Alert / Employee Benefits
ACA loses a battle but wins the war, for now

Nearly a year to the day after a federal trial court struck down the Affordable Care Act’s (ACA) individual mandate and, for good measure, the rest of the ACA, a federal appeals court has ruled that the individual mandate is, indeed, unconstitutional. However, the appeals court ruled that the fate of the remaining provisions of the ACA warrants additional consideration.

The mandate survived its first challenge in the Supreme Court, almost a decade ago, only on the basis that the individual mandate is a tax Congress has the power to levy. In 2017, Congress effectively eliminated the individual mandate’s penalty tax. Last December, when the ACA was challenged following that Congressional action, the trial court concluded that with the tax eliminated, the mandate exceeded Congressional power and was therefore doomed.

Lockton comment: See our Alert on the trial court’s ruling.

Yesterday, the federal appeals court considering the matter agreed: The individual mandate, without an associated tax, is unconstitutional.

But the appeals court was unwilling, at least for now, to support the trial court position that the individual mandate was so central to the ACA that, without it, the entire law must fall. Rather, the appeals court ruled the fate of the rest of the ACA requires additional analysis. It sent that aspect of the case back to the trial court for further consideration.

Lockton comment: We had assumed the appeals court would agree that the individual mandate must go, but had been dubious that the appeals court would agree the rest of the ACA must also fall. To take the position that the rest of the ACA must fall requires a conclusion that Congress would never have passed the ACA without the individual mandate. Yet we know that in 2017 Congress effectively eliminated the individual mandate but left the rest of the law intact.

The appeals court noted that, where a portion of a law is stricken, the question of whether the rest of the law must also fall requires “a meticulous analysis,” and that the “analysis is at its most demanding in the context of sprawling (and amended) statutory schemes like the one at issue here.” The court pointed out that the ACA includes 10 major sections and that portions regulating health insurance appear in only two sections.

The appeals court further opined that the trial court had not done sufficient analysis with regard to the fate of the rest of the law. “The [trial] court opinion,” wrote the appeals court, “does not explain with precision how particular portions of the ACA as it exists post-2017 rise or fall on the constitutionality of the individual mandate.”

In particular, the appeals court cited that the trial court failed to adequately consider the intent of the Congress in 2017, when it zeroed out the individual mandate tax penalty but left the rest of the ACA intact. The appeals court also noted that the trial court did “not do the necessary legwork of parsing through the over 900 pages of the post-2017 ACA, explaining how particular segments are inextricably linked to the individual mandate.”

For the lack of a more meticulous analysis the appeals court has directed the trial court to reconsider the fate of the rest of the ACA, a decision that will be several months in coming and, no matter the conclusion, spawn a new round of appeals.

Lockton comment: What employers everywhere might love to see is the trial court concluding – and the appeals court later agreeing – that at least the employer mandate must fall. But this might not only be unlikely; it might trigger some very unwelcome reactions by state legislatures.

It might be unlikely because the plaintiffs in the case, who are seeking to have the ACA stricken in its entirety, conceded that the employer mandate is not as connected to the individual mandate as other key parts of the ACA, like the requirements that insurers issue individual medical insurance policies to all applicants, and that individual and small-group insurance policies be community rated. 

It might be unwelcome because, just as several states have imposed their own individual mandates in the wake of Congress’ reduction of the federal individual mandate penalty to zero, at least some states would almost certainly move to impose employer mandates of their own, making rather miserable the lives of employers doing business in several such states.

So, back to the drawing board we go. The trial court might again conclude the entirety of the ACA must fall. But that will merely set up another long-running showdown in the appeals court and require another assessment of whether the trial judge was adequately meticulous. In sum, we shall see, but not likely anytime soon.

Not legal advice: Nothing in this Alert should be construed as legal advice. Lockton may not be considered your legal counsel, and communications with Lockton's Compliance Services group are not privileged under the attorney-client privilege.

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