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The New ACA ‘Decision’ by Judge Reed O’Connor: What You Need to Know Now

January 3rd, 2019

By: Louise F. Pongracz

The New ACA “Decision” by Judge Reed O’Connor: What You Need to Know Now

On December 14, 2018, Federal District Judge Reed O’Connor (in the Northern District Court of Texas) issued an order on a challenge to the Affordable Care Act (“ACA”) brought by 20 Republican state attorneys general and two individuals.  These Plaintiffs claimed that because Congress, in the Tax Cuts and Jobs Acts (“TCJA”), lowered the penalty for failing to purchase health coverage to $0, the ACA’s “individual mandate” was unconstitutional and that without the individual mandate, the entire ACA must fall.  Judge O’Connor agreed with the Plaintiffs and issued an order purporting to strike down the entire ACA.

The ruling was quickly the subject of criticism from both liberals and conservatives and will likely be appealed as soon as possible to the Court of Appeals for the Fifth Circuit and, from there, to the U.S. Supreme Court.  Already, parties supporting the ACA have asked Judge O’Connor to issue certain additional orders confirming that the ACA remains valid and enforceable even after January 1, 2019, to prevent the court’s ruling from causing confusion and disruption in the health care system. We will continue to follow developments related to this case carefully and provide updated guidance as more information becomes available.

Key Takeaways:

  1. Don’t Panic: Even assuming that the ruling is upheld on appeal and could eventually force some changes to the ACA, we do not anticipate that changes will be made to the ACA or the Marketplace in 2019. The ACA protections, like prohibitions on pre-existing conditions and coverage for eligible dependent children up through age 26, will likely remain in place for next year. The U.S. Department of Health and Human Services issued a statement on December 17, 2018, declaring that it “will continue administering and enforcing all aspects of the ACA as it had before the court issued its decision.” Importantly, the Court issued an Order on December 30, 2018 staying the effect of the December 14, 2018 decision while it is being appealed first to the U.S. Fifth Circuit Court of Appeals and likely to the U.S. Supreme Court.
  1. The Key Conclusions of the Court are Vulnerable to Significant Legal Challenges 
  • Conclusion #1: The individual mandate is unconstitutional.
    • The fact that the penalty was reduced to $0 does not mean that the “individual mandate” was eliminated.The cornerstone of the court’s ruling is that the individual mandate is unconstitutional. The court’s reasoning is that because the United States Supreme Court upheld the individual mandate as a “tax,” the mandate disappeared when the penalty was reduced to $0 by the TCJA. And, because the “tax” is eliminated, the individual mandate is unconstitutional. The court’s conclusion, however, misstates the nature of the change that the TCJA made to the ACA. The reduction made by the TCJA in the amount of the penalty was made as part of Congress’ budget reconciliation process. Generally stated, changes made through the budget reconciliation can only affect money issues, not substantive changes to a law. Under the budget reconciliation process, the amount of the penalty could be reduced to $0 but the mandate itself could not be amended. Even if the penalty is now $0, it is certainly possible that in the upcoming Congressional session, a bill could be introduced to increase the penalty to some amount more than zero. Moreover, as many intervening parties noted, in passing the TCJA, Congress decreased the amount of the penalty but specifically did not attempt to repeal the mandate (or any other part of the ACA). So, the individual mandate is not, in fact, eliminated.
  • Conclusion #2: The individual mandate is essential to the whole of the ACA and is not “severable” from the remainder of it; once the mandate is struck down, the entire ACA must fall.
    • Even assuming that the individual mandate is struck down, the court’s severability discussion is not supported by the facts or the law. In general, severability refers to the legal doctrine that when one part of a statute is held to be illegal or unenforceable, the remaining portions of the statute may nonetheless remain valid and enforceable. It is often applied in challenges to big, complicated statutes like the ACA. In general, federal courts presume that a freestanding statutory provision, such as the individual mandate, is severable from the rest of the statute.The court here did not and cannot cite any clear legislative or judicial support for its conclusion that the individual mandate is not severable from the rest of ACA. The individual mandate is important only to a small part of the ACA. The ACA, however, is a wide-ranging statute that made many changes to areas of health benefits having nothing to do with the individual mandate (for example, the Prevention and Public Health Fund (Prevention Fund), expansion of public health programs, Medicare Part D drug plan, and Medicaid, to name only a few). Nothing in the court’s order shows how the individual mandate relates to any of these provisions of the law or why the entire ACA should fall because the individual mandate is eliminated.Moreover, the court’s analysis and justification for finding that the entire ACA must fall relies largely on the non-binding dissent of a minority of Supreme Court justices in an earlier, unsuccessful challenge to the ACA (National Federation of Independent Businesses v Sebelius, 132 S.Ct. 2566 (2012)).
  1. Next Steps: It’s crucial to educate members, friends, family and anyone who will listen about the importance of the ACA. A friend was driving across the country during Congress’ noisy but unsuccessful attempt to overturn the ACA. Over and over he heard people say, “I don’t need to worry – I don’t have Obamacare, I have coverage under the [Affordable Care Act] Marketplace.” And, many people who have coverage through their employment don’t realize that, but for the ACA, their plans would not include mandates requiring dependents to be able to keep their coverage until age 26 or prohibiting plans from having pre-existing condition exclusions – and many other protections. It may be that the ACA could benefit from some changes. However, any changes must be made with full knowledge of what the ACA does – and does not – do. This means that every person who has benefitted from the ACA – which includes nearly every person with any health benefits coverage – needs to understand what health benefits would look like without the law and to be prepared to advocate for themselves and their families to protect the Affordable Care Act.

If you have any questions about healthcare benefits, or any other labor and employment matters, please contact a Willig, Williams & Davidson attorney at 215-656-3600.

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