Employers should continue to act in accordance with all of the ACA’s requirements–including, but not limited to, issues such as the offering of coverage to full-time employees and the annual reporting obligations.

On December 14, 2018, in Texas v. United States, a federal judge in the Northern District of Texas ruled the entirety of the Patient Protection and Affordable Care Act (ACA) to be unconstitutional due to the elimination of the individual mandate in last year’s Tax Cuts and Jobs Act (Tax Act). The court ruled that the individual mandate was such an essential provision of the ACA that rewriting the ACA without it is beyond the power of a federal court and that the individual mandate is inseverable from the ACA’s remaining provisions.

The court’s decision sent shockwaves through the legal community and news outlets—particularly as the ACA’s annual enrollment period for 2019 was set to end on December 15, 2018. However, while the decision of the court should not be understated, it will be appealed to the U.S. Court of Appeals for the Fifth Circuit (and almost certainly after that to the U.S. Supreme Court) and the ACA remains in place during the appeals process.

Background

The ACA became law on March 23, 2010, and has been the subject of numerous lawsuits regarding its constitutionality. At the center of those debates was the individual mandate, the requirement that individuals obtain medical coverage or face a tax penalty.

The constitutionality of the individual mandate was addressed by the Supreme Court in 2012 in National Federation of Independent Businesses v. Sebelius. The Supreme Court held that the individual mandate was within Congress’ tax power—“The Federal Government does have the power to impose a tax on those without health insurance. Section 5000A is therefore constitutional, because it can reasonably be read as tax.”

The Tax Act became law on December 22, 2017. Among other changes, the Tax Act reduced the ACA’s individual mandate penalty to zero, effective January 1, 2019. No other action was taken pertaining to the ACA due to the Congress’ use of the budget reconciliation process to pass the Tax Act.

Texas v. United States

In Texas v. United States, the plaintiffs (made up of 19 states, the governor of Maine and two individuals) sued the federal government seeking a declaration that the individual mandate, as amended by the Tax Act, is unconstitutional and that the remainder of the ACA is inseverable. The theory being that because the Tax Act eliminated the individual mandate tax payment, the tax-based analysis of the Supreme Court in 2012 no longer applies. In addition to the federal government, 16 states (plus the District of Columbia) joined the case as a group of intervenor defendants.

The court found the individual mandate is no longer fairly readable as an exercise of Congress’ tax power (due to the Tax Act’s reduction of the tax penalty to zero). Therefore, the individual mandate was found to be unconstitutional. The court then turned to the question of whether the individual mandate is severable from the rest of the ACA—or whether the entire ACA is unconstitutional due to the removal of the individual mandate.

The court believes that Congress made the issue clear in 2010 when it stated: “The [individual mandate] requirement is an essential part of this larger regulation of economic activity, and the absence of the requirement would undercut Federal regulation of the health insurance market.” In other words, “The requirement is essential to creating effective health insurance markets in which improved health insurance products that are guaranteed issue and do not exclude coverage of pre-existing conditions can be sold.”

Finding these statements of Congress to be unambiguous, the court ruled the individual mandate to be inseperable from the act to which it is essential. The court believed that to find otherwise would be to introduce an entirely new regulatory scheme never intended by Congress or signed by the president—something that the court cannot do.

Next Steps for Employers

While the court’s decision is no doubt significant, it must be emphasized that the ACA will remain in place during the upcoming appeals process. White House press secretary Sarah Sanders stated: “We expect this ruling will be appealed to the Supreme Court. Pending the appeal process, the law remains in place.” It should be noted that the Trump administration will not be the party appealing the court’s decision (as a hallmark of President Trump’s campaign was to repeal the ACA); rather, it will be the group of intervenor defendants that joined the case.

Therefore, employers should not act as if the ACA has been eliminated as a result of the court’s decision. The outcome of the ultimate Supreme Court decision is unknown and may or may not uphold the district court’s decision. Employers should continue to act in accordance with all of the ACA’s requirements―including, but not limited to, issues such as the offering of coverage to full-time employees and the annual reporting obligations.

Following the court’s decision, President Trump immediately called for Republicans and Democrats to work together to create a new healthcare law that protects pre-existing conditions. We expect those discussions and debates to begin in early 2019. Duane Morris attorneys in the Employee Benefits and Executive Compensation group will continue to monitor these issues and provide updates on any progress in the House or Senate.

For Further Information

If you have any questions about this Alert, please contact any of the attorneys in our Employee Benefits and Executive Compensation Practice Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.