Keenan Blog

Has the ACA Really Been Ruled Unconstitutional?

February 27, 2019

On December 14, 2018, a Texas federal court declared the Affordable Care Act (ACA) unconstitutional. An appeal has been filed and the case may eventually make it to the United States Supreme Court. The decision by Judge Reed O’Connor is highly controversial. Although the case may ultimately end up before the United States Supreme Court, it will take time for the case to make its way through the courts.In the meantime, the ACA remains in effect. Employers should continue administering their plans in full compliance with existing law, including complying with the reporting under Internal Revenue Code sections 6055 and 6056 that is due in the next few days and weeks.

The Case

Last year, twenty Republican state attorneys general and governors filed suit in a Texas federal court challenging the constitutionality of the ACA. They argue the ACA in its entirety is no longer constitutional because Congress eliminated the Individual Mandate penalty in the Tax Cuts and Jobs Act of 2017. Back in 2012, the United States Supreme Court upheld the constitutionality of the Individual Mandate as a tax. These states now argue that since Congress eliminated the penalty beginning in 2019, the mandate is no longer enforceable as a tax and since the ACA relies on the mandate, the ACA is unconstitutional without it.

The Department of Justice (DOJ), which normally defends laws duly passed by Congress, declined to defend the ACA. Instead, they agree with the plaintiffs but argue only the guaranteed issue, community rating and preexisting condition exclusion provisions of the ACA should be invalidated. With the DOJ refusing to defend the law, California and sixteen other Democratic attorneys general intervened to defend the ACA in court.

In the decision issued on December 14th, Judge O’Connor agreed with the plaintiffs. First, he ruled the Individual Mandate penalty is no longer enforceable as a tax and is unconstitutional. Next, he concluded the Individual Mandate is “essential” to the ACA but inseverable from it. As a result, he declared the entirety of the ACA unconstitutional. He reaffirmed this decision in late December when issuing a stay and partial final judgment. This allowed the case to be appealed immediately.

The Appeal

In January 2019, the DOJ and seventeen Democratic attorneys general appealed to the Fifth Circuit. Additionally, the U.S. House of Representatives and four additional state attorneys general (Colorado, Iowa, Michigan, and Nevada) asked to intervene in the Fifth Circuit proceedings to defend the ACA. The intervenors also requested the court expedite its review of the case.They pointed out that the ACA affects nearly one-fifth of the U.S. economy and lingering uncertainty about its status could affect timely decisions by states, insurers, and individuals.

In February 2019, the court granted both requests for intervention and noted intervention by the House was appropriate in part because no other party from the federal government is defending the entire ACA. The Fifth Circuit declined to expedite review of the case, however. Briefs by the parties and responses are scheduled for completion by May 15, but a date for oral argument before the Fifth Circuit has not been set so far.

The Implications

A Kaiser Family Foundation Tracking Poll in January indicated that half of the public disapproves of the Texas federal court decision. While the judge’s ruling is broader than eliminating the ACA’s protections for people with pre-existing conditions, this particular issue continues to resonate with the public. Continuing the ACA’s protections for people with pre-existing conditions ranks among the public’s top health care priorities for the new Congress, along with lowering prescription drug costs.

With the House of Representatives now having a Democratic majority, there could be legislation introduced to change ACA provisions targeted in the Texas court case that led to the ruling. However, legislation to fix the ACA could give the judge’s unconstitutionality ruling more credibility, and actually undermine the House’s role in defending the ACA as a party in the case.

Though it’s interesting to speculate about the outcome, the key takeaway for now is that the ACA remains in full effect until further court or legislative actions change the situation. Employee benefit plan sponsors should continue complying with the existing provisions of the ACA, including the Employer Mandate and its associated reporting as both still carry large monetary penalties. The required IRS reporting is due by February 28, unless you file electronically, or April 1, 2019, if filing electronically. Employee statements must be provided by March 4. We will keep an eye on the Texas case and all other ACA developments to update you on how they affect you, your employees and your compliance requirements.

About Regina E. Horton
As Legal Counsel at Keenan & Associates, Regina’s primary focus is on the various health care reform issues that impact the firm and its clients. She is responsible for all aspects of regulatory research and analysis related to health care reform plus authoring the firm’s Briefings. Prior to joining Keenan, Regina practiced civil litigation and was an adjunct professor at Whittier Law School. She graduated from the University of California, Irvine with a B.A. in Economics, received her J.D. from Whittier Law School, an L.L.M. in International Contract and Commercial Law from the University of Helsinki and a M.S. in Health Policy and Law at the University of California, San Francisco. She is admitted to practice in California.