Will Severability Rescue the Affordable Care Act? If Not, What Comes Next?

Will Severability Rescue the Affordable Care Act? If Not, What Comes Next?

Oct 15, 2020

Client Alert

Brownstein Client Alert, October 15, 2020

Health care policy and business face consequential times ahead, with Election Day Nov. 3 and a challenge to the Affordable Care Act (ACA) being heard before the Supreme Court on Nov. 10. In February 2018, two months after Congress eliminated the individual mandate penalty, the Texas attorney general joined with 17 states and two individuals to bring a suit, Texas v. U.S., challenging the constitutionality of the ACA. In spring of 2019, the U.S. Department of Justice (DOJ), on behalf of the Trump administration, filed a brief in Texas v. U.S., arguing that, given the elimination of the penalty for noncompliance with the individual mandate, the entire ACA should be declared unconstitutional because the individual mandate is inseparable from the ACA as a whole.

With Texas v. U.S. now coming before the U.S. Supreme Court, the court’s reasoning on prior ACA litigation offers crucial insight—and could result in the ACA minus the penalty for noncompliance being found unconstitutional in whole or in part.

Background

In December 2017, Congress passed the Tax Cuts and Jobs Act (TCJA) and President Donald Trump signed it into law. Among a number of tax cuts granted for individuals and businesses, Congress changed an important tax provision in the ACA, effectively eliminating the tax penalty for not purchasing health insurance.

The ACA’s “individual mandate” had required individuals to purchase health insurance or incur a tax penalty. The TCJA changed that penalty amount to $0 starting in January 2019. Still smarting from the failure to repeal and replace the ACA, congressional Republicans and the White House were eager for a victory on health care, settling for a policy to weaken the individual mandate that could be neatly tucked into the tax law.

Paths to Spare the ACA

Like all litigation, the plaintiffs must first meet the threshold test that they have “standing” to bring their claim, proving that they have been harmed and that the litigation seeks to address some concrete harm. With the TCJA having reduced the penalty associated with the individual mandate to zero, justices may find with no harm to the plaintiffs, they therefore do not have standing to challenge the ACA.

Many legal scholars believe a majority on the court could also ultimately spare the ACA by striking down only the individual mandate, while preserving the balance of the law. Notably, in July, Justice Kavanaugh directly addressed severability in a 7-2 ruling on Barr v. American Assn. of Political Consultants, finding an unconstitutional carve out for collection of governments debt to the federal prohibition on robocalls to cell phones to be severable from the balance of the Telephone Consumer Protection Act (TCPA). In finding for severability, Justice Kavanaugh wrote that “Constitutional litigation is not a game of gotcha against Congress, where litigants can ride a discrete constitutional flaw in a statute to take down the whole, otherwise constitutional statute.”

Justice Roberts has also written and ruled in favor of severability, but his prior comments on the balance between the individual mandate and the cost of insurance mandates in the ACA may indicate otherwise in this instance. The legislative intent of multiple Congresses could also factor into the analysis. On the one hand, the ACA was intended to carefully balance important mandates with a variety of payment streams and behavioral carrots and sticks, and removing the teeth behind the individual mandate eliminates the tool intended to drive healthy people into insurance pools, which was intended to bring down the de facto average cost per insured person. However, if Congress intended to strike down the ACA in its entirety with the TCJA, it should have done so; instead, it merely struck the individual mandate penalty and retained the balance of the statute.

In critiquing the Supreme Court decision upholding the ACA, Supreme Court nominee Amy Coney Barrett wrote “… deference to a democratic majority should not supersede a judge’s duty to apply clear text.” Although Barrett has not written legal opinions or articles on the critical question of severability, she weighed in on the topic during her Senate confirmation hearings, indicating a presumption in favor of severability.

Another possible scenario: a split decision in which five justices may rule for survival of the ACA, but under different logic paths outlined in separate legal opinions.

What comes next?

If the ACA is struck down in its entirety, despite Vice President Joe Biden’s adamant opposition, there will be tremendous pressure from the Democratic rank and file on a Biden administration for a single payer, “Medicare for All” solution. Notably, proponents of “Medicare for All” tend to gloss over the price tag and funding mechanisms for such an ambitious program. Vice President Biden’s own position on the ACA focuses on bolstering the statute, including offering a more robust public insurance option for individuals to choose from. Many believe that such a robust public option will eventually lead to a single payer system.

Meanwhile, although the Trump administration has not rolled out a plan for a comprehensive “repeal and replace” of the ACA akin to the American Health Care Act crafted during the GOP’s 2017 repeal and replace attempts, it has promoted its recent health care-related executive orders and prescription drug pricing proposals. On Sept. 24, the administration announced its “America First Healthcare Vision,” with executive orders directing the Department of Health and Human Services (HHS) to create protections for patients with preexisting conditions and to work with Congress for an end to surprise medical billing. Before any implementation, these executive orders must be followed by much more detailed congressional and regulatory action, likely involving stakeholder provider, physician and insurer groups. The administration is also promoting avenues for states to expand drug importation with proposals to the Food and Drug Administration (FDA), touting the potential for reductions in drug prices.

The combination of the ACA challenge before the Supreme Court and the presidential election could drive a wide range of impacts on health care policy, businesses and patients. Stay tuned!

This document is intended to provide you with general information regarding a legal challenge to the ACA. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions. The information in this article is accurate as of the publication date. Because the law in this area is changing rapidly, and insights are not automatically updated, continued accuracy cannot be guaranteed.

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Michael W. King Shareholder T 303.223.1130 mking@bhfs.com
Emily Felder Senior Policy Advisor and Counsel T 202.216.4861 efelder@bhfs.com