DOJ’s Proposed Remedy in Texas v. United States Is an Unrealistic Solution

By Emily Curran, Dania Palanker, Sabrina Corlette

On July 9, the Fifth Circuit Court of Appeals heard oral arguments in Texas v. United States, a case concerning the constitutionality of the Affordable Care Act’s (ACA) individual mandate penalty. Though the individual mandate has been challenged before and was found constitutional by the U.S. Supreme Court, this argument was renewed when Congress passed the Tax Cuts and Jobs Act in 2017, reducing the individual mandate penalty to $0 beginning in 2019. Now, Republican state attorney generals and governors in eighteen states are arguing that since the individual mandate penalty has been “zeroed out” (and is therefore no longer a “tax,” and thus constitutional under Congress’ taxing power), it must be ruled invalid. These plaintiff states also argue that the mandate is “essential” to the ACA, so the entire law should be struck down, if the mandate is found invalid. Though the U.S. Department of Justice (DOJ) – in siding with plaintiffs – had originally taken the position that the individual mandate could be severed from the rest of the law, it later changed its stance to agree with the Texas district court’s finding that the entire ACA is invalid.

Now, DOJ is changing its position again. In supplemental briefings to the Fifth Circuit Court of Appeals, DOJ states that any invalidation of the ACA should “not extend beyond the plaintiff states….” As a remedy, DOJ argues that the court should invalidate the ACA only in the states that brought suit. In effect, if the court were to follow DOJ’s scheme it would mean striking down the ACA in the eighteen plaintiff states, but allowing it to remain intact in the thirty-two other states. This proposed remedy is illogical on many levels, in part because the ACA includes provisions that touch on almost every aspect of our health system, including the federal Medicare program, which is not operated on a state-by-state basis, Food and Drug law governing the review and approval of prescription medicines sold nationwide, as well as several federal taxes designed to pay for the new spending under the law. However, here we focus on how DOJ’s suggested “solution” would upend our system of employer-based coverage – the primary source of insurance for approximately 158 million people.

DOJ’s Remedy Would Undermine the Purpose of ERISA & Create a Race to the Bottom

The Employee Retirement Income Security Act, commonly known as ERISA, is a federal law that sets certain minimum standards for most retirement and employee welfare benefit plans, including health plans, in the private market. The purpose of ERISA was to establish uniform standards of protections for employers that apply across states. Specifically, Congress stated that the Act was intended “to protect interstate commerce” by “improving the equitable character” of such plans. Before ERISA was enacted, employee benefit plans were subject to different state laws, often creating confusion for employers, especially those who operated across multiple states. As a result, ERISA makes it easier for employers offering health benefits to employees, retirees and dependents living in multiple states because the employer only needs to comply with federal ERISA law.

The ACA added additional protections for employees, including coverage of preventive services without cost sharing, a prohibition on pre-existing condition exclusion periods, maximum limits on out-of-pocket costs, and a prohibition on lifetime limits, to name a few. These requirements raise the bar for employee benefits and ensure that employees have equivalent access to comprehensive, quality care, regardless of state of residence.

If DOJ has their way, ERISA requirements would vary by state. This is a fundamental change not only to the ACA, but also to decades-old ERISA regulation, and it would throw regulation of employer health benefits into disarray. Consider an employer based in Texas with employees in California. Do the employees in California retain all of the ACA protections because they are residents of California, leaving an employer based in Texas having to provide those protections to some employees but not others? Or does the employer no longer have to comply with the ACA for any employees, retirees, or their dependents if the health plan is based in Texas? What if all the employees live in Texas, but some dependent children have moved out of state?

The court or the administration would need to decide whether the ACA protections baked into ERISA apply based on where the participants and beneficiaries live, or where the employer health plan is based. If the court aims to only eliminate the ACA protections for residents of the plaintiff states, then the protections would have to apply based on the state of residence of participants and beneficiaries. But this approach completely upends the intent of ERISA, as employers would need to have different health benefit plans depending on where their employees, retirees, and dependents live.

The other option would be to have the protections based on where the employer health plan is based. This makes life easier for employers, but undermines the intent of DOJ’s remedy as people who live and work in plaintiff states would still have ACA-compliant plans if their employer is based in another state, while residents of non-plaintiff states could suddenly find themselves without key ACA protections because their employer plan is based in a plaintiff state. What’s more, because ERISA allows employers in multiple states to base their health plan in any state in which they have a presence, we could witness a “race to the bottom” among employers seeking to set up their health plans in the states without the ACA protections.

This variation strays far from “protect[ing] interstate commerce” and “improving the equitable character” of health plans, which Congress envisioned when it implemented ERISA.

DOJ Forgets that Many Other ACA Provisions Are Not State-Based

Striking down the ACA in eighteen states, while preserving it in thirty-two others is also impractical because many of the ACA’s largest initiatives are not state-based; rather, they are national reforms that span across the healthcare industry. For example, the Biologics Price Competition and Innovation Act (BPCIA), which is included in the ACA, creates a regulatory pathway for biosimilars (i.e., biological products that are “highly similar” or “interchangeable” with a previously approved FDA product). If the ACA is struck down in the eighteen plaintiff states, would this regulatory pathway “cease to exist”? Would biosimilar applications only be allowed from the thirty-two other states? The ACA also phased in coverage adjustments to Medicare Part D’s “donut hole” to reduce enrollees’ out-of-pocket spending and close the coverage gap. Under DOJ’s remedy, will beneficiaries in the eighteen plaintiff states still be subject to higher spending? What happens if a beneficiary moves to a plaintiff state mid-year? These and other national reforms, including changes to provider payments, industry taxes, quality initiatives, and more, were never designed to stop at a state’s border. Implementing them in some states but not others would create unprecedented confusion and insurmountable operational problems at national and local levels.

Take Away: It is unclear whether DOJ understands the full scope and impact of its proposed remedy. When pressed on the uncertainty in oral arguments, DOJ’s response was: “[A] lot of this stuff would have to get sorted out and it’s complicated.” This glibness is worrisome, given the chaos that would result if the court followed DOJ’s recommendation.

1 Comment

  • Mike says:

    This is arguing for the disunity of the American States, i.e., not the United States. Large companies deal with employees in different countries and having to pay different taxes, provide different benefits, provide different worker protections (e.g., concerning firing etc.) – and I’m sure there are other differences too. But, the concept that the states should be able to do whatever they want – as would independent countries – for things that are truly governed by Federal law (e.g., ERISA, FDA, etc.) is truly mind-boggling, head shaking, and nausea inducing – except for true nihilists, and maybe some Libertarians….

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