The Patient Protection and Affordable Health Care Act Rulings

Prior to 2017, the Patient Protection and Affordable Care Act (ACA) contained a provision requiring all individuals to purchase health insurance. This provision was referred to as the “individual mandate.” If an individual failed to purchase minimum health coverage, a penalty (the “shared responsibility payment”) would be collected from that person. The penalty was assessed and collected in the same manner as taxes and paid to the Internal Revenue Service for deposit in the U.S. Treasury.

Several court cases have considered whether the shared responsibility payment, and the ACA more broadly, are constitutional. This memorandum provides information on cases regarding the ACA heard before the U.S. Supreme Court in 2012, 2015, and 2021.

2012 U.S. Supreme Court Decision

The individual mandate to obtain health insurance under the ACA was held to be constitutional in June 2012 by the U.S. Supreme Court (National Federation of Independent Business v. Sebelius, 567 U.S. 519 (2012))¹. In a 5-4 decision, the Court ruled that, although the mandate could not be imposed under the Commerce Clause or the Necessary and Proper Clause in the U.S. Constitution, it could be upheld as a tax². There was confusion, however, as to whether the Court ruled the ACA was or was not a tax. This confusion centered around the Anti-Injunction Act (26 USC §7421).

Under the Anti-Injunction Act (AIA), “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed.”³ This law prevents individuals from suing to enjoin the collection of a tax. Thus, individuals may only sue for a refund after the taxes have been properly paid.

The issue before the Court in this case was whether the individual mandate and its shared responsibility payment barred the Court from considering the case. If the shared responsibility payment was considered a tax and thereby subject to the AIA, this suit would not be properly before the Court and, as such, the Court could not rule on the other aspects of the suit.

The Court noted that the ACA refers to the shared responsibility payment as a “penalty” and not a “tax.” The Court found this significant because there are other payments in the ACA that are called “taxes” as opposed to “penalties.” The Court concluded the distinction between terms was important as it considered the application of the AIA to the ACA. The AIA applies specifically to “taxes.” The Court concluded that had Congress wanted the AIA to apply to this provision of the ACA, Congress would have called the shared responsibility payment a “tax,” as it referred to other payments in the ACA, rather than as a “penalty.” The Court ruled this word choice demonstrated legislative intent, namely that Congress did not want this particular payment subject to the AIA and, as such, called it a penalty rather than a tax.

It should be noted, however, that the congressional determination of what to call the shared responsibility payment and the constitutional interpretation of what the shared responsibility payment actually functions as are two separate and distinct considerations.

This was born out of one of the major parts of the Court’s decision, in which the Court deemed the ACA constitutional as a tax. After the Court ruled that the individual mandate was unsustainable under the Commerce and Necessary and Proper clauses, it turned to whether the individual mandate could be salvaged outside of these clauses. Chief Justice Roberts concluded “…the individual mandate must be construed as imposing a tax on those who do not have health insurance, if such a construction is reasonable.”

It [was] therefore necessary to turn the Government’s alternative argument: that the mandate may be upheld as within Congress’s power to ‘lay and collect Taxes.’ Art. I, §8, cl. 1…Because ‘every reasonable construction must be resorted to, in order to save a statute from unconstitutionality,’ Hooper v. California, 155 U.S. 648, 657, the question is whether it is ‘fairly possible’ to interpret the mandate as imposing such a tax, Crowell v. Benson, 285 U.S. 22, 62. (Syllabus, P.3)

2015 U.S Supreme Court Decision

Another case regarding the ACA, King v. Burwell (576 U.S. 473 (2015))⁴, came before the U.S. Supreme Court in 2015. With the requirement for individuals to obtain minimum essential coverage or pay a tax penalty, the ACA created an unaffordability exception for low-income individuals. To limit the number of people who would fall into this exception, the ACA provided for tax credits calculated based on an individual’s health plan. The ACA also requires each state to establish an “exchange” through which people could purchase health care coverage; if a state elected not to do so, the federal government would establish one through the Secretary of Health and Human Services. While the ACA’s language regarding the tax credits only referred to “an exchange established by the state,” the Internal Revenue Service created a regulation to also make the tax credits available to individuals enrolled through a federal exchange.

The state of Virginia declined to establish a state-run exchange; the federal government then established an exchange for the state. A group of Virginia residents, who without the tax credits would be in the unaffordability exception and exempt from purchasing health insurance, filed the lawsuit, arguing that the Internal Revenue Service regulations exceeded the agency’s statutory authority and violated the Administrative Procedure Act. The defendants motioned to dismiss the case, which was granted by the U.S. District Court for the Eastern District of Virginia and affirmed by the U.S. Court of Appeals for the Fourth Circuit. Certiorari was granted by the U.S. Supreme Court in November 2014.

In a 6-3 decision published in June 2015, the U.S. Supreme Court held that Congress did not delegate the authority to determine whether the tax credits are available through both state-created and federally created exchanges to the Internal Revenue Service, but the language of the statute indicates that Congress intended the tax credits to be available through both types of exchanges. In his opinion, Chief Justice John Roberts concluded that the plaintiff’s interpretation of the ACA would destabilize the individual insurance market in any state and hinder operations in states with a federal exchange, and it is implausible that Congress meant the ACA to operate in that manner⁵.

2021 U.S. Supreme Court Decision

In 2017, Congress passed the Tax Cuts and Jobs Act of 2017 (TCJA) which, among other things, amended the tax code by reducing the tax penalty for failing to comply with the individual mandate to zero. Two months later, a group of states led by Texas and two individuals filed a lawsuit asking a Texas federal district court to declare the ACA unconstitutional (Texas v. United States, 340 F. Supp 3d 579 (N.D. Tex. 2018))⁶. The plaintiffs argued that when Congress removed the tax penalty, it made the ACA’s individual mandate provision unconstitutional because it was no longer enforceable as a tax; this, they argued, would render the rest of the ACA unconstitutional because the remaining provisions relied on the mandate.

In 2018, the U.S. District Court for the Northern District of Texas held that the entire ACA was invalid, reasoning that the zeroing-out of the tax penalty renders the individual mandate unconstitutional and that the rest of the ACA is not severable from that provision. The ruling was put on hold pending appeal.

The U.S. Court of Appeals for the Fifth Circuit then held that the individual mandate was unconstitutional in a 2-1 decision. The Court of Appeals remanded the case back to the U.S. District Court for additional analysis on which provisions could remain without the mandate. Several states, led by California, sought U.S. Supreme Court review, filing a petition for a writ of certiorari in January 2020 that was granted in March 2020.

The lower court decisions were reversed and remanded by the U.S. Supreme Court in a 7-2 decision in June 2021. Justice Breyer concluded in his opinion that plaintiffs “do not have standing to challenge [the ACA’s] minimum essential coverage provision because they have not shown a past or future injury fairly traceable to defendants’ conduct enforcing the specific statutory provision they attack as unconstitutional⁷.”

by Leighann Thone, PhD
Research Analyst
785-296-4181

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