Affordable Care Act Update April 7, 2014: High Courts Vet Key Provisions Of The Affordable Care Act Government Extends Enrollment Deadline

March 2014 has produced quite a bit of activity regarding the Patient Protection and Affordable Care Act ("ACA").  On March 24, 2014, oral argument was held in the latest challenges to the ACA in Sebelius v. Hobby Lobby Stores, et al. before the United States Supreme Court, and in Halbig v. Sebelius before the United States Court of Appeals for the District of Columbia Circuit.  That same day as these legal challenges, the Obama Administration, on its own accord, delayed once again the deadline to enroll in health insurance coverage for parties that represent they began the enrollment process before the deadline but did not complete the enrollment process for whatever reason. 

A summary of these significant updates with respect to the ACA are as follows:

Sebelius v. Hobby Lobby Stores

In the Hobby Lobby case, the Supreme Court must decide whether the ACA's mandate requiring certain for-profit employers to provide contraceptives coverage for its employees violates the Religious Freedom Restoration Act ("RFRA"), 42 U.S.C. §§ 2000bb et seq.  RFRA prohibits the Government from "substantially burdening a person’s exercise of religion” unless it has selected the least restrictive means to further a compelling governmental interest.  The lead plaintiff/appellee in the action is Hobby Lobby Stores, a closely held corporation whose owner has firmly held religious beliefs.  Hobby Lobby is claiming that the company itself is opposed on religious grounds to the requirement under the ACA that it provide the four abortifacient contraceptive methods among the 20 or so approved by the FDA ("the contraceptive mandate").  Hobby Lobby claims the contraceptive mandate substantially burdens its exercise of religion under the RFRA. 

At bottom, the Court must decide whether a corporation can qualify as a "person exercising religion" under the RFRA.  If so, it must decide whether mandating contraceptive coverage substantially burdens a person's religious exercise; and whether the contraceptive mandate is the least restrictive means of achieving the Government's alleged compelling interest of providing "public health and gender equality.” 

Hobby Lobby maintains that the contraceptive mandate imposes a substantial burden because it created a Hobson's choice: either (1) provide access to contraceptive options Hobby Lobby ownership deemed morally objectionable, (2) eliminate health insurance coverage altogether for its employees (which also would run contrary to the ownership's personally held religious beliefs) and pay an annual fine of more than $26 million, equivalent to a $2000 fine imposed on Hobby Lobby for not providing any health insurance for its more than 13,000 employees, or (3) eliminate coverage for only the contraceptive component, which would result in a $100 per day fine per employee, equivalent to a $1.3 million fine per day, or $475 million in fines per year.  Under any scenario, Hobby Lobby maintains, it is either pressured to compromise on its own, deeply held religious beliefs and become complicit in morally objectionable behavior, or face stiff fines thereby making its free exercise of religion more expensive.  Hobby Lobby also called into question the Government's "compelling interest" served by the mandate, given that does not actually preclude employees from access to such contraceptive options, only that Hobby Lobby itself does not want to directly pay for that access.

At oral argument, the Court probed the threshold question of whether a for-profit corporation – even a closely held corporation – can bring a free exercise claim under the First Amendment.  The Government's position appeared to be that the for-profit corporate form is inherently inconsistent with pursuing free exercise claims.  The Government relied on United States v. Lee, 455 U.S. 252 (1982) for the proposition that once a party decides to enter the commercial marketplace and form a for-profit corporation, that party loses standing to bring a RFRA or First Amendment challenge.  Chief Justice Roberts in one exchange with the Government queried why, if every court of appeal has held that for-profit corporations can bring racial discrimination claims as corporations, those same for-profit corporations could not also bring free exercise claims.  In another exchange, Justice Kennedy intimated the Government's theory would, by logical extension, preclude for-profit corporations from suing if forced to actually pay for abortions.  While contending that was not a question presented in this case (despite plaintiffs' deeply held beliefs that compelling them to fund the four abortifacient contraceptive methods was, in essence, compelling them to fund abortions), the Government conceded that, under its theory of this case, a for-profit corporation like Hobby Lobby would be barred from bringing a free exercise challenge to a requirement to fund abortions.  And, drawing on a recent Danish prohibition on kosher and halal slaughter methods on grounds that they are inhumane, Justice Alito inquired whether, if transplanted here in the United States, five Jewish or Muslim butchers joining together in a corporation could assert a First Amendment or RFRA claim if compelled to use non-kosher methods to butcher animals for non-religious reasons.  If corporations could not "exercise religion," a corporation that was compelled to engage in such activity would never have its day in court. 

The Court also questioned both sides on the purported "compelling" nature of the Government's interest in achieving public health through the contraceptives mandate considering that, for instance, it created an accommodation that does not impose the contraceptive mandate on "grandfathered" insurance plans. 

As is apparent from the briefs and oral argument, a ruling coming out either way will have significant and far reaching implications for for-profit corporations and the viability of the ACA in its present form going forward.  A decision is expected by the end of the Court's term in Summer 2014.

Halbig v. Sebelius

The Halbig case involved a challenge to an Internal Revenue Service ("IRS") regulation that purports to implement the provisions of the ACA authorizing federal tax credit subsidies to certain consumers purchasing health insurance through a State exchange.  Because the tax credit language arguably is limited to coverage purchased through a State exchange, the DC Circuit must decide whether the IRS may promulgate regulations extending such subsidies to consumers who obtained health coverage on an exchange established by the federal government under Section 1321 of the ACA, codified at 42 U.S.C. § 18041. 

By way of background, the IRS allowed such tax credits in the 34 states that have not established a state exchange and where only an exchange operated by the federal government exists.  If the ACA is interpreted to condition tax credits on the establishment of a state exchange, as appellants note, the IRS will be not only be in violation in the law by issuing such tax credits, but the Government will find it extremely difficult to successfully implement the ACA without amending the ACA.  Among other problems, the tax credits are meant to help those that cannot afford insurance to purchase insurance, and without such credits, many will not be able to afford insurance.  The lack of a tax credit may also severely hamper the effect of the ACA's individual mandate requiring every citizen to have health insurance, because the ACA exempts a party from the individual mandate if insurance premiums exceed an "affordability threshold" established by the ACA.  26 U.S.C. § 5000A(e)(1), (5).  Without the tax credit, insurance premiums may exceed the affordability threshold and exempt many from the individual mandate since many states have not established exchanges.  Id.  The unavailability of the tax credit will also significantly affect employers because the ACA imposes fines on employers that fail to provide insurance to full-time employees.  Those fines only come into play, however, if at least one employee enrolls in coverage for which “an applicable . . . tax credit … is allowed or paid.” 26 U.S.C. § 4980H.  Thus, if tax credits are not available in a state due to the lack of a state-established exchange, employers will not be subject to fines from the ACA's employer mandate for failure to provide insurance to full-time employees. 

At oral argument, the DC Circuit appeared to be skeptical of the Government's argument that the ACA's provisions facially limiting applicability of tax credits to insurance purchased on state-established exchanges, in turn, allowed the IRS to apply such tax credits to insurance purchased in a state with no health insurance exchange.  In particular, Judge Raymond A. Randolph questioned how the ACA's clear language of "[a]n exchange established by the state" could be interpreted to mean "an exchange that's established by the federal government." And, as Appellants argued, the IRS would have no authority to separately interpret the "state exchange" clause given its plain and unambiguous language, and that the IRS's interpretation to the contrary is entitled to no Chevron deference.

Partial Extension of Enrollment Deadline

On March 25, while the ACA was undergoing vigorous challenge in the Supreme Court and DC Circuit, the Washington Post reported that all consumers who submitted applications for coverage on HealthCare.gov, but did not finish by the Monday, March 31, 2014 deadline, will be permitted to request an extension until mid-April to receive coverage.  This, after numerous officials in the Obama administration have insisted that the March 31, 2014 was a firm deadline, drew additional fire from critics of the ACA.

*  *  *

In summary, the ACA faced significant challenges at the end of March 2014..  Going forward, employers and health care organizations should track these developments closely as the Hobby Lobby case has significant implications for such parties, and the Halbig case has the potential to derail the ACA. 

Topics:  Affordable Care Act, Contraceptive Coverage Mandate, Employer Healthcare Costs, Employer Mandates, First Amendment, Freedom of Religion, Healthcare, IRS, Tax Credits

Published In: Civil Procedure Updates, Constitutional Law Updates, Health Updates, Labor & Employment Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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