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Health Care Reform: Texas Federal Court Invalidates ACA but Appeal is Expected to Follow

December 17, 2018

On December 14, 2018, a Texas federal court declared the Affordable Care Act (ACA) unconstitutional. The decision is expected to be appealed and may eventually make it to the United States Supreme Court. This Briefing provides an overview of the litigation, the likely next steps and what it means for employers.

Overview of Litigation

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 Reed 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.

Next Steps

The decision by Judge O’Connor is highly controversial and expected to be appealed to the Fifth Circuit Court of Appeal. Ultimately, the case may end up before the United States Supreme Court but that will take time. As the case makes its way through the courts, the ACA remains in effect. The Trump Administration also indicated it will continue enforcing the law while litigation continues. 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 early 2019.

Please contact your Keenan Account Manager for questions regarding this Briefing or if you require any additional information.


Keenan & Associates is not a law firm and no opinion, suggestion, or recommendation of the firm or its employees shall constitute legal advice. Clients are advised to consult with their own attorney for a determination of their legal rights, responsibilities and liabilities, including the interpretation of any statute or regulation, or its application to the clients’ business activities.