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What the Recent ACA Individual Mandate Ruling Means for Employers

On Dec. 18, the 5th U.S. Circuit Court of Appeals issued an opinion on the constitutionality of the Affordable Care Act (ACA). On a 2-1 vote, the court found the individual mandate – the requirement that individuals maintain health insurance or pay a penalty – unconstitutional now that Congress has reduced the penalty to $0.

However, the court sent the remainder of the ACA back to the federal trial court to consider whether it could survive without the mandate.

What employers need to know

Courtroom Gavel

The 5th Circuit’s decision changes nothing for employers right now. The ACA’s requirements, other than the individual mandate, remain in place, so employers must make it a priority to continue to comply with them.

This includes the requirement for large employers to offer coverage to full-time employees and their dependents, to provide Forms 1095 to their employees, and to file Forms 1094 and 1095 with the IRS.

Until a final decision is reached, as described in the process below, employers should continue to observe all ACA requirements and filing deadlines.

How we got here

In 2018, a federal trial court in Texas held in Texas v. Azar (also known as Texas v. U.S.) that the individual mandate was unconstitutional.

This is because the mandate could no longer be interpreted as a tax after the Tax Cuts and Jobs Act of 2017 reduced the penalty amount to $0 for tax years beginning in 2019.

If the individual mandate was not a tax, the Texas court held, it was no longer a constitutional expression of congressional taxing powers, as Chief Justice John Roberts found it to be in NFIB v. Sebelius in 2012.

The trial court then considered whether all ACA provisions could stand without the mandate, a process known as severability analysis. The court found the remaining parts of the law to be impossible to separate from the mandate and, therefore, must also fall. This decision was appealed to the 5th Circuit Court of Appeals.

The 5th Circuit agreed and upheld the lower court’s decision that the individual mandate was unconstitutional. However, it remanded the case to the U.S. District Court for the Northern District of Texas to apply a “finer-toothed comb” to the remaining provisions of the ACA, and consider more specifically and individually whether each provision can stand without the mandate.

Doctor discussing insurance with patient

The case’s future

Updated Document

At this point, the states involved in the case arguing for the ACA’s constitutionality might appeal directly to the Supreme Court to review the 5th Circuit’s decision. However, since the 5th Circuit remanded the case to the Northern District of Texas, the decision is not yet final, and the Supreme Court rarely takes cases not fully finalized by lower courts.

If the Supreme Court does not decide to hear the case, Judge Reed O’Connor of the Northern District of Texas will further review the remaining provisions’ ability to survive without the individual mandate, which will include additional briefing and argument from the parties.

After his court issues another opinion, the case most likely will be appealed to the 5th Circuit again, and from there, may go to the Supreme Court.

This process will take time. A decision likely will not come until after the 2020 presidential election.

This blog includes general information about legal issues and developments in the law. Such materials are for informational purposes only and may not reflect the most current legal developments. These informational materials are not intended, and must not be taken, as legal advice on any particular set of facts or circumstances. Contact a lawyer licensed in your jurisdiction for advice on specific legal problems.