Obamacare in Court Again, This Time for a Tax Penalty

Health Insurance

July 12, 2018

Since the Affordable Care Act (ACA) became law in 2010, it’s been a controversial measure in the history of American healthcare. Like any hot topic, Obamacare has its naysayers and supporters, its pros and cons. But the arguments haven’t ended with its namesake’s presidential term. In fact, the ACA remains in the spotlight as politicians from both ends of the political spectrum argue over what to do about a healthcare law that invites constant criticism. The latest challenge to Obamacare comes in the form of a lawsuit that questions the law’s constitutionality. Several states are now suing the ACA, claiming that it has no legal authority to exist.

Trump Zeros the Penalty

On December 22, 2017, President Trump signed a significant tax overhaul bill, which also repealed the ACA’s tax penalty, thus zeroing the fine for not having insurance starting in 2019.

Originally an inherent part of Obamacare, the ACA’s tax penalty motivated younger, healthier people to get healthcare coverage. Premiums from healthier customers help to offset the high cost of care for older and sicker customers. Without the mandate in place, health experts worry that there won’t be a large enough – or healthy enough – risk pool to keep costs down. But that’s just one problem with the repeal of the individual mandate. According to some states, zeroing out the individual mandate also voided the law itself.

An Unenforceable Mandate?

While millions of Americans were happy to see the penalty removed from the ACA, such action opened this healthcare law up to further scrutiny from its opposition. A lawsuit was filed against the ACA in February of this year by Ken Paxton, attorney general of Texas, along with the attorneys general of several other states, including Arizona, Florida, Georgia, Utah and West Virginia. If the plaintiff states win, a 2012 Supreme Court ruling that once strengthened Obamacare could potentially be its downfall.

The complaint, filed in the U.S. District Court in the Northern District of Texas, purports that with the zeroing of the penalty, the ACA now lacks the authority to be a law. Under the 2012 ruling, Obamacare was defined as a law because of its power to enforce the individual mandate, which was ruled a tax. According to both the U.S. Supreme Court and the Obama-era Justice Department, a tax penalty was a necessary part of the ACA.

Without this tax in place, opponents of the ACA argue that the law became unconstitutional based on its federal power. Plaintiff states are taking legal action to point out that the ACA no longer qualifies as a law since there isn’t a way to enforce it. In addition, they believe that the current state of the ACA gives too much regulatory power to the federal government.

To understand how this would affect the Affordable Care Act as a whole, you need to know about severability clauses. Some laws contain a severability clause, meaning that if one part of it is deemed to be invalid, then the other parts of the law would still remain intact. Since the ACA has no severability clause, plaintiffs are further arguing that if the zeroed-out penalty fine invalidates the mandate, then it invalidates the entire law. In other words, it’s unconstitutional.

Among those opposed to the lawsuit is California Attorney General Xavier Becerra, who has joined with 15 other attorneys general in filing a motion to stop the lawsuit. According to Becerra, millions of Americans will be without healthcare coverage if the plaintiff states win their lawsuit. Considering the current administration’s failed attempts to put the ACA in the past once and for all, it remains unclear if the Justice Department will fight for the healthcare law in court.

Legal Standing

In order to obtain standing in court, the states’ attorneys general must prove potential harm that gives them the right to a court’s legal remedy. Experts don’t see this lawsuit as much of a threat to Obamacare based on this fact alone, not to mention many others. It’s worth noting, though, that there is a history of Obamacare court cases being labeled by experts as small speed bumps with no long-term impact that eventually turned out to be boulders in the road of progress for the ACA.

The intention of Congress is heavily weighted in cases like these. Katie Keith, a Georgetown professor who has crafted an in-depth analysis of the Texas case, explains that the ACA would never have been made a law by Congress in the first place if it lacked a proper mandate. By approving the zeroed-out penalty, it can be assumed that Congress would have approved Obamacare even without the mandate. It’s historically unlikely for courts to rule against the will of Congress. Opponents of the lawsuit believe that a court that rules in favor of this lawsuit would be ignoring the will of Congress.

Confusion Moving Forward

No matter how this lawsuit ends, it’s not helping in the grand scheme of getting Americans on board for a successful dialogue about healthcare. If the Supreme Court upholds the ACA, it is unclear how healthcare for the sick, poor and elderly would be paid for given that the individual mandate – in theory – drives younger and healthier customers into the insurance market, thus keeping costs down. But if the Supreme Court sides with Texas and the 19 other states that filed suit, Obamacare can be repealed. Several unsuccessful attempts were made in 2017 by Republican lawmakers to find an acceptable replacement for the ACA. How the discussion would move forward from here remains a mystery.