The individual mandate is unconstitutional. What’s next?


On December 18, the United States Court of Appeals for the Fifth Circuit reaffirmed in a 2-1 decision that the individual mandate outlined in the Patient Protection and Affordable Care Act (ACA), also known as Obamacare, is unconstitutional. 

The individual mandate required individuals to purchase health insurance coverage or pay a penalty known as the “individual shared responsibility payment.” Americans were required to purchase insurance or pay a penalty to lower risk in the insurance pool and allow insurance companies to remain solvent. In addition, insurance companies couldn’t deny coverage to individuals with pre-existing conditions. Healthy individuals acted as a counterbalance because they generally utilize their coverage less frequently and are less costly to cover. 

In National Federation of Independent Business (NFIB) v. Sebelius, the Supreme Court of the United States (SCOTUS) upheld the individual mandate. The rationale? They decided that the penalty could be interpreted as a tax on an individual’s decision not to purchase health insurance and was covered by Congress’ ability to tax under Article I of the United States Constitution. If the ACA had merely required individuals to purchase insurance without giving them the choice to pay the penalty, it would have been ruled unconstitutional. The SCOTUS deemed the individual shared responsibility payment a tax because of these four factors:

  1. It produced revenue for the government
  2. It is paid into the treasury by taxpayers when they file their tax returns
  3. The amount owed is determined by familiar factors (taxable income, number of dependents, and joint filing status)
  4. The requirement to pay is in the Internal Revenue Code and is enforced by the IRS and is collected in the same manner as taxes 

However, this landscape changed when Congress passed the Tax Cuts and Jobs Act in 2017 and the penalty for not purchasing health insurance was set to $0. This change in policy sparked the controversy in Texas v. United States; plaintiffs assert that the penalty is no longer a tax because it does not generate revenue, a requirement for a tax. They also contend that the individual mandate is not severable from the rest of the ACA, and as a result, the entire law should be thrown out. In 2018, a District Court Judge agreed with the plaintiffs and issued a declaratory judgement, allowing the law to continue until the case is taken up by another court. 

On appeal, the Fifth Circuit agreed that the individual shared responsibility payment is no longer a tax because it does not produce revenue for the government when set to $0. Therefore, the individual shared responsibility payment does not meet the other three factors either — it is not paid into the treasury, determined by familiar factors or enforced by the IRS. In other words, the SCOTUS’ rationale for deeming the individual mandate constitutional in NFIB is no longer applicable due to the Tax Cuts and Jobs Act. 

However, the severability question is more complicated. The Fifth Circuit found that the District Court’s severability analysis was incomplete and remanded it. More specifically, the Fifth Circuit directed the District Court to “employ a finer-toothed comb on remand and conduct a more searching inquiry into which provisions of the ACA Congress intended to be inseverable from the individual Mandate.” In order for the individual mandate to be severable from the entire ACA, the District Court must find that Congress would have passed the ACA without the individual mandate. The Fifth Circuit speaks to that fact: 

“It may still be that none of the ACA is severable from the individual mandate, even after this inquiry is concluded. It may be that all of the ACA is severable from the individual mandate. It may also be that some of the ACA is severable from the individual mandate, and some is not. But it is no small thing for unelected, life-tenured judges to declare duly enacted legislation passed by the elected representatives of the American people unconstitutional. The rule of law demands a careful, precise explanation of whether the provisions of the ACA are affected by the unconstitutionality of the individual mandate as it exists today.”

This analysis will likely involve parsing through every section of the ACA to determine whether they are linked to the individual mandate and if Congress would have passed them without the mandate. Regardless of what the District Court decides after further analysis, this case will likely appealed all the way to the SCOTUS for final review.


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