Locke Lord QuickStudy: U.S. District Court Strikes Down Obamacare; Effect Of Law Continues For Now

Locke Lord LLP
December 17, 2018
On December 14, 2018, a federal District Court in Texas v. United States1 declared the Affordable Care Act (ACA) invalid because the individual mandate is destined to become unconstitutional under the Interstate Commerce Clause on January 1. In finding the individual mandate provision inseverable from the Act, the Court held that the entirety of ACA, as opposed to select portions, must be completely invalidated. However, the Court denied plaintiffs’ motion to enjoin the effect of the ACA, so ACA-compliant health plans and Medicaid coverage expansion continues unaffected – at least for now. 
Whether friend or foe of ACA, if you weren’t paying close attention, you may be uncertain how we got here – particularly, since the U.S. Supreme Court has twice upheld the ACA and legislative efforts to repeal and replace ACA stalled in Congress in July of last year.
President Trump’s signature legislative accomplishment, the Tax Cuts and Jobs Act (TCJA), Pub. L. No. 115-97, 131 Stat. 2054 (2017), created a new opening to attack the ACA on legal grounds. Starting in January 2019, TCJA reduces to zero dollars ACA’s tax penalty imposed on many individuals who fail to maintain minimum essential coverage (i.e., the individual mandate). Barely two months after TCJA’s passage, on February 26, 2018, Texas Attorney General Ken Paxton and Wisconsin Attorney General Brad Schimmel lead a 20-state coalition in a federal lawsuit against defendant, the United States government, to invalidate ACA. The same coalition of plaintiffs, on April 26, 2018, filed a motion seeking to preliminarily enjoin the federal government from enforcing the individual mandate as well as ACA’s health insurance market reforms in advance of the sunset of the individual mandate’s tax penalty. Seventeen states, led by California Attorney General Xavier Becerra, opposed both the lawsuit and preliminary injunction motion.

Plaintiffs Argued ACA Unconstitutional and Should be Stopped Now!

Interestingly, the Supreme Court’s decision in National Fed’n of Indep. Bus. v. Sebelius (NFIB), 567 U.S. 519, 572 (2012), which upholds the constitutionality of the ACA, and the individual mandate, in particular, was the foundation of the plaintiff-states’ litigation and motion for preliminary injunction and, ultimately the District Court’s decision. Even though the Supreme Court, in a five to four decision, saved the individual mandate penalty as a “tax” since it maintained the essential feature of raising at least some tax revenues, plaintiffs contended that eliminating the tax under the TCJA rendered the mandate unconstitutional, a least after the end of this year. Furthermore, plaintiffs pointed to the NFIB dissenting opinion in which five justices, including Chief Justice Roberts, agreed that a legal requirement to purchase health insurance coverage – i.e., the individual mandate – in and of itself, exceeds Congressional power under the Commerce Clause.

The plaintiffs further relied on Congress’ own legislative findings, as codified in the ACA, that the individual mandate is “essential” to, and intertwined with, the functioning of ACA’s other major features and reforms (e.g., banning pre-existing condition coverage exclusion or premium rate hikes) designed to achieve near-universal health insurance coverage, lower premiums and stimulate competitive health insurance markets. It was argued that, as a matter of constitutional law and public policy, since ACA cannot function without the individual mandate, all of ACA should fail on constitutional grounds. 

The plaintiff-states in Texas further sought to immediately enjoin ACA, arguing that the United States had no cognizable interest in continuing to enforce the individual mandate or remainder of ACA since their unconstitutionality was a near certainty. Plaintiffs argued, from a policy perspective, that, by enjoining ACA, the Court could immediately wrest control of health insurance regulation from the federal government and place it back in the hands of the States which could better design and regulate their unique health insurance markets. Plaintiffs intimated that widespread and immediate relief would follow a preliminary injunction of ACA. Such could, it was argued, alleviate consumers from purchasing high-cost ACA health insurance; put an end to States spending their own funds to prop up the weakened ACA exchanges and their plans; and eliminate the increased federal spending on premium subsidies for higher-priced ACA exchange coverage. 

The Federal Government Offers Nuanced Defense of ACA

The States of California, Connecticut, Delaware, Hawaii, Illinois, Kentucky, Massachusetts, Minnesota, New Jersey, New York, North Carolina, Oregon, Rhode Island, Vermont, Virginia, and Washington and the District of Columbia intervened earlier this year as defendants in Texas v. United States to proffer a full-throated defense of ACA’s constitutionality. As expected, the U.S. Department of Justice (DOJ), on behalf of the United States (i.e., the named defendant in this action), declined to defend ACA on constitutional grounds. However, on June 7, 2018, the DOJ filed a Memorandum in Response to Plaintiff’s Application for Preliminary Injunction opposing the plaintiffs’ motion for preliminary injunction but asking the District Court to declare as unconstitutional, beginning January 1, 2019, only the individual mandate plus select ACA provisions that establish guaranteed issue health insurance coverage without regard to an individual’s health status or medical conditions. The DOJ’s legal position differed from that of the plaintiff-states in that the DOJ contended that the unconstitutional ACA provisions are severable from the remainder of ACA and, thus, ACA need not be struck down in its entirety. 

The District Court Decides 

The plaintiffs’ motion for preliminary injunction was heard on September 5, 2018. It was widely believed by many legal experts that the individual mandate was in real jeopardy. Yet, it remained unclear how the District Court would rule on the divergent petitions and relief sought by the interested parties. Finally, on December 14, in a decision whose reasoning is criticized by ACA proponents and even some ACA critics, the Texas Court finds all of ACA invalid, as sought by the plaintiff-states, but declines to enjoin the law or the ACA health plans and Medicaid expansion established under ACA, as sought by DOJ. 

What’s Next for the Affordable Care Act?

For now, health insurance coverage under ACA is unchanged. Still, uncertainty over the sustainability and permanence of ACA has been escalated. 

California and the other intervenor states have announced they will appeal the District Court’s decision and this case will likely wend its way to the U.S. Supreme Court. There could be further procedural actions to protect or halt the effect of ACA during the pendency of the Supreme Court’s review. The incoming Democratic majority in the U.S. House of Representatives are considering whether their general counsel can join in the defense of the ACA to bolster its defense by the federal government. Long-time ACA critics have offered mixed responses to the Texas v. United States decision and, in some cases, support for the decision is tepid, at best. This is likely due to the shifting mood in the Country as support grows for ACA’s most popular provisions. 

In a November 2018 Kaiser Family Foundation tracking poll, 68% of respondents expressed a favorable opinion of ACA requirements that prohibit health insurers from denying coverage because of a person’s medical history. And, based on exit polling, a plurality of midterm voters (i.e., 41%) voiced that their concern over the future of health care was a motivating factor in casting their vote. As federal policymakers evaluate their leverage after the Texas v. United States decision, and 2020 Presidential politics loom larger, we may see no shortage of proposals to repair or replace ACA over the next couple of years from both Republicans and Democrats. 



1. Texas, et al, Plaintiffs, vs. the United States of America, et al., Defendants and California, et al., Intervenors-Defendants, Civil Action No. 4:18-cv-00167-O (Texas vs. United States).