5th Circuit Hears Oral Arguments in Appeal of District Court Ruling on Affordable Care Act

In December 2018, Judge Reed O’Connor of the U.S. District Court for the Northern District of Texas issued a declaratory judgment finding that the individual mandate provision of the Affordable Care Act (ACA) was no longer constitutional under Congress’s taxing power given that Congress had eliminated the penalty as a part of the Tax Cuts and Jobs Act of 2017 (TCJA). Our previous analysis of that holding can be found here.

Both the state intervenors (a collection of states led by California who are defending the ACA) and the United States (represented by the Department of Justice (DOJ)) appealed the court’s ruling, and in February, the U.S. House of Representatives intervened in the appeal. But in late March, the U.S. informed the U.S. Court of Appeals for the 5th Circuit that it had changed its position and was now in agreement with the District Court’s ruling. This led to some additional briefing on standing and relief.

On Tuesday, July 9, the 5th Circuit heard arguments on the appeal in New Orleans, taking the appeal under advisement. The appeal panel consisted of Judge Jennifer Walker Elrod (a Bush appointee), Judge Kurt D. Engelhardt (a Trump appointee) and Judge Carolyn Dineen King (a Carter appointee). Here are our takeaways:

The Republican appointees were active, with Judge Elrod asking the most questions and Judge Engelhardt also asking several. Judge King did not speak.

A significant portion of the hearing focused on issues of standing, perhaps due to the parties’ widely varying positions on this issue. The state intervenors argued that the state plaintiffs (a collection of states led by Texas who are seeking to challenge the ACA) had not established specific financial harm, and that the individual plaintiffs had not suffered any injury, since there was no longer a penalty. The state plaintiffs allowed that the state intervenors had standing, although they claimed that the House did not. The U.S. argued that neither the state intervenors nor the House had standing, but that it did not matter since there was still a “case or controversy” that allowed the appeal to proceed. It seems unlikely that the panel would decline to rule on the merits based on lack of standing, although it is not out of the question.

Regarding the constitutionality of the individual mandate, the parties presented drastically different views of the ACA, the TCJA and Chief Justice John Roberts’ 2012 decision in National Federation of Independent Business v. Sebelius. The state intervenors and the House argued that the individual mandate wasn’t really a mandate. Rather, it simply presented individuals with a “lawful choice,” made unenforceable by the TCJA since there was now no legal consequence for not buying insurance.

In other words, the state intervenors argued, “shall” does not really mean shall; rather, the individual mandate is now voluntary. The judges pushed back on this argument, with Judge Elrod asking: “Indeed Blackstone himself said that people follow the law just to follow the law because they want to be good citizens, so without regard to whether there’s a penalty, why isn’t a command a command?” The state intervenors acknowledged that this reading was “unusual,” but maintained that it was still the better one.

Regarding severability (i.e., whether the individual mandate was so necessary to the ACA that, if found unconstitutional, the entire statute must be stricken), the parties again took dramatically different views of history, with the state intervenors and House arguing that, by eliminating the penalty but not the rest of the ACA, Congress had expressly deemed the mandate severable.

In contrast, the state plaintiffs argued that Congress had long viewed the individual mandate as essential, especially as a counterweight to the provisions on pre-existing conditions. This issue led to one of the more provocative exchanges of the argument:

• Judge Engelhardt: “How do we know that some members of Congress didn’t say, aha, this is the silver bullet that’s going to undo the ACA, so we’re going to vote for this just because we know it will bring it to a halt?”
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• Deputy Solicitor General for California: “Your Honor, that would be imputing to Congress an intent to create an unconstitutional law.”

We continue to believe a likely potential outcome is for the court to strike down the individual mandate but uphold the rest of the law.

Finally, there were questions, and frankly some confusion, regarding the appropriate scope and nature of relief. Here, the U.S. stood alone in arguing that 1) to the extent that the court finds the individual mandate unconstitutional, that holding should only apply to the plaintiffs, and 2) to the extent the mandate is found inseverable, the judgment needs to be narrowed to those provisions that injure the plaintiffs. Counsel for the U.S. did seem to acknowledge the impracticality of this relief but explained that this was the DOJ’s position regarding what courts may order pursuant to Article 3.

We can expect a ruling later this year and, regardless of the outcome, a further petition to the U.S. Supreme Court. Given the breadth and scope of the ACA, the Supreme Court is especially likely to grant certiorari should the 5th Circuit uphold the District Court’s ruling.