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Status of Court Case Challenging ACA Constitutionality

On March 2, 2020, the U.S. Supreme Court (Supreme Court) announced that it will hear the court case challenging the ACA’s constitutionality. Previously, the Supreme Court declined expedited review of the case.

On December 18, 2019, the U.S. Court of Appeals for the Fifth Circuit (Appeals Court) held that the Patient Protection and Affordable Care Act’s (ACA’s) individual mandate is unconstitutional.

The Appeals Court remanded the case to the District Court for additional analysis on whether the individual mandate can be severed from the ACA. The Appeals Court is also directing the District Court to consider the government’s new arguments regarding the relief that should be provided to the plaintiff states and the two individual plaintiffs in the case.

To be clear, the Appeals Court decision and the Supreme Court’s order to hear the case do not impact employers’ group health plans at this time.

BACKGROUND

In 2018, 20 states filed a lawsuit asking the District Court to strike down the ACA entirely. The lawsuit came after the U.S. Congress passed the Tax Cuts and Jobs Act of 2017 (TCJA) that reduced the individual mandate penalty to $0, starting in 2019.

The plaintiffs argued that, without the penalty, the individual mandate is unconstitutional because it can no longer be considered a tax. The plaintiffs argued that the individual mandate is not severable from the rest of the ACA so if the individual mandate is unconstitutional, then the rest of the ACA is unconstitutional.

The U.S. Department of Justice (DOJ) responded that the individual mandate is unconstitutional without the penalty. The DOJ also argued that because the guaranteed issue and community rating provisions are inseverable from the individual mandate, the guaranteed issue and community rating provisions are also unconstitutional.

The individual mandate requires most people to have a certain level of health insurance coverage or pay a penalty (for 2018, the penalty was $695 per adult and $347.50 per child, or 2.5 percent of household income, whichever was greater). Guaranteed issue prohibits insurers from basing coverage eligibility on an individual's medical history and from excluding preexisting conditions on new plans. In the individual and small group markets, adjusted community rating means that premiums cannot be based on medical history and can only vary based on age, tobacco use, and geographic area.

Although the DOJ asked the District Court to declare the individual mandate, guaranteed issue, and community rating provisions to be unconstitutional as of January 1, 2019, the District Court went further than the DOJ's request.

On December 14, 2018, the District Court issued a declaratory order that the individual mandate is unconstitutional. The District Court found that the individual mandate is unconstitutional without the penalty and that the individual mandate is inseverable from the rest of the ACA. Because of its findings, the District Court declared that the individual mandate and the entire ACA – including its guaranteed issue and community rating provisions – are unconstitutional.

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