On Dec. 14, 2018, a federal judge ruled in Texas v. United States that the entire Affordable Care Act (ACA) is invalid due to the elimination of the individual mandate penalty in 2019. The decision was not stayed, but the White House announced that the ACA will remain in place pending appeal. The Department of Health and Human Services (HHS) also confirmed that it will continue administering and enforcing all aspects of the ACA.
Twenty states filed this lawsuit because of the 2017 tax reform law that eliminates the individual mandate penalty. In 2012, the U.S. Supreme Court upheld the ACA on the basis that the individual mandate is a valid tax. With the penalty’s elimination, the court, in this case, ruled that the ACA is no longer valid under the U.S. Constitution.
The ruling will likely be appealed, and be taken up by the Supreme Court. Thus, a final decision is not expected to be made until then. The federal judge’s ruling left many questions as to the current state of the ACA; however, the White House announced that the ACA will remain in place pending appeal.
Since early 2014, the ACA has imposed an “individual mandate” requiring most individuals to obtain adequate coverage for themselves and their family or pay a penalty. In 2011, many lawsuits were filed challenging the constitutionality of this individual mandate provision.
In 2012, the U.S. Supreme Court upheld the constitutionality of the ACA in its entirety, ruling that Congress acted within its constitutional right when enacting the individual mandate. The Court agreed that, while Congress could not use its power to regulate commerce between states to require individuals to buy health insurance, it could impose a tax penalty using its tax power for individuals who refuse to purchase health insurance.
However, a 2017 tax reform bill, called the Tax Cuts and Jobs Act, reduced the ACA’s individual mandate penalty to zero, effective beginning in 2019. Therefore, beginning in 2019, individuals will no longer be penalized for failing to obtain adequate health insurance coverage.
Texas v. United States
Following the tax reform law’s enactment, twenty Republican-controlled states filed a lawsuit again challenging the ACA’s constitutionality. The plaintiffs, first, argued that the individual mandate could no longer be considered a valid tax since there will no longer be any revenue generated by the provision.
Also, in its 2012 ruling, the Supreme Court indicated (and both parties agreed) that the individual mandate is an essential element of the ACA, and that the remainder of the law could not stand without it. Therefore, the plaintiffs argued that the elimination of the individual mandate penalty rendered the rest of the ACA unconstitutional.
The U.S. Justice Department chose not to defend the ACA in court fully and, instead, 16 Democratic-controlled states intervened to uphold the law.
Federal Court Ruling
In his ruling, Judge Reed O’Connor ultimately agreed with the plaintiffs, determining that the individual mandate can no longer be considered a valid exercise of Congressional tax power.
Per the court, “[u]nder the law as it now stands, the individual mandate no longer ‘triggers a tax’ beginning in 2019.” Thus, the court ruled that “the individual mandate, unmoored from a tax, is unconstitutional.”
Because the court determined that the individual mandate is no longer valid, it now had to decide whether the provision is “severable” from the remainder of the law (meaning whether other portions of the ACA can remain in place or whether the entire law is invalid without the individual mandate).
In determining whether the rest of the law could stand without the individual mandate, the court pointed out that:
“Congress stated three separate times that the individual mandate is essential to the ACA, [and that] the absence of the individual mandate would ‘undercut’ its ‘regulation of the health insurance market.’ Thirteen different times, Congress explained how the individual mandate stood as the keystone of the ACA … [and,] ‘together with the other provisions’ [the individual mandate] allowed the ACA to function as Congress intended.”
Thus, the court determined that the individual mandate could not be severed, making the ACA invalid in its entirety.
Impact of the Federal Court Ruling
Judge O’Conner’s ruling left many questions as to the current state of the ACA because it did not order for anything to be done or stay the ruling pending appeal. However, this ruling is expected to be appealed, and the White House announced that the ACA will remain in place until a final decision is made. On Dec. 17, 2018, HHS also confirmed that it will continue administering and enforcing all aspects of the ACA.
While the appeals are pending, the current ACA provisions will continue to be enforced. Although the individual mandate penalty will be reduced to zero beginning in 2019, employers and individuals must continue to comply with all other applicable requirements.
This ruling does not impact the 2019 Exchange enrollment, the ACA’s employer shared responsibility (pay or play) penalties and related reporting requirements, or any other applicable ACA requirement.
This ACA Compliance Bulletin is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.