Business Law

California v. Texas, 593 U.S. __, 2021 WL 2459255

States and individuals lacked standing to challenge Affordable Care Act’s individual mandate in an effort to strike down the Act.

The Patient Protection and Affordable Care Act (“ACA”) required most Americans to have minimum essential health insurance coverage (the individual mandate) and to pay money if they failed to do so. In National Federation of Independent Businesses v. Sebelius, 567 U.S. 519 (2012), the Court upheld the mandate as a constitutional exercise of Congress’s power to tax. The 2017 ACA amendments essentially removed this tax by setting its amount to $0. In a suit against the United States and federal officials, Texas (along with 17 other States and two individuals) claimed that, because no payment is required, the mandate (codified at 26 U.S.C. § 5000A(a)) is unconstitutional. They sought both declaratory and injunctive relief invalidating the ACA on the ground it was inseverable from the unlawful mandate. 

The district court held that the individual plaintiffs had standing and that § 5000A(a) was both unconstitutional and inseverable from the rest of the ACA, therefore toppling the entire ACA. The Fifth Circuit agreed as to standing and unconstitutionality, but remanded for further analysis of severability. California and other States intervened to defend the ACA’s constitutionality and to seek Supreme Court review (when the federal government would not).

In a 7-2 decision, the Supreme Court reversed, holding that neither the individual nor the State plaintiffs had standing to challenge the now-toothless $0 tax because it did not aggrieve them. “Neither the individual nor the state plaintiffs have shown that the injury they will suffer or have suffered is ‘fairly traceable’ to the ‘allegedly unlawful conduct’ of which they complain.” As a result, the Court did not reach the merits of the constitutional challenge to the individual mandate or determine whether the individual mandate was severable from the rest of the ACA. 

The individual plaintiffs had claimed they felt compelled by the mandate to purchase health insurance. However, the government could no longer enforce the mandate because Congress had zeroed out the tax. Therefore, the individual plaintiffs could not show that a government action caused them to purchase health insurance, disabling them from showing the kind of concrete injury necessary for Article III standing.

Similarly, the court rejected the State plaintiffs’ argument that the mandate had caused increased enrollment in state health programs, adding to their fiscal burden. The Court held that “[n]either logic nor evidence suggests that an unenforceable mandate will cause state residents to enroll in valuable benefits programs that they would otherwise forego.” 

In a concurrence, Justice Thomas agreed that plaintiffs had not demonstrated standing, but left open the possibility that a future plaintiff could do so. Both Justice Thomas and the majority declined to consider plaintiffs’ belated standing argument based on the inseverability of the Act.

Justice Alito, joined by Justice Gorsuch, dissented. Justice Alito wrote that the majority evaded the constitutional issue to save the ACA and that the ACA was “clearly unconstitutional.”

The bulletin describing this appellate decision was originally prepared for the California Society for Healthcare Attorneys (CSHA) by H. Thomas Watson and Peder K. Batalden, Horvitz & Levy LLP, and is republished with permission.

For more information regarding this bulletin, please contact H. Thomas Watson, Horvitz & Levy LLP, at 818-995-0800 or htwatson@horvitzlevy.com.

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