California v. Texas: What Does It Mean?

In California v. Texas,i the Supreme Court of the United States heldii Texas and other states, as well as two individual plaintiffs, do not have standing to challenge the constitutionality of the minimum essential health provision (also known as the “individual mandate”) of the Patient Protection and Affordable Care Act (“ACA”). The Court did not address the mandates of the case, and did not consider whether the individual mandate falls within the power granted to Congress under Article I of the Constitution.iii What does this mean in practical terms?

 

Background: A Penalty is a Tax

The ACA was passed by Congress, then under unified control of the Democratic party, and signed into law by President Barack Obama on March 23, 2010.iv “A critical component of the Act’s design was the individual mandate, which provides that each ‘applicable individual shall…ensure that the individual…is covered under minimum essential [health insurance] coverage.’”v Therefore, the ACA imposed a monetary penalty upon most individuals who failed to obtain coverage.vi

In National Federation of Independent Business v. Sebelius, 567 U.S. 519 (2012), the Court recognized “Congress’ enumerated powers did not allow it to impose such a mandate.”vii However, the Court upheld the mandate by characterizing the financial penalty imposed on those who failed to comply with the mandate as a tax.viii

The Republican party won unified control of Congress in 2014 and President Donald Trump was elected in 2016. Therefore, “[in] 2017, Congress effectively nullified the penalty by setting its amount at $0.”ix

In 2018, Texas and 17 other states sued the Secretary of Health and Human Services among others and sought a declaration the individual mandate is unconstitutional and not severable from the rest of the law.x The District Court agreed with this analysis and declared the entire ACA unlawful.xi The Fifth Circuit Court of Appeals agreed the individual mandate was unconstitutional but remanded the case to the District Court for further proceedings on the question of severability.xii The Supreme Court of the United States granted certiorari.

 

No Penalty, No Standing

The U.S. Constitution vests the Supreme Court with the power to adjudicate “Cases” and “Controversies.”xiii The Court has interpreted this power to include the requirement a litigant must have standing.xiv To have standing, a plaintiff must “allege personal injury fairly traceable to the defendant’s allegedly unlawful conduct and likely to be redressed by the requested relief.”xv

In California v. Texas, the individual plaintiffs alleged they were injured because the individual mandate required them to buy health insurance.xvi The state plaintiffs claimed injuries in the form of increased administrative expenses required by the individual mandate.xvii Therefore, the Court had to decide whether the plaintiffs had standing before considering whether the individual mandate is unconstitutional.

Justice Breyer delivered the opinion of the Court, in which a majority of seven justices agreed “[with] the penalty zeroed out, the IRS can no longer seek a penalty from those who fail to comply” with the individual mandate.xviii Therefore, the plaintiffs do not have standing because “there is no possible Government action that is causally connected to the plaintiffs’ injury – the costs of purchasing health insurance.”xix

 

Takeaway: Everything Stays the Same

In practical terms, this means the individual mandate will remain in place, and the question of whether the individual mandate is unconstitutional will remain unanswered for the time being. Insurance carriers should carefully monitor further developments regarding the ACA as this issue continues to develop.

i California et al. v. Texas et al., No. 19-840 (S. Ct. Jun. 17, 2021).

ii The vote was seven to two in favor.

iii Id. at 23.

iv 42 USC § 18001

v California v. Texas, Supra, at 4.

vi Id. (slip op., at 1).

vii Id. (Tomas, J. concurring op., at 2).

viii Id.

ix Id. at 1.

x Id. at 3.

xi Id. at 4.

xii Id.

xiii Article III, § 2, U.S. Constitution

xiv California v. Texas, Supra, at 4.

xv Id. at 4, citing DaimlerChrysler Corp v. Cuno, 547 U.S. 332, 342 (2006) (internal quotation marks omitted).

xvi Id. at 5.

xvii Id. at 10.

xviii Id. at 5.

xix Id.

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