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Federal Court Rules Affordable Care Act Unconstitutional

On Behalf of | Dec 19, 2018 |

A federal district court, in the Northern District of Texas, has ruled, in Children’s Hospital Association of Texas v. Azar et. al., that the individual mandate provision contained in the Affordable Care Act (“ACA”) is unconstitutional. Furthermore, the court ruled that the individual mandate was inseverable from the ACA and, therefore, the entire law is invalid.

Background. After the ACA’s passage in 2010, several parties challenged the law’s constitutionality on several levels, including the ability of Congress to regulate insurance under the Constitution’s Commerce Clause. In 2012, the Supreme Court concluded that the individual mandate, which requires almost all Americans to have health insurance or pay a tax, was within Congress’s taxing powers and therefore within its constitutional power.

In 2017, Congress passed the Tax Cuts and Jobs Act of 2017, which reduced to zero the tax penalty associated with the individual mandate. Earlier this year, 18 state attorneys general, two governors and two individual plaintiffs filed a lawsuit asserting that Congress’s elimination of the ACA’s individual mandate tax penalty rendered the individual mandate unconstitutional because it could no longer be viewed as an exercise of Congress’s taxing power. The plaintiffs next asserted that the remainder of the ACA’s provisions are also invalid because they cannot exist without the individual mandate.

Court Ruling. The federal district court ruled in favor of the plaintiffs, finding the individual mandate unconstitutional because the constitutional source for Congress’s enactment of the ACA ( i.e., its taxing powers) no longer existed because the individual mandate tax penalty was eliminated.

The court next determined that the mandate was inseverable from the rest of the ACA and that the remainder of the law’s provisions could not exist without it. Accordingly, the court concluded that the entire ACA was invalid. In reaching this determination, the court rejected the defendants’ argument that Congress effectively repealed the mandate and chose not to repeal any other provisions, thereby making the choice to leave the rest of the ACA in place without the mandate.

Impact of Decision. The case will now proceed through various levels of appeal, which will likely postpone any tangible impact for the immediate future. Moreover, the Trump administration has stated that the court’s decision on the matter would not affect coverage for 2019.

The court’s ruling covers the entire ACA, including provisions usually considered unrelated to the law’s individual mandate. For example, the ACA contains provisions related to the large employer mandate, provider quality improvement programs, delivery system reforms, Medicaid expansion and various other provisions affecting major segments of the health care industry, all of which would be struck down by the court’s ruling.

Employer Takeaway. The Administration has stated that the ACA will remain the law of the land while the case works its way through the appellate process. As a result, ACA reporting for 2018 will continue on schedule. Therefore, employers must be prepared to furnish the required statements to employees by March 4, 2019, and provide the IRS with Forms 1094-C and 1095-C electronically by April 1, 2019.