Skip to main content

A Review of the Affordable Care Act at 10 Years, Part 1: The Individual Mandate

This post is the first installment in our blog series looking back on the 10-year anniversary of the Affordable Care Act (ACA).  The most controversial of the ACA's reforms has been the individual mandate, which requires that individuals maintain health care coverage that meets certain standards (known as “minimum essential coverage”) or pay a penalty in the form of a tax.  Even as the law was winding itself through the legislative process, the individual mandate received a fair amount of attention outside the typical industry specific publications that cover the minutia of health care reform.  While  there were some critics of the individual mandate who, even prior to enactment, specifically argued the individual mandate was unconstitutional, most of the coverage dealt with a more basic underlying question: was it appropriate for the government to mandate that everyone pay for health insurance? 

The “Three-Legged Stool”

Prior to the ACA, the small group and individual markets (where most small businesses and individuals without coverage through an employer purchased health insurance) were characterized by expensive and low-quality health plans that provided little coverage at very high cost.  The ACA included several mechanisms meant to address this issue, including:

  1. Requirements that everyone buy health insurance (i.e., individual mandate, minimum essential coverage);
  2. Rules that prevent insurers from denying coverage or raising premiums based on preexisting conditions (guaranteed issue); and
  3. Subsidies to make health insurance affordable (i.e., advanced premium tax credits, cost sharing reductions).

These three component were dubbed by the economist Johnathan Gruber, who was one of the principal architects of the ACA, as a “three-legged stool” in a memorandum in August 2010. [10] Gruber’s memorandum argued that the individual mandate was essential to balancing out the market failures that would otherwise result from requiring insurance companies to charge analogous prices to people whether they were sick or healthy.  Without any sort of mechanism requiring individuals to maintain health coverage, he reasoned, many healthy individuals would be less likely to obtain coverage because their individual medical costs in a given year were likely much lower than the premium payments associated with a marketplace plan.  Conversely, sicker individuals with higher medical costs would comprise a disproportionate share of the marketplace, driving up the costs of plans and potentially driving more individuals, and plans, out of the market.  Thus, the individual mandate was akin to one leg of a "three-legged stool," necessary to maintain the functionality of the ACA.

It is unclear to what extent Gruber’s arguments remain true given that the health insurance marketplaces continue to largely function even though the individual mandate penalty was zeroed out by tax legislation in 2017.  While that legislation (discussed further below) did not repeal the individual mandate, it essentially made it toothless.  It will likely be a few more years before there are comprehensive data and studies on what affect this legislation has had on the marketplaces and uninsured rate, the latter which has certainly increased slightly over the last couple of years.  Still, the uninsured rate remains well below pre-ACA levels, and it is unclear how much, if any, of this uptick can be explained by the zeroing out.   The fact that the entire marketplace did not go through a tremendous shock upon the zeroing out of the mandate is reason to question whether the individual mandate was as much of a “stick” as the law’s drafters had hypothesized.

Nonetheless, Gruber’s “three-legged stool” metaphor (which many others inside and outside of the Obama Administration also advanced) was initially meant to serve as an economic justification for the individual mandate provision, not a legal one.  In practice, it has had the unintended consequence of making the entire law more vulnerable by signaling that repealing or striking down the individual mandate would make the entire law inviable.  In essence, critics of the ACA merely needed to kick out one “leg” to make the entire “stool” collapse.  

Individual Mandate at the Supreme Court -- NFIB v. Sebelius

In NFIB v. Sebelius, the Supreme Court agreed to review the constitutionality of the individual mandate and Medicaid expansion (discussed below) provisions of the ACA.[11]  In the event that the Court determined the individual mandate was unconstitutional, it agreed to decide whether the individual mandate was severable, and thus could be stricken without invalidating the rest of the ACA.

The plaintiffs argued that the individual mandate was an unconstitutional exercise of Congress’s powers under the Commerce Clause and Necessary and Proper Clause of the constitution.  The Commerce Clause, the plaintiffs reasoned, only gave Congress the power to regulate existing commerce.  The ACA, on the other hand, mandated that individuals participate in commerce by requiring them to maintain health insurance coverage or pay a penalty.  By allowing the federal government to regulate such non-activity, the ACA was arguably expanding Congress' power to regulate individual activity beyond what the Commerce Clause allowed.

In a 5-4 majority opinion authored by Chief Justice John Roberts, the Court upheld the individual mandate as a constitutional exercise of Congress’ power to levy taxes, relying on an alternative argument for upholding the individual mandate that had been asserted by the government, but which had not been considered in any of the lower court rulings.  Despite the fact that Congress had never identified the individual mandate as a tax, the Court determined that it bore all the essential components of a tax, such as the fact that the Internal Revenue Service (IRS) collected the individual mandate’s penalty payment through its normal tax administration process.  The Court found the tax to be permissible because it complied with the Direct Tax Clause of the Constitution, which requires any direct taxes or capitations be apportioned so that each state pays in proportion to its population.  Because the individual mandate was upheld, the Court did not address the question of whether the individual mandate was severable from the rest of the law.

From Repeal and Replace to California v. Texas 

Congress attempted to repeal the ACA several times in the years immediately following NFIB v. Sebelius.  Because of the 2010 mid-term elections, the Republican Party gained control of the House of Representatives and began to periodically pass bills to repeal the law.  Even after gaining control of the Senate in 2014, however, the Republican-controlled Congress still lacked the votes to overcome then-President Obama’s anticipated veto. That dynamic changed after President Trump’s election in 2016.

During the first year of the Trump Administration, Congress unsuccessfully advanced several proposals to repeal the ACA, the most notable proposal being the American Health Care Act (AHCA).  After essentially abandoning any serious attempt to repeal the law, Congress included a provision in the Tax Cuts and Jobs Act (TCJA) in 2017 to reduce the individual mandate tax penalty to zero dollars beginning with calendar year 2019.  As such, while the individual mandate still existed in law, the IRS could only apply a zero dollar penalty on those who did not have qualifying health coverage.

In February 2018, Texas and several other states sued the federal government to challenge the constitutionality of the individual mandate and entire ACA generally.  The plaintiffs argued that zeroing out the tax penalty without actually repealing the individual mandate provision meant that the mandate was no longer a valid exercise of Congress’ constitutional power to levy taxes.  Since the individual mandate was unconstitutional in its current form, the plaintiffs contended, the entire ACA should be invalidated because the individual mandate was inseverable from the rest of the law.  In December 2018, a federal district court judge in Texas agreed with the challengers and struck down the entirety of the ACA in Texas v. Azar.

Given the Trump Administration’s hostility towards the ACA, the federal government declined to defend the constitutionality of the individual mandate, instead arguing that only the provisions of the ACA protecting people with pre-existing conditions, such as guaranteed issue, should be invalidated along with the individual mandate provision – in essence adopting a modified version of Gruber’s “Three Legged Stool” argument.[12]  In December 2019, the Fifth Circuit Court of Appeals partially affirmed the district court’s ruling with respect to the unconstitutionality of the individual mandate, but remanded the case with respect to severability.  In response, California, an alliance of Democratic states, and the House of Representatives appealed the case to the Supreme Court.  They asked the Court to consider three questions: 1) whether plaintiffs had standing; 2) whether the “zeroed out” individual mandate was now unconstitutional; and 3) if the mandate was found to be unconstitutional, whether it was severable from the rest of the law.  The appellants also asked the Court to expedite the case and rule on it during the current term.  While the Court agreed to hear the case, it rejected the appellants' request for expedited review.

Even prior to the COVID-19 pandemic, it was unclear whether the Court would rule on the case, now captioned California v. Texas, before the presidential election on November 3, 2020. More recent announcements have reduced the likelihood that the case will be decided before then. The case is slated to be heard during the next term beginning in October 2020, and the court granted a request last Thursday, April 2, for an extended briefing schedule.  Under the Court’s typical rules, the briefing schedule would have been due by mid-June; the current schedule would push this date back to late August.  Further, the Court recently postponed oral arguments that were meant to be heard in March and April.  Depending on how or if the Court chooses to reschedule these oral arguments, a decision in Texas may delayed further.

[10] Johnathan Gruber, Center for American Progress, Health Care Reform Is a “Three-Legged Stool” The Costs of Partially Repealing the Affordable Care Act (August 2010).

[11] National Federation of Independent Business (NFIB) v. Sebelius, 567 U.S. 519 (2012).

[12] The Guaranteed Issue provision of the ACA generally requires the guaranteed issuance of health insurance coverage in the individual and group market (small and large) under which insurers that offer coverage in the individual or group market generally must accept all applicants for that coverage in that market.

Subscribe To Viewpoints


Xavier represents clients in the health care and life sciences fields on health care regulatory and fraud and abuse matters. He also handles Medicare and Medicaid reimbursement issues in transactions and business arrangements.