20-State Lawsuit Challenges Affordable Care Act Now That Individual Mandate Is Not Backed By a Tax

March 05, 2018

Last week, 20 states, including Alabama, sued the federal government to end the Patient Protection and Affordable Care Act (“Affordable Care Act”), signed into law under the Obama administration in 2010. The law has previously been subject to a number of challenges, perhaps most notably the National Federation of Independent Businesses v. Sebelius case[1] that reached the United States Supreme Court in 2012. According to the states bringing the lawsuit, the Supreme Court’s rationale for upholding Affordable Care Act no longer applies, but to some legal scholars and health care consultants, this latest challenge will be no more successful than previous challenges to the law.

The essence of the current 20-state challenge to the law is that when the Republican tax bill (the Tax Cuts and Jobs Act of 2017)[2] passed late last year, it removed the tax penalty associated with the so-called “individual mandate” which required most people to purchase health insurance.[3] The lawsuit focuses on three key holdings from the NFIB v. Sebelius case from 2012: (1) “a majority of the Supreme Court held that Congress lacks the constitutional authority to compel citizens to purchase health insurance,” (2) “the same majority concluded that the [Affordable Care Act] included a mandate to buy health insurance that applies to most (but not all) citizens, and a separate tax penalty that applies to most (but not all) of those required to buy insurance under the mandate,” and (3) “a different majority held that , as a matter of constitutional avoidance, it was ‘fairly possible’ to reinterpret the mandate and tax penalty as a single ‘tax,’ which Congress may enact under its taxing authority.”[4] The plaintiffs claim that, because the tax penalty has been eliminated, the individual mandate can no longer be upheld as a tax penalty because it will not raise at least some revenue for the Government.[5] Furthermore, they assert that because the Affordable Care Act does not have a severability provision that would allow certain portions of the law to stand even if others are found unconstitutional or invalid, the whole law must go.[6]

Some legal scholars think this latest challenge is nothing more than the states “relitigating the case in a way that is likely ‘not going anywhere.’”[7] Others believe this is a messaging strategy for Republican states.[8]

Regardless of your opinions on the merits of the lawsuit, it has potentially huge implications. After consolidations and reconciliations, the Affordable Care Act ended up being about 1,000 pages long, and it has countless provisions affecting numerous aspects of the health care and insurance industries. If the Affordable Care Act is struck down in its entirety based on the argument outlined above, it would wipe out 8 years of health care infrastructure and regulatory development, not just the individual mandate at issue in the case. Other outside-the-spotlight provisions in the Affordable Care Act, like the removal of the Medicare Part D “donut hole” and the establishment of the Center for Medicare and Medicaid Innovation within CMS, the Medicare Shared Savings Program, the hospital readmission reduction program and many others could be eliminated in the blink of an eye if the challenge is successful. Hospitals, physicians, and other health care providers should be prepared for significant change in the health care regulatory landscape if the challenge is successful.



[1] NFIB v. Sebelius, 567 U.S. 519 (2012).

[2] Pub. L. No. 115-97.

[3] Pub. L. No. 115-97, § 11081, 131 Stat. 2054.

[4] Complaint, Texas, et al. v. Azar, civil action no. ____ (N.D. Texas 2018) (quoting NFIB v. Sebelius).

[5] Id.

[6] Id.

[7] Susannah Luthi, States hedge their bets as they sue to end Obamacare, Modern Healthcare (February 27, 2018), http://www.modernhealthcare.com/article/20180227/NEWS/180229925?utm_source=modernhealthcare&utm_medium=email&utm_content=20180227-NEWS-180229925&utm_campaign=dose (quoting Timothy Jost).

[8] Id. (quoting Chris Condeluci).

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