What today’s decision means for America’s employers
The Supreme Court today has ensured the survival of the Affordable Care Act (ACA) by handing down its 7-2 ruling in California v. Texas, holding that the plaintiffs, led by the State of Texas, lacked standing to challenge the constitutionality of the individual mandate (or the Section 5000A(a) minimum essential coverage provisions). The ACA will remain intact.
The ruling is great news for the millions of Americans that, due to the Affordable Care Act, have access to affordable, quality healthcare. At the same time employers continue to face challenges to remain in compliance with regulations placed upon them under the ACA. With this ruling, employers should prepare for long-term compliance with health reform laws and regulations.
To understand what the ruling means and how it ultimately affects employers throughout the country, it is helpful to first understand how we came to today’s SCOTUS ruling. What follows is a brief history of ACA court challenges and summary of today’s Court decision.
A brief history of ACA court challenges
In 2012, the Supreme Court upheld the individual coverage mandate because it included an option to pay a tax penalty in lieu of purchasing insurance. Providing people this choice to “play or pay,” the Court ruled, was within Congress’ taxing authority.
Then, in 2017, after GOP efforts to repeal the ACA failed, Congress passed the Tax Cut and Jobs Act, which reduced the individual mandate tax penalty to $0. It did not repeal the tax or amend the language; it simply reduced the amount of the penalty to zero.
The following year, Texas led a charge in suing the federal government, alleging the individual mandate no longer fell under Congress’ taxing authority in light of the $0 tax penalty, and was, therefore, unconstitutional. The federal government elected not to defend the statute, and agreed with the plaintiffs that the individual mandate was unconstitutional.
As a result, 21 states, led by California and the House of Representatives, intervened to defend the individual mandate and the ACA. However, both the district court and court of appeals agreed with the plaintiffs – but for different reasons. The district court found the $0 tax penalty invalidated the entire ACA, whereas the court of appeals thought further analysis was necessary to determine which parts of the ACA could be saved and which should be struck down.
The case never made it back to the district court, however, because the Supreme Court agreed to hear the case in November 2020.
The court’s decision on GOP standing to challenge the case
Today, the Supreme Court ruled that there was no standing in the case. To have standing in this case, the plaintiffs had to prove that they were injured by the individual mandate. The State plaintiffs argued that they incur “pocketbook injury” from increased Medicaid program costs due to individuals enrolling to comply with the coverage requirement, and from having to complete and file forms for state employees verifying minimum essential coverage. (This argument actually convolutes the issue because the reporting requirements are not found in the individual mandate provision that was challenged.) The self-employed individual plaintiffs argued that they were injured by being compelled to purchase insurance they otherwise would have foregone.
The Court ruled there is no actual or threatened Government action that will cause an injury traceable to the individual mandate in the absence of a penalty for noncompliance. Without a valid enforcement mechanism, none of the plaintiffs face a “realistic danger of sustaining a direct injury as a result of the statute’s operation or enforcement.” And thus, none of the plaintiffs may properly bring a court challenge.
What all this means for employers
Just recently, the Department of Health and Human Services released new data on enrollment in health insurance coverage options under the ACA. The report estimates that a record high 31 million Americans were enrolled in marketplace or Medicaid coverage – showing the ongoing need for affordable coverage for many people.
While this is, indeed, good news for individuals, employers continue to face challenges to remain in compliance with regulations placed upon them under the ACA. With today’s Supreme Court ruling ensuring that the ACA will remain with us into the future, employers need to prepare for long-term sustained – and increased – complexity, as well as the passage of pandemic-related health reform laws and regulations.
What’s more, in the months ahead, America’s corporations can expect greater ACA penalty enforcement for noncompliance with the ACA’s Employer Shared Responsibility Provisions (ESRP) because:
- The IRS has announced plans to sunset its “good faith reporting relief” after tax year 2020.
- The Treasury Inspector General for Tax Administration is placing public pressure on the IRS to collect more in ACA ESRP penalties.
- The Biden administration is proposing a $1.2 billion increase in the IRS budget to ensure corporate and individual compliance with tax laws.
- The IRS has declared that there is no statute of limitations for ACA ESRP.
Which means that now, more than ever, employers need an ACA solutions provider who can help them stay on top of health reform and guide them through their compliance needs. So contact us today, we’re here to help.