Case of the Month: Texas Court Strikes Down Obamacare—So, Now What?!

What came as a Christmas gift to many Republicans could be a lump of coal in the stockings of health insurers and the patients they cover. On Dec. 14, a federal judge in Texas did the unthinkable by ruling that the entire Affordable Care Act (aka Obamacare), is unconstitutional. While a group of attorneys general from Democratic states is promising to appeal the decision, the new more conservative makeup of the Supreme Court makes ACA’s ultimate fate less then certain. Meanwhile, the insurance markets are scrambling to make sense of the situation.

The Controversy over Obamacare’s Constitutionality
What makes this new decision especially shocking is that it seemed like the whole Obamacare constitutionality question was settled six years ago in a case called NFIB v. Sebelius. According to the U.S. Supreme Court, the mandate coupled with the penalty for not having health insurance constituted a federal tax and thus a lawful exercise of the U.S. Congress’s constitutional taxing powers.

But the situation changed when the Republicans took control of Congress and lowered the penalty to $0, effective in 2019. As a result, a group of Republicans decided to bring a new federal lawsuit challenging the law.

The New Case
The plaintiffs in the new case, Texas v. United States, argue that removing the penalty effectively cuts out the taxation character of Obamacare and with it, the basis for finding the law constitutional. And because the individual mandate is not severable from the rest of the law, the entire ACA should be invalidated.

The Federal District Court in Fort Worth agreed with that argument, declaring not just the individual mandate but all of the remaining provisions of the Obamacare law unconstitutional.

What Does It Mean?
The Texas ruling is, no doubt, a serious blow to Obamacare. And while the wound may prove fatal, this thing is a long way from over. A group of Democrat attorneys general are planning to appeal the decision all the way to the U.S. Supreme Court, if necessary. And Obamacare will remain in effect pending ultimate resolution of the case.

Even so, there can be no doubt that Obamacare’s long-term survival is in serious doubt. Prospects for ultimate court victory appear dim. The problem the Democratic AGs face is that the next rung up the judicial ladder is the Fifth Circuit Court of Appeals, a court known for its conservative tendencies. If the Fifth Circuit does uphold the lower court ruling, another showdown in the U.S. Supreme Court is likely. The good news for the Democrats is the Court’s previous positive ruling on Obamacare’s constitutionality; the bad news is the change in circumstances, namely the repeal of the penalty, not to mention the new more conservative makeup of the Court.

The Real World Impact
When and if Obamacare is ultimately found unconstitutional, it will have a direct and immediate impact on the features of the law that have driven the health insurance market for much of the last decade, including:

• Protections for people with pre-existing conditions;
• ACA Medicaid expansion;
• The employer health insurance mandate; and
• Insurance for children under 26 who are insured through their parents’ plans.

Obamacare nullification would also remove key restrictions on insurers:

• Annual and lifetime coverage limits would once again be permitted;
• Caps on out-of-pocket expenses could be eliminated; and
• Insurers could once again charge more based on age, gender and profession.

Of course, the non-insurance-related aspects of Obamacare would also face a highly uncertain future, including those dealing with:

• Closing of the Medicare drug donut hole;
• Creation of the Center for Medicare and Medicaid Innovation; and
• Restaurant menu labeling.

Deus Ex Machina for Obamacare?
The final chance at saving Obamacare would be in the form of new Congressional legislation. Future House Speaker, Nancy Pelosi, has vowed that Democrats will “move swiftly to formally intervene in the appeals process to uphold the lifesaving protections for people with pre-existing conditions and reject Republicans’ effort to destroy the Affordable Care Act.” Of course, control of the House isn’t enough. Saving Obamacare will require a bi-partisan effort that involves not just the Republican-controlled Senate but also a President that utterly despises the system adopted under his predecessor.

However, while the Republicans are unlikely to rescue Obamacare, they may be willing to work alongside the Democrats to forge a new system to replace and even improve it. Of course, that would require the kind of bi-partisan effort the likes of which this country hasn’t seen in over two decades.