Compliance News | June 17, 2021

U.S. Supreme Court Throws Out Latest Challenge to the ACA

On June 17, 2021, the U.S. Supreme Court threw out the latest challenge to the ACA. The Court ruled 7–2 in California v. Texas that 18 states and two individual plaintiffs lacked standing to argue that the individual mandate to purchase health insurance is unconstitutional.

The decision puts to rest the latest effort to overturn the ACA. Plan sponsors will not need to take any action with respect to today’s opinion.

Woman Walking Up Steps Of US Supreme Court

Background on the ligitation

The legal question at the heart of this case is whether the ACA’s individual mandate was rendered unconstitutional after Congress reduced to zero the tax penalty for not having health coverage. This reduction in the penalty, which was part of the Tax Cuts and Jobs Act (enacted in December 2017), took effect January 1, 2019. The core argument in this case was that once Congress “zeroed” out the penalty, the individual mandate could no longer survive as a “tax” and thus was not supported by Congress’s power to tax individuals who do not purchase health insurance.

The case is an appeal of a decision from the U.S. Court of Appeals for the Fifth Circuit, Texas, et. al, v. United States, No. 19-10011 (5th Cir. Dec. 18, 2019), which ruled that the law’s individual mandate is unconstitutional. The Fifth Circuit had ordered a lower court judge to reconsider whether any of the ACA could survive invalidation of the individual mandate. However, the case was brought to the Supreme Court for decision before that review could occur. Other legal issues in the appeal included (1) whether the parties who brought the lawsuit were permitted to bring such a challenge in the first place; and (2) the implications of any decision to invalidate the mandate on other provisions of the ACA.

For more information about the background of this litigation, see our December 20, 2019 insight and our
March 2, 2020 insight.

U.S. Supreme Court finds no standing

The Supreme Court held that plaintiffs in the case did not have standing to challenge the individual mandate because they had not shown a past or future injury fairly traceable to the existence of the mandate. The Court found that the two individual plaintiffs who claimed harm could not show an injury because a mandate of “zero” was unenforceable against them. Similarly, the Court found that Texas and other state plaintiffs failed to show the pocketbook injuries they alleged were related to the mandate. The Fifth Circuit decision was reversed.

Justice Stephen Breyer wrote the 7–2 decision, in which Justices John Roberts, Clarence Thomas, Sonia Sotomayor, Elena Kagan, Brett Kavanaugh and Amy Barrett joined. Justice Thomas filed a concurring option, and Justice Samuel Alito wrote a dissenting opinion, which was joined by Justice Neil Gorsuch. Justice Alito’s dissent would have found that the state plaintiffs had standing, the mandate could not be upheld as a taxing authority since the tax was zero, and the provisions of the ACA that were linked to the mandate should be found unconstitutional.

Implications of the ruling

The Affordable Care Act has been challenged repeatedly in a variety of legal and legislative forums. California v. Texas is the last decision in a trilogy in which the U.S. Supreme Court has upheld the ACA. The latest decision solidifies the ACA as a cornerstone of American healthcare policy, and may put to rest additional challenges at least for the time being.

President Joe Biden has stated he intends to build on and expand protections of the ACA. Senate Majority Leader Chuck Schumer (NY) said in reaction to the decision, “The Affordable Care Act has won. The Supreme Court has just ruled the ACA is here to stay. And now we're going to try and make it bigger and better.”

Employee benefits professionals will be watching to see what changes may be proposed to the ACA, particularly with respect to issues such as the employer shared responsibility penalty. In addition, the administration had proposed to modify the “firewall” between the ACA exchange and employer-sponsored coverage in a way to allow individuals to enroll in the exchanges even if they have access to employer-sponsored coverage. Other issues to watch include legislative efforts to extend Medicaid to non-expansion states, to make the American Rescue Plan Act’s enhancement to ACA subsidies permanent and to expand Medicare to age 60.

Provisions of the ACA affecting plans, such as the age 26 requirements, ban on preexisting conditions and preventive benefit requirements for non-grandfathered plans, remain unaffected by today’s opinion.

Questions about the decision?

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This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.

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