Introduction
When the Patient Protection and Affordable Care Act, more commonly referred to as the ACA or Obamacare, was signed in 2010 by President Barack Obama, it promised to upend the healthcare sector of the United States, touching every facet of the industry. Passage also invited immediate legal challenges to the law, which, being so expansive, tested the powers of the Federal government. Because the law was so comprehensive, it affected the life of every healthcare administrator in some way. Indeed, administrators in every industry needed to take note of many of the provisions, some of which extended past basic healthcare changes. National Federation of Independent Business v. Sebelius is to date the most consequential decision regarding the ACA, resulting in most of the law being upheld with some changes to other parts of the law. The suit was brought by a variety of plaintiffs, including states and businesses, and originated in Florida. The ruling also led to the individual mandate being repealed in 2017 and 2018’s subsequent legal challenge to the law, Texas et al v. United States of America et al. The case is still pending appeal in an appeals court and has the potential to be a landmark case before the Supreme Court.
The case that ultimately made it through the court system to the Supreme Court was the National Federation of Independent Business lawsuit (Showalter, 2015). Prior to the Supreme Court decision, there were lawsuits in several jurisdictions throughout the country, with different district and appeals courts rendering conflicting decisions on the constitutionality of the law, the severability of certain portions and the standing of plaintiffs. The concept of severability refers to a court’s ability to “sever” an unconstitutional part of a statute while allowing the rest of the law to remain in effect and was part of the legal patchwork across the country (Kamiat, 2012). Some courts across the nation granted standing, or the ability to sue, to various plaintiffs while others denied it (Leonard, 2012).
The two main provisions that plaintiffs challenged across the country were the individual mandate requiring individuals to purchase health insurance and the provision requiring states to provide Medicaid coverage to all individuals up to 133% of the Federal Poverty Line (Showalter, 2015). The government argued that the mandate was legal under the Commerce Clause of the constitution while the Medicaid expansion was a use of the government’s legal authority to spend under the Spending Clause. The government was also specifically arguing that the individual mandate to buy insurance was not a tax, partially driven by President Obama’s repeated and oft-quoted assertions that it wasn’t a new tax (Good, 2012).
Although National Federation of Independent Business v. Sebelius is the case that was ultimately heard and decided by the Supreme Court, many suits were filed in jurisdictions across the country, some of which were found to be without standing (Leonard, 2012). The Anti-Injunction Act, or AIA, figured prominently into these decisions and was the basis for one of the Supreme Court’s holdings on the final case. The AIA says that a lawsuit cannot be brought against the government about a tax before the tax is collected (Showalter, 2015). Therefore, if the mandate were a tax, a taxpayer wouldn’t have standing to initiate litigation under the AIA. A ruling from the Supreme Court was going to be necessary soon after litigation began progressing, as District and Appeals courts began making rulings at odds with each other, not only on the AIA issue, but on severability and the constitutionality of the law as a whole.
Eastern and Western Virginia and Fourth Circuit Decisions
The first ruling on the issue did not arise from the case that eventually came before the Supreme Court but in the Eastern District of Virginia, where Virginia Attorney General Ken Cuccinelli had filed a lawsuit separate from other states, which had filed with Florida (Helderman, 2010). The government argued that Virginia had no standing to sue. The judge instead ruled the law unconstitutional as an inappropriate use of the power to regulate commerce, the first ruling against the law in court (Helderman & Goldstein, 2010).
Meanwhile in the Western District of Virginia, Liberty University sued over both the individual mandate and another provision, the employer mandate, which requires employers with more than 50 employees to offer their employees health insurance (Leonard, 2012; Denniston, 2010). The judge ruled the mandate constitutional but rejected the government’s assertion that Liberty had no standing under the AIA. The judge also rejected Liberty’s challenges based on religious objections to certain provisions and an objection to state operated health insurance exchanges in his 54 page opinion.
Attorney General Cuccinelli tried to bypass the Fourth Circuit Court and appeal directly to the Supreme Court but was denied (Kendall, 2011). The appeal was therefore heard by the Fourth Circuit for both the Eastern and Western District appeals. The Court of Appeals ruled that the mandate was a tax and therefore the state of Virginia had no standing (Leonard, 2012; Showalter, 2015). The Supreme Court chose not to hear Cuccinelli’s appeal.
Other Court Rulings
Various other courts ruled on the issue prior to the Supreme Court’s involvement. The Ninth Circuit refused to grant standing to individuals and employers in Baldwin v. Selibius (Leonard, 2012). The Sixth Circuit ruled that the mandate was constitutional (Showalter, 2015). In Pupura v. Selibius, the Third Circuit ruled that the individuals had suffered no injury, a prerequisite for standing. The D.C. Circuit ruled in Seven-Sky v. Holder that the individuals who filed suit had standing and that the AIA did not apply and that the mandate was constitutional.
National Federation of Independent Business v. Sebelius
The case that the Supreme Court ultimately heard on appeal started with a lawsuit filed by 26 states, the National Federation of Independent Business and two individuals in the Northern District of Florida, heard by Judge Roger Vinson (Showalter, 2015; Adamy, 2011). Judge Vinson struck down the mandate as unconstitutional while also declaring it non severable from the rest of the law, meaning the entire ACA was unconstitutional (Kamiat, 2012). His ruling was appealed to the Eleventh Circuit, who ruled that the mandate was unconstitutional but severable, leaving the rest of the law intact.
The ACA at one point in its legislative history had a severability clause but it was taken out, which is one reason that judge Vinson declared the unconstitutional portion of the law non severable from the rest (Kamiat, 2012). Out of courts that ruled the mandate unconstitutional at the time, only the Northern District of Florida ruled it non severable. When the Eleventh Circuit changed Vinson’s ruling, it noted that his original ruling focused too heavily on the lack of a severability clause and that he didn’t consider the scope of the law before making his ruling.
The Supreme Court agreed to hear the case out of Florida, hearing three days of arguments on the topics of Medicaid expansion, the constitutionality of the individual mandate and the application of the AIA (Harvard Law Review Association, 2012). The Supreme Court, with Chief Justice John Roberts as the pivotal justice in every holding, announced its decision with a complicated set of opinions. Four justices, Clarence Thomas, Anthony Kennedy, Antonin Scalia and Samuel Alito, decided that the Medicaid expansion and mandate (as a tax or power under the Commerce Clause) were unconstitutional and non severable, striking down the entire law. Since the mandate wasn’t a tax in their view, the AIA dispute was irrelevant. Justices Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor and Elena Kagan held that the mandate was legal as a tax and as part of the Commerce Clause and therefore the law could stand. Justice Roberts held that the mandate was constitutional as a tax but not under the Commerce Clause. The five justices also ruled that since the mandate is a penalty according to law, even though constitutionally it is a tax, litigation is permissible under the AIA. Regarding Medicaid expansion, Justices Roberts, Thomas, Kennedy, Scalia, Alito, Breyer and Kagan ruled the withholding of all Medicaid funds by the Federal government to be coercive, effectively making the expansion optional on a state-by-state basis. The rest of the law was unaffected by this holding. Justice Roberts’s ruling was thought to be influenced by potential charges of judicial activism if the law were struck down, leading some to believe he ruled against his original inclinations facing negative media coverage (Gentilviso, 2012). More recently, speculation that Justice Kagan “traded” the mandate for making the Medicaid expansion optional has arisen, as Kagan and Breyer joined in the decision to make the expansion optional (Higgins, 2019). Some legal analysts complained that Justice Roberts, in writing his opinion, had not relied on any established precedents and other laws passed by previous Congresses.
Effect on the healthcare industry and administrators
The most profound effect of the ACA on the healthcare industry is the coverage expansion, although this is far from the only impactful change. In 2011, the Congressional Budget Office (CBO) estimated that 32 million people would become insured by 2016 (CBO’s Analysis of the Major Health Care Legislation Enacted in March 2010, 2011). Insurance coverage is associated with higher healthcare utilization (Kominski, Nonzee, & Sorensen, 2017). If more people were expected to gain insurance coverage, more utilization would be expected and indeed that is what occurred, particularly among lower income (who were eligible for subsidies and Medicaid expansion) and sicker populations. The CBO revised its projections following National Federation of Independent Business v. Sebelius when Medicaid expansion was ruled optional, deciding that 6 million fewer individuals would be enrolled in Medicaid but that half of those would instead enroll in subsidized health plans created under the ACA (Estimates for the Insurance Coverage Provisions of the Affordable Care Act Updated for the Recent Supreme Court Decision, 2012). The CBO did not attempt to predict which states would opt into Medicaid expansion, adding uncertainty for administrators: would they see an increase in Medicaid patients or a larger share of subsidized private plan holders when utilization increased? The Supreme Court increased the uncertainty facing an industry already facing an overhaul from the legislation.
The ACA was scheduled to phase in over time, with provisions taking effect from 2010 to 2018, with amendments and regulations pushing this to 2022 or repealing them completely (Showalter, 2015; Goodnough, 2019a). When Judge Vinson ruled the law unconstitutional, he did not block its implementation at that time, meaning that the initial provisions were taking effect even as the fate of the law, and the severability of the mandate, were being argued in court (Adamy, 2011). Among the hundreds of changes in the law, for example, the Medicare Part D “donut hole” was closed by the ACA. In 2010 this change started to be implemented. If the law had been overturned in National Federation of Independent Business v. Sebelius, this already changing aspect of the Medicare program would have been reverted and the donut hole reopened. In another example accountable Care Organizations (ACOs) began sharing in cost savings at the beginning of 2012, before the Sebelius decision affirmed the law. Overturning the law would have destroyed these organizations, affecting patients, administrators of participating organizations and the Medicare program and other payers. While news coverage of the law tended (and still does) to focus on main insurance provisions, like Medicaid expansion and the individual market, there are hundreds of regulatory and spending and tax changes that received no media attention but are having profound effects on the industry.
Effect of Sebelius and the ACA’s current legal issues
In December of 2017, Congress passed The Tax Cuts and Jobs Act (TCJA). One of the provisions of the sprawling legislation was to edit a single line of the ACA: it zeroed out the individual mandate, leaving all of the wording intact and focusing solely on the penalty (Glied, 2018). Congress passed the law through the budget reconciliation process for political and procedural reasons, leaving Congress only able to change spending and taxation due to limitations of the reconciliation process (Golshan, 2017). Since in National Federation of Independent Business v. Sebelius the mandate was ruled a tax instead of a use of Congress’s ability to regulate commerce, the mandate was fair game to be amended through reconciliation as a tax. If not for the specific outcome of Sebelius, the mandate would not have been able to be amended through the budget reconciliation process.
After the mandate was repealed in the TCJA, Texas Attorney General Ken Paxton filed suit in the Northern District of Texas claiming that the ACA was unconstitutional because the penalty that had been the crux of the Sebelius decision had been repealed (Goodnough, 2019b). Texas, along with other states, chose to file the suit in this particular court because Judge Reed O’Connor is the only judge who hears cases in that district and has a reputation for ruling in favor of Republicans, who were filing the suit (Fernandez, 2018). Initially, legal scholars from across the ideological spectrum felt the lawsuit had little chance of success, including briefs filed by some Republican Attorneys General who chose not to participate in the suit against the law (Cohn, 2019). Judge O’Connor, however, ruled the law, without the penalty, unconstitutional and held that it was non severable. The ruling led credence to the lawsuit as a threat to the law. The suit is also notable for the participants. Initially, in the Northern District of Texas case, 20 states and individuals sued to overturn the law while 21 attorneys general filed to protect the law. The Department of Justice, representing the government, joined the plaintiffs, asserting that the mandate was unconstitutional but was severable. This position forced the 21 states to intervene to defend the law because the Department of Justice was not. It also created the awkward scenario where the government is officially implementing a law that it says is unconstitutional.
Standing has become an issue in this case as well. The United States House of Representatives joined the defense of the law in 2019 to appeal the district court’s decision to the Fifth Circuit Court of Appeals (Keith, 2019). A recent holding by the Supreme Court in Virginia House of Delegates v. Bethune-Hill holds that a single body of a legislature does not automatically have standing to defend a law if the attorney general does not appeal a decision. In this case the single body is the United States of Representatives; the United States Senate is not involved in the litigation. The issue of standing also applies to the plaintiffs however. It is not clear how they are suffering harm or injury from the zeroed out mandate. The states defending the law have a case for standing as they stand to lose funding if the law is eliminated.
When Judge O’Connor’s decision was appealed to the Fifth Circuit Court of Appeals, the Department of Justice changed its official position, then insisting that the entire law must be struck down (Goodnough, 2019b). During arguments, the position has changed again and is now unclear. Recently, the Department of Justice said the law should be unconstitutional only in the 18 plaintiff states if the lawsuit is successful. The case is pending with arguments being heard before the Fifth Circuit Court of Appeals currently.
Two of the three judges on the panel seemed receptive to the idea that the ACA is now unconstitutional (Bagley, 2019). When it came to severability, one of the judges asked the attorneys arguing their cases why the ACA’s regulations on nutritional information on menus in chain restaurants was unconstitutional if the mandate is unconstitutional. This illustrates the expansiveness of the law, with far-reaching provisions beyond the insurance portions of the law in question and calling into question why the mandate isn’t severable. One of the judges said it wasn’t unreasonable to send the case back to district court for Judge O’Connor to attempt to reevaluate the severability of the mandate. This scenario and interaction between the Fifth Circuit and the Northern District of Texas parallels the situation between the Northern District of Florida and the Eleventh Circuit in National Federation of Independent Business v. Sebelius.
Implications for the healthcare industry
Uncertainty is the primary result at the moment from Texas v. United States, much as it was during the proceedings of National Federation of Independent Business v. Sebelius. The United States government’s official position of the law being unconstitutional only in plaintiff states adds to the uncertainty. Right now, the possible scenarios for Texas v. United States look similar to those during the Eleventh Circuit’s hearing of National Federation of Independent Business v. Sebelius. This time, however, the end result will not include an enforceable individual mandate. The case is highly likely to be heard before the Supreme Court, as the losing parties at the Fifth Circuit Court of Appeals will certainly appeal the decision (Goodnough, 2019b). The five justices who originally held the ACA is constitutional are still on the Supreme Court. One of the new justices, Justice Brett Kavanaugh, was part of the D.C. Court of Appeals and ruled on one of the cases regarding the ACA in 2011 (Biskupic, 2018). He originally ruled that judges should be wary of overturning an act of Congress while dissenting from the majority that upheld the law, saying there was not enough information to rule on the merits.
The same provisions are in question if the mandate is non severable and struck down by the courts. Portions of the law such as the closing of the Medicare Part D “donut hole” and altered FDA approvals for biosimilars would be undone if the unenforceable mandate is ruled non severable and unconstitutional (Bagley, 2019). Participants in ACOs face uncertainty if their organizations will survive. Consumers don’t know how regulations could change, especially with the news not making the front page regularly.
Conclusion
National Federation of Independent Business v. Sebelius was a landmark Supreme Court decision that impacted every aspect of the healthcare industry and is still impacting the legal system with its holdings. Texas v. United States would not be possible without the specific results of the previous case and is developing in a very similar fashion. National Federation of Independent Business v. Sebelius remade the healthcare industry and is one of the most consequential cases in United States history. Healthcare facilities experienced a massive influx of newly insured individuals seeking care as well as hundreds of new regulations ranging from nutritional information on menus to an overhaul of the insurance industry and altered Medicare payments. Healthcare administrators should not only be familiar with the original rulings on the ACA but the subsequent litigation and potential changes to their organizations.
References
Adamy, J. (2011, February 11). Judge Rejects Health Law. The Wall Street Journal. Retrieved from https://www.wsj.com/articles/SB10001424052748703439504576116361022463224
Bagley, N. (2019, July 10). Silver bullets, blue pencils, and the future of the ACA. Retrieved from https://theincidentaleconomist.com/wordpress/silver-bullets-blue-pencils-and-the-future-of-the-aca/
Biskupic, J. (2018, July 30). Kavanaugh’s Obamacare rulings under microscope as he meets Manchin. Retrieved from https://www.cnn.com/2018/07/30/politics/brett-kavanaugh-obamacare-joe-manchin/index.html
CBO’s Analysis of the Major Health Care Legislation Enacted in March 2010, 112th Cong. (2011) (testimony of Douglas W. Elmendorf).
Cohn, J. (2019, April 3). Even Conservatives Want The Courts To Ignore Trump On Obamacare. Retrieved from https://www.huffpost.com/entry/conservatives-obamacare-lawsuit-briefs_n_5ca3de48e4b0ed0d780dfc1f
Denniston, L. (2010, December 1). Second ruling upholds health clause. Retrieved from https://www.scotusblog.com/2010/12/second-ruling-upholds-health-clause/
Estimates for the Insurance Coverage Provisions of the Affordable Care Act Updated for the Recent Supreme Court Decision, 112th Cong. (2012) (testimony of Douglas W. Elmendorf).
Fernandez, M. (2019, December 15). In Weaponized Courts, Judge Who Halted Affordable Care Act Is a Conservative Favorite. The New York Times. Retrieved from https://www.nytimes.com/2018/12/15/us/judge-obamacare-reed-oconnor.html
Gentilviso, C. (2012, July 1). John Roberts Health Care Decision: Supreme Court Chief Justice Switched Sides, CBS Reports. Retrieved from https://www.huffpost.com/entry/john-roberts-health-care-decision-supreme-court-chief-justice_n_1641481?ref=topbar
Glied, S. (2018). Implications of the 2017 Tax Cuts and Jobs Act for Public Health. American Journal of Public Health, 108(6), 734-736. doi:10.2105/AJPH.2018.304388
Golshan, T. (2017, November 14). The Republican tax reform bill will live and die by this obscure Senate rule. Retrieved from https://www.vox.com/policy-and-politics/2017/11/14/16634200/republican-tax-reform-byrd-rule
Good, C. (2012, June 28). Obama in 2009: The Individual Mandate Is Not a Tax. Retrieved from https://abcnews.go.com/blogs/politics/2012/06/obama-in-2009-its-not-a-tax/
Goodnough, A. (2019, July 17). A Key Piece of Obamacare Finds an Unlikely Foe: House Democrats. The New York Times. Retrieved from https://www.nytimes.com/2019/07/17/us/politics/obamacare-democrats-cadillac-tax.html
Goodnough, A. (2019, July 9). Appeals Court Seems Skeptical About Constitutionality of Obamacare Mandate. The New York Times. Retrieved from https://www.nytimes.com/2019/07/09/health/obamacare-appeals-court.html
Harvard Law Review Association. (2012). National Federation of Independent Business v. Sebelius: The Patient Protection and Affordable Care Act. Harvard Law Review, 126(1), 72-82.
Helderman, R. S. (2010, June 8). Virginia attorney general urges judge to let suit over health-care law proceed. Washington Post. Retrieved from http://www.washingtonpost.com/wp-dyn/content/article/2010/06/07/AR2010060704258.html
Helderman, R. S., & Goldstein, A. (2010, December 14). Federal judge in Va. strikes down part of health-care law. Washington Post. Retrieved from http://www.washingtonpost.com/wp-dyn/content/article/2010/12/13/AR2010121302420.html
Higgins, T. (2019, March 22). Chief Justice John Roberts bargained with liberals over fate of Obamacare’s Medicaid expansion, new book claims. Retrieved from https://www.cnbc.com/2019/03/22/new-book-shows-how-scotus-justices-bargained-over-fate-of-medicaid.html
Kamiat, J. L. (2012). PPACA and the individual mandate: A healthy approach to severability. Fordham Law Review, 80(5).
Keith, K. (2019, June 28). Fifth Circuit Questions Standing Of Parties Defending ACA In Texas v. Azar. Retrieved from https://www.healthaffairs.org/do/10.1377/hblog20190628.614120/full/
Kendall, B. (2011, February 4). Health Foes Try Divergent Tactics. The Wall Street Journal. Retrieved from https://www.wsj.com/articles/SB10001424052748704376104576122593647702576
Kominski, G. F., Nonzee, N. J., & Sorensen, A. (2017). The Affordable Care Act’s Impacts on Access to Insurance and Health Care for Low-Income Populations. Annual Review of Public Health, 38, 489-505. doi:10.1146/annurev-publhealth-031816-044555
Leonard, E. (2012). Affordable Care Act Litigation: The Standing Paradox. American Journal of Law & Medicine, 38(2/3).
Showalter, J. S. (2015). The Law of Healthcare Administration (7th ed.). Chicago, IL: Health Administration Press.