After an eagerly awaited decision, the Fifth Circuit Court of Appeals found the Affordable Care Act (ACA)’s individual mandate unconstitutional. However, the Fifth Circuit remanded the case (sent the case back to the district court for further review) for additional analysis into which ACA provisions can be inseverable from the now unconstitutional individual mandate. The full opinion can be found here.
Background of the Individual Mandate
One of the many reforms of how the ACA aimed to lower health care was the imposition of the individual mandate, which required individuals to maintain health insurance coverage. If individuals failed to do so, they must take a payment to the Internal Revenue Service (IRS) called a “shared responsibility payment.”
Years later, Congress enacted the Tax Cuts and Jobs Act of 2017 (TCJA), which made the shared-responsibility payment $0. Thereafter, 20 Republican state attorneys general and Republican governors sought to challenge the constitutionality of the individual mandate because without the penalty, they argued, the mandate would be unconstitutional. The U.S. District Court for the Northern District of Texas declared the entire ACA to be invalid and the decision was appealed to the Fifth Circuit.
The Fifth Circuit Found Individual Mandate Unconstitutional
In determining the individual mandate’s constitutionality, the Fifth Circuit looked at the Supreme Court (SCOTUS)’s analysis in National Federation of Independent Businesses v. Sebelius (NFIB). In NFIB, SCOTUS found the individual mandate was read as a command to purchase health insurance but was saved from being unconstitutional because it could be read together with the shared responsibility payment as an option to purchase insurance or pay the tax.
The Court found this was a legitimate exercise of Congress’ taxing power because the payment resembled taxes in four ways:
- First, the shared-responsibility payment produced at least some revenue for the Government, which is an essential feature of any tax.
- Second, since the payment produced revenue, it could be paid into the Treasury by taxpayers when they filed their tax returns.
- Third, the amount of the shared-responsibility payment was determined by similar factors as taxable income, number of dependents, and joint filing status.
- Lastly, the payment was collected by the IRS in the same manner as taxes.
SCOTUS determined the shared-responsibility payment had similar attributes to those of taxes and found Government had the power to impose a tax on those without health insurance.
However, after the TCJA “zeroed out” this payment, the Fifth Circuit determined it no longer resembled any of the tax characteristics described above. Since the shared-responsibility payment can longer be read as a tax, and there is no other constitutional provision that justifies this exercise of congressional power, the Fifth Circuit determined the individual mandate was unconstitutional.
Back to the District Court
What happens to the rest of the ACA after the individual mandate was found unconstitutional? The Fifth Circuit declined to rule on this severability analysis. Instead, it’s sending the case back to the district court to determine whether, or how much of, the rest of the ACA can be separated from the individual mandate.
What Does This Mean for Employers?
Aside from the individual mandate, the rest of the ACA is still the law. Employers and plan sponsors must continue to follow the ACA’s coverage mandates and upcoming employer reporting obligations for 2019 to avoid employer mandate penalties. These requirements will remain in effect while this litigation continues, which likely will continue for the next few years.
The information and content contained in this blog post are for general informational purposes only, and does not, and is not intended to, constitute legal advice.