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The Fifth Circuit Court of Appeals held that the individual mandate in the Affordable Care Act (ACA) is unconstitutional because it is no longer a tax and no other provision justifies the exercise of congressional power (Texas v. United States, No. 19-10011 (5th Cir. Dec. 18, 2019). The Fifth Circuit remanded the question of whether the individual mandate was severable from the ACA back to the district court.

Background

A group of states (represented by attorney generals and governors) and two individuals sued the federal government in the U.S. District Court for the Northern District of Texas on the grounds that the ACA was unconstitutional.

In December 2018, the district court ruled in a declaratory judgment that the ACA was invalid (Texas v. United States, 340 F. Supp.3d 579 (N.D. Tex. 2018)). After Congress removed the individual mandate penalty, the court said that a rationale for upholding the ACA under Congress's taxing power no longer existed. Because the mandate was inseverable from the ACA, the court added, the entire law was invalid.

The decision was stayed pending appeal to the Fifth Circuit. The Department of Justice changed its original position and argued in the Fifth Circuit that the ACA should be repealed in its entirety.

On appeal, the Fifth Circuit addressed whether (1) there was a live case or controversy and the intervenor-defendant states and the U.S. House of Representatives had standing to appeal; (2) the states and individuals who brought the case (plaintiffs) had standing; (3) the individual mandate was constitutional after the TCJA reduced the tax to zero; and (4) the individual mandate could be severed from the ACA, with the rest of the law left in place.

Appeals court ruling

The Fifth Circuit found the following:

1. There is a live case or controversy because the states have standing to appeal. Even if they did not, there remains a live case or controversy between the plaintiffs and the federal government.
2. The plaintiffs have Article III standing to challenge the ACA — the individual mandate injures both the individual plaintiffs, by requiring them to buy insurance they do not want, and the state plaintiffs, by increasing their costs of complying with the reporting requirements that accompany the individual mandate.
3. The individual mandate is unconstitutional because it can no longer be read as a tax, so no other Constitutional provision justifies this exercise of congressional power.
4. The case is remanded to the district court on the question of severability to provide additional analysis of the current ACA provisions.

Regarding the individual mandate, the Fifth Circuit said, "Most fundamentally, the provision no longer yields the 'essential feature of any tax' because it does not produce 'at least some revenue for the Government.'"

The Fifth Circuit went on to remand to the district court the question of whether the individual mandate could be severed from the ACA, saying the district court must undertake two tasks: "to explain with more precision what provisions of the post-2017 ACA are indeed inseverable from the individual mandate; and to consider the federal defendants' newly-suggested relief of enjoining the enforcement only of those provisions that injure the plaintiffs or declaring the Act unconstitutional only as to the plaintiff states and the two individual plaintiffs."

The Court added that the district court should "employ a finer-toothed comb on remand and conduct a more searching inquiry into which provisions of the ACA Congress intended to be inseverable from the individual mandate."

Implications

The decision keeps the legal threat against the ACA alive while reducing the likelihood that the Supreme Court will render a final verdict on the law's constitutionality before the 2020 elections. Meanwhile, attorney generals representing the defendant states have indicated their intent to appeal the ruling to the Supreme Court.

The Administration has already issued a statement that it will "continue administering and enforcing all aspects of the ACA" before to a final decision and is expected to maintain this position. As a result, the ACA remains the law of the land, including employers' obligations to report, as well as their responsibilities for employer shared responsibility payments.

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