By David Slaughter

The U.S. Supreme Court once again rejected a constitutional challenge to the Affordable Care Act (ACA), finding this time that the plaintiffs lacked legal “standing” to sue because they could not show they had been harmed by the ACA provision at issue.

At the heart of the litigation was the ACA’s individual coverage mandate, which the Supreme Court in 2012 held to be valid only as an exercise of Congress’ taxing power. After the Tax Cuts and Jobs Act of 2017 (TCJA) zeroed out the individual mandate penalty, a coalition of states and individuals filed suit claiming that this taxation rationale no longer held.

By a 7-2 vote, however, the Supreme Court ruled that these plaintiffs could not tie their claimed injuries to this now-toothless coverage requirement (California v. Texas, Nos. 19-840 and 19-1019 (S. Ct., June 17, 2021)). The court reversed a federal appeals court’s December 2019 decision that the plaintiffs had standing and that the individual mandate was now unconstitutional.

The Supreme Court’s ruling means that the ACA’s employer mandate, reporting, and all other requirements remain in effect.

Background

In 2012, the Supreme Court ruled that, while requiring individuals to purchase health insurance exceeded Congress’ authority under the Commerce Clause, the “shared responsibility” payment imposed for failing to do so was a permissible exercise of Congress’ taxing power (National Federation of Independent Business (NFIB) v. Sebelius, 567 U.S. 519 (2012)).

Subsequently, the TCJA included a provision that, while not repealing the individual mandate outright, effectively nullified it by reducing the shared responsibility payment to zero, beginning in 2019. Twenty states and two individuals then filed suit, alleging that the TCJA change negated the Supreme Court’s tax justification by eliminating the “shared responsibility” payment without repealing the mandate itself.

A federal district court agreed with the plaintiffs that Congress’ repeal of the individual mandate penalty undermined the high court’s prior rationale for upholding the law. The district court also ruled that the rest of the ACA was not “severable” from the individual mandate, but left the act in place pending appeal (Texas v. United States, 340 F.Supp.3d 579 (N.D. Texas, Dec. 14, 2018)).

Sixteen other states, which had intervened in the litigation to defend the ACA, appealed the district court’s decision to the 5th Circuit. The Trump administration initially argued that only certain ACA provisions should be invalidated, but later changed course and sided with the plaintiffs altogether. The incoming Biden administration switched sides in support of the ACA.

By a 2-1 vote, the 5th Circuit agreed with the lower court that the ACA individual mandate was unconstitutional. The NFIB majority’s reasons for finding that the individual shared responsibility payment was permissible as a tax no longer applied, primarily because it no longer yielded revenue, according to the 5th Circuit majority. Therefore, the mandate could be read only as “a command to purchase insurance,” which five justices in NFIB had found to be unconstitutional.

However, the dissenting judge argued, among other things, that the plaintiffs lacked legal standing to challenge the ACA provision because they could trace no injuries to a requirement that “does nothing at all.”

The 5th Circuit remanded the case to the district court to determine which other ACA provisions would have to be struck down because of their link to the individual mandate. This “severability” analysis needed to be much more thorough than the lower court undertook the first time around, the majority noted.

Majority Opinion

Before reaching the merits of a case, a court must determine that a plaintiff has legal standing to bring it. Specifically, this means that the party must have suffered an actual injury that is traceable to the conduct being challenged and can be redressed by a favorable decision.

The individual and state plaintiffs each claimed to have suffered certain tangible injuries as a result of the ACA mandate. According to Justice Stephen Breyer’s majority opinion, however, “[n]either the individual nor the state plaintiffs have shown that the injury they will suffer or have suffered is ‘fairly traceable’ to the ‘allegedly unlawful conduct’ of which they complain.”

The two individuals argued that they had been injured by having to pay for the coverage the ACA requires. But according to the court, “the IRS can no longer seek a penalty from those who fail to comply,” meaning that “there is no possible Government action that is caus­ally connected to the plaintiffs’ injury—the costs of purchas­ing health insurance.”

The court also found the individuals’ claimed harms were not directly redressable. “The relief they sought in respect to the only provision they attack as unconstitutional—the minimum essential cover­age provision—is declaratory relief, namely, a judicial statement that the provision they attacked is unconstitu­tional,” Breyer wrote. An injunction would not provide redress because the provision’s unenforceability means “[t]here is no one, and nothing, to enjoin.”

“To find standing here to attack an unenforceable statutory provision would allow a federal court to issue what would amount to ‘an advisory opinion without the possibility of any judicial relief,’” Breyer continued. “It would threaten to grant unelected judges a general authority to conduct over­sight of decisions of the elected branches of Government.”

The state plaintiffs claimed different types of injuries but the majority found they were equally untraceable to the ACA mandate. The states cited higher expenditures for their state medical insurance programs (due to greater use) and greater administrative burdens related to their roles as employers and plan sponsors.

Regarding programs such as Medicaid, the states “have failed to show that the challenged minimum essential coverage pro­vision, without any prospect of penalty, will harm them by leading more individuals to enroll in these programs,” Breyer wrote. Given the variety of benefits these programs offer, “neither logic nor intuition suggests that the presence of the minimum essential coverage requirement would lead an individual to enroll in one of those programs that its absence would lead them to ignore.”

As for employment-related costs such as the reporting required by ACA sections 6055 and 6056, the court attributed these to a different section of the act that apparently could still operate even absent an individual mandate. “To show that the minimum essential coverage requirement is unconstitutional would not show that enforcement of any of these other provisions violates the Constitution,” Breyer wrote. “The state plaintiffs do not claim the contrary. The Government’s con­duct in question is therefore not ‘fairly traceable’ to en­forcement of the ‘allegedly unlawful’ provision of which the plaintiffs complain.”

The majority concluded that the plaintiffs lacked standing because they “failed to show a concrete, particularized injury fairly traceable to the defendants’ conduct in enforcing the spe­cific statutory provision they attack as unconstitutional.” It therefore reversed the 5th Circuit’s judg­ment in respect to standing, vacated the judgment, and re­manded the case with instructions to dismiss.

Concurring Opinion

In a separate concurring opinion, Justice Clarence Thomas explained why he did not vote to invalidate the ACA as he had in NFIB and the 2015 case King v. Burwell.

Because the plaintiffs failed to identify any unlawful act that injured them, the ruling is “not the consequence of the Court once again rescuing the Act, but rather of us adjudicating the particular claims the plaintiffs chose to bring,” Thomas wrote. “And in light of the specific arguments and theories advanced in this suit, I do not believe that the plaintiffs have carried this burden.”

Dissenting Opinion

In a dissent joined by Justice Neil Gorsuch, Justice Samuel Alito argued that standing should be evaluated in light of the ACA as a whole, not just the individual mandate.

“The States have clearly shown that they suffer concrete and particularized financial injuries that are traceable to conduct of the Federal Government,” Alito wrote. “The ACA saddles them with expensive and burdensome obligations, and those ob­ligations are enforced by the Federal Government. That is sufficient to establish standing.”

The states effectively do trace their injuries to the individual mandate in that “they argue that costly obligations imposed on them by other provisions of the ACA cannot be severed from the mandate,” Alito continued. “If both steps of the States’ argument that the challenged enforcement actions are unlawful are correct, it follows that the Government cannot lawfully enforce those obligations against the States.”

Because Alito determined that the states had standing, he would have proceeded to consider the merits of the case. The individual mandate is no longer defensible as a tax because, as now written, it will never produce revenue, he argued. “Congress cannot supple­ment its powers through the two-step process of passing a tax and then removing the tax but leaving in place a provi­sion that is otherwise beyond its enumerated powers.”

On the question of severability, Alito concluded that the ACA provisions burdening the state plaintiffs “are inextricably linked to the individual mandate and that the States have therefore demonstrated on the merits that those other provisions cannot be enforced against them.” The state plaintiffs should be “entitled to a judgment providing as much.”

Implications

The latest Supreme Court decision “solidifies the ACA as a cornerstone of American healthcare policy, and may put to rest additional challenges at least for the time being,” according to a blog post from The Segal Company. The focus may now turn to legislative fixes in areas like the employer shared responsibility penalty.

“In addition, the administration had proposed to modify the ‘firewall’ between the ACA exchange and employer-sponsored coverage in a way to allow individuals to enroll in the exchanges even if they have access to employer-sponsored coverage,” Segal noted. “Other issues to watch include legislative efforts to extend Medicaid to non-expansion states, to make the American Rescue Plan Act’s enhancement to ACA subsidies permanent and to expand Medicare to age 60.”

The decision has no direct consequences for employers, observed Mercer’s Katharine Marshall and Geoff Manville in a blog post. ACA provisions such as the preventive coverage mandate and ban on pre-existing condition exclusions “have become group plan features for years and remain unchanged,” as do the employer shared responsibility mandate and annual reporting obligations.

“In recent years, proposals to streamline the reporting requirement have languished, partly due to fears of harming the IRS’s ability to administer the ACA premium tax credits for eligible individuals with public marketplace coverage,” Marshall and Manville added. “Congress is unlikely to revisit reporting simplification this year since they are focused on other priorities.”

David A. Slaughter, JD, is a Senior Legal Content Specialist. He focuses on providing, editing, and updating content related to employee benefits and privacy compliance, including the Thompson HR benefits products. Before coming to BLR, he was an employee benefits compliance editor with Thompson Information Services.