This Special Bulletin was authored by Heather DeBlanc and Amit Katzir.
A federal district judge in Texas ruled last Friday that the Patient Protection and Affordable Care Act’s individual mandate was unconstitutional and that the ACA’s other provisions were therefore also invalid.
The decision centers around the ACA’s “shared responsibility payment,” a penalty on individuals who decline to purchase insurance coverage pursuant to the ACA’s individual mandate. Construing this penalty as a tax, the U.S. Supreme Court ruled in 2012 that the individual mandate was constitutional under Congress’ power of taxation. However, last year, Congress reduced the shared responsibility payment amount to zero, effective January 1, 2019, as part of the Tax Cuts and Jobs Act of 2017. According to last week’s district court ruling, when this change in the law takes effect, it will eliminate the individual mandate’s constitutional hook.
Had the story ended there, the ruling could have been easily overlooked by employers as impacting only individual taxpayers. However, the district judge went a step further, finding that the remainder of the ACA was untenable absent the individual mandate. He held, therefore, that the entire law, which includes various provisions directed at employers, was invalid.
What Now for Employers?
The ACA’s employer provisions include:
- The employer shared responsibility provisions (aka the “employer mandate”), which requires “applicable large employers” (those with 50 or more full-time employees and full-time equivalents) to offer minimum essential coverage that is “affordable” and provides “minimum value” to at least 95% of their full-time employees (including dependents) or potentially incur penalties;
- Restrictions on reimbursement arrangements that constitute “employer payments plans” (discussed here and here);
- Various reporting requirements; and
- The Cadillac Tax, which was previously postponed until 2022.
In response to the ACA, many employers have reexamined and, in some cases, significantly changed their health benefits programs for employees. Many employers have also shifted resources to satisfy their reporting obligations under the ACA.
With a federal court now saying that the ACA no longer passes legal muster, what is an employer to do?
For now, the federal government has no immediate plans to stop enforcing the ACA. The case will almost certainly undergo review by a higher court. Indeed, the same day the Texas ruling came down, the White House stated that the law will remain in effect pending the appeal process. In the meantime, employers should still plan to comply with the ACA’s information reporting requirements for 2018, including the requirement to provide written statements to employees by March 4, 2019 and electronically file Forms 1094C and 1095C by April 1, 2019.
We will provide updates as the case makes its way through the courts. Stay tuned.
Update: On December 30, 2018, the district court ordered that its ruling be stayed pending an appeal of the case. In the meantime, the ACA’s employer provisions remain in effect.