Locke Lord QuickStudy: Tracking Tax Reform: [Un]Intended Consequences For The ACA

Late at night on December 14, 2018, Judge Reed O’Connor of the U.S. District Court for the Northern District of Texas issued his decision in Texas v. U.S., No. 4:18-cv-00167, that the individual mandate under the Affordable Care Act (“ACA”) is unconstitutional due to the removal of the corresponding tax penalty in connection with the passage of the 2017 tax act (which was ultimately named “To provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018” (the “2017 Tax Act”).

As background, the ACA requires individuals to either have health insurance or pay a tax penalty for the failure to obtain that health insurance coverage. Previously in Nat’l Fed’n of Indep. Businesses v. Sebelius (NFIB), 567 U.S. 519 (2012), the Supreme Court ruled the personal mandate was constitutional based on the application of Congress’s power to impose taxes. The 2017 Tax Act, however, eliminated the tax penalty imposed for the failure to obtain individual health insurance coverage. In Texas v. U.S., the Court found that not only was the elimination of the tax penalty fatal for the individual mandate, but it was also inseverable from the rest of the ACA, and therefore ruled that the entire ACA is invalid.

 

This decision has now put in jeopardy the following key provisions of the ACA:

• Mandated employer provided health coverage. The ACA required that employers with 50 or more full-time employees either provide health coverage (that is affordable and provides minimum value) to employees who work 30 hours or more on average or pay tax penalties for the failure to offer coverage (or failure to offer affordable coverage that provides minimum value). If the employer shared responsibility provisions and related tax penalties are held invalid, employers are likely to go back to prior practices of providing health coverage to only those employees who work on average 35-40 hours per week or more. This would result in the loss of health coverage for a significant number of employees across the U.S. 
• Pre-existing condition prohibitions. The ACA prohibited health plans from excluding coverage or charging more for coverage as a result of an individual’s pre-existing conditions. Since pre-existing conditions cost health plans a large amount of money, it is likely these would be reintroduced to reduce expenses for the plans. This could result in a large coverage gap for many people as the availability of coverage and the cost of coverage will go up for those with pre-existing conditions.
• Extended coverage for adult children. The ACA mandates that employer group health plans must provide coverage for adult children up to age 26. If this mandate is eliminated, employers are likely to go back to prior practices of providing health coverage to only those children up to age 19 or with an extension of that coverage up to age 24 for children who are in college. This would result in the loss of health coverage for a large number of adult children across the U.S. 
• Coverage of preventive health care with no cost share. The ACA required that health plans provide certain preventive care at no cost sharing. This was intended to help individuals get access to care before becoming sicker which would ultimately reduce costs under health plans. However, the cost of providing these services for free may not outweigh the cost of the population becoming sick later – especially if pre-existing conditions are reintroduced.

Commentators are currently not clear on the path forward as a result of this decision. Judge O’Connor did not grant the injunction that the plaintiffs were seeking (to prevent enforcement of the law pending appeal) and similarly did not grant a stay (to ensure the law continues pending appeal). We recommend employers take a wait and see approach on making any changes to their plans as we expect that Texas v. U.S. will head to the Supreme Court on appeal.