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Column | Healthcare Reform

The Texas Federal District Court’s Ruling on the Constitutionality of the ACA

Column | Healthcare Reform

The Texas Federal District Court’s Ruling on the Constitutionality of the ACA

The 2018 ruling in by the Texas District Court declaring Affordable Care Act unconstitutional is expected to be overturned, but the decision still could have an adverse effect on the future of value-based payment.

The debate on the politics and constitutionality of the Affordable Care Act (ACA) was once again reopened on Dec. 14, 2018, when Judge Reed O’Connor of the United States District Court for the Northern District of Texas, Fort Worth Division, issued a 55-page ruling on Texas v. United States that declared the ACA unconstitutional.

The timing of the ruling—one day before the deadline to buy health insurance on the ACA exchanges—brought the court’s determination into sharp relief.

The Supreme Court has addressed the constitutionality of the ACA twice in the past. On June 28, 2012, in National Federation of Independent Business (NFIB) v. Sebelius, the high court upheld by a vote of 5 to 4 the individual mandate to buy health insurance as a constitutional exercise of Congress’s power to tax. On June 25, 2015, in King v. Burwell, the Supreme Court upheld by a 6 to 3 vote the outlay of premium tax credits to qualifying persons in all states, both those with exchanges established directly by a state and those otherwise established by the U.S. Department of Health &amp; Human Services (HHS).

With the Texas court’s ruling, there is a chance that the nation’s highest court may have to address this issue a third time.

Plaintiffs and Defendants

The plaintiffs (“Texas”) in the recent case included Republican state attorneys general from 18 “red” states (led by Texas Attorney General Ken Paxton), Governor Scott Walker (R-Wis.), Governor Paul LePage (R-Maine), and two individuals, Neill Hurley and John Nantz.

The defendants (“U.S.”) include the United States, HHS, the IRS, Democratic state attorneys general from 16 “blue” states (with California Attorney General Xavier Becerra as the lead), and the District of Columbia.

Judge O’Connor’s Reasoning

The Texas judge’s rationale involves multiple steps. First, in NFIB, the Supreme Court held the individual mandate was unconstitutional under the Interstate Commerce Clause but could fairly be read as an exercise of Congress’s power to tax because it triggered a tax. Second, the Tax Cuts and Jobs Act of 2017 eliminated that tax, so the individual mandate may no longer be upheld under Congress’s power to tax. O’Connor wrote, “In some ways, the question before the Court involves the intent of both the 2010 and 2017 Congresses. The former enacted the ACA. The latter sawed off the last leg it stood on.” Third, per the 2010 Congress and President Barack Obama through the enacted text of the ACA, as well as all nine Supreme Court Justices in the NFIB ruling, the individual mandate is “essential” to the ACA and must work “together with the other provisions” for the Act to function as intended. Thus, fourth, the individual mandate cannot be severed from the ACA’s remaining provisions.

O’Connor concluded that if the individual mandate is unconstitutional, then the rest of the ACA is unconstitutional as well.

Immediate Response

In the week after the Texas court’s ruling, critics aimed their guns at the suit and O’Connor, with relatively little direct refutation of the judge’s legal reasoning. Some were quick to label the suit as partisan, ideological, and short-sighted, while one law professor called O’Connor’s ruling “judicial activism.” a The judge was accurately portrayed as a conservative, but his colleagues in the local legal community also described him as fair, no-nonsense, low-key, and hardworking. b

Legislative Fixes

Some have suggested that Congress could put an immediate end to the case if it passed legislation that imposes a nominal shared-responsibility payment of say, $1, for violation of the individual mandate. Alternatively, a simple declaration from Congress stating that the individual mandate is severable from the rest of the ACA might suffice. However, the chances of either of those happening is virtually nil, given the highly partisan environment in Washington, the divided government produced by the 2018 midterm elections (with an even stronger Republican majority in the Senate), and President Donald Trump touting the Texas court’s ruling as “a big, big victory by a highly respected judge...” c

Next Steps

The case is still with the Texas court, as O’Connor considers additional proceedings on remaining claims. An appeal by some of the defendants (led by California) will likely be heard by the New Orleans-based U.S. Court of Appeals for the Fifth Circuit at some point in 2019, depending on the duration of the additional proceedings.

Most observers predict that if the Fifth Circuit—which has a reputation for being conservative, with 11 judges appointed by Republicans, five judges appointed by Democrats, and one vacancy—does not undo O’Connor’s decision, the Supreme Court will hear the case in the fall of 2019 at the earliest and more likely in the spring of 2020.

The best case from the perspective of those who support the ACA would be an overturning of O’Connor’s ruling by the Fifth Circuit in the summer of 2019.

Implications for Health Care

To be clear, the Texas court’s ruling does not gut the ACA—O’Connor did not grant a request from the plaintiffs to have his ruling take effect immediately. In fact, HHS put out a statement making it clear that it “will continue administering and enforcing all aspects of the ACA as it had before the court issued its decision.” d It would take a denial by the Fifth Circuit of the appeal, as well as a subsequent Supreme Court ruling upholding the Texas court’s complete ruling, for the entire ACA to be deemed unconstitutional on a nationwide basis. Moreover, most legal analysts believe that the ruling ultimately will be overturned.

But legal analysts have been wrong before, as was seen in NFIB, when the high court struck down the Medicaid expansion as a mandatory program and instead allowed states to decide whether to participate—in direct conflict with Congress’s legislative intent. Because of this unpredictability, the Texas court’s ruling has already created some small clouds of uncertainty regarding the ACA’s future. A longer-than-expected appeals process could conceivably dampen healthcare provider enthusiasm for value-based care, as well as health insurer participation and consumer enrollment in the ACA exchanges.

At a minimum, O’Connor’s ruling has put in motion a judicial process that will undoubtedly take some time. It adds fresh fuel to the political-legal conflagration engulfing the ACA and increases the probability that health care will be a major, if not the central, issue in the 2020 election campaigns.

Footnotes

a. Bagley, N., “The Latest ACA Ruling Is Raw Judicial Activism and Impossible to Defend,” The Washington Post, Dec. 15, 2018.

b. Krause, K., “A Look at the Low-Key Texas Judge Who Tossed Obamacare Shows a History of Notable Conservative Cases,” Dallas News, Dec. 18, 2018. 

c. Phelps, J., “Trump Calls Decision by Federal Judge to Strike Down Obamacare a 'Great Ruling,'” ABC News, Dec. 15, 2018.

d. U.S. Department of Health and Human Services, “Statement from the Department of Health and Human Services on Texas v. Azar,” Dec. 17, 2018.

About the Authors

Ken Perez

is vice president of healthcare policy, Omnicell, Inc., Mountain View, Calif., and a member of HFMA’s Northern California Chapter.

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