Affordable Care Act Remains in Effect, Along with ESR Provision, As U.S. Supreme Court Begins Review

• U.S. Supreme Court agreed to review Court of Appeals for Fifth Circuit decision upholding Texas U.S. District Court’s ruling that the ACA individual mandate is unconstitutional.
• Given the magnitude of case, a decision is not likely until the end of the Court’s term in late spring.
• As the case proceeds, the ACA is the law of the land and employers and individuals should continue to meet obligations under the law.

The U.S. Supreme Court agreed to take up California v. Texas this term and heard oral arguments on Nov. 10, exactly a week since the presidential election. As expected, the Affordable Care Act (ACA) was a focal point of the presidential election.     

In California v. Texas, the U.S. Court of Appeals for the Fifth Circuit, in a 2-1 decision on Dec. 18, 2019, agreed with the U.S. District Court in Texas that the ACA’s individual mandate provision became unconstitutional when the 2017 Congress reduced the penalty to zero ($0) and it could no longer be considered a tax under Congress’ taxing authority.

However, the appeals court did not invalidate the ACA, as the Texas court did in its 2018 decision when the judge ruled that the remainder of the ACA could not be separated from the individual mandate. In that decision, the court did not issue an injunction to stop the enforcement of the ACA, so the law remained intact.

As part of the appeals court ruling in 2019, the case has been remanded back to the lower court to further analyze which ACA provisions are so intertwined with the individual mandate provision that they cannot be separated. The appeals court also directed the lower court to further consider the intent of Congress in 2017 when it reduced the individual mandate penalty to zero ($0).

“The rule of law demands a careful, precise explanation of whether the provisions of the ACA are affected by the unconstitutionality of the individual mandate as it exists today,” the court wrote in issuing its decision.

What do employers and individuals need to do about ACA?

The ACA is in effect and continues to be the law of the land. In addition to meeting their obligations under the ESR provision of the ACA, employers should note that gathering complex data across multiple departments from payroll and benefits through human resources can be time consuming. Employers should not delay or dismiss meeting their obligations as the penalties can be hefty and the response to the IRS is difficult and time-consuming if the information was not accurate the first time. 

What's next?

Paychex will continue to monitor this case and provide updates when available. It is generally expected that this case will be decided in late spring 2021. It could potentially go into late June near the end of the court’s session given the magnitude of the case.