By: HUB’s EB Compliance Team
As has been widely reported, the Supreme Court recently agreed to hear the Texas v. California case (sometimes also called Texas v. U.S. or Texas v. Azar) challenging the Affordable Care Act (“ACA”). The oral argument will not be heard until sometime in the Supreme Court’s October 2020 term. That means a decision is not likely until well after the 2020 elections.
Background
As HUB has written previously, several states have challenged the ACA. They argue that when Congress reduced the individual mandate penalty to $0 starting in 2019, without striking the wording that says every individual must have insurance, it made the whole ACA unconstitutional. To fully understand this, recall that in 2012, the Supreme Court upheld the individual mandate by saying that the requirement that individuals buy insurance or pay a tax “is plainly designed to expand health insurance coverage.” Imposing the individual mandate tax was seen as an integral part of the design of the ACA. Since Congress has broad authority to impose taxes, this mandate was permissible as a tax. The Court emphasized in the 2012 decision that the tax must raise at least some revenue.
The states challenging the ACA argue that, since the individual mandate no longer raises any revenue, the remaining language in the law is an unconstitutional mandate. Further, these challenging states argue that the individual mandate is central to all of the underlying objectives of the ACA. Without it, they say, the entire ACA collapses.
Prior Court Rulings
The trial court ruled that the individual mandate was unconstitutional and that the entire ACA should be struck down with it. On appeal, back in December, the Fifth Circuit Court of Appeals agreed that the mandate was unconstitutional, but said the trial court needed to do a more thorough analysis of which ACA provisions survive and which ones should be struck down.
Both Texas and California (who are parties in the case) appealed to the Supreme Court. California initially asked for expedited hearing. An expedited hearing would have meant the Court would have heard the case in the current term with a decision likely released in June 2020. However, the Court declined to hear the case on an expedited basis. Instead, as noted above, it agreed to hear the case in its next term, which starts in October 2020.
What’s Next?
The Supreme Court has not yet scheduled the oral arguments for this case, other than to say they will be heard in their October 2020 term which extends through June 2021. The written decision will be released sometime after the case is heard. However, the Court has a history of releasing decisions on controversial issues toward the end of the term in which they are heard. This would mean the final decision would not be released until June of 2021.
Anyone who tells you they “know” how the Court will rule is speculating. Even after oral arguments are heard, it is notoriously difficult to determine how the Court will rule based on the questions the Justices ask (or do not ask).
Reporters and commentators will point out that all five justices who voted to uphold the ACA in 2012 are still on the Court. However, that doesn’t mean a whole lot since the legal arguments here are different than they were in 2012. That said, it at least signals that a majority may be available to uphold the ACA. Additionally, it is not clear how the two justices who joined the Court since 2012 will rule.
What’s an Employer to do?
For now, as HUB has said before, and here says again, until a final decision is issued, employers need to continue with existing ACA compliance obligations. However, keep an eye out, because this fight is not yet over.
The potential paths forward are many, but they fall into four broad buckets:
- The Supreme Court Strikes Down the Entire ACA. This would cause significant disruption in the insurance markets. Many states would likely move to adopt ACA-like rules for their own insurance markets creating a patchwork of regulation that would vary from state-to-state, some of which has already started.
- The Individual Mandate is Unconstitutional, but Only Certain Insurance Provisions Are Struck Down. This would have the greatest impact on the individual and small group markets since those insurance rules (like community rating and guaranteed issue requirements) are primarily limited to those markets. The employer mandate would likely survive under this scenario, so the requirement for many employers to offer coverage or pay a penalty (and the associated reporting obligations) would likely continue.
- The Individual Mandate is Unconstitutional, but the Rest of the ACA Survives. This would result in essentially no effect for employers. As with scenario 2, the employer mandate would remain in place.
- The Individual Mandate is Constitutional. This would maintain the current status quo.
There is also a question of when and how the Supreme Court would make its decision effective. Normally, if a law is unconstitutional, the Court will strike it down back to the point it was first unconstitutional. In this case, that would likely mean the beginning of 2019, if the Court rules that way. However, given the significant disruption that a retroactive decision would have, the Court could choose to apply the decision as of some date in the future. Regardless, it is worth keeping an eye on to see which way this goes.
As always, HUB will continue to monitor these developments and provide updates as appropriate. If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.
NOTICE OF DISCLAIMER
The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.