SCOTUS upholds the ACA: Next steps for employers
The Supreme Court’s third foray into the constitutionality of the Affordable Care Act (ACA), characterized by the dissent as the Supreme Court’s “epic Affordable Care Act trilogy,” once again reaffirmed the constitutionality of the ACA.
This time, the Supreme Court addressed a challenge to 2017 amendments to the ACA that had effectively nullified the monetary penalty imposed upon individuals who failed to obtain minimum essential coverage – the so-called health insurance “individual mandate” – by setting its amount to $0. In an earlier installment of the trilogy, the Supreme Court held that the ACA individual mandate passed constitutional muster as an exercise of Congressional taxing power.
In the most recent round of litigation, a group of states and individual plaintiffs argued that once Congress zeroed out the tax associated with the individual mandate, the ACA lost its constitutional mooring as a tax power, effectively severing the individual mandate’s constitutional connection. The United States District Court for the Northern District of Texas (District Court) agreed and further held that the carefully crafted provisions of the ACA were so interconnected, interdependent and intertwined that once the individual mandate’s constitutional connection was severed, the entire ACA must also be found unconstitutional.
In other words, the District Court held that because the individual mandate could not be surgically removed from the ACA, the individual mandate was thus not “severable” from the remainder of the ACA, and that the entire statute was therefore unconstitutional. On appeal, the United States Circuit Court for the Fifth Circuit (Circuit Court) ordered the District Court to conduct a careful and reasoned analysis of the rationale for the District Court’s severability decision.
The Circuit Court’s decision ignited a fascinating debate among legal scholars as to which ACA provisions were so integrally connected to the individual mandate that those provisions could not be severed from the individual mandate. But before the District Court could conduct the careful and reasoned severability analysis for review by the Circuit Court, the Supreme Court held, 7-2, that the plaintiffs lacked standing to challenge the constitutionality of the ACA.
With respect to the individual plaintiffs, the Supreme Court could find no harm caused by the government, which is a prerequisite for standing. The Supreme Court noted that although the statute commanded individuals to purchase health insurance that provides minimum essential coverage, because the penalty was zeroed out, the individual plaintiffs could point to no government action causing any harm to the plaintiffs.
The Supreme Court similarly concluded that the state plaintiffs failed to show that they have experienced an “injury fairly traceable to the defendant’s allegedly unlawful conduct.”
In so ruling, the Supreme Court rejected the states’ argument that they suffered "indirect injury in the form of increased use of (and therefore cost to) state-operated medical insurance programs" such as Medicaid and the Children’s Health Insurance Program (CHIP). According to the Court, the states failed to demonstrate “that an unenforceable mandate will cause their residents to enroll in valuable benefits programs that they would otherwise forgo.” Since the Supreme Court held that the plaintiffs lacked standing as a threshold matter, the Court did not need to address the severability argument.
Next steps for employers
With the constitutionality of the ACA reaffirmed once again by the Supreme Court, all of the ACA’s provisions regarding the employer mandate for applicable large employers continue in effect.
These provisions include providing an offer of minimum essential coverage to eligible employees, tracking hours to determine employee eligibility, filing annual ACA returns with the Internal Revenue Service, and ensuring employees receive the required annual ACA disclosures.
In addition, employers should be aware that the ACA’s patient protection provisions have been modified and expanded by the Consolidated Appropriations Act, 2021, for plan years beginning on or after January 1, 2022.
In the wake of the Court’s decision, large employers are encouraged to review their health plans and ensure they are being administered in accordance with the ACA employer mandate requirements. Employers should also confirm that all annual information returns have been timely filed. The IRS is assessing significant penalties against employers for failure to annually file Forms 1094-C and distribute Form 1095-C to employees.
Small employers are urged to note that they may not be completely insulated from the requirements of the ACA. A small employer may inadvertently create a group health plan subject to the ACA if the small employer reimburses employees for premium payments under separate health coverage rather than sponsoring its own group health plan.
Finally, the Biden Administration is expected to expand and build on the ACA, which may affect how employers structure or administer their group health plans going forward.
Please reach out to your DLA Piper contact attorney if you have any questions about the application of the ACA to your business following the Supreme Court decision or if you would like to discuss planning opportunities presented by the likely expansion of the ACA under the Biden Administration.