On December 14, 2018, a federal district court in Texas held in Texas v. United States that the Affordable Care Act’s (ACA) individual mandate is unconstitutional. The court also concluded that because the individual mandate cannot be severed from ACA, the entire law is invalid.
Background
As you may recall, the ACA has both an individual and employer mandate. In 2012, the Supreme Court held, in National Federation of Independent Businesses v. Sibelius (“Sibelius”), that the individual mandate was a constitutional exercise of Congress’ power to tax. Although the individual mandate was upheld as a valid tax, the Supreme Court noted that the individual mandate would otherwise have been unconstitutional under the Constitution’s Commerce Clause.
Individual Mandate Held Unconstitutional Because the Penalty is Zero Beginning in 2019
In 2017, Congress passed the Tax Cuts and Jobs Act of 2017, which will reduce the individual mandate tax penalty to zero effective January 1, 2019. As a result, Texas and numerous other states commenced litigation arguing that the individual mandate was no longer a proper exercise of Congress’ taxing authority. The Texas court agreed, holding that, without a tax penalty, the mandate was now rendered unconstitutional under the Commerce Clause as the Supreme Court previously noted in the Sibelius case.
Entire ACA Held Unconstitutional Because the Individual Mandate Cannot Be Severed
The Texas federal court did not simply declare the individual mandate unconstitutional. It went on to consider what impact this had on the rest of the ACA—specifically, whether the individual mandate could be severed from the rest of the ACA. The Texas court noted that the Sibelius decision found two other provisions (guaranteed issue and community rating) of the ACA were inseparable from the individual mandate. Further, the court noted that the Supreme Court’s 2015 decision, King v. Burwell, determined that the same two provisions could not work without the individual mandate. Therefore, the Texas court concluded that it could not sever the individual mandate from ACA because the other provisions of the ACA were so intertwined. As such, the Court held that the entire law was unconstitutional.
What Should Employers Do?
An appeal of the Texas court’s decision is very likely. Therefore, employers should stay the course for now. For example, large employers subject to the employer mandate provisions of ACA should still file Forms 1095-C for 2018 and continue to offer coverage for 2019. Even if the decision is upheld, it is unlikely to be given retroactive effect, because the mandate was still a valid tax for 2018. If the court’s decision is upheld, then employers and insurers will have to decide what to do about many of the popular ACA requirements, such as dependent coverage to age 26, no cost for preventive care, etc. It remains to be seen how insurers will respond to the case. Keep in mind that Connecticut (and potentially other state’s laws) require many provisions in health insurance policies that are also contained in the ACA. We will continue to monitor the developments.