In December 2018, Judge Reed O'Connor of the Northern District of Texas ruled that:

(Texas v. US, 340 F. Supp. 3d 579 (N.D. Tex. 2018).)

The district court ruling was appealed to the Fifth Circuit and the district court stayed its ruling pending appeal (see Legal Update, Texas Ruling Invalidating ACA Is Appealed to the Fifth Circuit; US House Moves to Intervene).

On appeal, the Fifth Circuit agreed that the plaintiffs had standing. However, the Fifth Circuit concluded that the individual mandate could no longer be upheld under Congress's taxing power because—without the penalty for noncompliance—the mandate lacked the essential features of a tax (Texas v. US, 945 F.3d 355 (5th Cir. 2019); see Legal Update, Fifth Circuit Affirms Ruling That ACA's Individual Mandate Is Unconstitutional, But Orders Do-Over of District Court's Severability Analysis). On the question of severability, the Fifth Circuit took issue with the depth of the district court's analysis and remanded for further consideration.

The Fifth Circuit denied rehearing en banc, and the intervenor states asked the Supreme Court to review the Fifth Circuit's decision. The Supreme Court granted this request and heard oral arguments in November 2020.

The individual plaintiffs argued that they had suffered a financial injury based on having to make monthly payments to purchase health insurance to satisfy the MEC requirement. But even assuming this "pocketbook injury" met the injury element of standing, the Court concluded that it could not satisfy the traceability requirement. In the majority's view, this was because—with the individual mandate's penalty set to zero—the government could not enforce the penalties against those who failed to comply. In other words, there was no possible government action causally connected to the injury of having to purchase health insurance. Moreover, the Court observed that cases cited by the plaintiffs to support their standing argument all involved a time when the mandate was still enforceable, because its penalty was still in effect.

The majority also reasoned that to find standing for the plaintiffs to challenge the unenforceable individual mandate would essentially allow a federal court to issue an impermissible advisory opinion (without any possibility of judicial relief).

The Supreme Court also held that the state plaintiffs lacked Article III standing. In support of their standing to sue, the state plaintiffs had alleged two financial injuries:

Regarding the alleged indirect injury, the Supreme Court concluded that the state plaintiffs failed to show how these injuries were fairly traceable to unlawful government conduct in enforcing the MEC requirement. The Court observed that standing is generally more difficult to establish where the causal connection between an injury and a challenged action is based on a third party's decision (here, for example, an individual's choice to enroll in Medicaid). The Court reasoned that individuals could decide to enroll in state-operated programs for reasons unrelated to the individual mandate (for example, to receive COVID-19 testing services). In addition, the evidence provided by the state plaintiffs, which included statements from state officials concerning costs of new enrollees in state-run programs and a Congressional Budget Office (CBO) report, was not strong enough to tie the alleged costs to the individual mandate, once its penalty was reduced to zero under the TCJA.

The state plaintiffs' second alleged injury involved the costs related to providing state health plans (which, as the dissent emphasized, could be tens of thousands of dollars per year). These costs included:

(See generally Practice Notes, Information Reporting of Health Insurance Coverage by Large Employers (Section 6056) and ACA Information Reporting: Employee Statements.)

The Court reasoned that the requirements to furnish health coverage information to the IRS and provide related coverage information to individuals are imposed by ACA provisions that operate independently of the individual mandate.

As a result, the Court concluded that the state plaintiffs failed to show a concrete injury that was fairly traceable to the government's conduct in enforcing the individual mandate.

Justice Thomas agreed with the majority that the plaintiffs in this case lack standing. In a concurring opinion, however, he indicated that the Court had erred in its two earlier decisions regarding the ACA. (In addition to NFIB, this refers to King v. Burwell, 576 U.S. 473 (2015); see Legal Update, Supreme Court Upholds ACA Subsidies.) Disagreeing with the dissent, Justice Thomas argued that the majority was right not to consider the plaintiffs' "standing-through-inseverability" theory, as it was not raised in the lower courts or opening briefs before the Court.

In a dissenting opinion, Justice Alito (joined by Justice Gorsuch) criticized the majority for "pull[ing] off an improbable rescue" of the ACA. The dissent would have held that:

As a result, the dissent would have held that the state plaintiffs were entitled to relief from the ACA.