Affordable Care Act Held Unconstitutional – What’s Next?

By Charles M. Russman / Dec 18, 2018

On Friday, December 14, 2018, a federal district court in Texas ruled the Patient Protection and Affordable Care Act (ACA) is unconstitutional. The immediate impact of the ruling will be limited, as the district court could not stop enforcement outside its district.  Accordingly, all of the ACA’s mandates and requirements for 2019 remain in effect. However, long term changes could be significant for many.

More information about the ruling’s potential impact is provided in this article. We will continue to keep you informed as the legal issues surrounding the ACA continue to develop.

If the Supreme Court already held the ACA is constitutional, did the Supreme Court get overruled?

This is the question many are asking. The Supreme Court’s decision in National Federation of Independent Businesses v. Sebelius, which held the ACA constitutional in 2012 was not overruled. Actually, the district court heavily relied on the Supreme Court’s decision and reasoning in deciding Friday’s case. Specifics about the district court’s reasoning are below.

What changed since the Supreme Court decision to produce a new result?

The change that led to the lawsuit was in the Tax Cuts and Jobs Act of 2017 (Tax Cuts Act). As part of the Tax Cuts Act, the ACA’s individual mandate penalty was reduced to $0, effective January 1, 2019. Before the Tax Cuts Act, the penalty for individuals who did not have health insurance coverage was either (1) $695 for individuals or $2,085 for families or (2) 2.5% of household income over the reporting threshold, whichever is greater. The Tax Cuts Act did not repeal the mandate to obtain coverage, just the monetary penalty for not having obtained coverage.

Why does removing the penalty matter when there is still a mandate to obtain coverage?

Under the Supreme Court’s decision, the penalty was essential to the mandate and ACA being constitutional. The Supreme Court held that because there was a penalty in the form of a tax, it fell within Congress’s taxing power and therefore the mandate was constitutional. With the penalty eliminated, the district court held the mandate is no longer within Congress’s taxing power since no tax is imposed.

If just the individual mandate is unconstitutional, why was the rest of the ACA also held unconstitutional?

This is a question many are asking and it goes back to the Congressional Record and the Supreme Court decision. Under both, the mandate was stated as being essential. Some laws are severable (like some contracts) and the legal or constitutional portions can remain in effect, the district court held that based on the Congressional Record, the Supreme Court decision and the ACA on its face, the mandate and its associated penalty was too central and important to allow the rest to remain effective. This came as a surprise to many, especially as the decision goes beyond what the Trump Administration requested. The Trump Administration was seeking that the mandate and associated provisions be held unconstitutional. While this was achieved, the decision was far broader than striking down just a limited number of provisions within the ACA.

Do businesses and individuals need to continue complying with the ACA?

For now, the answer for both is, yes. The government has stated that the decision will almost certainly be appealed and until the appeals are resolved, likely in the Supreme Court, the law will be treated as remaining in effect.

For Businesses: Businesses subject to ACA requirements should continue to follow its requirements. This includes providing coverage compliant with ACA if you have 50 or more full-time equivalent employees and filing Forms 1094 and 1095. Failing to comply with the ACA could expose a business to significant litigation, financial and regulatory compliance risk.

For Individuals:  The mandate to obtain coverage remains in effect as do the penalties that apply for failing to have coverage in 2018. For individuals who were on the marketplaces or exchanges, that coverage appears to remain in effect. Those who enrolled under the marketplaces or exchanges for coverage in 2019 will likely have that coverage and pricing honored.

Is the government still going to enforce the ACA?

It appears so, yes. On his first day in office, President Trump issued an executive order to reduce the economic and other burdens of the ACA and has repeatedly stated the law was a bad idea and unconstitutional. However, the penalties and requirements for previous years are continuing to be enforced and the government has indicated that pending appeal, the law will be treated as continuing to be in effect.

What will happen next with the case and ACA?

The lawsuit was filed by several states with Republican leaning governments and defended by several states with Democratic leaning governments. The states who were defending the lawsuit (and who lost at the district court level) have stated they intend to appeal. It is also unclear how changes in governors and attorneys general in several states will impact the lawsuit. While the states on each side of the lawsuit may change, the lawsuit will almost certainly be appealed, probably ending at the Supreme Court.

Congress may also act. As several Democrats and Republicans have indicated, this is an opportunity for Congress to take action, although there is likely to be disagreement on what that action should or will be. Democrats appear to want to fix the current ACA. Some Republicans have indicated this is a great opportunity for a new fix for health care in the United States. What, if anything, will be done will depend on whether a Democratic House of Representatives and a Republican Senate and President can come to agreement on a solution.

If you have questions or would like more information, please contact any member of our employee benefits group.