Employers must continue to comply with the Affordable Care Act's employer mandate provisions and reporting.
On June 17, 2021, the U.S. Supreme Court issued its decision in California v. Texas, the latest court challenge to the Affordable Care Act ("ACA"). The Supreme Court held 7-2 that the plaintiffs do not have standing, a legal right to bring a lawsuit, because they have not shown a past or future injury that is fairly traceable to the defendants' conduct. The Supreme Court's ruling means the ACA remains intact and no ACA compliance requirements change for Applicable Large Employers; i.e., requirements to offer affordable health coverage to full-time employees and to track and report health coverage details to employees and other covered persons, and to the IRS.
In 2012, the last time the Supreme Court addressed the ACA's individual mandate, it ruled in NFIB v. Sebellius that the individual mandate was not a constitutional exercise of Congress's Commerce Clause power, but rather was constitutional under Congress's taxing authority. Five years later, as part of the Tax Cuts and Jobs Act of 2017, Congress lowered the individual mandate tax to zero for tax years beginning January 1, 2019.
In February 2018, Texas, other states and two individuals challenged the constitutionality of the ACA. In the case, Texas v. U.S., the plaintiffs argued that because the individual mandate no longer raises revenue for the government, it is no longer a tax and therefore is unconstitutional. They further argued that the entire ACA is unconstitutional because the individual mandate cannot be separated from the rest of the ACA – i.e., it is not "severable." California and a group of like-minded states intervened in the case, arguing that a zero penalty could still be a "tax," and that even if it was not, the 2017 Congress that "zeroed out" the tax clearly intended that the remainder of the ACA remain or it would have repealed the ACA in its entirety.
The U.S. District Court for the Northern District of Texas ("District Court") ruled in December 2018 that the individual mandate was unconstitutional, and the entirety of the ACA must be struck down, because the Congress in 2010 would not have passed the ACA without the individual mandate. The case was then appealed to the Fifth Circuit Court of Appeal ("Fifth Circuit"). After the appeal was filed, the Department of Justice ("DOJ") informed the Fifth Circuit that it agreed with the plaintiff states that the individual mandate was unconstitutional and that the rest of the ACA should be struck down as unconstitutional as well. The DOJ also argued that only the parts of the ACA that harm the plaintiffs are illegal and that the Fifth Circuit should send the case back to the District Court to determine appropriate relief (an action called "remanding" the case). The U.S. House of Representatives joined as an intervenor defending the ACA.
On December 18, 2019, the Fifth Circuit issued a ruling in which it affirmed the District Court's holding that the ACA's individual mandate is unconstitutional. Instead of deciding the legality of the rest of the law, however, it remanded or sent back the case to the District Court to provide additional analysis of what provisions of the ACA, if any, could be severed from the individual mandate.
Both sides (Texas, et. al. and California, et. al.) filed petitions to the Supreme Court, asking it to review the case (before the District Court completed its review). On March 2, 2020, the Supreme Court granted certiorari – meaning it agreed to hear the case – on the following questions:
- whether the individual and state plaintiffs challenging the ACA have standing (the right to sue);
- whether the individual mandate is constitutional, given that the penalty was reduced to zero;
- whether, if the mandate is unconstitutional, it can be severed from the rest of the ACA; and
- whether the District Court was correct in declaring the entire ACA invalid.
The Supreme Court heard oral argument on November 10, 2020. Notably, many of the questions asked by the Supreme Court justices focused on standing. The Supreme Court issued its opinion on June 17, 2021.
Supreme Court Finds the Plaintiffs Did Not Have Standing
Generally, based on the questions presented in this case, there were several possible outcomes:
- the Supreme Court concludes that the plaintiffs did not have standing and vacates the decisions below;
- the Supreme Court determines that the individual mandate remains constitutional;
- the Supreme Court agrees that the individual mandate is now unconstitutional, but the rest of the statute remains; or
- the Supreme Court agrees that the individual mandate is unconstitutional and holds that some or all of the rest of the ACA is also unconstitutional.
In its opinion, the Supreme Court did not address questions concerning severability or constitutionality, but rather found that the plaintiffs did not have standing, the right to sue.
The Court concluded that the plaintiffs led by Texas "failed to show that they have standing to attack as unconstitutional the [ACA]'s minimum essential coverage provision. Therefore, we reverse the Fifth Circuit's judgment in respect to standing, vacate the judgment, and remand the case with instructions to dismiss."
The outcome of the case preserving the ACA is significant. If the Supreme Court had decided the individual mandate is unconstitutional and not severable, the invalidation of the entire law would have had significant consequences for individuals, employers, private insurance markets, public health care programs, and other stakeholders. Even though it is possible that the same claims could be raised by different plaintiffs with actual standing, the ACA remains intact. All employer-related provisions of the ACA, including the employer mandate and related reporting requirements, remain in effect.
ADP Compliance Resources
ADP maintains a staff of dedicated professionals who carefully monitor federal and state legislative and regulatory measures affecting employment-related human resource, payroll, tax and benefits administration, and help ensure that ADP systems are updated as relevant laws evolve. For the latest on how federal and state tax law changes may impact your business, visit the ADP Eye on Washington Web page located at www.adp.com/regulatorynews.
ADP is committed to assisting businesses with increased compliance requirements resulting from rapidly evolving legislation. Our goal is to help minimize your administrative burden across the entire spectrum of employment-related payroll, tax, HR and benefits, so that you can focus on running your business. This information is provided as a courtesy to assist in your understanding of the impact of certain regulatory requirements and should not be construed as tax or legal advice. Such information is by nature subject to revision and may not be the most current information available. ADP encourages readers to consult with appropriate legal and/or tax advisors. Please be advised that calls to and from ADP may be monitored or recorded.
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Updated on June 17, 2021
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