Supreme Court Rejects ACA Challenge; Law Remains Fully Intact
On June 17, 2021, the Supreme Court issued its highly anticipated decision in California v. Texas. The Court, by a vote of 7-2, turned back a challenge to the Affordable Care Act (ACA), concluding that the plaintiffs did not have standing to challenge the constitutionality of the now penalty-less individual mandate. The decision was written by Justice Breyer while Justices Alito and Gorsuch dissented.
Because standing is a threshold issue, the Court did not reach the questions of whether the penalty-less mandate is now unconstitutional and, if so, whether the rest of the ACA should be struck down alongside it. Instead, the Court held that the plaintiffs—the two individuals and a coalition of states led by Texas—failed to show the threat of injury from an unenforceable individual mandate. Without harm, the plaintiffs did not have standing to challenge this provision as unconstitutional. The Court thus vacated the lower court rulings and instructed the district court to dismiss the case.
The ACA has lived to fight another day. The decision itself has no practical impact and has preserved the status quo. The ACA remains fully in effect, and the law will continue to function as it has since the individual mandate penalty was set to $0 beginning in 2019.
But, if five Justices had agreed with the plaintiffs, there would have been severe disruption to the health care system—certainly to the insurance markets but also to Medicare, Medicaid, the Food and Drug Administration, the public health system, and beyond. While most scholars agreed that this outcome was unlikely, it remained a possibility. Until today.
The Court’s decision does not, and of course cannot, address future challenges to the law. But this is the Court’s third rejection of a broad, global challenge to the ACA in less than a decade. The decision in California v. Texas—with an even stronger conservative majority on the Court—shows once again that the Court is loath to make broad changes to the ACA. This could be interpreted as a signal that additional changes to the ACA, including those desired by ACA opponents, should come from Congress (not the federal judiciary).
Background: How We Got Here
The lawsuit, initially fashioned as Texas v. United States, was filed in February 2018 by 20 Republican state attorneys general and Republican governors. The plaintiffs wanted to revisit National Federation of Independent Businesses v. Sebelius (NFIB), where the Supreme Court, in a 5-4 vote, upheld the mandate as constitutional. In that decision from 2012, Chief Justice Roberts construed the mandate as a tax, concluding that it was valid under Congress’s authority to tax and spend.
The challenge in Texas is related. The plaintiffs argued that the individual mandate is unconstitutional after the Tax Cuts and Jobs Act of 2017, in which Congress set the penalty for not purchasing “minimum essential coverage” coverage to $0. That bill was adopted in December 2017 using the budget reconciliation process after Congress repeatedly tried and failed to repeal the ACA throughout 2017. Without the penalty, the plaintiffs argued, the mandate is unconstitutional. They further argued that the mandate is so essential to the ACA that it cannot be severed from the rest of the law, meaning the entire ACA should be struck down. At a minimum, they asked the court to strike down the law’s guaranteed issue and community rating provisions alongside the mandate.
The state plaintiffs were later joined by two individual plaintiffs who live in Texas and purchased unsubsidized marketplace coverage. These individuals objected to having to comply with the mandate but intended to purchase ACA-compliant coverage in 2019, even after the penalty was set to $0, because they wanted to follow the law. The individual plaintiffs were likely added to the lawsuit to bolster the states’ weak standing argument in the lawsuit—which we now know was to no avail.
Democratic state attorneys general from (initially) 16 states and the District of Columbia—led by then-California Attorney General (and now Department of Health and Human Services Secretary) Xavier Becerra—were allowed to intervene in the case to defend the ACA. These states sought to protect their interests in billions of dollars in federal funding under the ACA, to ensure that their residents have access to health care, and to prevent chaos in their health care systems if the ACA was found to be unconstitutional.
The Department of Justice (DOJ) partially agreed with the plaintiffs and declined to defend the constitutionality of the mandate and other key ACA provisions. This was a highly unusual position: historically, the DOJ has defended federal statutes where a reasonable argument could be made in their defense. Then-Attorney General Jeff Sessions informed Congress of the DOJ’s position that the mandate was unconstitutional and that the ACA’s provisions on guaranteed issue, community rating, preexisting condition exclusions, and discrimination based on health status were inseverable and should also be invalidated. At that point, the DOJ had drawn the line there, arguing that the rest of the ACA was severable and should remain in effect.
In December 2018, Judge O’Connor, a federal judge in the Northern District of Texas, agreed with the plaintiffs and declared the entire ACA to be invalid. He reaffirmed this decision in late December when issuing a stay and partial final judgment. Many of district court’s legal conclusions, from standing to severability, were criticized by conservative legal scholars, the Wall Street Journal editorial board, and the National Review editorial board, among others.
The Fifth Circuit
The DOJ and Democratic attorneys general appealed Judge O’Connor’s decision to the Fifth Circuit Court of Appeals. Democratic attorneys general from an additional four states and the U.S. House of Representatives were allowed to intervene to defend the ACA while two plaintiff states withdrew from the case. On appeal, the DOJ under then-Attorney General William Barr took the new position that the entire ACA should be declared invalid. From there, the DOJ changed its position twice more, suggesting first that the district court’s decision applied only to the plaintiff states and two individuals, and second that the court’s remedy should be limited only to the provisions that injured the individual plaintiffs.
After oral argument, the Fifth Circuit, in a 2-1 decision, partially affirmed the district court, agreeing that the mandate is now unconstitutional. However, instead of determining what this meant for the rest of the ACA’s provisions, the court remanded the case for additional analysis on the question of severability. One judge disagreed with these conclusions and filed a lengthy dissent arguing that the plaintiffs lacked standing and that, in any event, the mandate remains constitutional and severable from the rest of the ACA. She opined that there was no need to remand, especially on severability.
The Supreme Court
The Democratic attorneys general and the House appealed the Fifth Circuit’s decision to the Supreme Court. They initially asked for expedited review, which was denied. However, the Court agreed to hear the appeal on a non-expedited basis and also granted a conditional cross-petition filed by Texas, which asked the Court to uphold the district court’s decision. By granting both petitions, the Court considered the full scope of legal issues in Texas—from whether the plaintiffs have standing to whether the rest of the law could be severed from the individual mandate.
During the briefing and oral argument, 18 Republican attorneys general and governors, two individuals, and the Trump administration argued against the validity of the ACA, which was defended by 21 Democratic attorneys general and the House. The 18 challenger states were Texas, Alabama, Arkansas, Arizona, Florida, Georgia, Indiana, Kansas, Louisiana, Mississippi, Missouri, Nebraska, North Dakota, South Carolina, South Dakota, Tennessee, Utah, and West Virginia. The 21 intervenor states were California, Colorado, Connecticut, Delaware, the District of Columbia, Hawaii, Illinois, Iowa, Kentucky, Massachusetts, Michigan, Minnesota, Nevada, North Carolina, New Jersey, New York, Oregon, Rhode Island, Virginia, Vermont, and Washington. Republican attorneys general in Montana and Ohio were not parties to the case but filed an amicus brief arguing that the mandate is unconstitutional but severable from the rest of the ACA. And a bipartisan group of governors from Maryland, Maine, New Hampshire, New Mexico, Pennsylvania, and Wisconsin filed a separate brief arguing that the ACA should be upheld. All but four states took a formal position in the lawsuit.
Briefing was completed in mid-August, and all filings are available here. Prior posts analyzed opening briefs from California and the House; amicus briefs from nearly 40 health care and other stakeholders; opening briefs from Texas, two individuals, and the Trump administration; amicus briefs from six organizations; reply briefs from California and the House; and reply briefs from Texas and the two individuals.
Oral Argument
Oral argument was held on November 10, 2020 by the full panel of judges, including then-newly seated Justice Amy Coney Barrett whom President Trump nominated after the death of Justice Ruth Bader Ginsburg. (The Texas litigation and oral argument loomed large over Justice Barrett’s confirmation process in the Senate.) All three core issues of the litigation were discussed during oral argument: whether the plaintiffs had standing to sue, the continued constitutionality (or not) of the individual mandate, and whether the rest of the ACA could be severed if the mandate is unconstitutional.
As discussed here, much of the oral argument focused on standing. Many Justices seemed troubled that the penalty-less mandate could not be enforced against the plaintiffs and that invalidation of the mandate alone would not address their alleged injuries. Many also raised concerns about the “standing through inseverability” theory advanced by the plaintiffs and DOJ. These topics were key in the Court’s ultimate decision, discussed below.
Post-Oral Argument
Following the 2020 election, the Biden administration formally changed its position in the litigation. In early February, DOJ submitted a letter to inform the Court that it had reconsidered its position and no longer adhered to the conclusions in previously filed briefs. Upon reconsideration, DOJ’s new position was that the individual mandate, even with a $0 penalty, remained constitutional: The 2017 amendment to the ACA to reduce the penalty to zero “did not convert [the mandate] from a provision affording a constitutional choice into an unconstitutional mandate to maintain insurance.” DOJ’s argument echoed the briefs filed by California and the House but did not address standing at all.
It is worth noting that Congress enacted the American Rescue Plan Act in March 2021. This new law expanded upon the ACA by temporarily enhancing marketplace subsidies for lower- and middle-income people through 2022. To the extent that the Court looked to subsequent congressional action, this would have showed that the current Congress believed the ACA remained sound and constitutional.
The Decision
On June 17, the Supreme Court dismissed the plaintiffs’ challenge in California v. Texas, concluding that neither the individual plaintiffs nor the state plaintiffs were harmed by the penalty-less mandate. The decision was written by Justice Breyer, who was joined by Chief Justice Roberts and Justices Thomas, Sotomayor, Kagan, Kavanaugh, and Barrett. Justice Thomas wrote a separate concurring opinion criticizing the Court’s two prior ACA decisions but agreeing with the majority on the weakness of the standing arguments. Justices Alito and Gorsuch wrote a lengthy dissent and would have held that the plaintiffs had standing to challenge the mandate, that the mandate was unconstitutional, and that other parts of the ACA were unenforceable.
The Court’s decision on standing is perhaps unsurprising given the weaknesses of the plaintiffs’ arguments and the cursory treatment of standing by the lower courts. The district court’s standing analysis was criticized by conservative legal scholars for allowing a challenge to a provision with no legal effect. California and the House (and amici) made similar arguments, asserting that the plaintiffs face no injury from a $0 penalty and that any decision to purchase health insurance is a self-inflicted injury that does not create standing.
The cursory treatment of standing is reflected in the procedural history. The district court’s opinion devoted no attention to whether the state plaintiffs had standing, and Judge O’Connor denied a request from California to provide supplemental briefing or argument time on the issue of standing. Judge O’Connor held that the two individual plaintiffs felt compelled to comply with the mandate even in the absence of a penalty and thus suffered a “constitutional injury.” The Fifth Circuit agreed and went on to conclude that the states also had standing to sue, reasoning that the mandate, even without a penalty, would cause some residents to enroll in coverage, leading to higher administrative costs for states.
For its part, the DOJ never even argued that the states did not have standing to sue (a position that DOJ typically takes), a point that Justice Kagan criticized during oral argument. With respect to the individual plaintiffs, the DOJ argued that they were harmed by the ACA’s “insurance-reform provisions”—such as guaranteed issue, community rating, pre-existing conditions protections, and the coverage of essential health benefits—even if not the mandate itself.
Majority And Concurring Opinions
Standing stems from Article III of the Constitution. Under Article III, federal courts can only adjudicate genuine cases or controversies, meaning there must be an actual dispute among parties that the court can redress. This constitutional requirement—embodied in what we refer to as standing—means that at least one plaintiff must be able to show a concrete injury that is fairly traceable to the conduct of a defendant and likely to be redressed by a favorable court decision. Standing is a threshold issue, meaning the court must first decide whether the plaintiffs have standing to sue before deciding other issues (such as whether the individual mandate is constitutional or severable from the rest of the ACA).
Here, the Court held, by a vote of 7-2, that the plaintiffs did not have standing to challenge the individual mandate. Neither the individuals nor the states could show that they suffered an injury that is fairly traceable to the mandate itself. Even if they could show that they were injured, a decision that the mandate is unconstitutional would not redress their injury. Without standing, the Court could not reach the other questions, and it reversed and remanded the lower courts’ decisions with instructions to Judge O’Connor to dismiss the case.
Individual Plaintiffs
The two individuals claimed to be injured by the cost of purchasing coverage to comply with the mandate. California and the House had argued that merely feeling compelled to purchase insurance is irrelevant, and any harm based on the decision to purchase coverage would be self-inflicted. California and the Houses cited prior Supreme Court decisions that rejected the notion that an individual can manufacture standing through self-inflicted harm.
The Court did not decide whether this injury satisfies Article III. Instead, Justice Breyer focused on whether the alleged injury was traceable to the mandate. “Even if we assume that this pocketbook injury satisfies” standing, Justice Breyer wrote, the injury (i.e., the cost of purchasing health insurance) was not traceable to the mandate itself. Why? Because the mandate, without a penalty, was unenforceable. The federal government had no way to penalize failure to comply with this provision, and the plaintiffs could not identify any government action that had or would cause the injury attributed to the mandate.
The government’s inability to enforce the mandate against the two plaintiffs was fatal in the Court’s analysis. Under prior cases, parties have had to assert an injury that results (or could result) from actual (or threatened) enforcement. Here, there is no threat of enforcement and “no one, and nothing, to enjoin.” Justice Thomas, in his concurrence, agreed, noting that it is insufficient for the individual plaintiffs to “allege only harm caused by the bare existence of an unlawful statute that does not impose any obligations or consequences.”
Finally, the plaintiffs’ alleged injury could not be redressed by invalidation of the mandate. The only relief that they requested from the individual mandate—the only provision they challenged as unconstitutional—was declaratory. Courts can issue some declaratory judgments, but parties must still have standing to bring those challenges in the first place. Without standing, courts would be issuing advisory opinions that provide no actual relief. This, in turn, would open up federal courts to deciding even more political questions. Allowing standing here “would threaten to grant unelected judges a general authority to conduct oversight of decisions of the elected branches of Government.” Article III, the majority concluded, does not allow this.
State Plaintiffs
The state plaintiffs also did not have standing to challenge the mandate in the Court’s view. The states claimed two pocketbook injuries from the penalty-less mandate: 1) increased enrollment in state health programs (such as Medicaid and the state employee health plan); and 2) higher administrative costs from mandate-associated reporting requirements.
California and the House had argued that the state plaintiffs could have standing under these theories but failed to satisfy their burden of showing that the mandate did or would result in a fiscal injury. Further, these parties maintained, the state plaintiffs did not have standing based on provisions related to the mandate but not the mandate itself. The state plaintiffs had cited harm such as the cost of printing and processing 1095-B and 1095-C forms that “flow from” the mandate. Those types of injuries, the House argued, would remain regardless of whether the mandate is struck down.
The Court agreed on both counts and reinforced again the unenforceability of the penalty-less mandate. As with the individual plaintiffs, the state plaintiffs could not show that their pocketbook injuries were traceable to the individual mandate because it was not unenforceable. This alone, Justice Breyer wrote, is enough to show that the state plaintiffs lacked standing.
But Justice Breyer went on to discuss the states’ lack of evidence. To be sure, states could have standing based on a showing that third parties would behave in predictable ways that would inflict a financial injury on the states. (One example is the Court’s decision on the census case from last term.) But showing standing under this theory is “substantially more difficult,” and parties that wish to rely on this theory must show specific facts that adequately support this argument.
Here, Texas and its coalition failed to meet that burden. First, residents of these states had other reasons to enroll in coverage—such as no-cost services under Medicaid—that were wholly unrelated to the mandate. Justice Breyer wrote that “neither logic nor intuition” suggested that the penalty-less mandate would affect this enrollment decision. Second, the states could have overcome this absence of logic and intuition by presenting evidence that some residents would enroll in public coverage because of the penalty-less mandate. But the state plaintiffs did not do so.
Of the 21 statements submitted by state officials, only four focused on higher state costs due to the mandate. And all four of those focused on the mandate with (not without) a penalty or were unclear on timing. (Recall that the lawsuit was filed in early 2018, long before the individual mandate penalty was set to $0, and the state plaintiffs did not include evidence to suggest what residents would do beginning in 2019 in the absence of the penalty.)
The Court also rejected standing based solely on a report from the Congressional Budget Office (CBO). That 2017 report—issued when Congress considered setting the individual mandate penalty to $0—suggested that “a small number of people” would purchase coverage even in the absence of a penalty. This piece of evidence, the state plaintiffs argued, showed the potential for higher enrollment in state public coverage programs. This might be true, the Court found, but, on its own, the CBO’s “predictive sentence” did not sufficiently connect the penalty-less mandate to the harm claimed here and thus did not satisfy the states’ burden in showing standing. (The CBO estimates were raised repeatedly during oral argument as the Justices asked whether a general national estimate is sufficient to confer standing—as opposed to a more specific showing, such as state-specific estimates.)
Overall, Justice Breyer concluded, the states failed to show that an unenforceable mandate was the reason why residents would enroll in valuable benefits programs that they would otherwise allegedly choose to forgo. Far more evidence would be needed to adequately support this theory of standing.
Standing-Through-Inseverability And The Dissent
The state plaintiffs also claimed injury from mandate-related reporting requirements and other ACA provisions (such as the employer mandate and Medicaid expansion). California and the House responded that an injury from one portion of a statute does not give standing to challenge another portion of that law. If the states are not affected by the mandate, they cannot claim standing, or relief, from other inseverable ACA provisions.
The Court agreed, rejecting this standing-through-inseverability (or “bank shot”) argument made by the state plaintiffs and embraced by the dissent. This is perhaps unsurprising, since most Justices expressed skepticism of this theory during oral argument. Chief Justice Roberts suggested that the theory “expands standing dramatically.” Justice Kagan noted that many laws are passed in large packages and it would be “a big deal” if a plaintiff could point to injury based on one provision but then make an inseverability argument to challenge anything else in the statute.
Simply put, the Court found, the state plaintiffs were not injured by the mandate itself. The reporting requirements and other provisions cited by the states as injurious would operate even without the mandate. And even if the mandate were unconstitutional, it would not affect the states’ duty to comply with these separate requirements that cite (but otherwise operate independently from) the mandate. In his concurrence, Justice Thomas noted that the state plaintiffs “attack only the lawfulness of a different provision” while claiming harms from enforcement of other parts of the ACA. This is not a clear enough connection between an injury and the unlawful conduct.
The Court opted not to address a similar argument made on behalf of the individual plaintiffs. (The DOJ argued that the individual plaintiffs might not have standing to challenge the mandate but nonetheless had standing because of injuries from the ACA’s insurance rules that led to higher premiums and less choice.) The Court sidestepped this issue by noting that the theory, as applied to the individual plaintiffs, was not directly argued at the lower courts and was only championed by the DOJ on appeal. Even though the Court did not directly address this theory of standing for the two individual plaintiffs, it rejected this theory with respect to the state plaintiffs. (Justice Thomas suggested that the standing-through-inseverability theory could support standing in some circumstances, but added that this was not the appropriate case to address it for procedural and precedential reasons.)
In contrast, Justice Alito, joined by Justice Gorsuch, embraced the standing-through-inseverability theory. This is not surprising since Justice Alito was the most receptive to this theory during oral argument.
Embracing the arguments made by the state plaintiffs and relying heavily on the dissent in NFIB, Justice Alito would have ruled that the state plaintiffs had standing, that the penalty-less mandate was unconstitutional, and that other parts of the ACA were unenforceable. He cited broad concerns and costs associated with the ACA (as opposed to injuries wrought solely by the mandate) alongside cases where states were found to have standing to sue—from the census decision mentioned above to the contraceptive mandate decision from last term. Justice Alito was not specific in identifying which ACA provisions he would have invalidated alongside the mandate (and it might be all of them based on the dissent in NFIB). But he would have held any “provisions of the ACA that burden the states” that are “inextricably linked to the individual mandate” to be unenforceable against the state plaintiffs.