November 19, 2020

SCOTUS Update: California v. Texas


KEY TAKEAWAYS

  • The Supreme Court heard oral arguments last week in the case California v. Texas, the latest case dealing with the Affordable Care Act.
  • The case revolves around the constitutionality of the individual mandate to buy health insurance and whether the law as a whole must be struck down if that provision is held unconstitutional.
  • Under the court’s current doctrine, whether the entire ACA will be struck down largely depends on whether Congress intended the ACA to function without the individual mandate.

Last week, for the third time in eight years, the Supreme Court heard oral arguments about the Affordable Care Act. The main issues this time are whether the individual mandate to purchase health insurance is unconstitutional and, if it is, whether the court can strike it down without overturning the rest of the ACA — in legal parlance, whether the provision, if unconstitutional, is “severable.” Also at issue is whether the plaintiffs in the case have standing to challenge the mandate. If the court holds that the plaintiffs have standing, that the individual mandate is now unconstitutional, and that the mandate is not severable from the rest of the ACA, only then would the entire law be overturned. It is also possible that the court could find that only a few other provisions, such as “guaranteed issue” and “community rating,” are not severable from the mandate. The court also could find that the mandate is completely severable from the ACA, thereby striking down the individual mandate but leaving the rest of the ACA undisturbed.

Factors for Judging a Provision’s Severability

California v. Texas

Previous Obamacare Litigation

This is the third time the Supreme Court has heard a challenge to the ACA. The first ACA case was NFIB v. Sebelius in 2012. Like the current case, California v. Texas, it dealt with the constitutionality of the ACA’s individual mandate.

By a 5-4 vote, the court held that the mandate was a valid exercise of Congress’ constitutional authority to levy taxes. Chief Justice Roberts wrote the controlling opinion, which said that while the mandate was not justifiable under Congress’ power to regulate interstate commerce, it was justifiable under Congress’ taxing power. The court also held that Congress could not force states to accept the ACA’s expansion of Medicaid. Because the court held that the individual mandate was constitutional, it did not take up the question of whether the mandate was severable from the rest of the law. Justices Scalia, Kennedy, Thomas, and Alito filed a dissent in which they wrote that the mandate was not constitutional and was also not severable from the rest of the ACA.

In 2015, in the case King v. Burwell, the ACA was back before the court, this time on a matter of statutory interpretation rather than the law’s constitutionality. Section 36B of the ACA established tax credits for people enrolled in “an exchange established by the state,” which the plaintiffs argued should exclude the federal exchange established by the Department of Health and Human Services. Five other justices joined an opinion by Chief Justice Roberts holding that, in the context of the entire ACA, the phrase “by the state” should be interpreted to include the federal exchanges as well. To only include state exchanges would, according to the majority, subvert Congress’ intent that ACA provisions apply in states using the federal exchange. Justices Scalia, Thomas, and Alito dissented, saying that the plain language of the statute excluded the federal exchange.

The Current Case

The composition of the court has changed since the previous ACA cases, and California v. Texas itself differs from previous ACA litigation in two major ways: the standing of the plaintiffs is less clear; and the case turns more on the statutory question of severability than the actual constitutionality of the mandate. But like NFIB v. Sebelius, this case still challenges the constitutionality of the individual mandate.

In 2017, as part of the Tax Cuts and Jobs Act, Congress reduced the “tax penalty” for the individual mandate to zero. The mandate still exists, but there is no legal consequence to violating it. This matters because under existing case law, a statutory provision must produce some revenue in order for a judge to consider it an exercise of Congress’ taxing power. Because there is no penalty for noncompliance, it’s impossible for this “tax” provision to generate revenue.

Texas and 19 other states sued in 2018, saying that because the individual mandate cannot be considered a tax, it is no longer constitutional. Two people who purchased health insurance on the exchange in Texas later joined the suit. The plaintiffs also argued that the mandate is not severable from the rest of the law, and so the entire ACA must be invalidated.

The federal government declined to defend the constitutionality of the mandate at the trial court level, but argued that the mandate only doomed a couple of provisions in the law — guaranteed issue and community rating — while it was severable from the rest of the law. At the appellate court level, the federal government changed its position and argued that the individual mandate was not severable from the ACA and so the entire law should fall with it.

The trial court found that the individual mandate was not severable from the ACA and therefore struck down the whole law. The Fifth Circuit broadly agreed with the trial court about the unconstitutionality of the individual mandate but remanded the case for further severability analysis.

Because the Department of Justice declined to defend the ACA, California and 16 other states intervened in the case to do so. The House of Representatives also joined the lawsuit on appeal.

Severability and Standing

While laws can include a clause specifying that courts can sever some provisions, there is a general presumption in favor of severability even in statutes without such a clause. The Supreme Court’s current doctrine on severability requires it to sever unconstitutional provisions and leave the rest of the law in place unless Congress would not have passed the overall statute without the unconstitutional part. This inquiry requires the court to consider whether the legislation could function without the offending portion. Some relevant factors for determining whether the law can function without the specific provision include the importance of the provision and whether it is frequently referenced throughout the statute. For instance, in a 1936 case striking down price controls in the coal industry, the court also struck down labor controls, noting that the two sections frequently referenced each other as part of a comprehensive regulatory scheme.

In this case, the plaintiffs argue that the individual mandate was central to the overall argument for the ACA at the time of its passage in 2010. The plaintiffs point to many statements from around 2010 emphasizing the importance of the individual mandate. The defendants argue that Congress intended the ACA to function without the mandate because it zeroed out the penalty in 2017. They reason that Congress thought the law would still function without the mandate, or else Congress would not have functionally repealed the mandate. Congress, they contend, does not deliberately render its own laws unconstitutional and unworkable.

A threshold issue under consideration by the court in California v. Texas is whether the plaintiffs even have standing to challenge the law. Generally, standing to sue requires a particular harm or injury to the plaintiff. In this case, because the individual mandate penalty is $0, the defendants argue that the plaintiffs have not actually suffered any harm, and therefore do not have standing.

The plaintiffs have argued that though they suffered no direct financial harm from the mandate, they were financially harmed by buying insurance and by suffering “fiscal injuries as employers.”

Hints from Oral Arguments

At oral arguments on November 10, Chief Justice Roberts and Justice Kavanaugh asked questions suggesting they believe the individual mandate is severable. Assuming the three Democrat-appointed justices also vote in favor of severability, it is likely the mandate will be found severable. Justice Alito seemed to indicate he might find against severability. The views of Justices Thomas, Barrett, and Gorsuch on severability were not clear from oral arguments.

Justices Kavanaugh and Gorsuch asked questions suggesting they did not think the mandate was still constitutional without the revenue-raising provision. Justices Thomas and Alito had dissented in NFIB v. Sebelius, so they would likely still find the mandate unconstitutional. Chief Justice Roberts’ and Justice Barrett’s views were not clear.

The justices discussed standing at length, though their views on this subject were also not immediately clear. Several justices asked about standing to challenge laws without financial penalties. Justice Thomas asked if a mask mandate that had no penalty but carried “some degree of opprobrium” could impose enough harm on a plaintiff to create standing. Justice Kavanaugh asked whether the defendants were aware of any other laws without penalties, to which the answer was no. Justice Alito said there was “logic” to the theory that the Texas plaintiffs suffered from other ACA provisions, potentially creating standing.

Issue Tags: Judiciary, Health Care