Is Obamacare over?

No! At most, it is no longer valid in the Northern District of Texas. Last month, Judge Reed O’Connor, a district judge in Fort Worth, Texas, ruled that the Affordable Care Act’s “Individual Mandate,” requiring individual taxpayers to either purchase health plan coverage containing minimum essential benefits or pay a penalty tax, was “unconstitutional” and “invalid.” He issued a stay Dec.  30, 2018, “because many everyday Americans would otherwise face great uncertainty” during an appeal. His ruling granted the intervenor states’ request for: 1) final judgment based on his Dec. 14 decision; and 2) a stay of that judgment. The Dec. 30 ruling allows for an immediate appeal to the Fifth Circuit. It also means the ACA will remain in effect during the course of the appeal.

This new ruling poses a significant threat to the ACA, which contains popular and sweeping health coverage reforms. O’Connor’s decision is also an “interim” ruling. He ruled on just one of the five claims in plaintiffs’ complaint. Four claims remain. While O’Connor granted “partial summary judgment” on plaintiffs’ declaratory relief claim, he denied the plaintiffs’ request for a nationwide injunction.

Texas v. United States

On Feb. 26, 2018, 18 Republican attorney generals and two Republican governors filed a lawsuit challenging the constitutionality of the ACA. The case was titled Texas v. United States, Civil Action No. 4:18-cv-00167-O. In late December of 2017, Congress had passed the Tax Cuts and Jobs Act of 2017 reducing to zero, beginning on Jan. 1, 2019, the tax penalty triggered by failing to comply with ACA’s individual mandate to buy healthcare insurance coverage. The ACA has had many court challenges. In 2012, the U.S. Supreme Court took up the most serious constitutional challenge to the ACA in Nat. Fedn. of Indep. Business v. Sebelius, 567 U.S. 519, 530 (2012). The Supreme Court upheld the ACA.

Judge O’Connor premised his decision on what the Supreme Court said in NFIB. He summarized his decision to invalidate the ACA as follows:

Resolution of these claims rests at the intersection of the ACA, the Supreme Court’s decision in NFIB, and the TCJA. In NFIB, the Supreme Court held the Individual Mandate was unconstitutional under the Interstate Commerce Clause but could fairly be read as an exercise of Congress’s Tax Power because it triggered a tax. The TCJA eliminated that tax. The Supreme Court’s reasoning in NFIB—buttressed by other binding precedent and plain text—thus compels the conclusion that the individual mandate may no longer be upheld under the tax power. And because the individual mandate continues to mandate the purchase of health insurance, it remains unsustainable under the interstate commerce clause—as the Supreme Court already held.

Finally, Congress stated many times unequivocally—through enacted text signed by the president—that the individual mandate is “essential” to the ACA. And this, as the ACA’s text makes clear, means the mandate must work “together with the other provisions” for the Act to function as intended. All nine justices to review the ACA acknowledged this text and Congress’ manifest intent to establish the individual mandate as the ACA’s “essential” provision. The current and previous administrations have recognized that, too. Because rewriting the ACA without its “essential” feature is beyond the power of an Article III court, the court thus adheres to Congress’ textually expressed intent and binding Supreme Court precedent to find the individual mandate is inseverable from the ACA’s remaining provisions.

The key part of Judge O’Connor’s ruling is his finding that the individual mandate is “essential” to and “inseverable” from the other provisions of the ACA. Because O’Connor did not issue an injunction, the ACA still remains the law of the land. His decision emphasized there was a big difference between the ACA’s individual mandate and the ACA’s individual mandate penalty. He observed that Congress in 2010 intended for the mandate and the mandate penalty to be separate and distinct. He stated that in 2017 Congress again made this same distinction when it zeroed out the penalty but retained the mandate itself. This distinction between the mandate and the mandate penalty is consistent, according to O’Connor, with the Supreme Court’s analysis in NFIB. He reasoned that because the original Individual Mandate included the penalty, the entire individual mandate could be viewed as a valid exercise of the taxing power.

O’Connor’s logic ran as follows: 1) when Congress enacted the TCJA in 2017, it eliminated the penalty under the individual mandate, and 2) if the individual mandate generates no revenue, then it is no longer a tax beginning in 2019. The 16 Intervenor States (including California) and Washington, D.C., had argued the individual mandate was still sustainable under the commerce clause. But O’Connor completely rejected that argument. He stated that the individual mandate with no penalty tax “does absolutely nothing.” As “nothing,” it cannot be found to regulate interstate commerce.

As O’Connor admits in his opinion, the Supreme Court has frequently severed unconstitutional provisions from constitutional ones. This practice reflects a judicial duty to “try to limit the solution to the problem.” In other words, “a court should refrain from invalidating more of the statute than is necessary.” The intervenor states argued that when Congress zeroed out the individual mandate penalty in 2017, it made the deliberate choice to leave the other provisions of the ACA intact. Many legal experts on both the left and on the right believe  O’Connor’s decision on severability is flat wrong.

If O’Connor’s decision is upheld on appeal, the health insurance market will revert to it’s pre-Obamacare status. This would mean insurance companies could deny coverage or charge higher premiums to people with pre-existing conditions; insurance policies would no longer be required to provide essential health benefits; and insurance policies could once again be written to include lifetime maximums or annual maximums.

Again, Judge O’Connor’s decision is not yet final. The ACA remains in effect. After the four issues that remain in front of O’Connor are decided, the case will then move to the Fifth Circuit Court of Appeals. In the meantime, consumers can continue to enroll and employers should continue to comply with ACA’s mandates.

James P. Baker is a partner at Baker & McKenzie LLP and heads the firm’s ERISA litigation practice group. His practice focuses on litigating employee benefit plan disputes and the counseling of employers on the design and operation of ERISA regulated plans.