A weak lawsuit dies, and nobody comes out looking good.
A weak lawsuit dies, and nobody comes out looking good.
T he U.S. Supreme Court this morning, in California v. Texas, saved the Affordable Care Act yet again, and it wasn’t close. By a 7–2 vote, with only Justices Samuel Alito and Neil Gorsuch dissenting, the Court concluded that the challengers to Obamacare did not have standing to sue over the individual mandate now that the mandate has been stripped of its monetary penalty. Justice Stephen Breyer wrote the majority opinion, and Justice Clarence Thomas — as he often does — authored a concurrence with his own view of why he came out the same way.
As I explained back in October, this lawsuit was never likely to bring down the whole statute, and to that extent, the outcome today was the right one. Fevered Democratic predictions that Amy Coney Barrett would be the fifth vote to tear down the whole statute were proven to be the fantastical nonsense we always knew they were. But the Court ultimately took the wrong path. It should have found that the states had standing to sue and struck down the mandate, while leaving the rest of the statute intact.
This case is the end of a long, winding road. Let’s summarize it briefly.
2009–10: The Affordable Care Act
The Affordable Care Act is a famously sprawling and complex statute, applying a variety of regulations, subsidies, and taxes to the American health-care system. At its core, the ACA imposed a triangle of rules designed to compel both buyers and sellers of individual insurance policies into unwilling exchanges:
- First, the individual mandate, which compels every American to buy insurance if he or she does not already have it. Without the mandate, healthy people may rationally choose not to buy overpriced insurance, leaving the insurers forced to cover a small, self-selected pool of the sick and the elderly.
- Second, guaranteed issue, which compels insurers to cover people with preexisting conditions. This drives up the insurers’ costs, which is why healthy people need to be compelled to buy their policies to keep the system solvent.
- Third, community rating, which compels insurers to charge premiums without regard to whether an individual has a preexisting condition. Instead, it requires insurers to price individual policies by looking at the risk of the entire pool rather than just the individual. Community rating shifts and socializes the cost of preexisting conditions onto younger, healthier policyholders.
2012: NFIB v. Sebelius
In the 2012 NFIB v. Sebelius case, the Supreme Court upheld the constitutionality of the triangle against a challenge to the individual mandate, while ruling that Obamacare’s Medicaid expansion had unconstitutionally forced states to accept it — a ruling that led many states to voluntarily opt out.
The reasoning of NFIB on the mandate was crucial. Five members of the Court (including Chief Justice John Roberts) ruled that the individual mandate was an unconstitutional use of Congress’s power to regulate interstate commerce. But Roberts then joined with the four liberal justices to hold that Congress had the power to tax anyone who failed to comply with the individual mandate. Because the only identified penalty for violating the mandate was found in a separate section requiring a payment of money, Roberts wrote, it should be read as a tax: “A lawful choice to do or not do a certain act, so long as he is willing to pay a tax levied on that choice.” This was a highly dubious ruling — which Justice Barrett criticized in her scholarly work — given that Democrats had argued to the voters, in the procedural fights in Congress, and even in court that the mandate was not a tax.
Roberts himself admitted that a tax on a “lawful choice” was not how Congress had written the statute: “The most straightforward reading of the mandate is that it commands individuals to purchase insurance.” For example, the mandate and the penalty were contained in different statutory provisions, and some people covered by the mandate were always exempted from the penalty. The mandate exempted illegal aliens, prisoners, and religious objectors, while the penalty also exempted members of Indian tribes and people with various economic hardships. Roberts thus admitted that he was applying a “saving construction,” effectively rewriting the two provisions as if they were a single rule. At the time, the Court did not say what should happen to the mandate as it applied to people already exempted by the penalty; none of them were involved in the NFIB lawsuit.
As things stood from 2012 to 2017, the mandate was enforced as if it were a tax. The California v. Texas lawsuit, however, did not seek to overturn NFIB’s ruling that the mandate should be read as if it were a tax when it was originally implemented. Nor did it challenge any other part of the ACA as unconstitutional. Instead, it challenged the mandate based on changes to the penalty made by Congress in 2017 — and tried to use that as a lever to bring down the whole statute.
December 2017: Congress Removes the Penalty
In 2017, congressional Republicans tried, and failed, to repeal Obamacare. A major obstacle was the need for 60 votes in the Senate to change laws, whereas only 50 votes (plus the vice president) would be needed to change tax and spending rates. So, when congressional Republicans came back later to pass a tax bill, they could not eliminate the mandate, but they did the next best thing: set the “penalty” to zero. As things stand now, if you do not carry health insurance, you are still in violation of federal law, but there is no penalty applied.
California v. Texas: Who Sues, and Over What?
This brings us to California v. Texas. The lawsuit was brought against the federal government by two individuals and a group of states, led by Texas. The individuals say that they still maintain Obamacare insurance policies because the law mandates it, even without the penalty. The states argue that the individual mandate imposes costs on them, mainly in two ways. First, it causes more people to sign up for Medicaid, thus increasing state spending (an argument backed up by Congressional Budget Office reports in 2008 and 2017 finding that more people will buy insurance if the law tells them to, even without a tax penalty).
Second, the individual mandate forces the states to spend money on IRS reporting requirements aimed at enforcing compliance. Those reporting requirements were not eliminated when the penalty was set to $0 in 2017, even though the IRS can do nothing with the information unless and until Congress restores the penalty. Employers are still required to file Form 1095-C, and the IRS has thus far only temporarily suspended the use of Form 1095-B. A South Dakota human-resources official submitted testimony that the state spends $100,000 a year just on Forms 1095-C.
The theory underlying the suit called Roberts’s bluff. A tax, after all, is supposed to raise revenue. Article I, Section 8 empowers Congress to “lay and collect Taxes . . . to pay the Debts and provide for the common Defense and general Welfare of the United States.” If the mandate is valid only as a tax, and it is impossible for anyone to pay it and contribute to any of those federal expenses, then how can it be a tax? Yet the mandate itself is still on the books as a regulation. If the regulation is not a tax, it can only be justified as an exercise of the commerce power — the very thing that a majority of the Supreme Court previously said was unconstitutional.
This is a compelling argument as far as it goes, but it faced two legal problems. The first was standing. If there is no penalty, who is harmed enough to have a federal case? And two, the question of remedy and severability: Even if the plaintiffs won, would the Court just strike down a mandate that isn’t being enforced, or throw out some or all of Obamacare with it? The Fifth Circuit found standing and struck down the mandate, but sent the case back down to the trial court rather than rule on the scope of its decision. By tossing the case out on standing grounds, however, the Court ducked the other issues.
No Harm, No Foul?
Dealing first with the individual plaintiffs who say that they paid for insurance just to comply with federal law, Justice Breyer wrote that they could not trace their injury to the statute anymore because it “has no means of enforcement.” He added that “with the penalty zeroed out, the IRS can no longer seek a penalty. . . . Because of this, there is no possible Government action” that made them buy health insurance.
Breyer’s opinion made much of the fact that no prior case had found standing where there was no mechanism for the government to enforce a federal law. The Court barely dealt with Poe v. Ullman, a 1961 case in which a plurality of the Supreme Court found no standing to challenge a state statute when the state showed that it had agreed for decades not to enforce it. Critics of the suit had pinned hope on Poe.
But the Court likewise cited no case in which a plaintiff lacked standing to sue where the plaintiff’s other option was to break a law passed by Congress and then hope that the government could find no way to impose consequences from somewhere in its vast toolkit of powers to harass a citizen. As Laurence Tribe asked in 2012: “What if somebody for example is on probation, and is asked, ‘Have you violated any federal law lately?’ could the person truthfully answer, ‘No, I haven’t,’ even though the person didn’t purchase the required insurance but merely paid the penalty?”
The Court broke new ground, without quite admitting as much, by rejecting this lawsuit. But it would have broken new ground either way, and Alito’s dissent recognized that the individual plaintiffs’ arguments “raise[] a novel question.” It does, however, ensure one thing: The individual mandate cannot be enforced in any way without reviving the legal challenge.
Not Buying the Projections
On the states’ claim that the mandate caused more people to sign up for their Medicaid programs than would happen otherwise even without a penalty, the states’ chief evidence was the 2017 CBO report that concluded precisely that. Many of us on the right have long criticized the inaccuracy of the CBO’s projections of Obamacare’s impact on sign-ups, its poor predictive track record, and the unreality of alarmist Democratic claims based on projections. But CBO reports are accepted as “facts” within the halls of Congress. Breyer, for his part, refused to treat the CBO’s conclusions as gospel:
In our view . . . [the CBO’s] predictive sentence without more cannot show that the minimum essential coverage provision was the cause of added enrollment to state health plans. It does not explain, for example, who would buy insurance that they would not otherwise have bought. (For example, individuals who purchase insurance on individual exchanges — like individual plaintiffs Hurley and Nantz — do not increase the relevant costs to the States of furnishing coverage.) Nor does it explain why they might do so. The CBO statement does not adequately trace the necessary connection between the provision without a penalty and new enrollment in Medicaid and CHIP. We have found no other significant evidence that might keep the CBO statement company.
Alito found the Court’s scrutiny of the chain of events from the mandate to increased state health-insurance costs to be hypocritical, given what the Court has accepted from states in the past:
Just recently, New York and certain other States were permitted to challenge the inclusion of a citizenship question in the 2020 census even though any effect on them depended on a speculative chain of events. . . . The States’ theory was that the citizenship question might cause some residents to violate their obligation to complete a census questionnaire and that this, in turn, might decrease the States’ allocation of House seats and their share of federal funds.
Reporting Requirements
There is an entirely reasonable basis for the Court’s decision on these first two grounds. Where the Court went too far is in rejecting the states’ standing based on their increased costs of compliance with IRS forms that are explicitly designed to track compliance with the mandate. As I noted last month, in a case involving the Anti-Injunction Act’s limitations on lawsuits to stop the collection of taxes, the Court had no trouble finding that reporting requirements inflict a distinct injury.
Breyer gives this argument the back of his hand. First, he asserts that “other provisions of Act, not the minimum essential coverage provision, impose these other requirements. Nothing in the text of these form provisions suggests that they would not operate without” the mandate, and therefore the states needed to show that the reporting requirements themselves were unconstitutional. (The Court did not try to argue that it mattered to this analysis that the reporting requirements were not repealed in 2017, given that the legal mandate was still on the books.)
This is an unduly cramped literalism about statutory intent, wildly out of step with how the Court read the statute in its prior Obamacare decisions. The entire point of costly and onerous reporting requirements on every employer to report on every individual’s insurance status was to facilitate enforcement of the individual mandate. The Court makes no real effort to explain its decision to put the burden on the plaintiffs to prove that a reporting requirement would not have been passed without the very thing whose compliance it was reporting.
All or Nothing
The bigger stakes in the case, of course, were not the narrow invocation of reporting requirements as a basis for throwing out a toothless mandate, but rather the plaintiffs’ big-picture theory that if the mandate was unconstitutional, the whole statute should go with it. One component of that overreaching theory was that any injury inflicted by any part of the statute should be a basis for standing to sue. As I noted previously, Justice Thomas has rejected this approach to standing in the past, and he did so again here. Justice Gorsuch, who has shown a willingness to adopt Thomas’s view on this point, nonetheless sided with Alito’s broad-based argument in favor of standing and severability under which the whole statute would fall. But the rest of the Court was unwilling to go there, and properly so.
Thomas did, however, wryly note the retreat it entailed for Obamacare’s defenders to argue that the mandate could easily be severed from the rest of the statute. In NFIB, the Obama administration itself argued that guaranteed issue and community rating could not survive without the mandate. The claim that Obamacare would collapse if the Court struck down more of it was central to the Court’s ruling in King v. Burwell as well, although the Court since has effectively admitted that King is not a real legal precedent.
Nobody comes out of this case looking particularly good. The Republican effort, embraced by the Trump Justice Department, to use a too-clever-by-half theory to do what a Republican Congress couldn’t, lost resoundingly. The Democrats’ trumpeted claims that the Court was about to toss the statute were revealed as false propaganda. Seven justices got the issue of state standing to challenge reporting requirements wrong. The other two adopted an unreasonably broad view of standing and severability. The CBO was more or less laughed out of court. The Obama-era arguments about the essential need for the individual mandate were revealed as a dispensable pretense. King v. Burwell was yet again treated as a political rather than legal decision. But the Court may finally have put an end to a decade of Obamacare cases in which it has contorted law and reason to save the statute, and only bought itself more political pressure and less respect.