Twenty-State Obamacare Lawsuit Moves Forward

Published December 27, 2018

Ed. Note: This article has been amended. The lawsuit is a 20 state lawsuit, not a 38 state lawsuit; the defendant is the United States of America not the Trump Administration; and the Trump administration declined to take a position on whether the mandate is severable rather than choosing not to defend the law as was originally reported.

The suit, which was determined to have merit in early December, maintained that the ACA is no longer constitutional since Congress and President Donald Trump repealed the Obamacare “individual mandate” as part of the Tax Cuts and Jobs Act of 2017.  The judge in the Texas federal court ruled Obamacare unconstitutional on December 14.

The defendant in the case is the United States of America. The administration said in June in its filing it did not fully agree with the plaintiffs’ argument in the case that the elimination of the penalty meant the entire law should be struck down.

‘A Pretty Straightforward Argument’

Justin Haskins, a research fellow at The Heartland Institute, which publishes Health Care News, says the suit is based on simple logic.

“The states have a pretty straightforward argument,” Haskins said. “The U.S. Supreme Court ruled in 2012 the individual mandate in the Affordable Care Act is constitutional on the basis that the penalty for the mandate was a tax, rather than a fine. When Republicans passed the Tax Cuts and Jobs Act in December 2017, they reduced the individual mandate penalty to $0, effectively eliminating it. Because there is now no ‘tax’ in place, it can no longer be argued Congress has the authority to impose the individual mandate on the basis of it being a tax.”

If the individual mandate is unconstitutional, the entire bill is invalid, Haskins says.

“The Supreme Court has previously determined that legislation should be struck down when one provision has been ruled unconstitutional and it’s unlikely Congress wouldn’t have passed the bill in the first place absent that provision,” Haskins said. “Accordingly, states are arguing that most or all of the Affordable Care Act should be deemed unconstitutional.”

Action Likely, Outcome Uncertain

Haskins says there is much uncertainty regarding what happens now that the case will ultimately make it to the U.S. Supreme Court.

“This case will be appealed to the Supreme Court,” Haskins said. “It’s unclear whether the Court will choose to hear the case, but if it does, it could strike down all or part of the Affordable Care Act. Interestingly, the Trump administration has already determined that it believes the ACA is unconstitutional and that it effectively won’t defend most of the law in court, but it says only some of the law should be struck down, not the entire legislation.

“If the Supreme Court were to rule the entire ACA unconstitutional, Congress would be forced to pass new health care legislation,” Haskins said. “It’s highly unlikely Congress would simply allow the ACA to collapse without replacing it with something else.”

Worried About Subsidies

On the other side of the debate, the mostly Democratic-controlled states that have not joined the suit want the ACA to continue because of the massive federal subsidies they rely on, says Michael Cannon, director of health care policy at the Cato Institute.

“If the Courts do strike down ACA provisions that govern or overhaul private health insurance, a lot of federal money could disappear,” Cannon said. “On the private insurance side, federal money going to private insurance companies would disappear. On the Medicaid side, money that would have gone to the states would disappear.

“Even though money subsidizing private insurance only goes to the private insurers, states will still be upset because that will be less money coming into the state,” Cannon said. “Insurance companies need to offer ACA-compliant plans only for as long as they are receiving subsidies. Without the subsidies, those plans could disappear off the exchanges.”

Free-Market Alternatives

Cannon says striking down ACA would not reduce health care access.

“If states that want to keep Obamacare complain that their own ‘high risk’ pools would be inadequate, all they would be doing is confirming what we already know, which is that their policy preferences lack political support,” Cannon said. “That’s not an argument for keeping those preferences in place. That’s actually an argument for, ‘Okay, we shouldn’t do this at all.'”

There are several free-market reforms ready to reduce health care costs and increase access if the ACA is invalidated, says Cannon.

“We could be doing a better job of achieving the goal of making health care more widely accessible [through reforms] that just happen to move in the opposite direction of Obamacare,” Cannon said.

“As David Hyman and Charlie Silver explain in the Cato Institute’s new book, Overcharged, these reforms would give consumers control over the $3 trillion we spend on health care every year.

“This is because consumers would do a better job of spending that money and will demand lower prices and higher quality in a way they just don’t do when they’re spending their employer’s money or the government’s money,” Cannon said. “And we will then see prices falling while quality improves in health care, just like we expect to see in every other sector of the economy. Making consumers cost-conscious has been shown to make prices fall by over 20 percent on average over two years— even up to 30 percent on procedures such as hip and knee replacements.”