Last month, a federal district court in Texas ruled that the Affordable Care Act (ACA) was unconstitutional and invalid. The judge held that the individual mandate in ACA was beyond the constitutional authority of Congress and could not be separated from the rest of the ACA, so therefore the ACA in its entirety was invalid.1 This post discusses the procedural history of the ACA and the implications for employers considering the most recent court decision.
The ACA became law in March of 2010. It requires that all individuals maintain a health insurance plan (the “individual mandate”). The law also imposed a financial penalty on all individuals who failed to maintain the required health insurance coverage. In 2012, the Supreme Court held that Congress acted within its constitutionally protected tax power when it created the individual mandate and assessed a penalty for failure to comply.2 Then in December of 2017, through the Tax Cut & Jobs Act, Congress reduced the tax penalty to zero, effective January 1, 2019. The legal consequences of that tax penalty reduction are what is at issue now.
In February of 2018, two governors and 18 Republican states’ attorney generals filed a lawsuit challenging the constitutional authority of the individual mandate. They argued that because the tax penalty was reduced to zero, that the individual mandate in the ACA could no longer be justified through Congress’ tax power in the constitution. The plaintiffs reasoned that there was now no constitutional authority to justify the individual mandate imposed by the ACA. Also, the plaintiffs argued that the individual mandate could not be separated from the rest of the ACA, so if the individual mandate was unconstitutional, so was the ACA in its entirety.
The United States Department of Justice (US DOJ) chose not to defend the ACA and agreed with the petitioners that the individual mandate is unconstitutional. However, the US DOJ also argued that some—not all—of the ACA should be struck down.
State attorney generals from 16 other states and the District of Colombia intervened to preserve the ACA. Defendants argued that the individual mandate is constitutional and even if it is not, it can be severed from the rest of the ACA, to preserve the rest of the law. Defendants also argued that the individuals who brought the suit (not the state officials) did not have standing because they have not suffered an injury that can be traced to ACA or that would be fixed by a court decision on this case.
The district court judge sided with the plaintiffs and held three things. First, the individuals who brought the lawsuit do have standing to challenge the ACA’s individual mandate because they must “comply with the Individual Mandate” and are “subject to an increased regulatory burden.” Second, the court determined that effective in 2019, the individual mandate is no longer a valid exercise of Congressional taxing power. When the penalty was eliminated by Congress, so were the constitutional grounds for the individual mandate. Third, the judge held that the individual mandate cannot be severed from the rest of the ACA, because it’s an essential feature of the ACA and rewriting law is not a function of the court. Therefore, since the unconstitutional part of the law cannot be separated from the ACA, the ACA in its entirety is unconstitutional.
4 Takeaways for Employers
As lawsuits continue, the only thing known for sure regarding the future of ACA is that the future is uncertain. That said, here are four things employers should know:
1. There is no immediate impact on healthcare coverage. The judge denied the plaintiffs’ request for an injunction to stop the enforcement of the ACA, so the program will carry on as usual while the case makes its way through the legal system.
2. The fight over the constitutional authority of the individual mandate and ACA is far from over. A spokesperson for the defendants has already said they will appeal the ruling to the Fifth Circuit.
3. It could be months or even years before anything is settled legally, especially if the case makes it all the way to the Supreme Court which is a possibility. And in the meantime, there is other ACA litigation.
4. Assuming defendants seek a stay of the ruling while it is appealed, and the request is granted by the court, employers will continue to be subject to the ACA and have a duty to comply with shared responsibility requirements of the law, including 1094 and 1095 reporting.
The ACA is one of the most controversial laws in recent history, and it’s no surprise why—this law impacts everyone, and many believe it is deeply flawed. Whether you are an American citizen required to have healthcare insurance or an employer required to comply with federal insurance coverage for employees, the outcome of this case affects all of us. If you have questions about how future developments in this case affect your organization, be sure to consult with legal counsel.