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Texas v. United States – Striking Down the Individual Mandate, Guarantee Issue and Community Rating

Texas v. United States – Striking Down the Individual Mandate, Guarantee Issue and Community Rating

In February 2018, 20 states (the “States”) filed a lawsuit against the federal government asking that the ACA’s individual mandate provision be declared unconstitutional and with it, the entire ACA. The States believe the mandate (which requires us all to be insured or pay a penalty) became invalid once Congress zeroed out the penalty as part of the tax reform bill passed in December 2017. The States believe the mandate penalty to be the lynchpin of the ACA and without it, the entire law should be invalidated. They have asked the court to strike down the law on the day the mandate penalty will no longer be enforced, January 1, 2019.

Normally the federal government vigorously defends existing law, however, in a highly unusual move, the Department of Justice (DOJ), representing the federal government, said it would not defend the constitutionality of the individual mandate. In its filing, however, the DOJ disagreed with the States by arguing that only two provisions and not the entire ACA are linked to the individual mandate. Those provisions are guarantee issue and community rating. The DOJ states that those provisions together with the mandate should be considered invalid starting January 1, 2019.

Those two provisions are highly popular and impact millions of individuals. Guarantee issue states that no one can be turned away when applying for coverage and community rating states that current or prior health factors are not to be considered when setting rates/premiums. Taken together these two provisions allow individuals, regardless of their health history or current health status, to obtain coverage and to do so at the same rate as everyone else of their age and in their geography (with minor exceptions).

Since the federal government is not defending the law, a wide variety of entities have stepped in to defend it, claiming that an invalidation of the guarantee issue and community rating provisions would have widespread negative consequences including:

  • Plans might not be available for purchase in 2019:
    • Health insurers would be so disrupted by changes resulting from the invalidation of these key ACA provisions that it would take months to re-design and re-price plans.
    • Insurers must file plans with state regulators as many as eight months in advance.
  • Millions of individuals who have health conditions might:
    • be denied coverage.
    • only find plans that exclude coverage of their condition.
    • be subject to significantly higher premiums.

This lawsuit by the States is a serious threat to widely popular provisions of the ACA. If the court decides in favor of the States and if such a ruling is not overturned on appeal, our industry will experience a major upheaval. Individuals and those covered by small group plans in many states would feel the full effect of such a ruling, while for others, such as those living in California, the impact will be blunted by state law. For example, 25 years ago, AB 1672 established rules for the small group market in California. These rules include guarantee issue and a form of community rating. However, even in California, individuals who are not a part of a small group plan enjoy no such state protections and would be subject to the full impact of a repeal of guarantee issue and community rating.

The President’s upcoming Supreme Court nominee could weigh heavily in the decision should this case progress that far. The last major Supreme Court decision regarding the ACA was related to the constitutionality of the individual mandate penalty. That case turned on a very close 5-4 decision. With another, presumably conservative justice on the bench, the outcome may very well be different if the court gets a second bite at the apple.

Check out the Health Affairs ACA blog for a wonky and comprehensive review of the latest news regarding Texas v. United States.

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