Supreme Court will hear ACA case challenging constitutionality of law

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Trine K. Tsouderos HRI Regulatory Center Leader, PwC US March 06, 2020

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The US Supreme Court granted petitions this week asking it to review an appeals court decision on Texas v. United States, a case filed in 2018 challenging the constitutionality of the Affordable Care Act (ACA), which was passed 10 years ago. Arguments are scheduled for October.

The fate of the ACA, a law with provisions covering vast swaths of the US healthcare system, is at stake. At the heart of the original filing is the ACA’s individual mandate penalty, which was reduced to $0 on Jan. 1, 2019, by the Tax Cuts and Jobs Act of 2017.

The plaintiffs in the case, primarily a group of states led by Texas and joined by the US Department of Justice, argued that the reduction of the penalty to $0 means that the individual mandate is no longer a tax.

And, they argue, that means it is no longer constitutional because in National Federation of Independent Business v. Sebelius, the Supreme Court upheld the constitutionality of the individual mandate under Congress’ taxing power. If it is no longer a tax, it is no longer lawful, the plaintiffs argue, in essence.

The defendants, primarily a group of states led by California, argue that the mandate still exists, the penalty remains zero, and in any case, the rest of the law stands even if the mandate is held to be unlawful.

In December 2018, US District Judge Reed O’Connor held that Congress’ reduction of the  individual mandate penalty to $0 invalidated the entirety of the law, though the ACA remains in place as the ruling is appealed. In December 2019, the 5th US Circuit Court of Appeals held that the ACA’s individual mandate is unconstitutional, but asked the district court to take another look at which parts, if any, could stand.

HRI impact analysis

If the law is eventually struck down, the impacts likely would be vast, affecting most Americans and most of the US health industry.

In 2017, HRI modeled the outcome of repealing the ACA outright amid the ultimately failed Republican campaign to “repeal and replace” the law (please see pages 10-19 of our report). While the 2017 “repeal” model is not an apples-to-apples comparison to the current situation, it can offer some insight into what could happen should the ACA be struck down eventually.

HRI’s “repeal” model estimated that 32 million fewer Americans would have insurance within 10 years, with 23 million fewer people in the nongroup market and 19 million fewer with Medicaid coverage. Meanwhile, 10 million more would have employer-based insurance.

The analysis also found that healthcare providers likely would lose the most of all industry sectors, with insurers a close second and pharmaceutical and life sciences mostly escaping unscathed, with the exception of companies especially dependent on sales to Medicaid beneficiaries. Biosimilar companies also likely would be thrown into a period of uncertainty, as abbreviated pathways for approval of their products were established through the ACA.

HRI’s analysis also found that many of the states that would experience the most dramatic increases in the rate of uninsured residents were those with the highest numbers of deaths from drug overdoses. A spike in the number of uninsured residents would put pressure on state lawmakers—and state budgets—to help uninsured residents struggling with substance abuse.

Some of the Trump administration’s signature healthcare initiatives also would be undermined. A day after the oral arguments, CMS proposed a new model authorized under the ACA for delivering kidney care to Medicare beneficiaries with end-stage renal disease, as President Donald Trump announced an executive order on the same day calling for a re-engineering of the kidney care market. States have won approval for waivers under Section 1332 of the ACA involving creation of reinsurance programs and other policies. All of these initiatives are entangled with the law.

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Trine K. Tsouderos

HRI Regulatory Center Leader, PwC US

Tel: +1 (312) 241 3824

Crystal Yednak

Senior Manager, Health Research Institute, PwC US

Erin McCallister

Senior Manager, Health Research Institute, PwC US

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