What Was the California v. Texas Lawsuit Over the ACA?

Headlines about healthcare reform and the Affordable Care Act (ACA) have been ever-present for the last decade, and the details sometimes get lost in the noise. But from early 2018 through mid-2021, a lawsuit that threatened to overturn the ACA was making its way through the court system.

Ultimately, the Supreme Court ruled in favor of the ACA, but the case caused considerable uncertainty for a few years. This article will explain what the case was about, how the lower courts ruled, and how the Supreme Court upheld the ACA for the third time in 10 years.

The ACA includes a requirement that nearly all Americans maintain minimum essential coverage. To be clear, that requirement still exists, but there's no longer a penalty for non-compliance. In late 2017, the Tax Cuts and Jobs Act was signed into law, and one of its provisions was to eliminate the tax penalty for being without health coverage. The tax penalty continued to apply in 2018, but it was reset to $0 as of 2019.

(There are some states that have established their own insurance requirements and collect penalties from non-compliant residents via state tax returns, but there is no longer a federal penalty.)

Soon after the Tax Cuts and Jobs Act was enacted, 20 Republican-led states filed a lawsuit, arguing that without the tax imposed by the IRS for non-compliance, the ACA's requirement that people maintain health coverage (commonly referred to as the individual mandate) was unconstitutional. And they also asserted that the individual mandate could not be severed from the rest of the ACA, and that the entire law should thus be overturned.

(The lawsuit was initially called Texas v. U.S.; later, when the Trump administration's Department of Justice declined to defend the ACA, California and other Democratic-led states stepped in, and the lawsuit became known as California v. Texas.)

Confused? This all goes back to the ACA case that went to the Supreme Court in 2012. In National Federation of Independent Business v. Sebelius, the Supreme Court ruled that the ACA's individual mandate is constitutional specifically because it's within the power of Congress to levy taxes. In other words, the fact that the IRS would assess a tax when a person went without health coverage made the ACA's individual mandate constitutional.

Now fast-forward to early 2018. The individual mandate still had a tax penalty for non-compliance, but it was scheduled to be reset to $0 after the end of 2018. So the 20 Republican-led states that brought the Texas v. U.S. lawsuit based their argument on the fact that without a tax for non-compliance, the individual mandate was not constitutional.

And although the Supreme Court had never ruled on whether the individual mandate was severable from the rest of the ACA (ie., whether the rest of the ACA could be allowed to remain in place without the individual mandate), the GOP-led plaintiff states argued that the individual mandate was not severable and that the entire law should be overturned.

This was the position of the four dissenting Supreme Court justices in the 2012 ruling, but since the majority opinion in National Federation of Independent Business v. Sebelius was that the individual mandate was constitutional, the Court had never issued an opinion on whether the individual mandate was severable.

Two States Withdrew From the Lawsuit, 18 Remained

Wisconsin and Maine had Republican governors in 2018, but Democrats won the gubernatorial elections in both states that year. Soon after taking office in 2019, the new governors of Wisconsin and Maine withdrew their states from the case, so they were no longer plaintiffs by the time the case made its way to the Supreme Court.

The 18 remaining plaintiff states were: Texas, Alabama, Arkansas, Arizona, Florida, Georgia, Indiana, Kansas, Louisiana, Mississippi, Missouri, Nebraska, North Dakota, South Carolina, South Dakota, Tennessee, Utah, and West Virginia.

A Federal Judge Agreed With the Plaintiff States in Late 2018

In December 2018, just as the open enrollment period for 2019 individual/family coverage was drawing to a close, Texas Federal District Court Judge Reed O'Connor issued a ruling in which he agreed with the plaintiffs that the entire ACA should be overturned.

O'Connor's final judgment, issued later that month, was clear. He believed the individual mandate was unconstitutional and that it could not be overturned without overturning the entire ACA (i.e., that it's not severable).

But O'Connor also issued a stay, ensuring that the ACA would remain in effect while the decision was appealed, so nothing changed about the ACA as we headed into 2019 (except that the individual mandate penalty no longer applied to people who were uninsured in 2019).

The Appeal

Sixteen Democratic-led states and the District of Columbia immediately appealed the case to the Fifth Circuit: California, Connecticut, the District of Columbia, Delaware, Hawaii, Illinois, Kentucky, Massachusetts, New Jersey, New York, North Carolina, Oregon, Rhode Island, Vermont, Virginia, Washington, and Minnesota.

The Department of Justice (DOJ) also appealed, although the DOJ's appeal wasn't as straightforward. Normally, the DOJ argues to uphold federal law in its entirety if it's challenged in court. But in Texas v. U.S., the Trump administration had agreed with the plaintiff states that the individual mandate was unconstitutional.

But they had argued that only the individual mandate and protections for people with pre-existing conditions (including guaranteed-issue requirements and community rating requirements) should be overturned, while the rest of the ACA should be allowed to remain in place.

The plaintiff states, in contrast, argued that the entire ACA should be overturned, and Judge O'Connor agreed with them. So the DOJ initially joined in the appeal because they didn't agree that the entire ACA should be overturned (as described below, the DOJ's position evolved over time).

In February 2019, the US House of Representatives (which had a new Democratic majority) joined in the appeal. They were also joined by four additional states: Iowa, Michigan, Colorado, and Nevada.

So there were 21 states defending the ACA, and 18 fighting to overturn it. There were also two self-employed Texas residents, Neill Hurley and John Nantz, who were plaintiffs in the case, working to overturn the ACA.

Hurley and Nantz joined the lawsuit on the premise that the ACA's individual mandate forces them to purchase health insurance that they would otherwise not purchase. But the lawsuit was filed specifically due to the fact that the tax penalty for non-compliance with the individual mandate was being eliminated after the end of 2018. Nevertheless, Judge O'Connor ruled that Hurley and Nantz did have standing in the case.

Trump Administration DOJ Changed Position During Appeals Process

Under the Trump administration, the Department of Justice had an evolving position on Texas v. U.S./California v. Texas.

As noted above, the DOJ initially agreed with the plaintiff states that the individual mandate was unconstitutional without the tax penalty for non-compliance, but argued that only the individual mandate and pre-existing condition protections should be overturned, while the rest of the ACA should be upheld. And the DOJ initially appealed Judge O'Connor's ruling, since he had ruled that the entire ACA should be overturned.

But during the appeals process, the DOJ shifted its position to agree with the plaintiff states that the entire ACA should be overturned. However, the DOJ also started to take a more nuanced approach during the appeals process, asking that ACA provisions only be overturned if they would otherwise harm the plaintiffs in the case.

And the DOJ also argued that the ACA should only be overturned in the plaintiff states, as opposed to nationwide.

Appeals Court Agrees With Lower Court But Sends Case Back for Further Review

The oral arguments in the appeal were held in July 2019, and the decision was anxiously awaited throughout the fall. The panel of judges from the Fifth Circuit issued their ruling in December 2019, just a few days after the end of the open enrollment period for 2020 health coverage, and just over a year after Judge O'Connor had first ruled that the ACA should be overturned.

But their ruling essentially amounted to a delay. The appeals court judges agreed with O'Connor's ruling that the individual mandate is unconstitutional. But rather than issuing a ruling on the rest of the law, the Fifth Circuit judges sent the case back to the lower court for a further review of which specific portions of the ACA ought to be overturned.

The lower court had ruled a year earlier that the individual mandate was inseverable and the entire law should thus be overturned, but the Fifth Circuit ruling instructed the lower court to "employ a finer-toothed comb on remand and conduct a more searching inquiry into which provisions of the ACA Congress intended to be inseverable from the individual mandate."

In January 2020, a group of 20 states (led by California) and the District of Columbia asked the Supreme Court to take up the case during the 2020 term, without waiting for the case to make its way back through the lower court.

The U.S. House of Representatives also issued a similar request. The Democratic-led states and the House of Representatives were seeking certainty in the case, wanting a ruling from the Supreme Court during the summer of 2020, so that it would come before the 2020 elections and before health insurance premiums and plans for 2021 were finalized.

Within a few weeks, the Supreme Court rejected those requests to expedite the case. But the Court later reversed agreed to hear the case during the 2020 term, and oral arguments were heard in November 2020.

The oral arguments took place a week after the 2020 presidential election, and only a few weeks after Justice Amy Coney Barrett had been seated on the Supreme Court, cementing a conservative majority on the bench.

SCOTUS Upholds ACA in June 2021

In June 2021, the Supreme Court issued its much-awaited ruling in the California v. Texas lawsuit, upholding the ACA in a 7-2 decision. This was the third time the Supreme Court had upheld the ACA (the other cases were decided in 2012 (National Federation of Independent Business v. Sebelius) and 2015 (King v. Burwell).

But the 7-2 ruling in California v. Texas was more strongly in favor of the ACA than the other rulings had been (they were 5-4 and 6-3, respectively).

California v. Texas did cause a few years of anxiety in the individual/family health insurance market. And the impact of overturning the ACA would have been felt far beyond the individual market. But the Supreme Court's decision to uphold the ACA, despite a conservative majority on the Court, sent a strong message about the ACA's staying power.

The ACA remains the law of the land, albeit without the tax penalty for non-compliance with the individual mandate. And some of the ACA's taxes—the Cadillac tax, the medical device tax, and the health insurance provider tax—were also repealed as part of a federal tax bill that was enacted in late 2019.

Is the ACA Still Being Challenged in the Courts?

The ACA does still face legal challenges, despite being upheld three times by the Supreme Court. But the latest challenge is to the ACA's preventive care requirements, rather than the entire law.

In Braidwood v. Becerra, plaintiffs (individuals as well as religious organizations) are challenging the fact that the ACA requires all non-grandfathered major medical plans to cover preventive care recommended by various expert organizations, and also the fact that preexposure prophylaxis (PrEP) for HIV prevention is one of the specific preventive measures that health plans must cover.

In the fall of 2022, a U.S. District judge ruled partially in favor of the plaintiffs. His ruling noted that a requirement to cover PrEP violates Braidwood's religious freedoms, and also that health plans should not have to cover preventive services recommended by the U.S. Preventive Services Task Force (USPSTF), because the members of the task force do not go through the government appointments process.

But the judge ruled that coverage of preventive services recommended by the other two organizations (ACIP and HRSA, which recommend vaccines and women's preventive services) is constitutional.

This case is still up in the air as of 2023, and could eventually make its way to the supreme court.

Summary

The California v. Texas lawsuit (previously called Texas v. Azar/U.S.) was filed in 2018 by a group of 20 Republican-led states seeking to overturn the ACA. Their argument was that without the individual mandate penalty (which was being reduced to $0 as of 2019), the ACA was unconstitutional. The case lingered in the court system for a few years, and Democratic-led states had to step in to defend the ACA when the Department of Justice declined to do so. The Supreme Court ultimately ruled in favor of the ACA in 2021.

A Word From Verywell

The Supreme Court's decision in California v. Texas was the third time that the ACA was upheld by the Supreme Court. Although the Court has a conservative majority, the 7-2 ruling made it fairly clear that the ACA is here to stay. So consumer protections, like subsidies in the individual market and coverage for pre-existing conditions, will remain in place for the foreseeable future.

But there are still legal challenges to the ACA, including a high-profile case that challenges the law's requirement that most health plans provide free preventive care.