Should Health Insurers Be Allowed To Decline Policies Based on Pre-Existing Conditions Again?


On February 26, 2018, Texas1 filed a complaint for declaratory and injunctive relief against the United States, the U.S. Department of Health and Human Services, and the U.S. Internal Revenue Service alleging that the Patient Protection and Affordable Care Act (a/k/a the Affordable Care Act or Obamacare) was unconstitutional. Six years earlier, in National Federation of Independent Business v. Sebelius, the U.S. Supreme Court upheld the individual mandate in the Affordable Care Act, which “require[d] most Americans to maintain ‘minimum essential’ health insurance coverage,” as a valid exercise of Congressional power under the Taxing Clause. The plaintiffs now argue that since Congress passed and President Trump signed into law the Tax Cuts and Jobs Act of 2017, which eliminated the tax penalty of the Affordable Care Act, the individual mandate is no longer a valid exercise of Congressional power under the Taxing Clause since removal of the tax penalty disconnects the individual mandate from the collection of taxes.

Plaintiffs further argued that without the individual mandate, the rest of the Affordable Care Act must fall since the individual mandate underpins the guaranteed-issue and community-rating requirements of the Affordable Care Act. The guaranteed-issue requirement prohibits health plans from denying coverage to applicants with pre-existing conditions. The community-rating requirement prohibits health insurers from charging higher premiums to persons with pre-existing conditions.

Last week, the Federal Defendants filed a Memorandum in Response to the Application for Preliminary Injunction. The defendants agreed with the plaintiffs that individual mandate would be unconstitutional without the accompanying tax. However, defendants argued that a preliminary injunction was not warranted because the tax penalty remains in effect until 2019, accordingly the individual mandate was still constitutional until then. The federal defendants also conceded that the guarantee-issue and community-rating requirements should also be struck down beginning on January 1, 2019 since they cannot be severed from the individual mandate.

The United States contended in NFIB that “Congress’s findings establish that the guaranteed-issue and community-rating provisions are inseverable from the minimum coverage provision.” Br. for Resp. (Severability) at 45, NFIB, No. 11- 393. And the Supreme Court has since essentially agreed, noting that these “three reforms are closely intertwined” and that “Congress found that the guaranteed issue and community rating requirements would not work without the coverage requirement.” King v. Burwell, 135 S. Ct. 2480, 2487 (2015).

That finding, set forth at 42 U.S.C. § 18091(2)(I), specifically and expressly explains why Congress believed that the individual mandate requirement is “essential” to the operation of the guaranteed -issue and community -rating provisions. Namely, “i f there were no requirement, many individuals would wait to purchase health insurance until they needed care.” Id. But “[b] y significantly increasing health insurance coverage,” the mandate, “together with the other provisions of this Act, will minimize this adverse selection and broaden the health insurance risk pool to include healthy individuals, which will lower health insurance premiums.” Id. Accordingly, the individual mandate “ is essential to creating effective health insurance markets in which improved health insurance products that are guaranteed issue and do not exclude coverage of pre -existing conditions can be sold.” Id. In short, Congress found that enforcing guaranteed – issue and community-rating requirements without an individual mandate would allow individuals to game the system by waiting until they were sick to purchase health insurance, thereby increasing the price of insurance for everyone else—the polar opposite of what Congress sought in enacting the ACA.

Indeed, Congress’s conclusions regarding the linkage between the individual mandate, guaranteed-issue, and community-rating requirements were agreed upon by all of the Justices in NFIB. See 567 U.S. at 548 ( opinion of Roberts, C.J.) (“The guaranteed -issue and community – rating reforms… exacerbate” the “problem” of “healthy individuals who choose not to purchase insurance to cover potential health care needs,” and “threaten to impose massive new costs on insurers [.]… The individual mandate was Congress’s solution to these problems.”); id. at 597–98 (Ginsburg, J., concurring in part and dissenting in part) (“[T]hese two provisions, Congress comprehended, could not work effectively unless individuals were given a powerful incentive to obtain insurance…. [G]uaranteed- issue and community-rating laws alone will not work.”); id. at 695–96 (joint dissent) (“Insurance companies bear new costs imposed by a collection of insurance regulations and taxes, including ‘guaranteed issue’ and ‘community rating’ requirements… but the insurers benefit from the new, healthy purchasers who are forced by the Individual Mandate to buy the insurers’ product.”).

Several states2 have intervened to defend the Affordable Care Act in this lawsuit. These states contend that the minimum coverage requirement remains a constitutionally valid exercise of Congress’s taxing power, and that the rest of provisions of the Affordable Care Acts are severable from the minimum coverage requirement if the court finds the requirement to be unconstitutional. How the court rules in this case may determine whether medical underwriting and exemptions for pre-existing conditions will return to the health insurance market.

1 The other plaintiffs are Wisconsin, Alabama, Arkansas, Arizona, Florida, Georgia, Indiana, Kansas, Louisiana, Maine Governor Paul LePage, Missouri, Nebraska, North Dakota, South Carolina, South Dakota, Tennessee, Utah and West Virginia.

2 The intervenor-defendants include California, Connecticut, District of Columbia, Delaware, Hawaii, Illinois, Kentucky, Massachusetts, Minnesota, New Jersey, New York, North Carolina, Oregon, Rhode Island, Vermont, Virginia and Washington.