Your California v. Texas Explainer
Your California v. Texas Explainer

On November 10, 2020, the U.S. Supreme Court heard oral arguments in the case California v. Texas. Because this is a major case impacting benefits, we wanted to give you some background.

What is the legal issue in California v. Texas?

This case deals with the minimum coverage provision (aka the individual mandate) of the Affordable Care Act (ACA). At issue are three points:

  • Do the plaintiffs have standing to sue?
  • Did reducing the individual mandate penalty to $0 make the corresponding ACA provision unconstitutional?
  • If the provision is found to be unconstitutional, does that make the entire law unconstitutional, or can that provision be “severed” from the law?

What is the minimum coverage provision?

In an effort to increase health insurance coverage in the U.S., the ACA was passed in 2010, containing the minimum coverage provision that requires individuals to maintain health insurance coverage. If they do not, they must make a “shared responsibility payment” —aka the individual mandate penalty—to the Internal Revenue Service (IRS).

Is the current case the first legal challenge to the individual mandate?

No. The individual mandate has been the subject of previous legal cases. In fact, the 2012 Supreme Court decision National Federation of Independent Business v. Sebelius upheld the constitutionality of the individual mandate. The Court found that the mandate was not authorized under the Constitution’s Commerce Clause, but it fell within Congress’s power to tax under the Constitution’s Taxing Clause. In other words, the Court concluded that the penalty was a tax and was therefore constitutional.

Did the mandate and penalty go into effect?

Yes, the mandate went into effect in January 2014, and individuals without adequate coverage were penalized.

Are the mandate and penalty still in effect?

Yes, the mandate is still in effect. The penalty is also still in effect. However, in December 2017, Congress passed, and President Trump signed into law, the Tax Cuts and Jobs Act of 2017. One provision in this tax reform law reduced the individual mandate penalty to $0 beginning in January 2019. So, while there is still a penalty under law, there is no amount that needs to be paid.

What are the specifics of the current case, California v. Texas

In February 2018, 18 Republican-led states (including Texas) filed suit against the Trump administration in the U.S. District Court for the Northern District of Texas. Two individuals later joined the suit. They argued that when Congress reduced the penalty to $0, the penalty could no longer be a tax. Therefore, the individual mandate became unconstitutional, based on the 2012 ruling that the penalty was constitutional because it was a tax. And because the individual mandate is essential to and inseverable from the rest of ACA, they argued, the entire law should be declared unconstitutional.

The Trump administration decided not to fully defend ACA in court, and the Department of Justice joined the 20 parties filing suit. The District of Columbia and sixteen Democrat-led states (including California) sought to intervene and defend ACA; that request was granted.

In December 2018, the district court ruled that the individual mandate was unconstitutional. They agreed that the provision could not be severed from the whole law; therefore, all of ACA was unconstitutional. Despite this ruling, the court confirmed that ACA was still the law of the land and must be followed while court proceedings continue. The Democrat-led states filed an appeal to the Fifth Circuit Court of Appeals, and the U.S. House of Representatives joined their appeal.

In December 2019, the Fifth Circuit Court of Appeals ruled the individual mandate was unconstitutional and remanded the case to the Texas district court on the severability question. 

In January 2020, the Democrat-led states petitioned the U.S. Supreme Court to take up this case. On March 2, 2020, the Supreme Court agreed to hear the case during their October 2020 session. The name was changed from Texas v. United States to California v. Texas, reflecting the two lead states in the case.

What is the standing to sue issue?

One of the arguments throughout the proceedings is the issue of standing to sue. This is defined as the requirement that an individual who brings a suit has the right to do so. Under the U.S. Constitution, this means the individual has to have suffered an injury or could suffer an injury that can be addressed by the court. In this instance, the issue in question is whether the parties have standing to challenge ACA’s individual mandate.

In the 5th Circuit’s decision, it was ruled that the plaintiffs have standing to bring this challenge to the ACA because “the individual mandate injures both the individual plaintiffs, by requiring them to buy insurance that they do not want, and the state plaintiffs, by increasing their costs of complying with the reporting requirements that accompany the individual mandate.”

What was argued before the Supreme Court on November 10?

The three issues listed above were argued before the Court: standing to sue, the constitutionality of the individual mandate and the severability of the individual mandate from the entire law.

Any predictions?

My crystal ball remains cloudy. However, initial reports seem to indicate that, while the Justices may rule the individual mandate is unconstitutional, the majority may rule that this mandate provision could be severed from ACA as a whole. Accordingly, the law itself may not be declared unconstitutional. Of course, they could decide the mandate is constitutional, and therefore ACA is constitutional. All of this could be moot, however, if the Justices dismiss the case, deciding there was no standing to sue. It was reported that many questions during oral arguments touched on standing. For example: If the penalty is $0, are individuals injured by the mandate? Without the penalty, are individuals compelled to do anything?

When will the decision be announced?

While it has not been stated, it seems likely that the decision will be announced at the end of the term, in June 2021. Traditionally, major decisions are announced in June.

Where can I find more information?

Members should watch this blog, the International Foundation Future of ACA web page, and the daily Today’s Headlines email for updates.

Julie Stich, CEBS
Vice President, Content, at the International Foundation

The latest from Word on Benefits:

Julie Stich, CEBS

Vice President, Content at the International Foundation

Favorite Foundation Product:Our Talking Benefits podcast!

Benefits Related Topics She’ll Happily Discuss: Issues involving mental health, financial well-being, innovative benefits, trends and new regulations (yes, she proudly admits she’s a benefits “nerdthusiast”!).  

Favorite Foundation Conference Moment: Vernice “FlyGirl” Armour’s closing session at the 2018 U.S. Annual Conference. Also, really likes being in a booth at whichever conference, and chatting with members.

Personal Insight: A history buff, Julie enjoys traveling to major U.S. landmarks. She is also a life-long Trekker, and will correct you if you mistakenly call her a “Trekkie.” 

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