Federal Judge Rules Against Affordable Care Act; Stays Decision Pending Appeals

By Michael Bournas-Ney

On December 14, 2018, Judge Reed O’Connor of the Northern District of Texas ruled that the entire Affordable Care Act (ACA), unofficially known as “Obamacare,” is unconstitutional.  However, he later issued a stay of his own ruling, which thus clarified that the ACA will remain in effect while appeals of his decision are pending.

The case, Texas v. United States, was brought last February on behalf of twenty states (“the Plaintiffs”), led by Texas, against the federal government. Though it was one of the Defendants sued in this case, the Justice Department adopted some of the same legal positions as the Plaintiffs. Therefore, sixteen other states (the “Defendant Intervenors”), led by California, requested and were granted permission to intervene in the case in support of the ACA.

Judge O’Connor ruled for the Plaintiffs to the extent of granting partial summary judgment in their favor and declaring that the Affordable Care Act, in its entirety, is invalid. Judge O’Connor’s decision essentially has two aspects:

  1. He declared unconstitutional the requirement (the “Individual Mandate”) that individuals purchase health care insurance.
  2. He also declared that, once the Individual Mandate was struck down, the entire ACA became invalid, based on the notion that the Individual Mandate is not “severable” from the rest of the law.

The “Individual Mandate” Issue: The ACA (enacted in 2010), through its Individual Mandate, nominally “required” most individuals to purchase health insurance. However, in actuality, one could also fully comply with the law by paying a fee, technically called a “Shared Responsibility Payment” (SRP) – later deemed by the Supreme Court to be a “tax” – in lieu of purchasing health care insurance.

In 2017, the Congress made a single change to the law: although it did not outright remove the SRP, it did lower the amount of this “tax” all the way down to zero for everyone, effective January 1, 2019. (It should be noted that although the ACA had subjected most people to the SRP, several categories of persons were exempt from this “tax,” e.g. individuals who could not afford health care insurance premiums. The effect of Congress’s zeroing out the SRP in 2017 was, in effect, to place everyone in the position of those individuals who were exempt all along from paying the SRP.)

Relying on the Supreme Court’s 2015 decision upholding the ACA, which had held that the SRP was a “tax,” Judge O’Connor concluded that the effect of Congress’s 2017 zeroing out of the SRP was to render it no longer a “tax.” Based on this finding, he then further ruled that its counterpart, namely the Individual Mandate that required people to purchase health insurance (if they did not pay the SRP), was itself now unconstitutional.

The “Severability” Issue: Having reached this conclusion, Judge O’Connor next turned to the issue known in law as “severability.” In this context, severability is a concept that arises once part of a statute has been struck down or removed. What then must be determined is whether Congress would have intended that the balance of the statute remain in effect in the absence of the voided provision, i.e. that the voided provision is “severable,” or whether Congress would have intended that – without the stricken provision – the entire balance of the law must also fall.

In his analysis, Judge O’Connor almost exclusively examines the intent of the 2010 Congress that enacted the ACA. He finds that the Individual Mandate was an essential linchpin in the architecture of the ACA, and therefore cannot simply be “severed.” He therefore concludes that once he has declared the Individual Mandate void, he has no alternative but to declare the ACA void in its entirety. Thus, not only would the Individual Mandate be gone, but also all the other provisions of the ACA that, for example, prevented denial of coverage due to  preexisting conditions, prohibited increased premiums for persons with chronic medical conditions, and expanded Medicaid coverage.

Stay and Appeals: In the aftermath of the ruling, it had been unclear whether or not the decision would be implemented. The Defendant Intervenors therefore asked the court to clarify its intention and, on December 30, 2018, Judge O’Connor placed his ruling on hold, stating: “[B]ecause many everyday Americans would otherwise face great uncertainty during the pendency of appeal, the Court finds that the December 14, 2018 Order declaring the Individual Mandate unconstitutional and inseverable should be stayed.” (Decision at p. 30)

The Defendant Intervenors have made it clear that they intend to challenge this ruling in the U.S. Court of Appeals for the 5th Circuit. Please stay tuned for further developments in the saga of the ACA.