Fifth Circuit Sends Obamacare Severability Issue Back to Square One—But Not Quite

The appellate court remanded the most important issue in the case back to the district court. But its instructions will make it difficult for the trial judge to again rule that the entire Affordable Care Act must fall with the individual mandate.

Today, the US Court of Appeals for the Fifth Circuit issued a 2-1 decision ruling that the individual health insurance mandate is now unconstitutional in the wake of the 2017 tax reform law, which eliminated the monetary penalty that previously been imposed on violators. At the same time, however, it vacated the trial court ruling holding that the the rest of the Affordable Care Act must fall along with the individual mandate, and remanded the case back to district Judge Reed O'Connor for further analysis of which parts of the ACA are "severable" from the individual mandate, and which ones are not. The case, initially filed by 20 GOP-controlled state governments last year, will continue on remand, and the one thing that can safely be said about it is that this litigation is far from over.

I agree with most of what co-blogger Jonathan Adler writes in his post about the ruling. Here, I add a few additional points on the severability issue. While the Fifth Circuit did not resolve that question, it did make it difficult for Judge O'Connor to simply repeat his earlier ruling that the entire ACA must go.

In her majority opinion, Judge Jennifer Elrod ruled that the individual mandate is now unconstitutional because, with the repeal of the attached penalty, it can no longer be considered a tax, which is the only reason why it was upheld by the Supreme Court in its 2012 decision in NFIB v. Sebelius. Unlike Jonathan and most other commentators, I think this part of the case is actually important. I explained the reasons why here. I therefore agree with and welcome the part of the Fifth Circuit's decision ruling that the mandate is now unconstitutional.

Most observers, however, do not care much about the fate of the now largely neutered mandate. Their focus is on the fate of the rest of Obamacare, which depends on the resolution of the severability issue. On that point, the Fifth Circuit has essentially ordered Judge O'Connor to go back to square one:

Although we understand and share the district court's general disinclination to engage in what it refers to as "legislative guesswork…," we nevertheless conclude that the severability analysis in the district court opinion is incomplete in two ways.

First, the opinion gives relatively little attention to the intent of the 2017 Congress, which appears in the analysis only as an afterthought despite the fact that the 2017 Congress had the benefit of hindsight over the 2010 Congress [that initially enacted the ACA]: it was able to observe the ACA's actual implementation. Although the district court opinion states that burdening insurance companies with taxes and regulations without giving them the benefit of compelling the purchase of their product is "a choice no Congress made," it only links this observation to the 2010 Congress. It does not explain its statement that the 2017 Congress' failure to repeal the individual mandate is evidence of an understanding that no part of the ACA could survive without it.

Second, the district court opinion does not do the necessary legwork of parsing through the over 900 pages of the post-2017 ACA, explaining how particular segments are inextricably linked to the individual mandate. The opinion lists a few examples of major provisions and cogently explains their link to the individual mandate, at least as it existed in 2010. For example, the opinion discusses the individual mandate's interplay with the guaranteed-issue and community-rating provisions—all of which are found in Title I of the ACA—analyzing how Congress intended those provisions to work and how they might be expected to work without the individual mandate. But in order to strike the delicate balance that severability analysis requires, the district court must undertake a similar inquiry for each segment of the post-2017 law that it ultimately declares unlawful—and it has not done so. Instead, the district court opinion focuses on the 2010 Congress' designation of the individual mandate as "essential to creating effective health insurance markets" and intention that, for at least one set of legislative goals, the individual mandate was intended to work "together with the other provisions" of the ACA….On this basis, and on the views of the dissenting Justices in NFIB addressing the ACA as it stood in 2012, the district court opinion renders the entire ACA inoperative. More is needed to justify the district court's remedy….

It may still be that none of the ACA is severable from the individual mandate, even after this inquiry is concluded. It may be that all of the ACA is severable from the individual mandate. It may also be that some of the ACA is severable from the individual mandate, and some is not. But it is no small thing for unelected, life-tenured judges to declare duly enacted legislation passed by the elected representatives of the American people unconstitutional. The rule of law demands a careful, precise explanation of whether the provisions of the ACA are affected by the unconstitutionality of the individual mandate as it exists today.

In one sense, the Fifth Circuit is inviting the district court to do a complete do-over, and in the process leaves all options open. After all, Judge Elrod's opinion specifically says that final decision could end up ruling either that "none of the ACA is severable from the individual mandate" or that "all of the ACA is severable." And, of course, there are lots of intermediate options between these polar opposites.

The Fifth Circuit has "direct[ed] the district 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," without predetermining the outcome of that inquiry. However, Judge Elrod also emphasizes that the trial court must consider the intent of the 2017 Congress that neutered the individual mandate, not just that of the 2010 Congress that initially enacted the ACA.

To the extent that the intent of the 2017 Congress gets any significant weight at all, it is difficult to conclude that any other part of the ACA cannot be severed from what's left of the individual mandate. After all, if the 2017 Congress really believed that the mandate was essential to the workings of any other part of the Act, it would not have rendered it virtually toothless, while simultaneously leaving all other parts of the law in place. Along with a cross-ideological group of other legal scholars, Jonathan Adler and I developed this point in greater detail in two amicus briefs we have filed in this case (see here and here). I also addressed this issue in my post criticizing Judge O'Connor's trial court ruling.

In addition to the need to consider the intent of the 2017 Congress, Judge O'Connor will also have to give due weight to a recent Fifth Circuit en banc decision holding that courts addressing severability issues should sever as little of the statute in question as possible. That, too, will make it hard to rule that all or most of the rest of the ACA should fall along with the mandate.

Overall, I largely agree with the analysis of severability in Judge Carolyn Dineen King's dissenting opinion in the Fifth Circuit, where she emphasizes that 2017 Congress already decided the issue, leaving little for courts to do:

The majority has identified the most glaring flaw in the district court's severability analysis: the district court "gives relatively little attention to the intent of the 2017 Congress, which appears in the analysis only as an afterthought." When one takes this fact into account, there can be little doubt as to Congress's intent.

We have unusual insight into Congress's thinking because Congress was given a chance to weigh in on the ACA's future without an effective coverage requirement and it decided the ACA should remain in place. By zeroing out the shared-responsibility payment, the 2017 Congress left the coverage requirement unenforceable. If Congress viewed the coverage requirement as so essential to the rest of the ACA that it intended the entire statute to rise and fall with the coverage requirement, it is inconceivable that Congress would have declawed the coverage requirement as it did….

For this reason, I agree with Judge King that the Fifth Circuit probably should have just ruled that all of the rest of the ACA is severable from the mandate, without remanding the case back to the district court. But I can also understand the majority's desire to have the trial court go over each relevant provision of the ACA with a "fine-toothed comb" to see whether any of them may be inextricably linked even to a neutered mandate. Given the complexity of Obamacare, such caution is understandable, even though probably unnecessary.

In addition to remanding the severability issue back to the trial court, the Fifth Circuit also remanded the issue of the scope of the relevant remedy (should the trial court again rule that some or all of the rest of the ACA is inseverable from the mandate). The key issue here is whether the right remedy is a nationwide injunction or one limited to the plaintiff states. The latter could lead to a difficult situation, where some or all of the ACA is operative in some parts of the country, but not in others.

When Judge O'Connor does eventually redo the severability analysis, the issue is likely to come right back to the Fifth Circuit, as whichever side loses is likely to appeal. But if the Fifth Circuit is at all serious about the need to give weight to the intention of the 2017 Congress and to sever as little as possible, it is unlikely that much—if any—of the rest of the ACA will ultimately fall along with the individual mandate.

Thanks to the Fifth Circuit decision, the Obamacare severability litigation is likely to continue for a long time to come. But the end result is unlikely to be the end of Obamacare, or anything close to it.

As I have emphasized before, we should be cautious about making predictions on the future of ACA-related litigation, because expert predictions on that score—my own included—have often been wrong in the past. Still, today's ruling does not bode well for those who want the courts to use severability analysis to strike down all or most of the rest of the ACA in addition to the individual mandate.

NOTE: Although I have joined two amicus briefs in this case, the opinions expressed in this and other posts about it reflect only my own views, not necessarily those of the other scholars who joined the briefs.

This might also be a good place to point out that I did not join these briefs because I am a fan of Obamacare. Much the contrary. I authored an amicus brief against the Obamacare individual mandate in the initial 2011-12 challenge to its constitutionality, and also wrote a coauthored book and various articles arguing that it and some other parts of the law are unconstitutional. I would be happy to see the ACA repealed. But that is no reason to butcher severability doctrine in the present case.

In addition to the strictly doctrinal reasons to avoid doing so, I also worry that institutionalizing a theory of inseverability broad enough to bring down the rest of the ACA along with the neutered mandate, would lead future courts to be reluctant to invalidate unconstitutional elements of large, complex laws. If virtually any provision of a law can become the proverbial nail that loses the entire battle if it is removed, many judges are likely to refuse to remove the nail, even if it is unconstitutional. Conservatives and libertarians who hope to use this case to get rid of Obamacare should consider the possibility that doing so might handicap future efforts to curb unconstitutional big-government programs.