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On December 19, 2019, a divided three judge panel of the Fifth Circuit Court of Appeals found that with the reduction of the Affordable Care Act (ACA)’s penalty for failure to purchase health insurance to zero, the ACA’s individual mandate requiring the purchase of insurance was unconstitutional.  The Court remanded the case to the District Court, directing that Court to “employ a finer-tooth comb…and conduct a more searching inquiry into which provisions of the ACA Congress intended to be inseverable from the individual mandate.” In addition, noting that the federal government had changed its position on a remedy on appeal, the Court directed the District Court to determine whether enforcement of the ACA should only be enjoined in the plaintiff states.

The case was originally brought in the federal District Court for the Northern District of Texas by Texas, several other Republican-led states, and two individuals, seeking a ruling that the ACA was unconstitutional and should be struck down because the Tax Cuts and Jobs Act of 2017 eliminated the ACA’s requirement that individuals failing to buy health insurance pay a tax penalty and that the Supreme Court had originally upheld the ACA as an exercise of Congress’ tax power. 

In a December 14, 2018 opinion, the District Court agreed with Texas and the states challenging the ACA, finding that the “Individual Mandate no longer ‘triggers a tax’” and that, therefore the ACA was unconstitutional.  In that opinion, he also found that the “Individual Mandate ‘is essential and inseverable from ‘the other provisions of’ the ACA” and that the entire law must fall.  The decision was stayed pending appeal.

In a lengthy opinion written by Judge Elrod and joined by Judge Engelhardt, the Court of Appeals analyzed the Supreme Court’s opinion upholding the ACA, Nat’l Fed’n of Indep. Bus. v. Selelius (NFIB), 567 U.S. 519 (2012).  The Court of Appeals first found that in fractured opinions, a majority of the Supreme Court justices held that reading the individual mandate “as a standalone command to purchase insurance would have rendered it unconstitutional.”  This is because the individual mandate would have “compelled individuals to enter commerce in the first place” and therefore exceeded Congress’ power to regulate commerce among the states and that the individual mandate likewise could not be justified under the Constitution’s Necessary and Proper Clause. 

The Court of Appeals next analyzed Chief Justice Roberts’s opinion which held that when read together with the penalty for failing to purchase health insurance, the individual mandate “could be read as a legitimate exercise of Congress’ taxing power” for several reasons, including “most fundamentally” that it produced revenue for the government.  With the reduction of the penalty to zero, the Court of Appeals held that “the individual mandate is unconstitutional because it can no longer be read as a tax, and there is no other constitutional provision that justifies this exercise of congressional power.”

Turning to the question of whether the individual mandate could be severed from the remaining provisions of the ACA, the Court recognized that “[s]everalbility analysis is at its most demanding in the context of sprawling (and amended) statutory schedules” like the ACA and found that the District Court did not undertake the necessary “careful, granular approach to the severability question” with respect to all the provisions of the ACA.  Therefore, it remanded the case to the District Court to perform this analysis and to consider the intent of the 2017 Congress on the severability question in reducing the penalty to zero.

The Court also found that remand was appropriate because the federal government, for the first time on appeal, had argued that the ACA should only be enjoined in the plaintiff states, an issue which had necessarily not be considered by the District Court.

The case is Texas et al. v. U.S. et al., Case No. 19-10011, in the Fifth Circuit Court of Appeals.  To read the opinion, please click here.  To read Whatley Kallas, LLP’s earlier article on the District Court’s opinion, please click here.  The attorneys at Whatley Kallas will continue to follow this case as it proceeds through the courts.