Federal Circuit Court Determines ACA's Individual Mandate is Unconstitutional

The Fifth Circuit Court of Appeals, in Texas v. United States, has upheld a district court ruling that the individual mandate provision of the Affordable Care Act ("ACA") is unconstitutional. However, the Fifth Circuit has sent the case back to the district court for it to reconsider how much of the remainder of the ACA should also be invalidated.

Background.  The ACA's individual mandate requires individuals to obtain minimum essential coverage ("MEC") or pay an assessment under the Internal Revenue Code. In 2017, Congress amended the ACA to reduce the assessment for not obtaining MEC to $0.

In 2018, 20 state attorneys general filed a lawsuit challenging the constitutionality of the ACA. According to them: (i) the Supreme Court, in 2012, had ruled that Congress lacked the constitutional authority to impose the ACA's individual mandate as a legal requirement but could impose the assessment as a tax; (ii) the 2017 Tax Cut and Jobs Act reduced the assessment to $0, making the provision no longer constitutional as a tax; and (iii) without the individual mandate, the rest of the ACA is invalid.

In December 2018, the United States District Court for the Northern District of Texas agreed with this argument and, therefore, ruled that the entire ACA was invalid. A group of 21 attorneys general and the House of Representatives intervened to defend the ACA on appeal to the Fifth Circuit.

Texas v. United States.  Upon reviewing the case, the Fifth Circuit found that when the individual mandate ceased to generate revenue for the U.S. Treasury, it no longer operated as a tax and could no longer be supported as an appropriate exercise of Congressional authority.

However, unlike the district court, the Fifth Circuit did not invalidate all provisions of the ACA. Instead, the Fifth Circuit found that the district court did not adequately consider Congress's intent when it zeroed out the assessment in 2017. It also ruled that the district court did not engage in a sufficiently reasoned analysis of how the ACA's other provisions are impacted by the elimination of the assessment. Accordingly, it remanded the matter to the district court to conduct a more "fine-toothed" review, and to consider the possible limitations on the relief to be provided. (NOTE: According to the Fifth Circuit, these limitations include applying the judgment only in those states that challenged the law and only those provisions of the ACA that actually "injure" the individual plaintiffs in the instant case.)

Employer Takeaway.  The practical effects of the Fifth Circuit's decision in Texas v. United States are minimal. Congress's 2017 amendment to the ACA's individual mandate provisions already eliminated any consequence that may arise from an individual's failure to obtain MEC.   Although the issue has now been remanded to the district court for it to reconsider how the other ACA provisions may be affected, the Supreme Court may intervene in the matter before the district court commences any further review.

The Court''s decision in Texas v. United States is available by clicking here.