By: HUB’s EB Compliance Team
On June 17, 2021, the U.S. Supreme Court released its decision in California v. Texas holding that the challenge to the Affordable Care Act (“ACA”) cannot stand. As a result, the ACA will continue to remain the law of the land and employers will continue their compliance obligations.
Background
This case has a long history. One of the changes made by the 2017 tax reform bill was to reduce the individual mandate penalty to $0. In other words, there would no longer be any penalty for failing to have health coverage.
This change triggered a lawsuit by several states (that were later joined by two individuals) arguing that, based on a 2012 Supreme Court case, a mandate that raises no revenue is unconstitutional (we discuss that more here). Back in 2018, a federal district court in Texas agreed. It ruled that the individual mandate was unconstitutional based on this argument and that, as a result, the entire ACA was so intertwined with the now-$0 mandate that all the provisions of the ACA were unconstitutional. This is based on the concept of “severability” (or really the lack of it). Severability is when a court determines whether an unconstitutional rule can be “severed” from the rest of a law, leaving the rest of the law to operate. The district court said the mandate could not be severed from the rest of the ACA.
In December 2019, the Fifth Circuit Court of Appeals reviewed the district court decision. It agreed the mandate was unconstitutional, but said the district court needed to do more analysis to determine whether it could be severed from the ACA. In March of 2020, the Supreme Court agreed to review the case. Oral arguments were held in October of 2020.
Standing
In a 7-2 decision, the Supreme Court took a step back from all the lower court decisions to first examine whether the plaintiffs even had “standing” to sue. Standing is based on the idea that, under the Constitution, federal courts can only hear cases or controversies. To be a case or controversy, the plaintiffs must have an actual injury that a court ruling can address. If there’s no actual injury, or if the court ruling cannot address it, then there’s no case or controversy and the plaintiff is doing little more than just complaining (albeit rather expensively complaining).
If a plaintiff has no standing, then the Court doesn’t even examine the legal arguments of the case. With no standing, the Court is basically saying, “You don’t have the right to be here.”
No Standing for Individuals
The individual plaintiffs claimed that they were injured because the law expressed a requirement for them to buy insurance that they would not otherwise carry but for this requirement. The Supreme Court said that this was not enough because the IRS had no way to enforce the mandate. Only the IRS has the authority to enforce the penalty, which is now $0, and no other federal government agency can require the plaintiffs to obtain insurance. As a result, the Court said that, even if the Court reached the merits, and even if the Court ruled the ACA unconstitutional, there would be no change in the plaintiff’s position.
No Standing for the States
For the states that sued, they argued that the mandate causes more people to enroll in medical programs fully- or partially-funded by the states, like Medicaid, thus increasing their costs. They also claimed there were a variety of increased administrative and other expenses that they bear from the ACA.
However, the Court held that the claim that more individuals enrolled in state-funded medical programs was speculative and not directly connected to a mandate with no enforcement mechanism. As for the increased administrative and other expenses, the Court said those expenses were the result of other ACA provisions, not the individual mandate. As a result, they do not establish standing to challenge the individual mandate.
No Further Discussion?
As a result of a lack of standing, the Court did not reach whether the individual mandate is unconstitutional or whether it is severable from the rest of the ACA. The ACA remains in place.
However, both a concurring opinion by Justice Thomas and a dissenting opinion by Justice Alito raise a potential additional argument that the state plaintiffs did not raise at the lower court level. Specifically, the states could try to sew together the argument that the mandate is not severable with their claims that other ACA provisions require them to make additional expenditures. While they raised both points, they did not connect them in their standing argument. Because they did not explicitly connect these two in their arguments at the lower court level, the Supreme Court said it cannot consider them at this stage. However, this may signal yet another future attempt that the state plaintiffs may make. If so, the “epic Affordable Care Act trilogy” of cases (to use Justice Alito’s words) may have a part 4.
Takeaways
The upshot for employers is straightforward: continue your ACA compliance efforts.
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.