December 15, 2018
Late Friday evening a District Court judge in Texas ruled the Individual Mandate provision of the Affordable Care Act (ACA) was unconstitutional. Furthermore, the District Court ruled that the Individual Mandate was inseverable from the rest of the ACA so the District Court struck down the entire ACA. Subsequently, and most importantly for purposes of employer actions moving forward, the White House has stated that the ACA will remain the law of the land while the District Court decision is reviewed by the United States Court of Appeals for the Fifth Circuit and, then most likely, the Supreme Court of the United States. This article provides a brief overview of the decision and provides guidance on how an employer should handle the decision.
The issue in the case was whether Congress’s amendment to the Individual Mandate through the Tax Cuts and Jobs Act of 2017 (TCJA) made the Individual Mandate unconstitutional. One item the TCJA changed regarding the ACA was reducing the Individual Mandate penalty amount (26 U.S.C. section 5000A(b)) to $0 beginning January 1, 2019. Importantly for the purposes of this case, the TCJA did not repeal the Individual Mandate, instead it reduced the Individual Mandate penalty amount to $0.
A collection of Attorneys General in red States along with two individuals sued the United States, the Department of Health and Human Services (HHS), the Secretary of HHS, the IRS, and the Commissioner of the IRS asking the court to rule that the Individual Mandate, as amended by the TCJA, was unconstitutional. Furthermore, the Attorenys General in the red States argued the remainder of the ACA should be struck (meaning every single provision of the ACA) because the ACA was inseverable from the Individual Mandate provision. To add to the procedural beauty of this case, several Attorneys General from blue States intervened as defendants because the Trump administration did not plan to fully oppose the lawsuit. Instead, the Trump administration agreed that the Individual Mandate in light of the TCJA was unconstitutional but did not agree that the Individual Mandate provision should invalidate the entire ACA. The Trump administration took the position that the Individual Mandate was inseverable from the preexisting conditions provision of the ACA as well as the guaranteed-issue and community rating provisions. The Attorneys General from the blue States defended the suit in full and argued that the Individual Mandate was severable from the rest of the ACA.
As to the constitutionality of the Individual Mandate, the District Court reviewed the recent Supreme Court decision of Nat’l Fed’n of Indep. Businesses v. Sebelius (NFIB) which held that the Individual Mandate was constitutional in a splintered 5-4 decision (with Roberts, Ginsburg, Breyer, Sotomayor, and Kagan agreeing) based on Roberts’ deciding vote relying on Congress’s Tax Power. Importantly to the current case, the splintered opinions appeared to have five justices agree (Roberts, Scalia, Kennedy, Thomas, and Alito) that the Individual Mandate could not be held to be constitutional under Congress’s power under the Interstate Commerce Clause.
Next, the District Court examines whether the Individual Mandate is still a constitutional exercise of Congress’s power now that the Individual Mandate penalty is now $0. The District Court summarizes the Supreme Court’s basic criteria in upholding Congress’s ability to create the Individual Mandate under its Tax Power by pointing to the following three criteria: (1) a payment is paid to the Treasury; (2) the payment amount is determined with reference to income; and (3) the payment produces revenue for the Government. Using the NFIB criteria, the District Court comes to the conclusion that the Individual Mandate no longer triggers a tax starting in January 2019. Therefore, it rules the Individual Mandate can no longer be considered constitutional based on Congress’s Tax Power. The District Court judge also struck down the notion that the Individual Mandate after the TCJA could be upheld under the Interstate Commerce Clause pointing to the five Justices appearing to agree on this point in NFIB.
The Court then goes on to examine whether its finding that the Individual Mandate is unconstitutional is severable from the rest of the ACA. This is the far more important question as the Individual Mandate was effectively rendered powerless with the passage of the TCJA. A penalty of $0 does not serve as a deterrent for individuals electing to not be covered by insurance for a month (or longer). Therefore, whether the Individual Mandate is unconstitutional or simply the penalty is $0 makes no difference for the enforcement of the Individual Mandate beginning January 1, 2019. The result is the same, a person will not be penalized for not having insurance for a month.
The District Court states precedent that a court should refrain from invalidating more of a statute than is necessary. Furthermore, the District Court cites precedent that states the invalid part of a law may be dropped if what is left is fully operative law (see Alaska Airlines, Inc. v. Brock 480 U.S. 684). The District Court then cites precedent that the court must examine whether the constitutional provisions severed from the unconstitutional one would remain a fully operative law (see Alaska Airlines, Inc. v. Brock 480 U.S. 684).
After examining the intent of the 2010 Congress that passed the ACA and the 2017 Congress that passed the TCJA along with the previous Supreme Court ACA decisions, the District Court comes to the dramatic conclusion that the unconstitutionality of the Individual Mandate requires the court to invalidate the entire ACA. The District Court relies heavily on the fact of statements made in the ACA that the Individual Mandate was enacted to prevent adverse selection. Moreover, the District Court cites (and perhaps stretches) that all nine Supreme Court justices have agreed that the Individual Mandate is inseverable from the preexisting conditions provision of the ACA as well as the guaranteed-issue and community rating provisions in NFIB and King v. Burwell (another prominent recent ACA Supreme Court decision). The District Court then reasons that Roberts’ and Ginburg’s opinions in NFIB both support the notion that the Individual Mandate is inseverable from the entire ACA.
In making its decision the District Court in Texas decided not to grant injunctive relief to the plaintiffs. This is important as injunctive relief could have invalidated the entire ACA in all 50 States immediately or perhaps more likely in the red States whose Attorneys General joined as plaintiffs in the suit. Instead, the District Court granted summary judgment to the plaintiffs holding that the Individual Mandate as amended by the TCJA is now unconstitutional and that the Individual Mandate is inseverable from the rest of the ACA thus making the entire ACA invalid. Importantly, the summary judgment did not impact the ACA in any of the 50 States and, for now, it remains the law of the land as the District Court decision works its way through the appeals process.
With its decision the Texas District Court achieved something that Republicans have been unable to achieve since the ACA was enacted: a complete repeal of the ACA. There are many reasons Republicans have been unable to repeal the ACA. Chief among them, it is important to remember, the fact that Republicans would need 60 votes in the Senate to change a number of the ACA provisions. While Republicans did have control of the House and the Senate, Republicans have never had 60 Senate seats since the ACA’s inception. This has limited Republicans to the reconciliation rules when crafting ideas to change many of the ACA provisions. A complete repeal of the ACA would require 60 votes. With that as background, it is peculiar that a subsequent Congress could poison one provision of the ACA which in turn would invalidate the entire ACA.
Importantly, the White House has stated the ACA will remain the law of the land while this case works its way through the appellate process. This means that ACA reporting for 2018 will continue on schedule and employers need to be ready to furnish statements to employees by March 4, 2019 and to provide the IRS the Forms 1094-C and 1095-C electronically by April 1, 2019. If you need any assistance filing the Forms 1094-C and 1095-C, please contact us.
About the author – Ryan Moulder serves as General Counsel at Accord Systems, LLC and is a Partner at Health Care Attorneys P.C. Ryan received his LL.M. from Georgetown University Law Center and his J.D. from Saint Louis University School of Law. He has distinguished himself as a leader in the Affordable Care Act arena and has written and spoken on a variety of ACA topics as it relates to compliance for companies.
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