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Supreme Court Again Upholds Constitutionality of Affordable Care Act

(Parker Tax Publishing June 2021)

The Supreme Court held that states and individuals that sued federal officials to enjoin enforcement of the minimum essential coverage provision in Code Sec. 5000A(a), enacted by the Patient Protection and Affordable Care Act, did not have standing to bring the lawsuit. According to the Court, the states and individuals failed to show a past or future injury fairly traceable to the enforcement of Code Sec. 5000A(a) since the penalty for failure to obtain minimum essential health coverage was effectively nullified by Congress in 2017. California v. Texas, 2021 PTC 174 (S. Ct. 2021).


In 2010, the Patient Protection and Affordable Care Act (ACA) enacted Code Sec. 5000A(a), which requires most Americans to obtain minimum essential health insurance coverage. A monetary penalty was imposed upon most individuals who failed to do so. Amendments to the ACA by the Tax Cuts and Jobs Act of 2017, however, effectively nullified the penalty for failure to obtain minimum essential health coverage by reducing the penalty amount to $0.

Texas, along with over a dozen states and two individuals, subsequently brought suit against the Commissioner of the IRS and the Secretary of Health and Human Services, claiming that without the penalty, the minimum essential health insurance coverage requirement is unconstitutional. They sought a declaration that Code Sec. 5000A(a) is unconstitutional, along with a finding that the rest of the ACA is not severable from that provision, and an injunction against enforcement of the rest of the ACA. A district court determined that the states and individuals had standing and that Code Sec. 5000A(a) was both unconstitutional and not severable from the rest of the ACA. In 2019, the Fifth Circuit agreed as to the existence of standing and the unconstitutionality of Code Sec. 5000A(a) but concluded that the district court's severability analysis provided insufficient justification to strike down the entire ACA and thus remanded the case back to the district court to reassess the broad relief it had ordered. California and other states intervened to defend the ACA's constitutionality and filed a petition for a writ of certiorari. Texas and the other state plaintiffs seeking to overturn the ACA also filed a petition for writ of certiorari. In 2020, the Supreme Court agreed to hear the case.

Article III of the Constitution gives federal courts the power to adjudicate only genuine "Cases" and "Controversies." That power includes the requirement that litigants have standing. In DaimlerChrysler Corp. v. Cuno, 547 U.S. 332 (S. Ct. 2006), the Supreme Court held that a plaintiff has standing only if he or she can allege a personal injury that is fairly traceable to the defendant's allegedly unlawful conduct and likely to be redressed by the requested relief.

In this case, the individuals argued that they had standing based on a particularized individual harm in the form of past and future payments necessary to carry the required minimum essential coverage. The states alleged two forms of injury: one indirect, one direct. The indirect injury was the increased costs to run state-operated medical insurance programs they incurred as a result of the minimum essential coverage provision, which they said caused more state residents to enroll in the programs. The direct injury was a variety of increased administrative and related expenses required by the minimum essential coverage provision.


The Supreme Court held that the states and individuals did not have standing to challenge the minimum essential coverage provision because they failed to show a past or future injury fairly traceable to the enforcement of Code Sec. 5000A(a). With respect to the individuals' alleged injury resulting from payments necessary to carry minimum essential coverage, the Court held that, assuming this satisfied the injury element of Article III standing, it was not fairly traceable to any allegedly unlawful conduct of which the individuals complained. The Court reasoned that without a penalty for noncompliance, Code Sec. 5000A(a) is unenforceable. Further, the Court found that the individuals had not shown that any kind of government action or conduct has caused or will cause the injury they attributed to Code Sec. 5000A(a). The Court said that its cases have consistently spoken of the need to assert an injury that is the result of a statute's actual or threatened enforcement, whether today or in the future. In this case, there was only the statute's textually unenforceable language, which the Court found was, by itself, insufficient to establish standing, as the redressability requirement made clear.

The Court noted that the only relief sought was declaratory relief -- namely, a judicial statement that the provision is unconstitutional. But the Court reasoned that, just like suits for every other type of remedy, declaratory judgment actions must satisfy the Article III case-or-controversy requirement. Article III standing requires identification of a remedy that will redress the plaintiffs' injuries and the Court said that no such remedy existed here. In the Court's view, to find standing to attack an unenforceable statutory provision would allow a federal court to issue what would amount to an advisory opinion without the possibility of an Article III remedy.

The Court found that Texas and the other state plaintiffs had similarly failed to show that the injuries they alleged were traceable to the government's allegedly unlawful conduct. According to the Court, the states, like the individual plaintiffs, failed to show how that alleged harm was traceable to the government's actual or possible action in enforcing Code Sec. 5000A(a), so they lacked Article III standing as a matter of law. But the Court said that the states had also not shown that the minimum essential coverage provision, without any prospect of penalty, will injure them by leading more individuals to enroll in these programs. In the Court's view, neither logic nor evidence suggested that an unenforceable mandate will cause state residents to enroll in valuable benefits programs that they would otherwise forgo, and that far stronger evidence was required than the states had offered.

Regarding the states' claim that Code Sec. 5000A(a) resulted in the direct injury of increased administrative and related expenses, the Court found that other provisions of the ACA - namely, the provider and employer reporting requirements in Code Secs. 6055 and 6056 - impose the requirements that resulted in the alleged direct injury, without reference to Code Sec. 5000A(a). The Court reasoned that a conclusion that the minimum essential coverage requirement is unconstitutional would not show that enforcement of these other provisions violates the Constitution. The Court therefore concluded that the government's conduct in question was not fairly traceable to enforcement of the allegedly unlawful provision, i.e., Code Sec. 5000A(a).

For a discussion of the minimum essential health insurance coverage requirement, see Parker Tax ¶190,130.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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