After broader attempts to repeal and replace the ACA stalled out in the summer of 2017, Congress passed the Tax Cuts and Jobs Act in December 2017 which included a provision to reduce the individual mandate penalty to $0. The zero-penalty became effective on January 1, 2019.
Efforts to get the constitutionality of the ACA back in front of the Supreme Court for reconsideration have been widely expected, now that the Court has a more conservative tilt. As anticipated, several states took action to challenge the constitutionality of the ACA individual mandate given the new zero-penalty. A recent federal court ruling held that the Affordable Care Act is unconstitutional.
The Court today finds the Individual Mandate is no longer fairly readable as an exercise of Congress's Tax Power and continues to be unsustainable under Congress's Interstate Commerce Power. The Court therefore finds the Individual Mandate, unmoored from a tax, is unconstitutional.”
Back up . . . How did this all start?
In the years directly after the ACA was passed, multiple challenges to the constitutionality of the individual mandate were waged. Challenges were brought in numerous state courts, including New Jersey, Ohio, Tennessee, and two in Virginia. These trial court rulings made their way up to the Supreme Court in 2012, which ruled on five different aspects of the constitutionality of the ACA, including the individual mandate.
The crux of the issue addressed by the Supreme Court was whether the individual mandate was a proper exercise of Congress' power to regulate interstate commerce under the Commerce Clause and/or to levy taxes. Importantly, the language of the law refers to the individual mandate penalty as a fee, not a tax. One key argument was that Congress doesn’t have the express right to levy fees . . . only taxes. In this ruling, the Supreme Court considered the fee sufficiently “tax-like” to affirm the constitutionality of the individual mandate, under Congress’ authority to levy taxes.
What is the basis of the new challenge?
The argument centers on the previous Supreme Court ruling which upheld the constitutionality of the individual mandate on the basis of Congress’ power to tax. The challengers argued that because the mandate will no longer trigger a tax in 2019 (because the penalty is $0), the shared responsibility payment will produce no revenue, thus it can no longer be sustained by Congress’ taxing power. In short, we now have a mandate with a zero tax, therefore, it would potentially no longer be defensible on the grounds of Congress’ power to tax (since there is no actual tax).
Challengers also argued that the mandate could not be severed from the rest of the ACA, so the entire ACA should be struck down.
As the legal challenge moved through the courts process, intervening states counter-argued that the individual mandate was still constitutional after the Tax Cuts and Jobs Act under Congress’s powers to tax and to regulate interstate commerce, and that it was severable from the remainder of the ACA.
What exactly is Severability?
The concept of severability addresses the question of whether the individual mandate can be “severed” from the law and leave the rest of the ACA to stand or whether the individual mandate is so essential to the greater body of the ACA that removing the individual mandate would render the entire ACA null and void. One perspective is that if the individual mandate was considered unconstitutional, only those provisions which were directly dependent on the mandate would be invalidated, leaving the remainder of the law intact. A second perspective is that if the individual mandate is found to be unconstitutional, the entire law would be invalidated . . . because it could not be independently “severed” without nullifying the rest of the law.
What do we expect will happen on the constitutionality of the individual mandate? This will likely be a subject of heated and intense legal debate.
On the other hand, the issue of severability appears to have a clearer path. Congress has confirmed the essential nature of the individual mandate (in legislative history). The actual text of the law states multiple times that the mandate is not only essential, but the keystone of the law. Lastly, the Supreme Court affirmed this as part of its prior decision, indicating that the upholding the ACA in the absence of its “signature provision” would change the effect of the law as a whole. In fact, all nine Justices acknowledged this text and Congress' manifest intent to establish the individual mandate as the ACA's 'essential' provision. We would suggest that these facts provide relative clarity on the issue of severability of the individual mandate.
What is the expected impact?
As a rule, employer plans will not be impacted by the sole fact of the individual mandate penalty being reduced to zero. However, if the individual mandate is found to be not severable, and the entire ACA is rolled back, we can expect some mayhem at the national level, specifically in the individual marketplace.
The most significant overall impact of the law potentially being rolled back will be in the repeal of subsidies for coverage in the individual marketplace. Millions of previously uninsured individuals secured insurance under the ACA, primarily because it became more affordable via the subsidies. Once those subsidies go away, the ability for lower-income individuals to afford non-subsidized coverage will be challenged. The impact of a mass exodus from the individual marketplace is of concern to many. This would potentially impact group insurance plan premiums as costs for uninsured care will rise, and those costs are typically shifted to private-sector group plans.
How is this going to impact employers?
The employer marketplace is poised to experience less instability, simply because plans are inherently contractually arranged between insurance carriers and employers. Many will be concerned about some of the “fan-favorite” provisions of the ACA being rolled back. However, we would argue that plan elements such as no pre-existing condition exclusions, free preventive care, and mandatory dependent coverage to age 26 have already become part of the fabric of employee benefits as we know them, thus insurance carriers will not rush to strip these provisions out of their contracts. Remember, these provisions were mandated to be included in health policies as part of the ACA . . . but it is not mandatory that they be removed if the ACA is repealed.
Two other important changes brought about by the ACA in the small group marketplace is member-level rating and metal-level coverage definitions. While insurance carriers would certainly be able to change these if the law is repealed, the infrastructure investments made on the part of insurance carriers to comply with the law were monumental. It is unlikely that, at least in the short term, insurance carriers will be racing to reinvest billions of dollars to change the chassis upon which small group plans currently run.
What about all the mandates and reporting requirements?
A repeal of the full ACA would also take with it employer Pay or Play provisions as well as all the ACA-required reporting. This would open the door for employers to reconsider coverage decisions in the following ways:
- Pay or Play: With no penalties for not providing minimum essential coverage, will coverage for some employees be eliminated (interns, temporary employees, certain classes, etc.)?
- Eligibility Tracking: No more look back eligibility rules or tracking of measurement periods, administrative periods, and stability periods.
- 30 hour eligibility threshold: Will the 30-hour threshold for coverage be maintained (or will some employers change to sync with a more traditional 40 hour work week)?
- Out of pocket maximums: Will OOP maximums stay in the vicinity of the current statutory limits? Or will we see them creep higher in the name of potential cost savings?
- Essential Health Benefits: For small groups, will employers maintain plans with EHB coverage levels? Or will some of the newer, cost-increasing provisions (such as pediatric dental and habilitative care) be eliminated?
- FSA Max: Will employers maintain the old maximum election cap? Or will some increase it to pre-ACA levels?
Other areas of impact for employers would be a reduction in the administrative responsibilities that came with the ACA. Requirements such as:
- 1094/1095 reporting obligations
- W-2 reporting
…But don’t get too excited!
We should all expect that if the ACA does end up getting repealed, many of these employer-specific provisions will likely get re-implemented through new legislation. The timing of any such re-implementations is obviously unknown, and we can expect it to be a very political process. So, watch and wait will be the word of the day.
So, what do we do now?
The constitutionality of the individual mandate in the wake of the $0 penalty is definitely working its way up the ladder to the Supreme Court. Notably, the federal court did not issue an injunction halting enforcement of the ACA. Additionally, the HHS has issued a news release cautioning that the decision is not a final judgement and that the HHS “will continue administering and enforcing all aspects of the ACA.” The ACA continues to be the law of the land as we wait for this to work its way through the courts.