ACA Update

by Christoper E. Condeluci, Principal and sole shareholder of CC Law & Policy PLLC in Washington, D.C.

Texas District Court Rules that ALL of the ACA Is Unconstitutional

I am first going to provide you with my quick reaction on how I believe this ruling impacts (1) the validity of the ACA and (2) the people who now rely on the ACA for coverage and/or rely on the ACA for certain consumer protections, like the pre-existing condition protection. Below these points, I am also including a couple posts that I wrote back in September and also in June of this year, which gives you more color commentary on my thoughts on this particular legal challenge. I will note, it is difficult to guess how the courts will ultimately rule here. We have seen this movie before. Which leads me to say this: Hold on to your hats, because we are going to hear a lot of “noise” from both Republicans and Democrats on this. My advice: Be selective in what you believe because no one really knows how this is going to play out. My comments below arguably add to the “noise” you will hear on this. I do, however, hope that my “noise” is helpful.
- Analysis: Most legal experts – including me – have long felt that the legal arguments advanced by the challengers are weak. Based on this belief, I think most legal experts – including me – still feel that this legal challenge will fail at some point during the judicial process. While the District Court ruling has surprised many, this particular decision is not overly surprising because – these days – challengers of a law or regulations can find a “friendly” District Court. We saw this play out when the ACA was challenged in the courts by right-leaning challengers shortly after the enactment of the law. This search for a “friendly” District Court does not only happen on ACA-related matters. Most if not all of the challenges to the Trump Administration’s decisions on, for example, immigration or environmental matters have been filed in what most experts would call District Courts with a favorable disposition toward the challengers (i.e., a “friendly” District Court). Notwithstanding these maneuvers – engaged in by both political parties – more times than not, we have seen the original District Court decision over-turned at the Appeals Court or the Supreme Court level. While it is always difficult to speculate on how a particular court is going to rule (and you guess at your own peril), I think the majority of legal experts out there will continue to believe that – ultimately – the Supreme Court will over-turn this decision. BUT, now that we have a different make-up of the Supreme Court, speculating on how the 9 Justices will rule is that much more difficult. How will this ruling impact the validity of the ACA going forward?? It is important to emphasize that this District Court ruling is only controlling in Texas, which means this: For the rest of country, this ruling has ZERO impact. However, you will continue to hear from stakeholders who are supportive of the ACA – along with policymakers and political pundits – who will say that this ruling will impact hundreds of millions of people who now have Medicaid coverage, who are now subsidized through the ACA Exchanges, and who now have pre-existing condition protections. That is an over-statement because – at this point – the impact of this ruling only affects people in Texas. Even if the Fifth Circuit Court of Appeals affirms this decision, the impact of the ruling is limited to the States in the Fifth Circuit (e.g., Texas, Louisiana, Mississippi). If the Supreme Court affirms – then at that point – the impact will be wide-spread. Until the Supreme Court rules (which at the earliest could be Summer of 2019, but a ruling is more likely to happen sometime during the first 6 months of 2020), I do not believe that consumers relying on the ACA for coverage – and/or enjoying the ACA’s protections – have to worry. I further believe that employers who are required to comply with the ACA – for example, comply with the ACA’s “employer mandate” and “employer reporting” requirements – MUST continue to comply with these requirements until the Supreme Court upholds or over-turns this decision. It will be interesting to hear future comments from the Trump Administration on how they view the application of this District Court ruling. We already know that the White House is cheering this decision. We also know that HHS has indicated that this decision will NOT impact the ACA Exchange “open enrollment” period. But, the last day of “open enrollment” is Dec. 15^th (today), so by definition, this ruling will not impact “sign-ups” for Exchange plans (or the only impact will be on 1 day of “sign-ups”). It appears, however, that HHS is also saying that this decision will NOT impact an Exchange planholder’s coverage come Jan. 1, 2019 (and throughout the 2019 coverage year), which seems to indicate that HHS believes that this District Court ruling is limited to Texas, and that the ruling will NOT impact the rest of the country. The White House has even said that this decision will not impact the ACA until a final decision is made upon appeal (which I interpret could mean that the Administration does not even think this District Court decision will impact people in Texas, let alone people throughout the rest of the country). Stay tuned.

My Previous Posts on This Legal Challenge

From my Week of Sept. 3^rd Update:

Oral Arguments In the Legal Challenge Against the ACA Are Heard – Are They Sound Arguments?

Recent reporting of the oral arguments in the latest legal challenge to the ACA indicates that the District Court Judge seemed partial to the arguments raised by the plaintiffs, and these same reports seemed to indicate that the Judge was not buying the defendants’ arguments. What were some of the defendants’ arguments?
- Analysis: Well for one, the defendants argued that back in 2017, if the Republicans in Congress wanted to repeal the ACA – and in particular, the ACA’s “guaranteed issue” and pre-existing condition protection provisions – then the Republicans would have gone ahead and repealed these provisions. They further argued that because Republicans did NOT repeal these provisions – rather, Republicans only “zeroed” out the “individual mandate” penalty tax – this is evidence that Republicans wanted the “guarantee issue” and pre-ex protections to stay in the law. The defendants even quoted senior Republican Senators, including the Chairman of the Senate Finance Committee, Sen. Hatch (R-UT), as saying on the Senate floor that “the Tax Reform legislation does NOTHING to change the ACA, other than the change to the ‘individual mandate’ penalty tax.” Here is the problem with this argument: The defendants fail to understand (or remember) “how” Republicans enacted Tax Reform. The defendants also seem to forget “how” Republicans tried to “repeal and replace” the ACA. In the case of Tax Reform – and similarly in the case of ACA “repeal and replace” – Republicans were using the Senate’s “reconciliation” process to enact these measures, which only requires a 51 vote margin (instead of the traditional 60 vote threshold in the Senate). As I have explained to you in the past, as a condition to enjoying the luxury of only a 51 vote margin in the Senate, the legislation MUST satisfy the “reconciliation” rules, which generally requires that the provisions of the bill ONLY have a direct “revenue” or “spending” impact. It is important to emphasize that Congressional Republicans wanted to repeal ALL of the ACA’s insurance market reforms, not just the “individual mandate” penalty tax, the “guaranteed issue” provision, and the pre-ex protections. BUT, Congressional Republicans could not repeal ALL of the ACA through the normal legislative process, which required the traditional 60 vote threshold in the Senate. Instead, Congressional Republicans were constrained to the Senate’s “reconciliation” process. Congressional Republicans were further constrained by the Senate Parliamentarian, who ruled that repeal of ALL of the ACA’s insurance market reforms – including “guaranteed issue” and the pre-ex protections – could NOT happen through a “reconciliation” bill. The Senate Parliamentarian also said that Republicans could NOT fully repeal the “individual mandate” through “reconciliation.” But, when it came to the “individual mandate” penalty tax, Republicans pivoted to simply “zeroing” out the penalty tax, which the Parliamentarian actually said was okay. I torture you with the history to say this: If Republicans could have outright repealed (1) the “individual mandate” penalty tax, (2) “guaranteed issue,” and (3) the pre-ex protections, Republicans WOULD have done so. The intent of Republicans was clear: They wanted to get rid of the ENTIRE ACA. BUT, the “reconciliation” rules foiled the Republicans hopes-and-desires, and the only thing Republicans could do at the end-of-the-day was “zero” out the penalty tax (which has the same effect of repeal). So – at least to me – to argue that Republicans intended to keep “guaranteed issue” and the pre-ex protections because Republicans did NOT repeal these provisions does not hold-water. Also, to say that the Republicans purposefully kept the “individual mandate” in the law is a misnomer. Interestingly, media reports seemed to indicate that the defendants finally came around on the above stated points and acknowledged them during oral arguments. BUT, because this argument keeps coming up in news articles as one of the lead arguments made by the defendants, I wanted to take the time to explain why this argument is NOT a sound argument.

Oral Arguments In the Legal Challenge Against the ACA Are Heard – An Argument from the Defendants That I Generally Agree With

The defendants did advance an argument that I generally agree with. And that argument is: Simply because the “individual mandate” penalty tax was “zeroed” out, that does NOT mean that the “individual mandate” is actually repealed from the law, and that does NOT mean that the ACA is unconstitutional.
- Analysis: As I mentioned in my June 4^th update (see below), the plaintiffs in this case argue that the “individual mandate” penalty tax is now unconstitutional because the penalty tax is NO LONGER generating revenue for the government. The defendants have countered that a tax doesn’t have to generate revenue for it to be a tax. I agree with this counter-argument, although I would characterize this argument differently. What I mean is this: I am NOT persuaded by the argument that “a tax doesn’t have to generate revenue for it to be a tax,” but what is most important here is that the “individual penalty” tax is STILL a fixture of the Internal Revenue Code. In other words, while the penalty tax was “zeroed” out, the penalty tax provisions – as set forth in Code section 5000A – still exist in…wait for it…Code section 5000A. Stated yet another way, the Tax Reform bill did NOT eliminate Code section 5000A from the Tax Code. Instead, the Tax Reform bill simply amended the subsection of Code section 5000A (in particular subsection (c)) where the penalty amounts are listed, and the new amendment said that the penalty amounts are no longer $695 or 2.5% of income, rather, the penalty amount is $0 and there is no penalty based on a percentage of income. Why is this significant? Because a future Congress (and future President) can amend the Tax Code – just like Republicans did in Tax Reform – but this time, Congress can “dial back up” the penalty tax amount from $0 to $695 or 2.5% of income, or to a higher dollar/percentage of income amount. Why is this important? Because, if this case ever gets to the Supreme Court, I believe the Court will find that because a future Congress (and a future President) has the opportunity to make the “individual mandate” penalty tax a revenue-generating tax yet again, the “individual mandate” REMAINS constitutional because the penalty tax is simply lying dormant until a future Congress (and future President) officially amends the law. Which leads me to say this: Based on the District Court Judge’s questioning, it is fair to speculate that the Judge may rule in favor the plaintiffs. I am NOT saying the District Court Judge will rule in favor of the plaintiffs, I am just saying that it could happen (it is also important to note that this particular District Court was chosen because it was believed that it was a “friendly” District Court). BUT – at least in my opinion – even if the plaintiffs win at the District Court level, I believe that the ruling is vulnerable on appeal at either the Circuit Court level, and certainly at the Supreme Court level. So, I think this legal challenge fails at some point. But not before it is politicized to death (which is already has been).

From my Week of June 4^th Update

The DOJ Agrees That “Zeroing” Out the Individual Mandate Penalty Renders Portions of the ACA Unconstitutional

I have purposefully avoided writing about this legal challenge, due in large part to the fact that I view this latest legal challenge as Republican “political messaging.” Also, I do not think this challenge will be successful. And for these 2 reasons, I did not want to spend time spinning our wheels on something that I believed (1) had little substance and (2) had no legs.
- Analysis: BUT, as you now know, this latest legal challenge is dominating the headlines, due in large part to the fact that the DOJ has publicly stated that it will NOT serve as the “defendant” in this case. Instead, the DOJ announced that it agrees that the ACA should be found unconstitutional, at least the individual mandate penalty tax and also (1) the prohibition against denying people coverage with pre-existing conditions and (2) the prohibition against developing premiums based on health status. This issue is also dominating the headlines because the DOJ’s recent announcement is being characterized as “a gift to Democrats” (at least when it comes to the Democrats’ own “political messaging”). So why do I think this legal challenge will – in the end – fail? As you may recall, when the individual mandate’s constitutionality was first challenged, Justice Roberts cast the deciding vote to uphold the mandate – and the ACA – because Justice Roberts viewed the individual mandate penalty as a “TAX.” And, Justice Roberts stated that Congress has the exclusive “power to tax,” which meant that the enactment of the individual mandate penalty tax was a lawful act of Congress, and therefore, the individual mandate – and the ACA – was constitutional. Justice Roberts’ ruling was a surprise to most, even ACA supporters. While I did not cheer or jeer the decision, personally, there was some vindication in Justice Roberts’ finding that the individual mandate was a “TAX.” What I mean is this: Back during the ACA debate (in 2009), the Democrats did something very smart. They called the individual mandate penalty tax a “FEE.” Why? Because – for “political messaging” purposes – calling the individual mandate a “FEE” instead of a “TAX” softened this new requirement that every American would now be compelled to obtain health coverage. Based on my experience, the media latched on to this “political messaging” hook-line-and-sinker. The result: The media spread the news far-and-wide that the individual mandate was NOT some ugly “TAX” on people, but rather it was a kinder, gentler “FEE.” In my own personal effort to get the media – and the American public – to understand that the individual mandate penalty was no “FEE,” but rather it was a “TAX,” I wrote a speech for Sen. Grassley (who was the senior most Republican on the Finance Committee, and therefore, my boss). Sen. Grassley gave the speech on the Senate floor in Dec. 2009, where he emphatically stated that the individual mandate penalty is a “TAX” because – and I quote – “[The ACA] amends the TAX CODE by adding a new excise tax, payable by those Americans who do not purchase government-approved health insurance” (see page 23 and 24 of the attached speech from Dec. 2009). In the end, the Democrats’ “political messaging” carried-the-day – and Sen. Grassley’s speech fell-on-deaf-ears – and the rest-is-history (i.e., the individual mandate was enacted into law). Why am I spending so much time giving you the history of the individual mandate penalty tax? Because the core argument advanced by the challengers in this case is that the individual mandate is unconstitutional because the penalty tax is NO LONGER generating revenue for the government. This argument is built on Justice Roberts’ initial finding that because the individual mandate penalty “generates revenue for the government,” the mandate has the characteristics of a “TAX,” and therefore, is constitutional (because Congress has “the power to tax”). In essence, the challengers are reverse-engineering Justice Roberts’ ruling to argue that the individual mandate should be struck down now that the penalty tax is $0. BUT, even though Republicans “zeroed” out the penalty tax through Tax Reform, the individual mandate section of the Tax Code was never technically repealed (i.e., the individual mandate requirements remain on the books (see Code section 5000A)). Which means, a future Congress (and future President) can amend the Tax Code – just like Republicans did in Tax Reform – but this time, Congress can “dial” back up the penalty tax amount from $0 to a substantial dollar amount (or simply $695 or 2.5% of income, which is the current levels for the penalty tax). Why is this important? Because I believe the Supreme Court will find that a future Congress (and a future President) still has the opportunity to make the individual mandate penalty tax a revenue-generating tax yet again. And based on this, I could see the Supreme Court finding that the individual mandate remains constitutional because the penalty tax simply lies dormant unless and until a future Congress (and future President) officially amends the law to make the penalty tax generate revenue.

Now That the DOJ Is Not Defending the ACA, Is This “A Gift To the Democrats”?

Soooo, the DOJ is asserting that the individual mandate penalty tax is unconstitutional because it was “zeroed” out. Importantly, the DOJ is also contending that if the penalty tax goes away, so should (1) the requirement that people cannot be denied coverage because they have a pre-existing condition and (2) the requirement that insurance carriers cannot develop premiums based on health status.
- Analysis: ACA supporters, along with Democratic Congressional and Gubernatorial candidates, are seizing on the fact that the DOJ – and by extension the President – are now suggesting that the pre-existing condition protection should go away. From a political perspective, this is the right move for Democratic candidates because in my opinion, arguing that the President – and by extension, all Republicans running for elected office – want to eliminate the pre-existing condition protection is a political “winner.” As we have learned during last year’s “repeal and replace” exercise, messing with the ACA’s pre-existing condition protection is politically perilous, and Democrats have successfully used the threat of this protection going away to generate support for their causes (and away from Republican causes like “repeal and replace”). However, arguing that the President – and all Republicans – want to get rid of the ACA’s pre-existing condition protection borders on intellectually dishonest. Why? Because in the unlikely event the Supreme Court rules that the individual mandate and the pre-existing protection must go away, I believe a majority of Republicans – including the President – would move to enact legislation reinstating the pre-existing condition protection in some form. So – at least in my opinion – it is NOT as if Republicans and the President want to get rid of the pre-existing protection forever (although, again, that is not how it is being characterized by Democrats, and I don’t fault the Democrats for characterizing it this way for their own “political messaging” purposes). The other reason why this claim borders on intellectually dishonest is because the Trump DOJ is merely recycling the legal argument that the Obama DOJ raised in 2012. What I mean is this: When the individual mandate’s constitutionality was first called into question, the Obama DOJ argued that the individual mandate was indeed constitutional, but the Obama DOJ also suggested that in event the Court found the mandate was unconstitutional, then the entire ACA should remain in place, and only (1) the prohibition against denying people coverage with pre-existing conditions and (2) the prohibition against developing premiums based on health status should go away. The Obama DOJ justified their argument by explaining that the individual mandate and the above consumer protections worked hand-in-hand, and if one of the requirements were to fall away, that would render the other requirements inoperable. In other words, the Obama DOJ said that if the individual mandate goes away, most of the ACA should NOT fall because the mandate was NOT inextricably linked to the rest of the law (i.e., the mandate was “severable” from the rest of the ACA). BUT, because the pre-existing condition and no under-writing based on health status protections were so inter-twined with the mandate, that these provisions were “inseverable,” meaning if one of the requirements fell, all three had to fall. Fast-forward to today, where the Trump DOJ is saying that the individual mandate should go away. The Trump DOJ is then saying – like the Obama DOJ said – if the individual mandate goes away, so should the pre-existing condition and no under-writing based on health status protections. Why? Because again, the Trump DOJ agrees with the Obama DOJ that these requirements are so inter-twined that they are “inseverable” (and the Trump DOJ also agrees with the Obama DOJ that mandate is “severable” from the rest of the ACA, which would leave most of the ACA in place if the penalty tax is ever found unconstitutional).