Fifth Circuit Rules Individual Mandate Unconstitutional, Punts on Whether Entire ACA Must Fall

On December 18, 2019, a three-judge panel of the US Court of Appeals for the Fifth Circuit ruled that the minimum essential coverage (MEC) provision (otherwise known as the “individual mandate”) of the Affordable Care Act (ACA) is unconstitutional. However, the appeals court declined to rule on whether the individual mandate rendered the entire ACA unconstitutional or if it can be severed from the ACA. The appeals court remanded that matter back to the district court to make the determination. As a reminder, the matter came before the appeals court after US District Judge Reed O’Connor of the Northern District of Texas ruled that the individual mandate was unconstitutional and so integral to the ACA that the entire law must be overturned.

The question of whether the individual mandate is unconstitutional or not hinges upon the tax penalty imposed upon taxpayers who fail to obtain health insurance that provides MEC. A previous ruling by the US Supreme Court, back in 2012, determined that Congress had the authority to create an individual mandate in the ACA through its power to tax. Thus, as long as the law imposed a tax, the mandate was constitutional. In late 2017, Congress reduced the tax to $0, and in response 20 states and two individuals challenged the ACA on the basis that Congress waived its authority to impose the individual mandate when it declined to impose a tax. Both the district court and the appeals court accepted this argument.

The appeals court remanded back to the district court the issue regarding whether the individual mandate causes the whole ACA to fail. The appellate court asks the district court to determine two things: 1) which provisions in the ACA are so intertwined with the individual mandate that they must also be severed from the ACA; and 2) whether the court can enjoin only those provisions of the ACA that injure the states and individuals that brought the suit or declare the ACA unconstitutional only as to those states and individuals.

The lawsuit will continue to move through the courts for some time. California, one of the states defending the ACA in this lawsuit, has already indicated that it will appeal this decision to the Supreme Court. Even if the Supreme Court declines to take up the matter at this time, the district court must now reconsider key issues, as noted above, and issue new rulings that will very likely be appealed as well. Although it is very difficult to predict the course of any lawsuit, it is not unreasonable to expect this one to take many more months to resolve.

For employers and group health plans, the Fifth Circuit decision does not change any requirements or obligations currently imposed under the ACA. Specifically, employers should continue their efforts toward timely ACA employer reporting and compliance with other coverage mandates, as the regulatory agencies will continue enforcing the ACA.