In an opinion published late last Friday, Northern Texas District Court Judge Reed O’Connor declared the Affordable Care Act (ACA) — in its entirety — unconstitutional and invalid. The media frenzy that followed was frantic. The response on the stock market was also swift: Healthcare stocks were pummeled in after-hours trading Friday, and the beating continued throughout the day Monday.
In February 2018, 18 Republican attorney generals and two Republican governors filed a lawsuit challenging the legality of the ACA’s individual mandate. A team of Democratic AGs stepped up to defend the law. Oral arguments were presented in September. O’Connor’s opinion is the first of five decisions that will be published on the lawsuit in the coming weeks.
In a 2012 case, the Supreme Court decided that the ACA’s individual mandate penalty was only constitutional under Congress’ right to tax. In the following years, US citizens had to submit proof of health insurance along with tax returns to avoid paying the individual mandate penalty. In 2017, a Republican-controlled Congress reduced this penalty to $0, calling into question whether it could still be justified as a tax program. In the current case:
- Republican AGs argue that the individual mandate is no longer a tax program since it generates no tax revenue, and therefore it is now unconstitutional. They go on to argue that the individual mandate is inseparable from the overall law, so the entirety of the ACA must be invalidated.
- Democratic AGs argue that a penalty-free mandate may now comply with the Commerce Clause. They also argued that, if needed, the mandate could be severed from the rest of the ACA without throwing out the entire law.
In his opinion, Judge O’Connor agreed with the Republican AGs, establishing that the individual mandate is no longer a tax program and thus is unconstitutional. He then goes on to invalidate the rest of the ACA, concluding that the individual mandate is inseparable from the overall law.
What It Means
As this case makes its way through the legal system, HCOs should remain focused on the same strategic imperatives that they established for themselves heading into 2019. ACA rulings will always be headline news and will often cause volatility in healthcare stock. At this stage, the media hype should be interpreted as much ado about nothing. The future of the ACA will be decided in appeals. The first time a district judge deemed the ACA unconstitutional was in January 2011, and it took a full year and a half before a Supreme Court decision was issued on the case. In the meantime, HCOs should know that:
- The ACA will remain in place during appeals. As CMS Administrator Seema Verma confirmed via Twitter, the ruling will be appealed, and in the interim, the law will stand as is. She explains, “ . . . the exchanges are still open for business, and we will continue with open enrollment. There is no impact to current coverage or coverage in a 2019 plan.”
- Experts anticipate that the decision will be overturned. Even outspoken ACA opponents such as Jonathan Adler, whose research on the ACA led to the last Supreme Court challenge of the law, suggest that the ruling is audacious and expected to be overturned.
O’Connor has indicated that he will issue the remainder of his opinions by January 4, after which the decisions will be appealed. Healthcare stock market volatility is expected to continue, and the media frenzy surrounding the case will certainly intensify as hearings shift into the higher courts.