The Supreme Court of the United States (SCOTUS) heard oral arguments on November 10, 2020, as to the question of whether the Affordable Care Act’s Individual Mandate provision is constitutional. This case, California vs. Texas (supremecourt.gov), is the latest challenge against the Affordable Care Act (ACA) and the second time the Justices addressed the constitutionality of the Individual Mandate portion of that law. The Individual Mandate required all Americans (with some exceptions) to buy qualifying health coverage. Since 2019, the penalty for failure to do so was zeroed out, but the law was not repealed. Since, a group of Republican-led states have challenged the constitutionality of the remaining parts of the ACA. Interestingly, it was Justice Roberts, who in 2012 was the splitting vote on the invalidating of the entire ACA in National Federal of Independent Business vs. Sebelius, in finding the penalty under the Individual Mandate was a tax that Congress could impose rather than the authority under the Constitution’s Commerce Clause, which Congress did not have authority under. If past position is any indication, Justice Roberts’ position on the constitutionality meant ACA would likely remain the law of the land, even without the Individual Mandate provision in play. In an outcome that does not even address constitutionality, the SCOTUS found today that the challengers to the law, including Republican-led states, do not have the right to sue in this case. A decision 7-2 that did not get to the question of constitutionality means the ACA remains the law of the land.
What happens if the Individual Mandate was deemed Unconstitutional
Many states enacted their own Individual Mandate rules following passage of the Tax Cuts and Jobs Act of 2017, which zeroed out the federal Individual Mandate.
More American have obtained health insurance through the State and Federal Health Exchange Marketplaces in the past year than before and growing. A finding of unconstitutional by the SCOTUS would result in millions of Americans losing health coverage, including resulting from the expanded Medicaid eligibility and Premium Tax Credits available in the Exchanges. The pre-existing condition exclusions and guaranteed issue of insurance will also go away. It seems any such risky finding by the SCOTUS, during a global pandemic where health coverage is important and efforts are being made to ensure it’s availability, would be a contradiction and unpopular.
The state of the Individual Mandate, whether deemed unconstitutional and severable from the rest of the ACA, or left as is in its watered-down, zero-penalty form, employers are largely unaffected. Employers with more than 50 full-time/full-time equivalent employees will still have to comply with the Employer Mandate portion of the ACA. Under the Employer Mandate, these Applicable Large Employers are required to offer Minimum Essential Coverage to at least 95% of their full-time employees and their dependents or be subject to penalties. Compliance with the Employer Mandate oversight is given to the IRS and annual reporting is also required.
Small employers who may not be subject to the Employer Mandate provisions, will benefit from guaranteed issue and rating rules. Pre-existing condition exclusions will continue to benefit both the large and small group markets.
With a finding of no standing to challenge, there remains no new change to employers already subject to their own provisions of the ACA.
A finding of severability from the rest of the ACA, the Individual Mandate will remain the law until its repeal by Congress. With a penalty of zero, the Individual Mandate will have no real effect, meaning individuals will need not comply with this mandate, except in States that passed their own version of the Individual Mandate (e.g., California, Connecticut, New Jersey, Vermont, Massachusetts, Rhode Island, and the District of Columbia).
An Individual Mandate created a safer marketplace for insurance risk. If all Americans were required to have insurance, employers are required to offer insurance, and insurers are required to offer insurance to nearly all, any change to that three-legged stool would affect the insurance market most. With fewer individuals insured, the insurance carrier does not know how to account for the risk and is more likely to get only sick people on the plan. This results in bottom line damage for the insurers forced to insure those riskier people under the law. The reason states are passing Individual Mandate rules is not only to ensure individuals have insurance as part of a public health concern, but primarily to keep health insurance markets and premiums in those states stable. In states with Individual Mandates, premiums are lower than the national average. While it is hard to determine the exact impact of Individual Mandate changes on the insurance market, with a finding of no standing to sue, markets will remain as they are now — more challenged in states without their own Individual Mandate requirement.
What is severability?
The Justice analyzed a portion of the ACA, the Individual Mandate, and deemed ACA can survive without it. The intent of Congress was not to have all of ACA found unconstitutional without this component. If the Justices find the Individual Mandate severable from the rest of the ACA, it would sever the Individual Mandate, leaving the rest of the ACA intact while striking down the Individual Mandate. If there are five votes to finding the Individual Mandate unconstitutional, the important remaining question will be, can the Individual Mandate be severed from the rest of the ACA, allowing the ACA to remain intact. The Justices are answering two questions – 1) Whether the Individual Mandate is constitutional without the penalty and 2) If found unconstitutional, is it severable from the rest of ACA or will an unconstitutional finding result in all of ACA being thrown out.
With a 7-2 vote today, the SCOTUS, the Court found the individuals and Republican-led states do not have the legal right to challenge the Individual Mandate law. A decision as to severability is moot in this outcome.
The Supreme Court of the United States (SCOTUS) heard arguments on the constitutionality of the Affordable Care Act; generating from a prior SCOTUS case that outlawed the Individual Mandate penalty, and effectively, the Individual Mandate.
Now, adversaries of the ACA say the ACA cannot stand without the Individual Mandate, and that the entirety of the ACA should be thrown out. All the while, Biden plans to double-down on the ACA, seen in his executed executive order since being in office.
Saying the makeup of the Supreme Court changed significantly is no exaggeration. Since 2012, when the Individual Mandate penalty was deemed a tax by Justice Roberts and the only time it appears the ACA had the best shot at being repealed all together, Justice Kennedy who voted in 2012 to strike down the mandate and the ACA all together, was replaced by Justice Kavanaugh. While his dissenting opinion in a lower court ruling that predates his tenure on the Supreme Court suggests he would find the penalty to be a tax as well, he, at that ruling, found the challengers should have to pay the tax prior to having standing to sue in court against the Individual Mandate.
Supreme Court justice Coney Barrett replaced Bader Ginsburg. While no prior opinion lends weight to what her decision would’ve been, her conservative position suggests she may have voted to invalidate the Individual Mandate.
Justice Gorsuch replaced Scalia in 2017, also appointed by former President Trump, and proved to be part of the conservative majority makeup of the Court, along with Roberts, Kennedy, Thomas, and Alito. With the addition of the three Trump-appointed Justices, the scale of conservativeness in the Court tipped in favor of conservatives the first time since the enactment of the Supreme Court. Some might suggest this meant ACA would be thrown out altogether, but this was not the case as ACA is now intricately entwined in the American healthcare and insurance weave. In the decision today, Gorsuch joined Alito in dissenting the decision to throw out the case, opening the mandate be thrown out with the ACA altogether. As the minority in the decision, this dissent of two Justices does not change the outcome that the ACA still remains the law of the land and there is a possibility that another lawsuit with other plaintiffs will be brought later.
- February 10, 2021—The U.S. government notified the U.S. Supreme Court that it changed its position and now believes that the Affordable Care Act is constitutional.
- November 10, 2020—Oral argument was heard.
- March 2, 2020—The U.S. Supreme Court agreed to hear the case.
- January 3, 2020—The petitioners filed a petition with the U.S. Supreme Court.
- December 18, 2019—The United States Court of Appeals for the 5th Circuit affirmed in part and vacated in part the district court’s ruling.
- December 14, 2018—The U.S. District Court for the Northern District of Texas ruled the ACA’s Individual Mandate was unconstitutional.
- 2017—Tax Cuts and Jobs Act zeros out Individual Mandate penalty
- March 21, 2010—Affordable Care Act enacted
In California vs. Texas, 20 states filed a lawsuit in the 5th District for the Northern District of Texas, challenging the Individual Mandate, claiming it was unconstitutional. The 5th Court of Appeals found a ruling of unconstitutional. A group of states then asked the Supreme Court to decide if the challengers to the law, a group of Republican state-led Attorneys Generals, and that the Individual Mandate was constitutional. The position of the federal government has changed throughout litigation. In an unusual move, the federal government chose not to uphold federal law, as it did during the Trump Administration. The appeal from the 5th District has been awaiting Supreme Court decision before their ruling any effect. A finding of unconstitutional would result in the secondary consideration as to whether the Individual Mandate is such an integral part of the ACA that all of ACA must be invalidated.
Those in the insurance market may have been able to guess the Supreme Court outcome, as ACA is part of regular discussions for those consulting on employee benefits plans. ACA is now a big part of how insurance is structured. Most will remain the same, with changes to rules being ongoing, as they usually are, but ACA remains the law. Be sure you are partnered with a reliable, trusted advisor to help you navigate the complexities of the ACA. While challenges will likely remain ongoing, one thing is for sure, Leavitt Group is here to follow those challenges and let you know when, how, and if those challenges will affect your employee benefits plans.
- California V. Texas SCOTUS Oral Arguments: 19-840 (supremecourt.gov)
- SCOTUS Blog: SCOTUSblog – Independent News & Analysis on the U.S. Supreme Court
- Kaiser Family Foundation Guide to California vs. Texas: Explaining California v. Texas: A Guide to the Case Challenging the ACA | KFF
This information is not intended or provided as legal advice and is educational in nature. Consult your attorney for compliance with law applicable to your specific circumstances.
Action Not Required
No action is required by employers as nothing changes as a result of this ruling. The ACA is the law for the foreseeable future. Be sure you partner with a trusted advisor like Leavitt Group to ensure you stay on top of the latest in employee benefits news that may affect your plans. Contact your Leavitt Group representative for more details.