In 2010, twenty-six states and the National Federation of Independent Business filed a suit in federal court challenging the ACA's Individual Mandate and the law's Medicaid expansion. On June 28, 2012, the United States Supreme Court upheld the ACA's Individual Mandate as a valid exercise of its power to levy taxes. In relevant part, the Court explained that the provision "may reasonably be characterized as a tax" because, among other things, it "produces at least some revenue for the Government." Chief Justice Roberts noted that Congress could not force people to purchase health insurance but could tax those who failed to do so, and concluded that the Individual Mandate looked and operated like a tax.
However, the constitutionality of the ACA was questioned anew when Congress reduced the penalty associated with the Individual Mandate in 2017 to $0. Thereafter, eighteen states filed a lawsuit in which the plaintiffs argued that they were harmed by an increase in the number of people on their state-supported insurance rolls. The plaintiffs claimed that when Congress reduced the tax penalty to $0 for the Individual Mandate, it effectively eliminated the Supreme Court's rationale for finding the ACA constitutional in 2012.
Judge Reed O'Connor of the Federal District Court in Fort Worth, Texas agreed with the argument put forward by the coalition of states and ruled that the ACA could no longer stand now that there is no actual penalty for individuals who do not maintain health coverage for themselves. In his ruling, Judge O'Connor stated that the Individual Mandate "can no longer be fairly read as an exercise of Congress'Tax Power and is still impermissible under the Interstate Commerce Clause— meaning the Individual Mandate is unconstitutional." The Judge then concluded that the mandate "is essential to and inseverable from the remainder of" the Act. He noted that Congress had "stated many times unequivocally — through enacted text signed by the President — that the Individual Mandate is essential' to [the ACA]." This connection "essentiality ... means the mandate must work 'together with the other provisions' for the Act to function as intended." And, because the Individual Mandate cannot be separated from the rest of the law, Judge O'Connor concluded that the rest of the law is also invalid. In January 2019, the case was appealed to the Fifth Circuit Court of Appeals.
Court of Appeals Ruling
On December 18, 2019, in a 2-1 decision, the United States Court of Appeals for the Fifth Circuit ruled that the Individual Mandate provision of the ACA was unconstitutional. While the Fifth Circuit ruled with the plaintiffs and found that the Individual Mandate is unconstitutional, the court did not rule on the larger question of what it means for the rest of the ACA.
The Supreme Court Ruling
The California-led group filed a petition for writ of certiorari to the Supreme Court in response to the Fifth Circuit's decision. The central issue before the Supreme Court was whether the Individual Mandate is unconstitutional. And, if it is, then the secondary issues would be whether the rest of the ACA must also be stricken, or whether the Individual Mandate could be severed from the rest of the ACA.
During oral arguments, two key Justices indicated that they were inclined to uphold the bulk of the ACA. Chief Justice John Roberts and Justice Brett Kavanaugh both appeared to suggest that they would not vote to strike down the entire law, even if the Court invalidates a provision that requires people to maintain health coverage. Chief Justice Roberts noted that, even though Congress adjusted the penalty for the Individual Mandate to zero, it left the rest of law in place. He told the attorneys representing Texas (one of the states arguing that the entire ACA must be stricken) that "I think it's hard for you to argue that Congress intended the entire act to fall if the mandate was struck down when the same Congress that lowered the penalty to zero did not even try to repeal the rest of the act." Justice Kavanaugh, seemed to agree with Chief Justice Roberts that the Individual Mandate is severable from the rest of the ACA. Justice Kavanaugh stated that "[i]t does seem fairly clear that the proper remedy would be to sever the mandate provision and leave the rest of the Act in place - the provisions regarding preexisting conditions and the rest." Justice Kavanaugh also noted that the whole law was not tied to the fate of the Individual Mandate and claimed "that it's a very straightforward case for severability under our precedents."
While many legal experts expected the Supreme Court to spare the ACA, how that was accomplished was a bit of a surprise, and frankly anticlimactic. In the majority decision, Justice Stephen Breyer wrote that "the plaintiffs claim that without the penalty the act's minimum essential coverage requirement is unconstitutional," and that "they also argue that the minimum essential coverage requirement is not severable from the rest of the act," meaning the entire law is invalid. But, the Justices did not address these issues in their decision. Justice Breyer said that "[The Supreme Court does] not reach these questions of the act's validity, however, for Texas and the other plaintiffs in this suit lack the standing necessary to raise them." The majority ruling found that the eighteen states that initiated the challenge don't have [the] standing to challenge the individual mandate because they have not shown an injury traceable to the enforcement of the provision they claimed is unconstitutional."
Breyer was joined in the ruling by Chief Justice John Roberts and Justices Clarence Thomas, Sonia Sotomayor, and Elena Kagan, as well as Brett Kavanaugh and Amy Coney Barrett, who were appointed by President Donald Trump. Justices Samuel Alito and Neil Gorsuch dissented.
The majority ruling concludes by stating that "we reverse the Fifth Circuit's judgment in respect to standing, vacate the judgment, and remand the case with instructions to dismiss." The ruling brings an end to the most recent challenge to the ACA, and while the full effects of any given Supreme Court opinion are often unknown for some time, that is not the case here. This ruling means that the ACA remains the law of the land. It likely also marks the beginning of the next set of legal challenges to the law. Irrespective of what happens, we will continue to help you navigate both the opportunities and challenges that this law provides.
The intent of this article is to provide general information on employee benefit issues. It should not be construed as legal advice and, as with any interpretation of law, plan sponsors should seek proper legal advice for application of these rules to their plans.