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Texas Judge Declares the Affordable Care Act Unconstitutional – What’s Next?

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As reported in our “2018 End of Year Plan Sponsor “To Do” List (Part 1) Health & Welfare,” the Tax Cuts and Jobs Act repealed the individual mandate, which spawned a lawsuit challenging the whole of the Affordable Care Act (“ACA”).  The lawsuit, filed in the Northern District of Texas in February 2018 by the Texas and Wisconsin Attorneys General, leading a 20-state coalition, alleged that because the repeal of the individual mandate “renders legally impossible the Supreme Court’s prior savings construction of the Affordable Care Act’s core provision – the individual mandate – the Court should hold that all of the ACA is unlawful and enjoin its operations.” The plaintiffs argued that not only is the individual mandate now unlawful, but also that this core provision is not severable from the rest of the ACA.

The Department of Justice (the “DOJ”) filed a brief in the case agreeing that the individual mandate is unconstitutional but disagreeing that the entire ACA must fall as a result. The DOJ took the position that most of the ACA is severable and can continue in effect. The DOJ argued that the provisions of the ACA that could remain in effect include the health care exchanges, premium subsidies, the large employer shared responsibility provision, Medicaid expansion, and the various health insurance mandates (such as coverage for children to age 26, free preventive care, and bans on pre-existing condition exclusions). Former Attorney General Jeff Sessions explained the DOJ’s position in a letter to Speaker of the House Paul Ryan, dated June 7, 2018. A number of intervenor states, led by California, made similar arguments that the bulk of ACA is severable from the individual mandate.

On Friday, December 14, Judge Reed O’Connor, in what many legal scholars consider to be a shocking and overly broad opinion, ruled the whole of ACA to be unconstitutional.  Judge O’Conner did not enter an order blocking ACA, so it appears that ACA remains the law of the land, at least for now.  Consistent with ACA still being enforced, on December 17 Health and Human Services (“HHS”), one of the government agencies responsible for enforcing ACA, issued the following statement:

“The recent U.S. District Court decision regarding the Affordable Care Act is not an injunction that halts the enforcement of the law and not a final judgment. Therefore, HHS will continue administering and enforcing all aspects of the ACA as it had before the court issued its decision. This decision does not require that HHS make any changes to any of the ACA programs it administers or its enforcement of any portion of the ACA at this time. . .”

Also on Monday, a group of Democratic states urged Judge O’Connor to clarify that ACA remains in effect and will be enforced while they challenge the ruling.  They also asked for permission to appeal the ruling immediately.

So now we wait for further clarification and the appeals to wind their way through the system.  California will appeal the ruling and the Trump administration may appeal parts of it as well.  The case may eventually be heard by the United States Supreme Court.

Until we hear otherwise, it is safest to assume that ACA is the law and to continue with compliance efforts. For example, employers should continue with their Section 6055 and 6056 reporting efforts.  For more information on the reporting requirements and the delayed deadlines see our December 8 blog, “A Holiday Surprise – IRS Extends Certain ACA Reporting Deadlines and Transition Relief.” Likewise, employers who receive Letters 226J from the Internal Revenue Service assessing penalties under Code Section 4980H, should consult with counsel regarding an appropriate response.  For more information about Letters 226J and penalty assessments under Code Section 4980H, please see our August 13 blog, “The 95 Percent Test: Gearing Up for Another Round of Employer Shared Responsibility Payments.”