Alert / Employee Benefits
Federal court strikes down the ACA

Federal court strikes the individual mandate … and the rest of the ACA for good measure

“So ordered.”

With that terse two-word dictate concluding a 55-page opinion issued early Friday evening, a federal judge in Fort Worth, Texas, ruled the Affordable Care Act’s (ACA) individual mandate is unconstitutional. The judge then struck down the rest of the ACA, concluding the mandate is so connected to the entirety of the law that Congress wouldn’t have passed the ACA without the mandate. 

The decision is certain to land in the lap of the United States Supreme Court, where once again – as in 2012 – the fate of the ACA is likely to be decided by Chief Justice John Roberts. Until then, status quo will likely be the order of the day for employers and their group health plan offerings.

Webcast on the ruling and what it means: What now for the ACA’s employer mandate and its reporting obligations, with forms due to employees by the end of January? What now for the ACA’s ban on dollar limits and pre-existing conditions, and the limits on waiting periods? What of the obligation to provide cost-free preventive care, to issue employees summaries of benefits and coverage, and to make other disclosures? What of the ACA’s claim rules, and a dozen other ACA components that have provided a variety of benefits to employees but raised costs to employers and created enormous administrative burdens? What happens to the ACA’s health insurance marketplaces and subsidized insurance policies available there?

 Join us on Tuesday, Dec. 18, at 2 p.m. Central time for our webcast, “Federal court slays the ACA: What now?” Register here.

What just happened, how and why?

To understand what just happened, and how, we have to go back in time to 2012, when the federal courts were grappling with several challenges to the ACA, including challenges to the individual mandate.

That year, in a case brought by the National Federation of Independent Business, a closely divided Supreme Court drew two conclusions about the mandate, one critical to the ACA’s survival then, but both critical to Friday’s decision striking the ACA down.

First, the Court ruled that the mandate was unconstitutional under the interstate commerce clause. While that clause allows the federal government to regulate certain economic activity, the Court concluded that a federal directive to buy health insurance was impermissible because it regulated economic inactivity. That is, it challenged an individual’s decision to not buy health insurance. 

But the Court also concluded, in a 5-4 majority opinion written by Chief Justice John Roberts and joined by the four liberals on the Court, Congress had no power under the commerce clause to compel individuals to buy health insurance. However, it did have the power – under Congress’s broad taxing authority – to tax them for not buying insurance. Chief Justice Roberts also concluded the individual mandate was so closely connected to its related tax that the mandate, too, could survive as an essential element of the tax.

Fast forward to late 2017. A Republican-dominated Congress, after failing in several tries to repeal the ACA, pushed through a tax reform package that, while not striking the individual mandate, eliminated the tax penalty for 2019 and later years.

In short order, 20 states resurrected the challenge to the individual mandate. The states’ argument was simple: If the individual mandate tax was all that stood between the mandate and its status as an unconstitutional exercise of federal power, and the tax is now gone, then of course the mandate must now fall as unconstitutional.

The federal court in Fort Worth agreed. Then the court went one step further: It concluded that the individual mandate is so integral to the rest of the ACA that Congress never intended the ACA to exist without it. In short, the ACA in its entirety must also fall. 

Lockton comment: The Court had some support for this conclusion. In 2012, four of the nine Supreme Court justices – but the only four to consider whether the ACA could survive without the individual mandate – concluded the mandate and the other major provisions of the ACA could not exist independently. They concluded that without the individual mandate Congress would never have passed the ACA in the first place.

What now?

Friday’s ruling might end up accomplishing, by the stroke of a federal judge’s pen, what the GOP-led Congress was unable to do over the past two years. The court’s ruling is sure to be appealed, and will certainly land in the Supreme Court’s lap again, so the law’s resuscitation is possible.

It appears that on appeal, the fight will boil down to one main and fascinating question: Whether the ACA can still stand without an individual mandate tax penalty.

Lockton comment: The federal government and several “blue” states were the defendants in the Fort Worth case. Interestingly, the Trump administration outright conceded the individual mandate is now unconstitutional. Only the blue states continued to defend it. It seems likely the Supreme Court will also agree the individual mandate must go, based on its reasoning for allowing it to survive in the 2012 ruling.

Of the four justices – Scalia, Kennedy, Thomas and Alito – who concluded in 2012 the ACA and the individual mandate must stand or fall together, Scalia and Kennedy are no longer on the bench. Their replacements, Justices Gorsuch and Kavanaugh, both appointed by President Donald Trump, can be expected to vote in line with their predecessors.

The reliably liberal block of the Court, Justices Ginsberg, Breyer, Sotomayor and Kagan, are all expected to vote to uphold the ACA, as they did in 2012. It appears that – like in 2012 – the fate of the ACA will once again be in the hands of Chief Justice Roberts.

What happens until then? That’s not clear. The Fort Worth court’s ruling doesn’t apply until 2019, when the individual mandate tax goes away. The ruling will be appealed to a conservative-leaning federal appeals court in New Orleans, and perhaps that court will stay the Texas court’s ruling while the appeal is decided. No matter how the appeals court rules, the matter is certain to move on to the Supreme Court.

For employers, status quo will likely be the order of the day for some weeks or months to come. Because the Fort Worth court’s ruling doesn’t apply until 2019, ACA employer mandate reporting forms for 2018, due to employees and the IRS in early 2019, will likely still have to be filed. 

Further, practical and legal barriers limit the ability of employers to quickly make plan design changes, such as amending their plans to reflect pre-ACA dollar limits, waiting periods, exclusions for certain pre-existing conditions, and other provisions. For example, many states have passed all or most of the same insurance laws mandated by the ACA, which will continue to apply to insured plans in those states. Employers with self-insured ERISA plans would, in theory, have more flexibility to act faster, but most employers have already not only put their 2019 plan designs into the oven, the designs are fully baked and employees have completed open enrollment.

So we shall see. One thing is for certain: Friday’s ruling poses the greatest existential threat to the ACA since the Supreme Court narrowly upheld the law in 2012.

Edward Fensholt, J.D.
Compliance Services

Scott Behrens, J.D.
Government Relations

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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