DID OBAMACARE JUST LOSE ITS PROTECTION AS A TAX? TWENTY STATES ARE TRYING TO FIND OUT.

On Feb. 26, 20 states filed a lawsuit in a federal district court in Texas to repeal the Affordable Care Act.

The sweeping Tax Cuts and Jobs Act, signed into law in December, repealed the tax imposed on individuals for failure to obtain health insurance during that taxable year—also known as the “individual mandate”. With that in mind, the states in this case are claiming that the individual mandate repeal clashes with the U.S. Supreme Court’s 2012 ruling in National Federation of Independent Businesses (NFIB) v. Sebelius that the ACA’s individual mandate looks and operates like a tax so Congress can tax individuals for not purchasing health insurance.

The individual mandate is covered by Section 5000A of the ACA and will remain there—the tax law did not eliminate it. However, what the tax law did was eliminate the penalty associated with the mandate starting in 2019. The argument of the states is that without the tax penalty, the mandate is unlawful because Congress’s taxing authority can no longer be attached to it.

The individual mandate is also a revenue generator for states. With its repeal, states will lose that money. So another part of the states’ argument in this lawsuit is that without this revenue, the Supreme Court’s ruling that the mandate is constitutional because it’s a tax is no longer valid.

The last component to the states’ argument is the issue of severability. In the Supreme Court’s 2012 ruling, it did not address whether the individual mandate was in fact severable from the rest of the ACA. A 2011 Eleventh Circuit ruling held that the mandate was in fact severable from the rest of the law, and any loss of the mandate would not prevent other parts of the ACA from being enforced.

Ultimately, the states’ argument is that enforcement of the ACA relies on the individual mandate. So, if the court sides with the states and rules the mandate unconstitutional, the entire law should be repealed, not only the private health insurance provisions.

The 20 states bringing the case are Alabama, Arkansas, Arizona, Florida, Georgia, Indiana, Kansas, Louisiana, Maine, Mississippi, Missouri, Nebraska, North Dakota, South Carolina, South Dakota, Tennessee, Texas, Utah, West Virginia, and Wisconsin.

Potential Consequences

Although it will take some time for a decision to be made in this case, if the U.S. District Court of the Northern District of Texas rules in favor of the states, repercussions on the state insurance markets would be immediate. It’s already projected that repeal of the mandate will increase the number of uninsured to 4 million in 2019, so a decision in favor of the states would only make this number go up.

While the outcome of the lawsuit is anyone’s guess, there are potential problems with the states’ argument that the ACA in its entirety should be repealed. This is because there are parts of the law that are quite popular—including Medicaid expansion, dependent coverage up to age 26, and bans on annual and lifetime limits and preexisting conditions.

States are responding to the individual mandate repeal by planning to implement their own fines for not having coverage. For example, Maryland state Senator Brian Feldman (D) and state Delegate Joseline Pena-Melnyk (D) are working on a plan that would require uninsured state residents to pay a fine that could be used as part of a payment for them to purchase health insurance.