense.

The Texas Showdown
The venue for the new case, Texas v. United States, is the federal district court in the Northern District of Texas. On Sept. 5, Judge Reed O'Connor held a hearing on the plaintiffs' request for a preliminary injunction (PI), i.e., court order barring enforcement of the law pending the outcome of the case. A PI would effectively freeze the ACA unless and until either an appeals court overturned it or the court ultimately ruled on the merits in favor of the law's constitutionality.

The good news for ACA advocates is that getting a court to issue a PI is a pretty stiff task. To pull it off, the plaintiffs must prove four things:

1. They'll likely to succeed on the merits of the case;
2. They'll likely suffer "irreparable harm" if the PI isn't granted;
3. The balance of equities favors their argument;
4. Granting the PI is in the public interest.

What's At Stake
Obviously, there's a lot on the line in both the short- and long-term:

Short-Term: If the PI is granted, it would create a hot mess in insurance markets. The DOJ itself noted that a preliminary injunction could introduce "chaos in the insurance markets" and asked the court to limit any declaratory ruling to the constitutionality of the individual mandate beginning in 2019. The DOJ also noted the need for additional briefing on the timing and impact of an injunction on state insurance markets, as well as the need to potentially issue new regulations and address the multi-year process by which insurers must get their products approved for sale.

Long-Term: Invalidating the entire ACA would adversely impact:

• Protections for people with pre-existing conditions;
• ACA Medicaid expansion;
• Children under 26 who get insurance through their parents' plan;
• Annual and lifetime coverage limits; and
• Caps on out-of-pocket expenses.

Accordingly, the DOJ has asked the court to defer any ruling on severability, i.e., whether invalidation of the mandate takes down the entire ACA, until 2019 after the close of the next open enrollment period and mid-term elections.

More to Come
Don't expect any immediate resolutions one way or the other. No matter how the court rules, an immediate appeal to the Fifth Circuit of Appeal is all but assured. And no matter how the Fifth Circuit ruled, the U.S. Supreme Court will be asked to intervene—although there's no guarantee it'll accept the case.