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Obamacare Survives a Third (and Likely Final) Challenge

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Obamacare Survives a Third (and Likely Final) Challenge

In a 7–2 ruling, the Supreme Court found that the states and individuals challenging the law lacked standing. June 18, 2021
Health Care
Politics and law

The Supreme Court has now ruled on three legal challenges to the Affordable Care Act, and for opponents of the statute the third time was not a charm. In yesterday’s 7–2 ruling in California v. Texas, the Court held that the 18 states and two individuals claiming that the ACA’s individual mandate was unconstitutional lacked the standing to bring the case because they failed to demonstrate that they were injured by that now-unenforceable mandate. The case likely marks the end of the line for legal challenges to the health-care law.

In two earlier decisions, the Court saved the law with creative legal reasoning. In the first, 2012’s National Federation of Independent Business v. Sebelius, the Court characterized the penalty imposed on individuals who failed to purchase health insurance as a constitutionally permissible “tax” despite the fact that Congress had explicitly said the penalty was not a tax. The second, 2015’s King v. Burwell, interpreted an ACA provision that made premium subsidies available on health-insurance exchanges established by a “state” to include federally established exchanges. (The case was coordinated by the Competitive Enterprise Institute, where I am now a senior fellow.)

In both cases, the government argued that the individual mandate was critical to the functioning of the ACA. Invalidating the mandate would undermine the effectiveness of the guaranteed-issue and community-rating provisions of the law, which bar insurers from denying coverage or charging higher premiums based on individuals’ medical conditions, and lead to the collapse of the ACA’s insurance market.

Texas, along with the other state and individual plaintiffs, brought a lawsuit arguing that without a penalty, the individual mandate raises no revenue, is no longer a tax, and is therefore unconstitutional, since Congress would lack the authority to enact it. They further argued that the mandate, which Congress had earlier labeled as “essential” to the ACA, was not severable from the rest of the statute—and therefore that the entire ACA is unconstitutional.

A federal district court in Texas held that the plaintiffs had standing to challenge the constitutionality of the mandate and that the mandate is unconstitutional and not severable, making the entire ACA unconstitutional. The Fifth Circuit Court of Appeals agreed that the plaintiffs had standing, and that the individual-mandate provision was unconstitutional, but questioned the adequacy of the district court’s severability analysis.

The Supreme Court’s decision addresses neither the constitutionality of the now-toothless individual mandate nor its severability from the rest of the statute. It goes no further than finding that the plaintiffs lacked standing—the right to seek judicial relief—under Article III of the Constitution. Generally speaking, to establish standing a plaintiff must show an actual injury that is reasonably traceable to the challenged conduct of the defendant and is likely to be redressed by the requested relief.

None of the nine justices found that the individual plaintiffs had standing. Without a penalty for noncompliance, the mandate is unenforceable, and there is no injury that can be redressed by judicial relief.

The majority also found that the 18 plaintiff states lacked standing. The Court held the states had not provided evidence to support their claim of increased Medicaid enrollment and expenses resulting from the mandate. It noted that once the mandate penalty was zeroed, the mandate ceased being an independent incentive for people to enroll in Medicaid. The Court also rejected the states’ claims that the ACA imposes administrative costs and requires them to offer their employees insurance because these obligations were created by other provisions of the ACA that operate independently of the individual mandate, and which the plaintiffs had not directly challenged.

Two justices disagreed with the holding regarding the states. Justice Samuel Alito penned a vigorous dissent, joined by Justice Neil Gorsuch, arguing that the states did have standing, that the mandate with zero penalty is “clearly unconstitutional,” and that it is inseverable from the other ACA provisions that burden the states. On the standing issue, Alito argued that the states had clearly shown injury from the ACA that would be redressed by a favorable judicial ruling, but that the majority had misinterpreted the Court’s precedents on whether the injury was traceable to the government’s unlawful conduct. Alito claimed that the injury need only be traceable to the government’s administration and enforcement of the ACA, not specifically to the individual-mandate provision.

Regardless of which side is right on the standing argument, the case likely represents the last legal challenge to the ACA. Its opponents have tried three theories without success. Notably, Justice Clarence Thomas’s concurring opinion made clear that while he disagreed with the Court’s reasoning in the first two ACA challenges, he agreed with its decision on standing in the third. The Court’s unwillingness to grant standing and hear this most recent case on the merits suggests that a critical mass of justices will not look favorably on additional challenges—however creative they may be.

Photo by Kevin Dietsch/Getty Images

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