Texas v. United States decision could impact employer-sponsored health plans

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On December 14, 2018, a Texas District Court ruled that the Affordable Care Act’s (ACA) requirement that certain individuals maintain a minimum level of health coverage, often referred to as the “Individual Mandate,” is unconstitutional in the wake of  the Tax Cuts and Jobs Act (TCJA) passed by Congress in December 2017. The court further held that, because the Individual Mandate is critical to the design of the ACA, all remaining provisions of the ACA are unconstitutional. Because the ruling appeared to invalidate the entire ACA immediately, the state attorneys general who stepped in as defendants in the action (the Intervenor Defendants) requested a second order (i) clarifying that the December 14 decision is not immediately effective (and that the ACA remains enforceable), and (ii) either entering a final appealable judgment or certifying the order for immediate appeal. On December 30, the District Court granted the Intervenor Defendants’ request for a final judgment and a stay during the pendency of an appeal.

This legal alert provides a brief overview of the District Court’s December 14 and December 30 decisions and the potential impact on employer-sponsored health plans if the entire ACA is found unconstitutional on appeal.  

Overview of the Decision

In early 2018, 19 states filed a complaint in the District Court for the Northern District of Texas captioned Texas v. United States. The complaint sought, among other things, a declaration that the Individual Mandate, as amended by the TCJA, is unconstitutional and that the remainder of the ACA is inseverable.

Section 5000A of the Internal Revenue Code, as added by the ACA, requires certain individuals to maintain health insurance coverage or make a “shared responsibility” payment. Until the enactment of the TCJA in December 2017, the individual shared responsibility payment was the greater of either 2.5% of household income or a flat dollar amount per uninsured individual. The TCJA reduced the individual shared responsibility payment to $0 beginning in 2019. The Plaintiffs asserted that because the Individual Mandate no longer triggers a penalty, the Supreme Court’s prior ruling in NFIB v. Sebelius, which upheld the constitutionality of the mandate as a permissible exercise of the tax power of Congress, no longer applies. Furthermore, the Plaintiffs asserted that, because the Individual Mandate is so critical to the construction of the rest of the ACA, it is “inseverable,” and thus the entire law is unconstitutional. 

The District Court agreed with the Plaintiffs’ arguments on the constitutionality of the Individual Mandate. The court noted that as long as the shared responsibility penalty remains $0, the Individual Mandate is “unmoored” from a tax, can no longer be “fairly readable as an exercise of Congress’s Tax Power,” and therefore must be ruled unconstitutional. With regard to the ACA’s remaining provisions, the court pointed to statements in the enacted text of the ACA referring to the Individual Mandate as an essential feature and a keystone of the law. The court reasoned that such statements were unambiguous evidence of the intent of Congress to treat the mandate as inseverable from the ACA, and consistent with this intent, the entire law must be held unconstitutional.  

In its December 30 order and final decision, the District Court reiterated its position, but agreed that suddenly declaring the ACA immediately void would cause chaos for patients, providers, insurance carriers, and federal and state governments. In fact, in the wake of the December 14 ruling, the Department of Health and Human Services placed a banner on the healthcare.gov open enrollment website that states: “Court’s decision does not affect 2019 enrollment or coverage,” signaling its concern regarding the impact of the decision. In light of these concerns, the court held that its December 14 decision on the unconstitutionality of the ACA will be stayed until Intervenor Defendants exhaust appellate review options. 

Given the District Court’s decision to stay the ruling, it is unlikely that consumers, insurers or employers will see changes to the ACA in the short term. The entry of a final judgment on December 30 paves the way for reconsideration by the US Court of Appeals for the Fifth Circuit. However, during the pendency of any appeals, the future of the ACA remains uncertain not only for the public, but also for employer-sponsored plans that are subject to the ACA’s group health plan provisions.  

Impact on Employer-Sponsored Health Plans

If the court’s decision regarding the constitutionality of the ACA withstands additional judicial scrutiny, the ruling would eliminate the legislative authorization for all provisions of the law, effectively repealing the statute in its entirety. While the full impact on group health plans is unclear, an affirming final decision from the Fifth Circuit or, possibly, the Supreme Court would certainly result in significant changes to employer-sponsored health coverage, including the following: 

  • The ACA’s insurance market reforms and other coverage protections would no longer apply to group health plans, including the prohibition of annual and lifetime limits on essential health benefits, restrictions on rescission of coverage, and limits on employee out-of-pocket costs.
  • Grandfathered health plans that are currently protected from some of the ACA’s insurance market reforms would be permitted to make changes to premiums, copays, deductibles, etc., without adding benefits required under the ACA, such as first-dollar preventive care and guaranteed access to OB-GYNs and pediatricians.                               
  • The employer shared responsibility payment would be eliminated; large employers would no longer incur penalties for failing to provide health coverage to full-time employees, and there would be no “affordability” requirements for employee premiums. 
  • Group health plans would be free to implement the 12-18 month pre-existing condition exclusion periods in place prior to the ACA, subject, presumably, to the limits on such exclusion periods under the creditable coverage rules.  
  • Because the requirement to cover children up to age 26 would be eliminated, plans could consider lowering the age limit for covered children to under 26 or adding additional conditions for coverage (such as requiring dependent status or excluding children who are eligible for health coverage through a spouse or an employer). 
  • For insured plans, the medical loss ratio (MLR) rules, which require plans to spend 80%-85% of premiums on medical services, would be eliminated, and employers would no longer be required to provide MLR rebates.
  • Employer-sponsored stand-alone health reimbursement accounts (HRAs) would no longer be required to integrate with group health coverage. 
  • Contributions to health flexible spending accounts (FSAs) would no longer be limited to $2,700 (for 2019; adjusted annually for inflation).
  • Changes to the claims procedures enacted by the ACA would be eliminated, including the requirement to provide for an external review of certain claims. 
  • Plans would be allowed to implement waiting periods of longer than 90 days for full and part-time employees.
  • Minimum essential coverage (MEC) reporting would be eliminated, and employers would no longer be required to report the cost of coverage on employees’ Form W-2. 

The items above represent a small sample of the potential impacts of a final decision striking down the ACA in its entirety. There are potential changes to the employer-sponsored health care system that can be predicted, and there will be others that may play out unexpectedly for months or years after a final decision.

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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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