Affordable Care Act Ruled Unconstitutional
On December 14, 2018, a federal court in Texas found the Affordable Care Act (ACA) individual mandate unconstitutional and not severable from the remainder of the law, in effect striking down the law as a whole.
This ruling does not relieve you or your clients from the requirements of this law. The ACA is still in place as the decision is being appealed. Therefore, continue to follow the law and all applicable filings for both your PEO and your clients.
Details of the Decision
In 2012, the Supreme Court found that the ACA’s individual mandate was not a permissible exercise of the Congress’ Commerce Clause powers. However, the Court then ruled that the corresponding tax penalty was a constitutional use of Congress’ taxation powers. Fast forward to 2017, when Congress passed a tax bill that eliminated the ACA’s individual mandate tax penalties. President Trump signed this bill into law, removing the tax penalties on those individuals who fail to purchase health insurance.
In response to tax reform, a group of twenty states attorneys general, led by Texas, filed suit early in 2018 in the federal District Court for the Northern District of Texas challenging the ongoing constitutionality of the entire ACA in light of the elimination of the tax penalty. The Department of Justice (“DOJ”) agreed with those states as to the unconstitutionality of the mandate, but did not agree that the entire law should be stricken down. Instead, DOJ argued that only those provisions directly related to the mandate (i.e., community rating and guaranteed issue requirements) should be stricken. A number of Democratic Attorneys General intervened in the case to defend the constitutionality of the mandate, and the ACA as a whole.
On December 14, 2018 Judge Reed O’Connor of the U.S. District Court in the Northern District of Texas held the mandate, without a tax penalty, to be unconstitutional. Further, because the Congress that passed the ACA had been explicit that the individual mandate was an “essential” part of the law, and because the Congress that passed the Tax Cuts and Jobs Act did not actually repeal any portion of the ACA (limiting its action to reducing the penalty to zero), Judge O’Connor ruled that it could not be severed from the rest of the law, thus invalidating the entire law. Judge O’Connor’s decision is a declaratory judgment, and did not grant the injunctive relief sought by Texas to prevent application of the law.
The ruling is stayed pending an appeal, meaning that the law will remain operative for both employers and insurers until a decision is made by the Fifth Circuit, or likely the Supreme Court.
Long before the passage of the ACA, PEOs worked with small and mid-sized business clients to provide their employees access to health insurance. Under the ACA, PEOs continue to provide the employees of these companies access to ACA-compliant health insurance. NAPEO members also assist their clients in complying with the employer mandate and the regulations that flow from this requirement. As ACA implementation has unfolded, NAPEO has monitored the efforts of federal agencies and state insurance departments to ensure that the PEO industry is kept up-to-date on the latest ACA implementation developments.
NAPEO and the Affordable Care Act (ACA)
In 2010, NAPEO was successful in having a statement read on the Senate floor clarifying that the application of small business tax credits, employer mandates, and non-discrimination testing should be at the PEO client level. This was accomplished through a Senate colloquy between Senators Nelson (D-FL), Baucus (D-MT), and Grassley (R-IA) which explained the Congressional intent of the ACA in specific PEO situations.
Moving forward, NAPEO believes that Congress should focus attention toward easing the cost and compliance burdens associated with the ACA. There are numerous bipartisan bills before Congress that could bring relief from the regulatory burdens of the ACA. That is why NAPEO is supporting legislation to change the definition of full-time employment in the ACA from 30 hours per week to 40 hours per week, as well as legislation to repeal the 40 percent excise tax on employer-provided health insurance. These proposals will help ease the burden of ACA compliance and make health insurance more affordable for the employees of small and mid-sized companies.