On February 26, 2018, Texas and nineteen other states filed suit against the Affordable Care Act’s individual mandate. The states alleged that because the recent tax reform legislation zeroed out the ACA’s penalty, Chief Justice Roberts’s saving construction no longer holds. As a result, the individual mandate—which was not repealed—must be declared unconstitutional. And, because the mandate cannot be severed from the remainder of the statute, the entire ACA must fall. Alternatively, the individual mandate should be invalidated along with the guaranteed-issue and community-rating provisions, which prevent insurers from considering an applicant’s health conditions when pricing a policy.
Most analyses of this suit have begun at the final step: severability. That is, because the Supreme Court will not be willing to strike down the entire ACA, the case has no merit. This approach puts the cart before the horse. Courts only reach the question of severability after determining that a provision of the statute is unconstitutional. And determining why the mandate is unconstitutional will inform the application of the severability analysis. This series of posts will start at the very beginning. Part I will explain how Affordable Care Act itself carefully distinguishes between the individual mandate, and the penalty that enforces that mandate. Even if the latter is repealed, the ACA still relies the existence of the former. Part II will revisit Chief Justice Roberts’s saving construction, in light of the recent tax reform legislation. Part III will turn to whether the mandate can be severed from the ACA, or alternatively, from the ACA’s guaranteed issue and community rating provisions.
The Affordable Care Act Distinguishes Between The Mandate and the Penalty
26 U.S.C. § 5000A, which Congress labelled the “Requirement to maintain minimum essential coverage,” has seven sections:
- 5000A(a) creates the individual mandate: “An applicable individual shall for each month beginning after 2013 ensure that the individual, and any dependent of the individual who is an applicable individual, is covered under minimum essential coverage for such month.”
- 5000A(b) creates the shared responsibility payment: “if a taxpayer who is an applicable individual . . . fails to meet the requirement of subsection (a) for 1 or more months, then, except as provided in subsection (e), there is hereby imposed on the taxpayer a penalty.”
- 5000A(c) provides a formula to calculate the “amount of [the] penalty” based on a taxpayer’s income.
- 5000A(d) exempts three classes of people from the individual mandate; that is, they are not “applicable individual[s]” for purposes of § 5000A(a). First, the ACA exempts those with conscious-based religious objections, or those who are members of health care sharing ministries. Second, the ACA exempts aliens that are not lawfully present. Third, the ACA exempts those who are incarcerated. By definition, a person not subject to the individual mandate (§ 5000A(a)) will not be assessed a penalty. Thus, those exempted from the mandate are also exempted from the penalty.
- 5000A(e) exempts five categories of people from the penalty. That is, “no penalty should be imposed under subsection (a) with respect to” (1) individuals who cannot afford coverage, (2) taxpayers with income below the filing threshold, (3) members of Indian tribes, (4) people with short gaps in coverage, and (5) those who have “suffered a hardship” as defined by the Secretary. These individuals are still subject to mandate, but are exempt from the penalty.
- 5000A(f) defines what constitutes “minimum essential coverage,” that is, the minimum level of insurance needed to avoid triggering a violation of the individual mandate.
- 5000A(g) spells out the “administration and procedure” of how the penalty is to be collected.
In 42 U.S.C. § 18091 Congress made a number of findings about the “Requirement to maintain minimum essential coverage.” § 18091(1) provides the “constitutional” findings: “The individual responsibility requirement provided for in this section (in this section referred to as the “requirement”) is commercial and economic in nature, and substantially affects interstate commerce, as a result of the effects described in paragraph (2).” In Unprecedented (pp. 49-50). I discuss the importance of these findings, and how members of the American Constitution Society were instrumental to their addition.
In § 18091(2), Congress made findings concerning the individual mandate’s “effects on the national economy and interstate commerce.” Critically, as I noted in Unprecedented five years ago, “none of these official findings alluded to the tax power of Congress.” (p. 50). Indeed, the findings make no mention of the “penalty,” let alone a tax. Rather, the statute refers in several places to “other provisions of this Act.” For example, § 18091(2)(I) provides:
if there were no requirement, many individuals would wait to purchase health insurance until they needed care. By significantly increasing health insurance coverage, the requirement, together with the other provisions of this Act, will minimize this adverse selection and broaden the health insurance risk pool to include healthy individuals, which will lower health insurance premiums. The requirement is essential to creating effective health insurance markets in which improved health insurance products that are guaranteed issue and do not exclude coverage of pre-existing conditions can be sold.
This lack of specificity, though, is important. Based on these findings, Congress determined that the individual mandate, by itself, plays a role in minimizing adverse selection and broadening the risk pools. The mandate, in conjunction with the penalty, is no doubt more effective. But the mandate, minus the penalty, still has some effectiveness. What is still true, to this day, is that Congress found that the mandate was “essential to creating effective health insurance markets.” Don’t take my word for it. Solicitor General Verrilli expressly relied on § 18091(2)(I) in the government’s severability brief in NFIB v. Sebelius:
Congress’s findings establish that the guaranteed-issue and community-rating provisions are inseverable from the minimum coverage provision. Congress specifically found that in a market with guaranteed issue and community rating, but without a minimum coverage provision, “many individuals would wait to purchase health insurance until they needed care.” 42 U.S.C.A. 18091(a)(2)(I). . . . Congress therefore expressly found that the minimum coverage provision is “essential to creating effective health insurance markets in which improved health insurance products that are guaranteed issue and do not exclude coverage of pre-existing conditions can be sold.” . . . . It is evident that Congress would not have intended the guaranteed-issue and community-rating reforms to stand if the minimum coverage provision that it twice described as “essential” to their success, 42 U.S.C.A. 18091(a)(2)(I) and (J), were held unconstitutional. (pp. 45-47)
If Congress had stated in its findings that the “requirement and the penalty are essential to creating effective health insurance markets,” my argument here would be very different. But it did not make such a finding. (The “other provisions of this Act” language doesn’t cut it for me; but it will be cited by the inevitable intervenors supporting the mandate.) Rather, the finding stated only that “The requirement is essential to creating effective health insurance markets.” And this is the finding that will inform the severability analysis.
What the Tax Reform Legislation Did, and Did Not Do
Following the enactment of the tax reform legislation in December 2017, many Republicans boasted that they had repealed the individual mandate. But this claim is not accurate. Section 11081 of the bill, titled “elimination of shared responsibility payment for individuals failing to maintain minimum essential coverage,” merely modified § 5000A(c): starting in 2018, the penalty will be $0. It did not modify any other provision of § 5000A. Nor did it repeal any of Congress’s statutory findings about the mandate. Critically, Congress’s findings that the mandate was “essential” to the operation of the mandate remains, intact.
To conclude that the mandate is no longer “essential” to the mandate, a court would have to find that the 2017 tax bill repealed § 18091(2)(I) through implication. Here, the presumption against implied repeal is important. Scalia and Garner discussed this canon in Reading Law:
The Supreme Court of the United States long ago announced that an implied repeal may occur in either of two circumstances: “(1) Where provisions in the two acts are in irreconcilable conflict, the later act to the extent of the conflict constitutes an implied repeal of the earlier one; and (2) if the later act covers the whole subject of the earlier one and is clearly intended as a substitute, it will operate similarly as a repeal of the earlier act.” Though rare, implied repeals of each type are hardly unknown.
First, there is no “conflict,” let alone an “irreconcilable conflict” between the ACA and the 2017 tax bill. The mandate can continue to operate in the absence of a penalty. (For reasons I’ll discuss in the next section, the mandate, standing by itself, can still achieve its intended goal of reducing adverse selection, albeit by a smaller amount.) Second, the 2017 tax bill provision is in no sense a substitute for § 5000A; it only mentions one discrete subpart. These congressional findings remain in force.
What Remains of the Individual Mandate
Commentators have suggested that after the tax reform bill, the mandate exists in name only. That is, a mandate without a penalty to back it up, is not a mandate at all. This argument ignores the role that the individual mandate still plays in the Affordable Care Act.
First, the Congressional Budget Office concluded that a penalty-less mandate would still influence some people to purchase health insurance. Timothy Jost observed of this report, “the repeal of the mandate would reduce federal expenditures over ten years by $338 billion, but opined that repeal of the penalty in the tax bill would reduce expenditures by only $318 billion.” In other words, he wrote, “as long as the requirement remained in the law, some individuals would continue to purchase individual coverage because it was legally required, even if the penalty was repealed.”
You may ask yourself, why would anyone comply with a mandate that is not backed by a penalty? In December 2008, CBO explained how social dynamics, beyond monetary fines, support compliance with the law:
Compliance, then, is probably affected by an individual’s personal values and by social norms. Many individuals and employers would comply with a mandate, even in the absence of penalties, because they believe in abiding by the nation’s laws. However, such compliance may also be moderated by perceptions of fairness; individuals may comply more readily if they believe that a mandate is fair and is consistently enforced. If enforcement efforts appear to be unevenly applied, compliance may diminish. Social psychologists find that compliance could be affected not only by personal values but also by individuals’ perceptions of how others will act. Such studies find that many people want to take the popular—as well as the moral—course of action. (pp. 53-54)
Some people comply with the law because it is the right thing to do, not because they seek to avoid punishment. No matter how small this class is, such virtuous individuals do exist. And these are the individuals who are still affected by a penalty-less mandate. To bolster standing, I expect individual tax payers will intervene in the litigation. If they do, their affidavits should make clear that they seek to comply with the mandate based on “personal values and by social norms,” apart from any monetary penalties. Specifically, that the repeal of the penalty will not change their decision to comply with the mandate. The ideal intervenors would be those who can claim an exemption from the penalty under § 5000A(e): (1) individuals who cannot afford coverage, (2) taxpayers with income below the filing threshold, (3) members of Indian tribes, (4) people with short gaps in coverage, and (5) those who have “suffered a hardship” as defined by the Secretary. Such individuals were never subject to the penalty, but were always subject to the mandate. For this category, the tax reform bill had no impact on their decision whether to comply with the mandate, or not. Even if they were insured before, or sought an exemption, now they can explain what role the mandate still plays on their decision in 2018. These new claims will bolster the individual claims to standing, and also bolster the state’s claim of standing.
Second, beyond the requirement of social norms, the law still imposes obligations on those who do not maintain minimum essential coverage. Line 61 of 2017 IRS Form 1040 asks an individual if he had minimum essential coverage for all twelve months of the year. If the taxpayer checks “yes,” there is no need to calculate the penalty. If the box is not checked, the taxpayer must complete Form 8965. This form asks whether the taxpayer is subject to an exemption. As explained by the instructions, Form 8965 does not appear to distinguish between exemptions from the mandate under § 5000A(d) and exemptions from the penalty under § 5000A(e). Going forward, at least some people may still apply for exemptions from the mandate and from the penalty.
It is possible that Line 61 will be abolished altogether. There is no indication yet whether these forms will be amended in 2018. Though, there is reason to suspect that the IRS may still request information about individual coverage, even if there is no penalty associated with it: the individual tax returns can be used to verify whether information provided by employers is accurate (through forms 1095-A and 1095-B). That is, if an employer reports that it provided insurance to an employee, pursuant to 26 U.S.C. § 6055, but the employee reports that he is uninsured, there is a conflict. If in fact the employer submitted false information, the individual return will make it easier for the government to impose the employer mandate penalty.
Even though the penalty is set to $0, the individual mandate still plays an important social function to reduce adverse selection, and plays a role in the operation of employer-based coverage. Far from toothless, the mandate still has some bite.
The next part in this series will focus on how the recent tax reform legislation affects Chief Justice Roberts’s saving construction in NFIB v. Sebelius.