The Tax Cuts and Jobs Act modified IRC § 5000A(c) to set the individual shared responsibility payment to 0 for months beginning after December 31, 2018. This means that, beginning in 2019, individuals will no longer be subject to a penalty tax when they do not have Affordable Care Act (ACA) compliant health insurance. Because so many taxpayers already avoided the penalty because of affordability, hardship, religious, and other exemptions, the actual impact this change will have on the healthcare market is unclear.
But one court recently ruled that the ACA itself is void in light of this change. On December 14, 2018, United States District Court Judge Reed O’Connor ruled that when Congress set the individual shared responsibility payment to zero, it invalidated the Affordable Care Act in its entirety. Texas v. United States, No. 4:18-cv-00167-O (N.D. Tex. Dec. 14, 2018).
The court based its decision on Nat’l Fed’n of Indep. Businesses v. Sebelius (NFIB), 567 U.S. 519 (2012), in which the U.S. Supreme Court upheld the constitutionality of the individual mandate. The Supreme Court ruled in NFIB that while the individual mandate would not be a constitutional exercise of Congressional power under the Interstate Commerce Clause, it was constitutional under Congress’s Tax Power because the associated individual shared responsibility payment was a tax. In the recent case, the Texas court reasoned that if the individual shared responsibility payment is zero, there is no tax. As if there is no tax, there is no constitutional source of power for the individual mandate, which continues to direct individuals to purchase health insurance, even in the absence of a monetary penalty. The Texas court went on to find that the unconstitutional individual mandate is inseverable from the ACA as a whole because Congress clearly stated that the mandate was “essential” to the law. Because rewriting the ACA without the essential mandate is beyond the power of a court, the Texas court ruled that the remaining provisions of the ACA were thus invalid.
On December 30, 2018, the Texas court issued an order staying its judgment pending resolution of appeals. The court agreed that immediately implementing the judgment declaring the ACA void could cause chaos for patients, providers, insurance carriers,and federal and state governments. This means the ACA will continue in full force unless and until a final appellate decision upholds the Texas court’s judgment. In issuing the stay, the court stated that the Fifth Circuit was unlikely to disagree with its judgment.
We will keep you posted.
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