On December 14, 2018, Judge Reed O'Connor of the Northern District of Texas ruled that:

(Texas v. Azar, (N.D. Tex. Dec. 14, 2018); 26 U.S.C. § 5000A.)

Judge O'Connor's ruling was issued just prior to the close of 2019 open enrollment under the ACA's health insurance exchanges. Under the ACA's individual mandate, effective beginning in 2014, most individuals were required to either purchase health coverage that provides minimum levels of coverage (referred to as "minimum essential coverage" or "MEC") or make an annual payment (see Practice Note, Affordable Care Act (ACA) Overview: Individual Mandate and Affordable Care Act (ACA) Toolkit).

The Texas litigation resulted from a provision under the Tax Cuts and Jobs Act (TCJA), enacted in December 2017, that reduced to zero the payment for violating the ACA's individual mandate, see:

(Pub. L. No. 115-97 (2017).)

The plaintiffs in this litigation include Republican attorneys general from 19 states, the Governor of Maine, and two individuals who are residents of Texas. In early 2018, the plaintiffs sued the defendants, which included the Secretary of the Department of Health and Human Services (HHS), challenging the individual mandate's constitutionality in light of the TCJA. Specifically, the plaintiffs sought a declaration that the ACA's individual mandate, which the Supreme Court upheld in 2012 as a valid exercise of Congress's taxing power, was no longer constitutional because of the TCJA's amendment to the individual mandate (Nat'l Fed'n of Indep. Businesses v. Sebelius (NFIB), 567 U.S. 519 (2012); see Legal Update, Supreme Court Upholds the ACA's Individual Mandate). (The Supreme Court also concluded in NFIB that the individual mandate could not be upheld under the Commerce Clause.) In addition, the plaintiffs argued that the remainder of the ACA is not severable from the ACA's individual mandate. Several Democratic state attorneys general later intervened in the litigation to defend the ACA (the "intervenor states").

In April 2018, the plaintiffs requested:

The district court's December 14 order denied the plaintiff's request for preliminary injunction but, as discussed below, granted partial summary judgment regarding their individual mandate claim.

The district court first found that the individual plaintiffs had standing to challenge the individual mandate's constitutionality. Judge O'Connor rejected an argument that the individual plaintiffs lacked legitimate financial injury because they could choose not to comply with the individual mandate and, starting in 2019, not be assessed a penalty for doing so. The court reasoned that:

This latter requirement was met, according to the district court, because the individual plaintiffs asserted that the ACA's individual mandate exceeded Congress's power by requiring them to maintain coverage consistent with the ACA's standards. Reasoning that it is only necessary for one plaintiff to have sufficient standing (but not all of them), the district court did not also analyze whether the state plaintiffs' standing was adequate.

Next, the district court addressed the individual mandate's constitutionality in light of the TCJA provision reducing to zero the payment for violating the mandate. The intervenor states argued that the individual mandate could still be read as a tax despite the TCJA because mandate-related payments would be paid to the Treasury for years to come.

The district court found that the individual mandate is:

In reaching this finding, Judge O'Connor relied on the ACA's text as an expression of Congress's intent and subsequent Supreme Court decisions interpreting the ACA. The parties disagreed regarding which Congress's intent controlled for purposes of severability analysis – that of the 2010 Congress (which passed the ACA) or the 2017 Congress (which was responsible for the TCJA). Characterizing this disagreement as a red herring, the district court found that both Congresses manifested an intent that the individual mandate is inseverable from the entire ACA. Under the severability test applied by the district court, unless it is clear that Congress would not have enacted those provisions within its power independently of those provisions that were not in its power, "the invalid part may be dropped if what is left is fully operative as a law."

The district court found that the 2010 Congress expressed a plain intent, as reflected in the ACA's unambiguous text, that the individual mandate not be severed from the ACA. Subsequent Supreme Court decisions supported this finding, according to the district court. The district court believed this intent was also reflected in Congress's passing of the TCJA in 2017. Citing findings from the ACA's text addressing the individual mandate's essentiality to the ACA (42 U.S.C. § 18091), the district court concluded that this text was "teeming with Congress's intent" that the individual mandate is inseverable from the entire ACA. The district court also referenced subsequent Supreme Court decisions (including the 2012 NFIB ruling) recognizing the interrelatedness of the individual mandate and the ACA's:

In the Supreme Court's 2015 ruling upholding the ACA's premium tax credits, the district court observed, all nine justices agreed that these guaranteed-issue and community-rating provisions could not work without the individual mandate (King v. Burwell, 135 S. Ct. 2480 (2015); see Legal Update, Supreme Court Upholds ACA Subsidies).

From here, the district court concluded that the individual mandate was inseverable from the ACA in its entirety. As an example of this interrelatedness, the district court reasoned that excising the individual mandate but leaving the balance of the ACA would make insurers subject to extensive regulatory and tax costs without the benefit of an expanded risk pool and customer base. Though declining to address the individual mandate and every "nook and cranny of the ACA's 900 pages," the district court found that Congress would not possibly have created the ACA's regulatory framework without the individual mandate.

As a result, the district court:

Though Judge O'Connor's ruling puts the ACA's future in question, this isn't the first time we've been in wait-and-see mode regarding the ACA's validity. In all likelihood, the ruling will be reviewed by the Fifth Circuit and, if the ACA's litigation history is any indicator, by the Supreme Court as well. For now, the White House has stated that the ACA remains in place pending the appeal process. As noted in a statement from the Trump Administration's HHS, the district court's ruling is neither an injunction barring enforcement of the ACA nor a final judgment. The government indicated that it would continue administering and enforcing the ACA. For group health plans and insurers, the cautious course is to continue carrying out the ACA's compliance requirements – including, for example, ACA information reporting (see Legal Update, IRS Extends Deadlines for 2018 Individual Statements Under ACA Information Reporting Rules).

For their part, relatedly, the intervenor states asked Judge O'Connor on Monday to clarify that his ruling does not relieve any state, entity, or individual of their rights and obligations under the ACA until the district court proceedings and appellate review in this litigation are complete. Alternatively, the intervenor states requested the district court to enter an order staying any effect of the ruling pending appeal. The states have also asked the district court to take certain procedural steps to clear the way for appellate review of its ruling.