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The Future of the ACA: Implications of 5th Circuit Decision in Texas v. United States

This week, our In Focus section reviews Texas v. United States., the most recent legal challenge to the Affordable Care Act (ACA). In July 2019, the United States Court of Appeals for the 5th Circuit heard oral arguments in the case and is reviewing the decision of United States District Court for the Northern District of Texas (District Court). The District Court ruled that the “individual mandate” provision of the ACA is unconstitutional as a result of the 2017 Tax Cuts and Jobs Act (TCJA) zeroing out of the tax penalty for not having health insurance and, consequently, that the entire ACA should be struck down as a result. As the nation awaits the 5th Circuit panel’s decision, this article discusses background, next steps in the court process, and the potential far-reaching implications of this case.

Background and Current Status

In the case of National Federation of Independent Business v. Sebelius, 567 U.S. 519 (2012), the Supreme Court of the United States (Supreme Court) upheld the constitutionality of the ACA’s individual mandate by a vote of 5-4. The mandate was implemented by including a tax penalty in the Internal Revenue Code for failure to carry health insurance. The Supreme Court held that the individual mandate was within Congress’ power set forth in Article I, Section 8 of the Constitution “to lay and collect taxes,” with the majority of the justices also agreeing that the individual mandate was beyond the scope of Congress’ authority under either the Commerce Clause or Necessary and Proper Clause.

Through a provision of the TCJA, Congress reduced the tax penalty to zero dollars for individuals opting not to purchase insurance as of January 1, 2019. This led Texas and other states to file a complaint in Texas v. United States challenging the continued constitutionality of the individual mandate and, consequently, the entire ACA.  The plaintiffs argued that, with no tax penalty, the individual mandate is no longer an exercise of Congress’ taxing authority and is therefore unconstitutional. They further argue that, because the individual mandate is not severable from the remainder of the ACA, the entirety of the ACA should be struck down as unconstitutional. The District Court agreed with the plaintiffs’ arguments and held that the ACA in its entirety is unconstitutional, concluding that the individual mandate is a critical piece of an intricately designed scheme and, therefore, the entire ACA must fall without it. The District Court specifically discussed pre-existing condition protection, lifetime limits, and other consumer protections, deciding they all had to fall as nothing could be severed from the entire ACA.

What’s Next

The 5th Circuit panel’s review of the District Court decision will likely lead to a decision before the end of 2019, although the panel could take longer. The panel could agree with the District Court’s decision to strike down the entire ACA, agree that the individual mandate is unconstitutional but sever it from the rest of the ACA, or rule that the individual mandate is still a valid exercise of Congress’ taxing power as it remains a part of the Internal Revenue Code even though the tax penalty is now zero.

Whoever loses in the 5th Circuit is certain to petition the Supreme Court to take the case.  The likelihood of the Supreme Court taking the case varies depending on the 5th Circuit holding.  A decision reversing the District Court in its entirety and upholding the law as it stands is less likely to be taken up by the Supreme Court. A decision upholding the District Court in its entirety and striking down the entire ACA would almost assuredly compel the Supreme Court to take up the case. It is difficult to say what the Supreme Court would do with a middle-ground decision that finds the individual mandate unconstitutional when devoid of a tax penalty but severable from the rest of the ACA, as such a decision would have minimal practical impact. In the event that the Supreme Court were to hear the case, our best estimate is that it would likely be by early summer of 2020 given the case’s far reaching implications for health care and the United States’ economy.


What makes the District Court decision such a dramatic one is the finding that the individual mandate cannot be severed from the remainder of the vast provisions of the ACA. Upholding the decision, and thus striking down the ACA, would have far-reaching implications, including elimination of the following:

  1. Medicaid expansion, which, under the ACA, can include adults up to 138 percent of the federal poverty level (FPL) at the state’s option. As of August 1, 2019, 36 states plus the District of Columbia have adopted this expansion option, expanding Medicaid to cover approximately 12 million additional enrollees nationally.
  2. Health Insurance Marketplaces (Marketplaces), through which individuals can enroll in health plan coverage and access financial assistance with coverage. The Marketplaces cover approximately 10 million individuals. This would not have as large of an impact on states that have created state-based Marketplaces by essentially codifying many federal ACA Marketplace provisions.
  3. Income-based cost-sharing subsidies and premium tax credits for certain individuals who purchase coverage through the Marketplaces. In the 2018 coverage year, 8.9 million individuals received premium tax credits and 5.4 million received cost-sharing reductions (June 2018).
  4. Requirement that all plans offering dependent coverage must allow unmarried individuals to remain on their parents’ health insurance until the age of 26. This provision has resulted in coverage for 2.3 million young adults. Some states have enacted laws to retain this provision (and the items following in this list) in case the ACA is overturned.
  5. Requirement that health plans cover 10 categories of essential health benefits (hospitalization, outpatient, maternity, prescription drugs, mental health, substance abuse treatment, habilitative services, rehabilitative services, pediatric dental, and pediatric vision services), and limit annual cost-sharing on these benefits. Prior to the implementation of these required benefits, 45 percent of plans did not cover substance use disorder treatment and 38 percent did not cover mental health services.
  6. Prohibition on all health plans from establishing lifetime or annual limits on essential health benefits. Prior to the ACA, nearly 60 percent of employer-sponsored health plans had a lifetime limit.
  7. Protections for pre-existing conditions, including banning discrimination based on health status, only allowing recession of coverage for fraud or misrepresentation, and not permitting variance of premiums based on gender or health status. An estimated 52 million Americans have a pre-existing condition that would have been deniable by insurers prior to the ACA.
  8. Requirement that all plans cover preventive services and immunizations recommended by the U.S. Preventive Services Task Force and the Centers for Disease Control and Prevention and certain preventive services for children recommended by the Health Resources and Services Administration, without any cost-sharing. As of 2018, an estimated 161 million U.S. residents are covered by Medicaid or commercial insurance plans that must provide free preventive services.

In addition to the eight provisions listed above, striking the ACA would eliminate many other provisions affecting Medicare, Medicaid, commercial health coverage eligibility, and health plan requirements.

Whatever the Outcome, Severability will be at the Heart of the Decision

In NFIB v. Sebelius, the Supreme Court declared the mandatory Medicaid expansion in the ACA unconstitutional but severed it from the rest of the law, upholding the rest of the ACA. The United States Court of Appeals for the 11th Circuit (11th Circuit) initially declared the individual mandate unconstitutional before the decision was overturned by the Supreme Court; however, the 11th Circuit also found that the individual mandate could be severed from the rest of the statute. Additionally, the federal and state Marketplaces seem to have stabilized in the absence of an enforceable individual mandate, which would seem to indicate that the mandate is not indispensable to the rest of the ACA.  Also noteworthy is the following from Senator Susan Collins’ Senate floor speech during Justice Kavanaugh’s confirmation process:

One concern that I frequently heard was that the judge would be likely to eliminate the Affordable Care Act’s vital protections for people with preexisting conditions. I disagree with this. In a dissent in Seven-Sky v. Holder, Judge Kavanaugh rejected a challenge to the ACA on narrow procedural grounds, preserving the law in full. Many experts have said that his dissent informed Justice Roberts’s opinion upholding the ACA at the Supreme Court. Furthermore, Judge Kavanaugh’s approach toward the doctrine of severability is narrow. When a part of a statute is challenged on constitutional grounds, he has argued for severing the invalid clause as surgically as possible while allowing the overall law to remain intact. This was his approach in a case that involved a challenge to the structure of the consumer financial protection bureau. In his dissent, Judge Kavanaugh argued for “severing any problematic portions while leaving the remainder intact.” Given the current challenges to the ACA proponents, including myself, of protections for people with preexisting conditions should want a justice who would take just this kind of approach.

Finally, the five justices who rejected the first challenge to the ACA in NFIB v. Sebelius and who agreed to sever the mandatory Medicaid expansion are all still on the Supreme Court.

In the end, the 5th Circuit decision may lead to the Supreme Court determining the legality of the ACA for a third time. The nation, and essentially one fifth of the economy of the United States, will await the 5th Circuit, and potential Supreme Court, decision.

For more information, please contact HMA’s Amber Swartzell, Senior Consultant; Matt Powers, Managing Director MMS; or Nora Leibowitz, Principal. Jim Parker, former HMA Principal, also contributed.

Meet the HMA blog contributors

Amber Swartzell

Amber Swartzell

Senior Consultant
Indianapolis, IN
Matt Powers

Matt Powers

Managing Director
Chicago, IL