California v. Texas

Issues 

Do the individual and state plaintiffs have standing to challenge the amended individual mandate provision of the ACA; and, if they do, is the provision unconstitutional because Congress reduced the penalty for non-compliance with the provision to zero; and, finally, if the provision is unconstitutional, can it be severed from the rest of the ACA?

Oral argument: 
November 10, 2020

This case asks the Supreme Court to determine the status of the Affordable Care Act (“ACA”) after Congress amended the ACA’s individual mandate in 2017. When Congress enacted the ACA in 2010, the individual mandate required individuals to maintain health insurance or pay a penalty. In 2012, the Court upheld the individual mandate as a valid exercise of Congress’s Taxing Power. In 2017, as part of the Tax Cuts and Jobs Act, Congress lowered the individual mandate’s penalty for failing to maintain health insurance to zero dollars. Texas contends that by setting the penalty for non-compliance to zero dollars, Congress rendered the individual mandate unconstitutional because it no longer is a valid exercise of Congress’s Taxing Power. Texas further argues that the individual mandate is not severable from the rest of the ACA, requiring the Supreme Court to strike down the entirety of the ACA. California disputes this. As a threshold matter, California contends that the opposing parties do not have standing to bring this claim because they have not been injured by the penalty of zero dollars. But even if they have standing, California argues that the individual mandate is constitutional. Finally, if it is not constitutional, California contends that the individual mandate can be severed from the rest of the ACA. This case, and the viability of the ACA, has drastic policy implications for the millions of Americans who rely on the ACA for their health insurance.

Questions as Framed for the Court by the Parties 

(1) Whether the individual and state plaintiffs in this case have established Article III standing to challenge the minimum-coverage provision in Section 5000A(a) of the Patient Protection and Affordable Care Act (ACA); (2) whether reducing the amount specified in Section 5000A(c) to zero rendered the minimum-coverage provision unconstitutional; and (3) if so, whether the minimum-coverage provision is severable from the rest of the ACA.

Facts 

In March 2010, President Obama signed the Affordable Care Act (“ACA”) into law. Texas v. United States at 2. The ACA’s proponents hoped to expand healthcare coverage while offsetting the costs of rising health insurance premiums. Id. at 2. Opponents of the ACA immediately attacked its legitimacy through both litigation and congressional amendments. Id. at 5. Opponents saw it as an unconstitutional tax leveled against unwilling participants, denying them economic liberty. Id. at 2.

The controversy centered on a provision of the ACA known as the “individual mandate,” which required that uninsured persons purchase government healthcare or face a penalty. Id. at 68. In 2012, the United States Supreme Court affirmed the constitutionality of the individual mandate in Nat’l Fed’n of Indep. Bus. v. Sebelius (NFIB) under the Constitution’s Article I, Section 8 Taxing and Spending Clause. Id. at 6. Notably, the Court held that the ACA was not constitutionally authorized by the Commerce Clause because the ACA did more than merely regulate interstate commerce; it actually compelled individuals to participate in commerce. Id. Additionally, the Court ruled that the ACA was not a justifiable use of the Necessary and Proper Clause because such a ruling “would [then] empower the government to compel Americans into all kinds of behavior that the government thinks is beneficial for them.” Id. at 7. The Court therefore solely relied on the Taxing and Spending Clause to justify the ACA’s constitutionality. Id.

The Court’s decision was nevertheless met with controversy. Id. at 1. In December 2017, President Trump signed into law the Tax Cuts and Jobs Act (“TCJA”). Id. at 7. The TCJA included a provision that lowered the ACA’s penalty for non-compliance with the individual mandate to zero. Id.

With the individual mandate set to zero, the ACA’s opponents questioned whether the individual mandate was still constitutional under Congress’s Taxing Power. Id. at 9. In February 2018, Texas, along with 18 other states (“Texas”), as well as two private citizens, Neill Hurley and John Nantz (“the individuals”), brought this case to the United States District Court for the Northern District of Texas against several federal defendants (“the federal government”). Id. There, Texas and the individuals claimed that the individual mandate was no longer constitutional under Congress’s Taxing Power because the ACA no longer generated revenue. Id. Additionally, the plaintiffs argued that because the individual mandate was “essential to and inseverable from the rest of the ACA,” the entire ACA must be struck down. Id. at 8. The federal defendants agreed with the plaintiffs but maintained that only the individual mandate and the ACA’s guaranteed-issue and community-rating requirements needed to be severed. Id. Because the federal defendants did not completely defend the ACA, California and fifteen other states (“California”) intervened to protect the entire ACA. Id. Eventually, after finding that the plaintiffs had standing to bring the claim, the district court agreed with the plaintiffs on both of their claims. Id.

On appeal, the House of Representatives (“The House”) and four additional states successfully intervened to join California in defending the ACA. Petition for a Writ of Certiorari at 10. They petitioned the United States Court of Appeals for the Fifth Circuit that the entire ACA, rather than the three provisions previously articulated in their litigation position at the district court, was inseverable. Id. at 9–10. The petitioners asked the Fifth Circuit to review the district court’s decision and decide whether the severance of the individual mandate provision from the rest of the ACA rendered the entire act unconstitutional. Id. The Fifth Circuit affirmed the district court’s opinion on the constitutionality of the individual mandate but remanded to the district court on the severability question, finding its analysis incomplete. Id. at 13. On March 2, 2020 the United States Supreme Court granted certiorari to hear this case.

Analysis 

DO THE INDIVIDUALS HAVE STANDING TO CHALLENGE THE INDIVIDUAL MANDATE?

Petitioners California and the House of Representatives argue that Neill Hurley and John Nantz (“the individuals”) lack Article III standing because they have not suffered a concrete and particularized injury. See Brief for Petitioner, California et al. (“Brief for California”) at 18; Brief for Respondent, United States House of Representatives, in Support of Petitioner (“Brief for the House”) at 20–21. California and the House state that the amended individual mandate simply offers the individuals a choice: buy health insurance or pay a zero-dollar penalty. Id. Thus, California and the House argue that since there are no true consequences for failing to buy health insurance, the individuals are not compelled to buy health insurance. Id.

Further, California and the House contend that even if the individual mandate were a command to buy health insurance, the individuals would still lack standing. See Brief for California at 18–19; Brief for the House at 23–24. To have standing, California and the House argue the individuals must show they would face a legal consequence for disobeying the command. Id. Here, California argues that since the individual mandate is essentially unenforceable because the “penalty” for non-compliance has been set to zero, the individuals cannot show that they would face any such consequences. See id. And while the individuals did buy health insurance, California states that since the individuals faced no consequences for not doing so, the individuals cannot create their own standing by “self-inflict[ing]” an injury. Id.

The individuals assert they do have standing to challenge the individual mandate. See Brief for Respondent, Neill Hurley and John Nantz (“Brief for Individuals”) at 18–19. The individuals contend they are “objects” of the individual mandate because the individual mandate commands them to buy health insurance. See id. Under Supreme Court precedent, objects of a government action have standing to challenge that action. See id.

Respondent the individuals further argue that even if being objects of a government action is insufficient to establish standing, they have met the three traditional elements for standing: (1) suffering a concrete and particularized injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision. Id. at 18–20. They contend they suffered a concrete and particularized injury in-fact when they bought health insurance solely to comply with the individual mandate. See id. at 19. The individuals next state that the other two elements of standing—causation and redressability—are met. See id. The individuals maintain that the individual mandate was the only reason why they bought health insurance, and if the Court finds the individual mandate unconstitutional, they will no longer have to pay for the insurance. See id. at 20.

The individuals also contest California and the House’s argument that since the penalty for not buying health insurance under the amended provision is zero dollars, the mandate does not force the individuals to buy health insurance. See id. at 20. Rather, the individuals argue they are compelled to buy health insurance—regardless of penalties—to comply with the law. See id. at 20–21.

DO THE STATES HAVE STANDING TO CHALLENGE THE MINIMUM‑COVERAGE PROVISION?

California and the House argue that Texas and the other state respondents (“the states”) lack standing because the states have not shown that they have suffered a concrete and particularized injury. See Brief for California at 21; Brief for the House at 25. They dispute Texas’s argument that the states suffered a financial injury because the individual mandate has resulted in higher Medicaid enrollments. See id. California and the House contend that Texas’s standing argument relies on two untenable inferences: first, that individuals will misinterpret the individual mandate to require them to buy health insurance, and second, after misinterpreting the individual mandate, those individuals will enroll in Medicaid or a state-employer insurance plan. See Brief for California at 22–23; Brief for the House at 26–28. Rather, California and the House argue that since failing to buy health insurance is not penalized under the individual mandate, it is implausible that individuals will seek health insurance solely to comply with it. See Brief for California at 22–23; Brief for the House at 27. Moreover, California and the House contend that even if individuals misinterpret the individual mandate to require them to have health insurance, it is unlikely individuals will even enroll in Medicaid or a state-employer insurance plan. See Brief for California at 23; Brief for the House at 28. Furthermore, California and the House state that regardless of any pressure from the individual mandate, individuals who are eligible for healthcare programs like Medicaid already have compelling reasons to join those healthcare plans. See id. Thus, California and the House argue that the states’ injury is based on a “highly attenuated chain of possibilities” that is insufficient to merit standing. Id.

The House further argues that the other harms that Texas alleges to have suffered are not a basis for standing to challenge the individual mandate. See Brief for the House at 28. The House states that none of Texas’s ACA-related harms—reporting requirements, providing employees with insurance, expanded Medicaid, and responding to the effects of the ACA—have any connection with the individual mandate. See id. at 31–32. The House thus contends that these alleged harms do not provide a basis for standing because alleged injuries from one part of a statute do not provide standing to challenge a different part of the statute. See id.

Respondent Texas asserts the states have standing to challenge the ACA because parts of the ACA—including the individual mandate—financially injure them and prevent them from applying their state’s laws to their healthcare markets. See Brief for Respondent, Texas et al. (“Brief for Texas”) at 19–20, 29. First, Texas asserts that the amended individual mandate increases the healthcare costs that states must pay. Id. at 20. Texas contends that it is likely that many people will comply with the individual mandate by enrolling in Medicaid, and since the states bear part of each enrollee’s Medicaid expenses, the individual mandate causes the states to bear a substantial risk of incurring additional costs. Id. Further, Texas points to a number of different ways in which the ACA interacts with the individual mandate to increase its healthcare costs: the states must spend time and money to comply with the ACA’s reporting requirements and other regulations; the state—when acting as an employer—must provide its employees minimum healthcare coverage; the states must pay for the ACA’s expansion of Medicaid; and states have to spend money or change laws to respond the ACA’s effects. See id. at 20–24.

IS THE INDIVIDUAL MANDATE CONSTITUTIONAL EVEN THOUGH THE PENALTY FOR NON-COMPLIANCE IS ZERO DOLLARS?

California and the House argue that enacting the amended individual mandate was within Congress’s constitutional powers. See Brief for California at 25; Brief for the House at 34. California and the House state the appropriate construction of the amended individual mandate is not a command but rather a choice: either buy health insurance or pay a penalty of zero dollars. See Brief for California at 26-28; Brief for the House at 17. They contend that in NFIB, the Court held that the text of the individual mandate—individuals “shall” buy health insurance—was not a command because individuals had the choice of these two options. See id. Thus, they reason that when Congress lowered the penalty to zero, it simply changed the terms of this choice. See id.

After concluding the amended individual mandate is still a choice, California and the House then assert that Congress did not exceed its constitutional powers by changing the choice’s terms. See Brief for California at 31–34; Brief for the House at 35–37. First, California and the House argue that the amended individual mandate was within Congress’s taxing power. See Brief for California at 32–34; Brief for the House at 35. California argues that the amended individual mandate is just a tax whose application has been suspended. See Brief for California at 32–33. As evidence, California states that the amended individual mandate is still located in the Internal Revenue Code, only applies to individuals with a certain household income, and retains a structure Congress could use for future taxpayers to pay a tax. See id. California and the House further argue that part of Congress’s Taxing Power is the power to reduce the amount of that tax to zero. See id. at 33–34; Brief for the House at 35. Second, California and the House argue that since the amended individual mandate merely encourages people to buy health insurance, Congress has power to enact the law as a precatory provision. See Brief for California at 32; Brief for the House at 35–36.

The individuals and Texas argue the individual mandate is not a choice, but an an unconstitutional command to buy health insurance. See Brief for Individuals at 28; Brief for Texas at 33. They contend that in NFIB, the Court established there were two interpretations of the individual mandate: an unconstitutional command to buy health insurance or a tax on those who choose not to buy insurance. See Brief for Individuals at 27; Brief for Texas at 30-31. The individuals and Texas reason that since the provision can no longer be interpreted to be a tax, it must interpreted as an unconstitutional command. See id.

The individuals and Texas then argue that the individual mandate can no longer be interpreted to be a tax. See Brief for Individuals at 28; Brief for Texas at 33. Specifically, they contend that, essential to the Supreme Court’s holding in NFIB, the individual mandate was a proper use of Congress’s Taxing Power and that the individual mandate generated revenue. See Brief for Individuals at 28; Brief for Texas at 32. Therefore, the individuals and Texas contend that since the amended individual mandate no longer raises revenue, it is no longer a tax. See id. Countering California’s Taxing Power argument that the individual mandate is still a tax because Congress left the provision’s structure in place, Texas states that the Court considers a provision’s function to determine whether it is a tax. See Brief for Texas at 34. Considering the the individual mandate’s function, Texas argues that a tax that generates zero dollars is not a tax. See id.

IF AMENDED § 5000A IS UNCONSTITUTIONAL, IS IT SEVERABLE FROM THE ACA?

California and the House contend that the amended individual mandate is severable from the rest of the ACA. See Brief for California at 35; Brief for the House at 38. They argue that Congress intended for it to be severable because Congress made the individual mandate effectively meaningless while leaving the rest of the ACA untouched. See Brief for California at 37; Brief for the House at 40. Thus, California and the House reason that Congress would have altered other portions of the ACA if it felt the ACA could not function without the individual mandate. See Brief for California at 38; Brief for the House at 40-41.

California and the House further argue that even if direct evidence of Congress’s intent did not exist, the individual mandate is severable under the Court’s severability test set forth in United States v. Booker. See Brief for California at 38-39; Brief for the House at 46–48. California and the House contend that Booker established a three part inquiry under which the Court “retain[s] those portions of the Act that are (1) constitutionally valid, (2) capable of functioning independently, and (3) consistent with Congress’s basic objectives in enacting the statute.” See id. Here, California and the House argue that the remaining provisions can operate effectively and consistently with Congress’s purpose without the individual mandate. See Brief for California at 38-39; Brief for the House at 46. As evidence, California and the House point out that since 2017—when Congress rendered the individual mandate ineffective—the guaranteed issue and community rating provisions continued to operate effectively. See id.

The individuals and Texas counter that the amended individual mandate is not severable from the rest of the ACA. See Brief for Individuals at 35; Brief for Texas at 36. First, the individuals and Texas argue that Congress did not intend for the individual mandate to be severable from the guaranteed-issue and community-based rating provisions of the ACA because § 18901 is effectively an “inseverability clause.” See Brief for Individuals at 38-39; Brief for Texas at 37-38. The individuals and Texas note that § 18901 states that Congress requires individuals to buy health insurance because it is “essential to creating effective health insurance markets in which health insurance products that are guaranteed issue and do not exclude coverage of pre-existing conditions can be sold.” See Brief for Individuals at 38; Brief for Texas at 37. Therefore, the individuals and Texas conclude Congress believed the individual mandate, which requires individuals to have adequate health insurance, could not be severed from these two provisions. See Brief for Individuals at 38; Brief for Texas at 39.

Second, the individuals and Texas argue that the amended individual mandate is not severable from the remainder of the ACA because the remaining provisions serve to further the individual mandate’s purpose of expanding the number of Americans with healthcare. See Brief for Individuals at 47-48; Brief for Texas at 44-45. Thus, the individuals and Texas reason Congress would not have adopted them independently of the individual mandate. See id.

Discussion 

BALANCING ACCESS TO HEALTHCARE SERVICES AND ECONOMIC LIBERTY TO PURCHASE HEALTHCARE

In support of California, America’s Health Insurance Plans (“AHIP”) assert that a complete or partial repeal of the Affordable Care Act (“ACA”) would devastate the millions of Americans who rely on it for insurance coverage. See Brief of Amici Curiae America’s Health Insurance Plans, in Support of Petitioners at 9. AHIP contends that the ACA dramatically reshaped the insurance market by extending Medicaid and providing additional assistance to lower-income adults, triggering the enactment of state legislation expanding or supplementing its provisions, and supplying benefits that saved rural hospitals from rising premiums. Id. at 9–11. Moreover, the AHIP highlights that ACA has expanded coverage to nearly 80% of customers participating in individual healthcare markets, and a complete or partial repeal would be devastating for those persons and institutions that have come to depend on it for healthcare needs. Id.

Texas counters that the ACA should be completely repealed because it has debilitated regional economies by leveling costly Medicaid expenditures on states while undercutting the freedom to choose personalized healthcare options. See Brief for Texas at 10. Texas contests that the result of this has negatively impacted consumers, regional economies, and insurance companies from offering greater diversity in the market. Id. at 24. Texas maintains that before the ACA’s adoption, states had significant flexibility to tailor a wide array of insurance choices customized to local population needs. Id. at 5–6. Now, Texas argues that states have less liberty because the ACA’s minimum coverage requirement has frightened away insurers and decreased the offerings of those who remained. Id. at 11. Texas further asserts that the ACA has required states to spend millions of dollars on mandatory insurance and other benefits for individuals who would not otherwise need or purchase insurance without the individual mandate. Id. at 12.

STATE ECONOMIC AND LIBERTY INTERESTS

Professors Michael C. Dorf and Martin S. Lederman (“Professors”), in support of California, assert that the ACA does not infringe on states’ economic interests and individuals’ liberty interests because the individual mandate does not force unwilling individuals to purchase healthcare. See Brief of Amici Curiae Professors Michael C. Dorf and Martin S. Lederman, in Support of Petitioners at 7. The Professors contend that, in reality, compliance with the mandate may be ensured by purchasing insurance upfront through the individual mandate or by paying the penalty tax triggered by noncomplying individuals. Id. The Professors further insist Supreme Court’s decision in NFIB affirms this position, ruling that the penalty tax secures the individual economic liberty interests of those unwilling to purchase government healthcare. Id.

The Foundation for Moral Law (“Foundation”), in support of Texas, counters that the ACA dramatically and unconstitutionally changed the nature of the historical relationship between the federal government and the states in making healthcare decisions. See Brief of Amici Curiae Foundation for Moral Law, in Support of Respondents at 6. The Foundation asserts that by denying states the regulatory authority to make individually tailored healthcare decisions, the ACA rebalanced the healthcare decision-making power in favor of the federal government. Id. at 6–7. The Foundation further claims that the ACA undermines the tenets of “cooperative federalism”—the preservation of traditional boundaries between the federal government and the states—by restricting the states’ plenary discretion to make decisions about their citizens’ “health, safety, welfare, and morals.” Id. at 9.

FAILURE TO RAISE REVENUE AS A MATTER OF TAX POLICY

A bipartisan group of economic scholars (“Bipartisan Economic Scholars”), in support of California, explain that the individual mandate could be self-sustaining without reliance on the penalty tax provision. See Brief of Amici Curiae Bipartisan Economic Scholars, in Support of Petitioners at 7–8. The Bipartisan Economic Scholars argue that, by 2019, persons without preexisting health conditions still opted to remain in insurance pools and purchase healthcare regardless of any attached penalty, thereby sustaining demand. Id. at 6. In fact, Bipartisan Economic Scholars maintain that individual state exchanges were operating well on their own, supported by other means such as federal subsidies, which substituted for the penalty to drive the insurance market. Id. at 3.

Further, Service Employees International Union (“International Union”), in support of California, adds that while the practical effect of the tax penalty no longer exists, the tax technically remains on the books—even though it collects 0% revenue—establishing a “skeleton provision” that should not by itself invalidate the whole law. See Brief of Amici Curiae Service Employees International Union, et al., in Support of Petitioners at 7. Accordingly, International Union asserts that the perceived threat of the ACA being unsustainable without the penalty never materialized, and the law remains self-sustaining irrespective of the dormancy of the penalty tax. Id.

The Center for Constitutional Jurisprudence (“Constitutional Jurisprudence”), in support of Texas, counters that because of the Tax Cuts and Jobs Act, the federal government no longer has the ability to generate revenue through the individual mandate. See Brief of Amici Curiae Center for Constitutional Jurisprudence, in Support of Respondents at 5. Constitutional Jurisprudence maintains that because the individual mandate lacks a revenue-generating feature, it lacks the defining feature of a tax. Id. Constitutional Jurisprudence maintains that Congress’s Taxing Power would be significantly magnified if any law that is marginally related to a tax is constitutional, despite lacking this defining tax feature. Id. at 5.

Similarly, the American Center for Law and Justice (“Law and Justice”), also in support of Texas, highlights that the penalty for not paying the individual mandate raised $1.5 billion in government revenue for 2015. See Brief of The American Center for Law and Justice, in Support of Respondents at 7. Since the passage of the 2017 tax law, however, the federal government has been unable to generate any new revenue through the ACA penalty. Id. at 2. Law and Justice argue the truncated ACA now only requires individuals to purchase government-issued healthcare, without the ancillary tax-generating provision attached. Id. This requires Congress to generate revenue by other means, and thereby undercuts the one requirement the Supreme Court previously ruled was necessary for something to be considered a tax under the Constitution. Id.

Edited by 

Acknowledgments 

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