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A Better Partnership


Dec 2018
December 18, 2018

Court Invalidates Affordable Care Act—What Now?

On Friday, December 14, 2018, the U.S. District Court for the Northern District of Texas issued a ruling in the case Texas v United States that the Affordable Care Act (ACA) is unconstitutional. The decision will certainly be appealed, so employers should not take any steps at this time to amend any health plans. In addition, employers should continue to prepare for ACA reporting for 2018 unless we hear otherwise from the IRS.

After Congress passed the ACA in 2010, it immediately faced a number of challenges, particularly whether the individual mandate was constitutional. Because the ACA’s major components—the individual mandate, employer mandate and Exchanges—were dependent on each other, opponents of the Act argued that if the individual mandate were unconstitutional, then the entire Act must be unconstitutional. In National Federation of Independent Businesses v. Sibelius, the U.S. Supreme Court found that the individual mandate was unconstitutional under the constitution’s Commerce Clause; but because the penalty under the Act was simply a tax on individuals who did not buy insurance, the individual mandate and the Affordable Care Act survived as a constitutional exercise of Congress’s taxing power.

During 2017, Congress considered a number of bills to repeal or amend the ACA, but all of the bills failed. At the end of 2017, however, Congress passed the Tax Cuts and Jobs Act of 2017, which included a provision that eliminated the ACA’s tax on individuals who did not purchase health insurance—but without eliminating the individual mandate, itself. Thereafter, the state of Texas, joined by a number of other states, brought its lawsuit challenging the continuing constitutionality of the Affordable Care Act. The court concluded that without the tax, there remained an unconstitutional individual mandate. Moreover, the court found that the individual mandate could not be severed from other parts of the Act, requiring it to invalidate the entire ACA.

This decision will be appealed, probably all the way to the Supreme Court—and the White House has confirmed that the ACA remains the law of the land during the appeal process. Therefore, employers should not take any immediate action with their health plans. Moreover, unless the IRS issues any guidance to the contrary, employers should continue to prepare for ACA reporting in the first quarter of 2019. At a minimum, it will take many months, and possibly years, before we get a final ruling from the courts.

If you have any questions, please contact Norbert F. Kugele, Stephanie H. Grant or any other member of the Warner Norcross + Judd Employee Benefits Practice Group.

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