The Future of the Affordable Care Act (ACA) – Part 2
On Friday, December 14, 2018, a federal judge in the Texas US District Court reached a final decision declaring the entire Affordable Care Act (ACA) unconstitutional. My June article, The Future of the Affordable Care Act (ACA), discusses the background of the lawsuit brought by 20 states and two individuals (plaintiffs) seeking judgement that the individual mandate, along with the guaranteed issue and community rating provisions, are unconstitutional.
Understanding the New Ruling
The judge’s rule focuses on the fact that Congress’ intention in drafting and implementing the ACA is to make sure nearly all citizens have affordable health insurance coverage that adequately covers their medical expenses regardless of pre-existing conditions.
The basis for the judge’s rule centers on three areas:
- the plaintiffs having standing to sue;
- a determination of whether the individual mandate, in light of the penalty change to $0, still constitutes a tax; and if so,
- whether the individual mandate is severable from the rest of the ACA
In 2012, the Supreme Court of the United States (SCOTUS) held that the individual mandate was unconstitutional under the Interstate Commerce Clause because the federal government cannot force people to purchase health insurance.
However, Congress does have the power to tax and since the penalty for failure to maintain minimum essential coverage results in a tax, the individual mandate is constitutional. Confirmation is apparent based on the facts that the payments are not so high that individuals have no choice and Treasury receives the payments directly. Further, family income determines the payment amounts and these payments produce revenue for the government.
Standing to Sue
In the ruling, the Judge describes the criteria necessary to achieve standing to sue. The plaintiffs must show that they suffered an injury that is traceable to the issue or conduct of the defendant, here the ACA, and that if the ruling is in their favor, it will “fix” the issue.
Here, the claim is that the individual mandate requires the plaintiffs to purchase and maintain minimum essential coverage. This requirement comes from the ACA. If the Judge were to rule in favor of finding the individual mandate unconstitutional, it would resolve the issue. In other words, the ACA requires individuals to buy insurance or face a penalty so it is their obligation to do so under the ACA law. If that part of the law no longer exists, then they no longer have the requirement to purchase insurance coverage.
Since this case meets all the criteria, the Judge ruled that the plaintiffs have standing to sue.
Determination of Whether the Individual Mandate is a Tax
The Tax Cuts and Jobs Act, signed into law December 2017, reduces the individual shared responsibility payment to $0. With this change, does the original ruling, that it is a tax, apply?
Here the Judge points out that the requirement to maintain minimum essential coverage (MEC) is distinct and separate from the requirement to pay an assessment (penalty) for failure to maintain MEC. The Judge shows that Congress specifically holds them separate since there are exceptions to the penalty for groups of people who do not maintain MEC, e.g., people with religious objections, incarcerated individuals, people participating in health care sharing ministries, etc.
Additionally, the SCOTUS only construes the individual mandate to be constitutional because it is a tax. If there are no payments to Treasury, no assessments based on income, and no revenue to the government, it is not a tax. Therefore, if it is not a tax, then it is merely a mandate that people buy insurance, which is clearly outside Congress’ authority.
The defendants oppose this thought arguing that this is no different from the delays in the health insurance (HIT) tax or the excise “Cadillac” tax. The Judge disagrees stating that delay of a tax and elimination of a tax are two different things. Changing the penalty to $0 required a change to the law. This change eliminates the tax. Any new assessment/penalty amount requires a future change to the law. The Court may only rule on what is now, not what may be in the future.
As a result, the Judge rules that the individual mandate is not a tax. Therefore, the individual mandate is unconstitutional.
Determination of Whether the Individual Mandate is Severable from the Rest of the ACA
In the 2012 SCOTUS ruling, the plaintiffs and defendants agree that the guaranteed issue and community rating provisions of the ACA are inseverable from the individual mandate. The Judge here took a broader view to determine severability.
Specifically, in the absence of verbiage indicating that a provision found unconstitutional not be severable from the law, the Court asks whether by separating the constitution and unconstitutional provisions from each other changes the intent of the law or what can accomplish.
According to the Judge, examples from the 2010 law show, in plain text, that the individual mandate is not separable from the rest of the ACA law. It is, in their words, the linchpin to the ACA and essential to its operation. Even that aside, without the individual mandate, the ACA ceases to operate as intended.
In the absence of a mandate, Congress understood that individuals might forgo the purchase of insurance until they are sick. This would create an unstable marketplace resulting in higher cost and lower participation – both contrary to the intent of the law. The Judge provides numerous citations to verbiage in the law that confirms the significance of the individual mandate and its integral ties to the rest of the ACA.
The shared responsibilities create the interdependencies in the law. Without them, the results will not achieve the goal of the law. Therefore, the Judge finds that the individual mandate is not severable from the ACA.
Where Do We Go From Here?
It is clear that this decision is a significant one, but this is not the end of the road. There will most assuredly be appeals. The first question is who will file the first appeal and whether there may be multiple appeals. Already there are many opinions on whether the decision has long-term merit.
An appeal will go to the US Court of Appeals (Circuit Court). All parties will write their briefs and then the Court will review and hear arguments. If disputes continue, it will most likely move forward to the Supreme Court where submissions, hearings and decisions follow the same protocol. There can also be interim steps if the Court needs more information or there is agreement only on portions of the rule.
The timeline may be long. We certainly will not see any final resolution for a number of months and well into 2019. In the interim, remember that the ACA is still the law of the land. As such, employers, individuals, and carriers must comply with all parts of the law.
Employers should continue business as usual. You will still need to comply with the employer-shared responsibility, i.e., employer mandate, complete and file your ACA employee notifications and reporting timely, and continue to produce the notification and disclosures to your employees as the ACA requires.