As you may have seen in various media reports on Friday, December 14, 2018, a federal district court in Texas ruled that the entire Affordable Care Act (ACA) was unconstitutional. Does that mean employers can stop working on their 2018 1094C/1095C reports, ignore employer-shared responsibility penalty notices from the IRS, and start kicking adult children and individuals with pre-existing health conditions off their health plans? Not just yet.
The origins of this story go back to 2012. That year, the U.S. Supreme Court ruled that the individual mandate — the part of the ACA that requires most Americans to maintain health insurance or pay a tax penalty — was not a valid exercise of Congress’ power to regulate interstate commerce, but it was a valid exercise of Congress’ taxing authority, and thus, upheld the law.
Fast forward to 2017. Republican members of Congress were looking to repeal some or all of the ACA but didn’t have the votes to pass a repeal through the Senate. However, they did have the votes to pass a budget bill which would allow them to readjust the amount of the individual mandate tax penalty. As part of the tax reform bill passed at the end of 2017, Congress set the amount of the individual mandate penalty at $0 starting in 2019. Technically, the individual mandate still exists — there just will be no tax penalty if you failed to maintain health insurance coverage starting in 2019.
This amendment led a group of states to file a new lawsuit claiming that this change to the individual mandate made the law unconstitutional. Remember that the Supreme Court said the individual mandate was only valid as an exercise of Congress’ taxing power — since there was now no revenue attached to the mandate, the district court judge ruled that the individual mandate was no longer a tax and was thus unconstitutional.
The judge then went one step further. Normally, if a court declares one part of a law unconstitutional, the rest of the law is upheld — this is called severability. However, if the judge concludes that Congress would not have passed the law at all without the portion deemed unconstitutional, then the entire law must be struck down. The judge in this case concluded that the individual mandate was such an integral part of the ACA that without it the entire law had to go — everything from Medicaid expansion, and protections for pre-existing conditions, to the ban on annual and lifetime limits, the employer shared responsibility penalty, and preventive care requirements, etc.
The district court judge did not issue an injunction banning the enforcement of the ACA as part of his ruling. For now the law remains enforceable by individual lawsuits, state insurance commissioners, and potentially even the federal government. Moreover, an appeal seems inevitable, with a decent chance the Supreme Court will revisit the issue, meaning the case could go on for several more years. Given the far-reaching implications of the judge’s ruling, it seems highly likely the decision will be stayed until the appeal process is completed. Employers should continue to operate as though the ACA is intact (and yes, unfortunately, that means finishing up your 2018 1094C/1095Cs).
What about the long term? That’s anyone’s guess. There’s certainly no guarantee the judge’s decision will be upheld on appeal — the portion of the opinion addressing severability in particular has come under heavy criticism by many legal scholars. But let’s assume the appeals courts agree and the entire ACA is struck down. The ACA is so big and impacts so many aspects of the insurance market, it’s hard to predict exactly how the market would change if the whole thing suddenly went away.
From an employer’s perspective, getting rid of the employer shared responsibility penalty and its associated reporting would certainly be a boon. But are employers really prepared to stop covering adult children or re-impose exclusions for pre-existing conditions— both extremely popular provisions of the law? Or will employers even have a choice if the insurance companies decide to either maintain or eliminate the “no-longer-mandates” on their own? Also keep in mind that, in many cases, the ACA mandates were incorporated into state insurance laws so that even if the ACA itself is gone, state laws may remain for fully-insured health plans.
Best we can say for now is … stay tuned. Please contact us with your ACA questions.
David works with clients and consultants on a wide range of HR compliance and strategic issues with a particular focus on healthcare reform. He has previously practiced law in private practice and worked in the Minnesota court system.
David works with our clients and consultants on a wide range of HR compliance and strategic issues with a particular focus on healthcare reform. He has previously practiced law in private practice and worked in the Minnesota court system. David has a law degree, magna cum laude, from the University of Minnesota, received his undergrad from Gustavus Adolphus College and is a member of the Society of Human Resources Managers (SHRM).
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