On December 18, 2019 the U.S. Court of Appeals for the Fifth Circuit, in a 2-1 decision which the court revised on January 9, declared the Affordable Care Act’s (ACA’s) individual health insurance mandate unconstitutional as a result of Congress’ elimination of the mandate’s financial penalty in the Tax Cuts and Jobs Act of 2017 (“TCJA”), but declined to invalidate ACA in its entirety and sent the case back to the district court to decide the issue. Texas v. United States. On January 21 the Supreme Court declined to review the Fifth Circuit decision on an expedited basis, so the case goes back to the district court to issue a second decision. Separately, the U.S. Supreme Court has agreed to review two Courts of Appeals decisions that challenged the Trump Administration’s 2017 rules which created new exemptions from ACA’s contraception coverage mandate for employers that are religious based, or have sincere moral or religious objections to providing contraception benefits to their employees. Trump v. Pennsylvania.
In 2012 the U.S. Supreme Court upheld the constitutionality of ACA on the narrow grounds that ACA’s individual mandate was a legitimate exercise of Congress’ taxing power. The individual mandate was structured as a tax that would apply to an individual taxpayer who fails to obtain health insurance. NFIB v. Sebelius.
Immediately following Congress’ elimination of the individual mandate penalty in the TCJA, Republican state attorneys general, governors of 20 states, and two individual Texas plaintiffs sued to enjoin enforcement of ACA, arguing that since ACA’s individual mandate penalty reduced to $0, ACA was no longer a tax law, and therefore was unconstitutional and could no longer be defended as a function of Congress’ taxing power, as it was in NFIB v. Sebelius. Plaintiffs also argued that since the individual mandate is “essential to creating effective health insurance markets,” it was not severable from the remaining ACA provisions and therefore ACA must be found unconstitutional in its entirety. The Justice Department decided not to defend ACA, explaining that it was a “rare case where the proper course is to forgo defense” of federal law. As a result, a California-led coalition of Democratic-led states including New Jersey and New York intervened to defend ACA’s constitutionality. The intervenors argued that the elimination of the individual mandate penalty did not render ACA unconstitutional, and in any event the individual mandate is severable from the remainder of ACA based on Congress’ intent.
District Court’s Decision
In December 2018 the District court held that because the individual mandate penalty was reduced to $0 as part of the TCJA, the mandate could not stand because it was no longer a constitutional exercise of Congress’ taxing power. The court further held that based on Congress’ own statements during ACA’s adoption, the individual mandate was essential to ACA’s design, and therefore not severable from ACA, and accordingly the entirety of ACA is unconstitutional. However, the court did not enjoin implementation of ACA, which remains in effect nationally pending appeal.
Fifth Circuit’s Decision
In its December decision, the Fifth Circuit affirmed the lower court’s decision in part invalidating ACA’s individual mandate since it was not a proper exercise of Congress’ taxing power once the penalty reduced to $0, but on the controversial issue of severability, the court vacated the lower court’s decision and remanded the case to the district court with instructions to “explain with more precision what provisions of the post-2017 ACA are indeed inseverable from the individual mandate; and to consider the federal defendants’ newly-suggested relief of enjoining the enforcement only of those provisions that injure the plaintiffs or declaring the Act unconstitutional only as to the plaintiff states and the two individual plaintiffs.”
Supreme Court Review
Earlier in January, the intervenors and the House of Representatives asked the Supreme Court to review the Fifth Circuit’s ruling this term on an expedited basis arguing that "remand proceedings contemplated by the panel majority would only prolong and exacerbate the uncertainty already caused by this litigation." The Department of Justice and the plaintiffs in Texas v. United States oppose this request and argue that there is no exigent reason for the Court to review the decision at this time.
In a related but separate proceeding, on January 17 the Supreme Court voted to review a Third Circuit Court of Appeals decision that blocked implementation of Trump Administration rules that exempt an employer from ACA’s provisions for contraception coverage and access to abortion services if the employer is either religious-based or has a sincere moral or religious objection to contraception or abortion. Trump v. Pennsylvania. Although ACA currently exempts organized religions from the contraception coverage requirements, no such exemption was available to religious-based schools, universities, or hospitals until the 2017 rules issued.
New Jersey’s Response to These Developments
On January 15 New Jersey Governor Phil Murphy signed into law nine bills that add, at the state law level, health care protections for, among other things, no cost preventive care and contraception, pre-existing conditions, mental health and maternity care. More details regarding this New Jersey legislation will appear on this website in coming weeks.
We will continue to monitor and report on Texas v. United States and the Supreme Court’s decision whether to expedite review, and the Court’s decision later this year in Trump v. Pennsylvania. Pending further court action and review by the Supreme Court, ACA remains in effect, the IRS continues to enforce its employer mandate provisions, and covered employers and plan sponsors should continue to comply with all applicable ACA requirements.
For any compliance questions regarding the Affordable Care Act, the recent court decisions reviewing its constitutionality, and the 2017 rules that create new exemptions from ACA’s contraception and abortion services provisions, please contact Patrick W. McGovern, Esq. at 973-535-7129 or email@example.com, or Gina M. Schneider, Esq. at 973-535-7134 or firstname.lastname@example.org.