Another day, another legal battle? Why latest ‘Obamacare’ suit matters.

Why We Wrote This

The latest legal challenge to the Affordable Care Act may seem like just another episode in an endless saga. Here’s why this case may be different.

Jonathan Ernst/Reuters
U.S. Congressional Democrats show the faces of Americans they claim ‘would be hurt if the Trump Administration and Republicans succeed in their effort to strike down the Affordable Care Act,’ outside the U.S. Capitol in Washington, July 9.

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After nine years the Affordable Care Act is deeply embedded in the U.S. health system. It provides subsidized health insurance for low-income Americans, mandates coverage for those with preexisting health conditions, sets financial rules for all health insurance, and so on.

But “Obamacare” – as the law is widely known – is once again facing a lawsuit that could knock it out of existence. A case brought by a group of Republican-led states, and endorsed by the Justice Department, has made it up to the federal appeals court level. These plaintiffs are focusing on the individual mandate, which requires the purchase of health insurance. The 2017 GOP tax bill cut the tax penalty for ignoring this to zero. In essence, it’s gone – which means the law should fall too, the lawsuit argues.

A lower court judge agreed with this position. An appeals court panel heard oral arguments in the case Tuesday. The panel could reverse the lower court decision, or take an intermediate stance that doesn’t eliminate the entire law. Or it could endorse the elimination option. It’s possible the whole thing could wind up in the Supreme Court just prior to the 2020 election.

“It’s already a mess,” says Allison Hoffman, a professor and expert in health care law at the University of Pennsylvania Law School.

An estimated 20 million people might lose their health insurance. Insurers would once again be able to deny coverage to people with preexisting health conditions. 

Calorie counts on restaurant menus could also disappear. Drug costs for Medicare enrollees might rise.

Overall, a big section of American economic activity may possibly be thrown into turmoil – right as the 2020 election season reaches its peak. That’s a possible consequence of yet another big lawsuit challenging the constitutionality of the Affordable Care Act that’s now rising through the federal courts.

It’s not yet certain that the case, Texas v. Azar, will make it to the Supreme Court level. On Tuesday the Fifth Circuit Court of Appeals in New Orleans heard oral arguments in the suit.

But if nothing else, it’s emblematic of the law’s extraordinary "Perils of Pauline" existence. More than nine years after President Barack Obama signed “Obamacare” into law, it has reworked a broad range of government health programs. Yet use hasn’t equaled bipartisan political acceptance. The ACA continues to face determined opposition and several times has come close to termination – an end that at this point could have far-reaching, unknown consequences.

“Billions of dollars of private and public investment – impacting every corner of the American health system – have been made based on the existence of the ACA,” says a friend-of-the-court brief in Texas v. Azar filed by a group of health economists and scholars.

At this point, a court decision striking down the system “would upend all of those settled expectations and throw healthcare markets, and 1/5 of the economy, into chaos,” added the brief.

Who are the combatants here?

A group of governors and attorneys general from Republican-led states are challenging the Affordable Care Act in Texas v. Azar. The Trump administration Justice Department has endorsed their position.

Typically when states sue the federal government, as they are here, the federal government defends existing law. Under the Trump administration, Justice declined to do so. So a group of 21 attorneys general from Democratic states have stepped in to act as the ACA’s defenders. The House of Representatives joined these states after Democrats won control of the chamber last November.

What is the central issue?

The heart of the case – as with so much about “Obamacare” – is the law’s individual mandate requiring most Americans to buy health insurance or pay a financial penalty.

When the Supreme Court upheld the ACA in a landmark 2012 ruling, it did so based on the power of Congress to impose taxes. The penalty was a tax, and thus constitutional, wrote Chief Justice John Roberts, who joined the court’s four more liberal members in the 5-4 ruling.

But the 2017 Republican tax bill effectively reduced this penalty to zero. A “tax” that has no value is no tax at all, and if the penalty is no longer a tax, it is unconstitutional, runs the GOP argument in Texas v. Azar.

Furthermore, the plaintiffs here argue that the Affordable Care Act cannot function without the penalty. It is designed to support the system by driving healthy people into the ACA insurance pool, helping pay for those with preexisting conditions and other health challenges.

So, if the penalty is unconstitutional, the whole apparatus of the law should be struck down, too. That’s the Justice Department and GOP position.

The law’s defenders reply that Congress clearly did not intend for this to be the case. It voted to reduce the penalty to zero but not to eliminate the law entirely. In legal terms there is “severability” between the penalty and other ACA provisions, they argue.

Where does the case stand?

Fort Worth federal district court Judge Reed O’Connor ruled in favor of the GOP plaintiffs last December, striking down the Affordable Care Act in its entirely. The ruling is stayed while the case wends its inevitable path though the appeals process. 

On Tuesday a three-person panel of Fifth Circuit Appeals Court judges heard oral testimony in the case. By the tone and substance of their questions, the two Republican-appointed judges on the panel sounded likely to uphold the lower court decision, according to observers. A Democratic-appointed judge remained largely silent.

“It’s always hazardous to read too much into oral argument. But it’s safe to say that the ACA’s defenders had a tough day in court,” wrote University of Michigan law professor Nicholas Bagley on The Incidental Economist, a health services research blog.

Now what?

Professor Bagley and a number of other academic experts consider the plaintiff’s legal position to be weak on a number of grounds. The case could be remanded to the lower court judge or dismissed for standing or other technical reasons.

But other ACA challenges thought weak have made it to the Supreme Court and come close to toppling the law. If the case of Texas v. Azar travels the same path, it could explode on the national level as the 2020 election cycle reaches its zenith.

If so it’s possible that much of the U.S. health system could be thrown into turmoil at a moment of maximum political intensity.

That’s because provisions of the ACA extend far beyond its core mission of subsidizing health insurance for low-income Americans. Perhaps most notably, the law requires insurers to accept those with pre-existing conditions. Children can stay on their parents’ insurance up to age 26. It reduces a “doughnut hole” payment gap for Medicare prescription drug payments. It mandates that restaurants post calorie information for their menu items.

The appeals judges won’t rule for some time, and they have a number of different options, says Allison Hoffman, a professor and health care law expert at the University of Pennsylvania Law School.

They could overturn the lower court ruling. They could decide on grounds of severability, or on the standing of either the GOP or Democratic state groups. They could take an intermediate position under which some “Obamacare” provisions, but not all, would fall along with the individual mandate.

There’s a decent chance it could produce a political mess as campaign season heats up, says Professor Hoffman.

“It’s already a mess,” she adds.

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