The 5th US Circuit Court of Appeals (5th Circuit) upheld a lower court ruling that strikes down the individual mandate as unconstitutional, but did not decide if any other parts of the Affordable Care Act (ACA) must fall (Texas v. United States (5th Cir. Dec. 18, 2019). The case will go back to the US District Court for Northern Texas for additional analysis, likely will be subject to additional appeals, and could eventually reach the US Supreme Court. Democrats — many of whom successfully ran on protecting the ACA in the 2018 elections — are likely to make healthcare part of their platforms during the 2020 elections. Employers will need to follow this case as it winds its way through the courts, but stay the course with regard to ACA compliance.
The case arose shortly after Congress failed to repeal and replace the ACA, but enacted 2017 tax reforms that cut the individual-mandate penalty to $0 starting in 2019. Texas and other Republican-led states and two private citizens sued, arguing the individual mandate is unconstitutional if it no longer imposes any tax, and further argued that because the individual mandate is integral to the ACA, if it’s unconstitutional then the entire law must fall. The Supreme Court had upheld the constitutionality of the ACA's individual mandate in 2012 based on Congress’ power to tax (National Federation of Independent Business v, Sebelius (567 US 519)).
The lower court sided with the GOP states, ruling that if the individual mandate’s penalty is $0, the mandate is unconstitutional (Texas v. United States (N.D. Tex. Dec. 14, 2018)). The court also agreed with the GOP states holding that the mandate can't be severed from the rest of the ACA, and thus the entire ACA is invalid. The judge stayed the ruling pending appeal.
The US Department of Justice (DOJ) originally declined to defend the case, then argued in the lower court that only certain parts of the ACA should be struck (like the ban on pre-existing condition exclusions). On appeal, it argued that the entire ACA should fall but only in states that brought the case.
The 5th Circuit upheld the lower court’s ruling that the individual mandate is no longer constitutional because it is no longer a tax, but asked for more analysis on “severability” and on arguments made by the DOJ on appeal. Severability is a legal concept that allows a court to declare a single provision within a larger piece of legislation invalid without striking related provisions. The 5th Circuit said that the severability analysis in the district court opinion is incomplete in two ways and needs to be reviewed again by the lower court. First, the lower court opinion gives relatively little attention to the intent of the 2017 Congress, which unlike the 2010 Congress, was able to observe the ACA’s actual implementation before reducing the individual mandate to $0; but not making other changes. Second, the district court opinion does not do the necessary legwork of parsing through the 900-plus pages of the post-2017 ACA, to explain how particular segments are inextricably linked to the individual mandate.
The appellate court also wants the lower court to consider the DOJ’s arguments on appeal — that relief in this case should be tailored to enjoin enforcement of only those provisions that cause injury to the plaintiffs, or declare the entire ACA unconstitutional in the plaintiff states and as it relates to the two private citizen plaintiffs.
A number of different things could happen procedurally as a result of this decision. The case could go back to the district court as directed by the appellate court; the parties could ask for a rehearing en banc (before the entire 5th Circuit Court of Appeals); or the Supreme Court could get involved. The Attorney General of California, one of the intervening states defending the ACA in this lawsuit, announced his intention to appeal the 5th Circuit’s decision to the Supreme Court soon. Whatever happens, it will take some time for this litigation to play out.
Though the 5th Circuit found the individual mandate unconstitutional, there is no immediate impact on employers or their employees because Congress already reduced the penalty for those without health insurance coverage to $0. The more important question continues to be whether the courts conclude that other ACA provisions — or all of the ACA — are integral to the individual mandate and thus must also be invalidated. The Supreme Court will likely have the final say. For now, employers should continue to comply with all aspects of the ACA, including the employer shared-responsibility requirements, IRS assessments and related reporting obligations. Employers should monitor further developments in the courts and in Congress.
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