Latest Legal Challenge to ACA May Mean a Hot Mess for Insurance Markets

After a series of setbacks, Republicans challenging the constitutionality of the Affordable Care Act (ACA) and its individual mandate are back at it. And this time they may win. Here's a look at the latest case and what it means for the future of ACA and the insurance markets. 

Beating a Dead Horse?
Six years ago, the U.S. Supreme Court found the mandate constitutional. Reasoning: mandate + penalty for not having health insurance = federal tax. And Congress has the constitutional power to tax [National Federation of Independent Business v. Sebelius].

Why the Horse Isn't Dead
What's changed since Sebelius? On Dec. 20, 2017, Congress passed the Tax Cuts and Jobs Act establishing a $0 mandate penalty starting in 2019. The plaintiffs in the new case contend that a $0 penalty is not a tax and thus no longer supportable as an exercise of Congressional taxing powers. And since the individual mandate isn't severable from the rest of the ACA, they say the entire ACA should be struck down. 

Another big difference is who's leading the defense. Needless to say, the Trump DOJ is less dedicated than its predecessor to defending the ACA. But while the DOJ says that 16 parts of the ACA should be struck down, it deems the parts under attack in the latest suit constitutional and worth defending. But with such a lukewarm endorsement, attorney generals from 16 states and the District of Columbia have intervened in the lawsuit to bolster the defense.  

The Texas Showdown
The venue for the new case, Texas v. United States, is the federal district court in the Northern District of Texas. On Sept. 5, Judge Reed O'Connor held a hearing to deal with the plaintiffs' request for a preliminary injunction (PI) barring enforcement of the law pending the case's outcome. A PI would effectively freeze the ACA unless and until either an appeals court overturned it or the court ultimately ruled on the merits in favor of the law's constitutionality. 

But getting a court to issue a PI is a stiff task requiring the plaintiffs to prove four things:

1. They'll likely to succeed on the merits;
2. They'll likely suffer "irreparable harm" if the PI isn't granted;
3. The balance of equities favors their argument;
4. Granting the PI is in the public interest.

What's At Stake
Obviously, there's a lot on the line in both the short- and long-term:

Short-Term: Issuing a PI would create a hot mess in insurance markets. Accordingly, the DOJ has asked the court to limit any ruling on the mandate's constitutionality to beginning in 2019. The DOJ also cited the need for additional briefing on the timing and impact of an injunction on state insurance markets, as well as the need to potentially issue new regulations and address the multi-year process by which insurers must get their products approved for sale.

Long-Term: Invalidating the entire ACA would adversely impact, among other things:

• Protections for people with pre-existing conditions;
• ACA Medicaid expansion;
• Children under 26 who get insurance through their parents' plan;
• Annual and lifetime coverage limits; and
• Caps on out-of-pocket expenses.

Accordingly, the DOJ has asked the court to defer any ruling on severability, i.e., whether invalidation of the mandate takes down the entire ACA, until 2019 after the close of the next open enrollment period and mid-term elections.

More to Come
Don't expect any immediate resolutions one way or the other. No matter how the court rules, an immediate appeal to the Fifth Circuit of Appeal is all but assured. And no matter how the Fifth Circuit rules, the U.S. Supreme Court will be asked to intervene—although there's no guarantee it'll accept the case.