How Does a Recent Court Decision Affect HSAs?

A Texas judge has once again cast doubt on a provision of the Affordable Care Act. What are the short- and long-term implications of his decision? And how will the decision affect Health Savings Accounts?

Opponents of the Affordable Care Act (ACA) won a partial victory in federal district court in late March. This challenge is about more than the ACA, however. It questions the authority of several boards under the executive branch to make law - a power that the plaintiffs claim is limited under the Constitution to Congress or agencies whose members are appointed by the president and confirmed by the Senate.

It's an interesting and important constitutional question that, as noted, extends beyond the ACA. But the immediate effect is on the ACA and the list of select preventive services that must be covered by ACA-compliant medical plans.

Critics of the ruling are focused on the effect of not mandating these preventive services with no cost-sharing, arguing that requiring coverage and eliminating cost-sharing at the time of service is important to identify potentially costly illnesses and conditions in their early states. This criticism misses the mark on the constitutional question and is beyond the scope of judges to consider, but it nevertheless zeroes in on the medical issue.

Prior Challenges to the ACA

The ACA was written in the cloak of darkness and drafts weren't shared with members of Congress until just before the House of Representatives voted on the bill. This is a break from the usual practice of drafting legislation through standing committees with hearings and ample time for the public - including industry experts, constitutional scholars, other academics, and advocates - to review key provisions. The text wasn't vetted thoroughly before it became law. As a result, potential problems were embedded in the bill.

In 2012, ACA opponents challenged the law in the landmark case of National Federation of Independent Business v. Sebelius. The plaintiffs argued that Congress didn't have the power under the Constitution to compel states to expand Medicaid to include childless adults capable of working. The Supreme Court agreed. The plaintiffs also argued that Congress didn't have the power under the Constitution's Commerce Clause to compel Americans to purchase a private good or service (medical coverage) or face a penalty. The Supreme Court agreed. But Chief Justice Roberts saved the law in a concurring opinion in which he held that the monetary assessment was a tax rather than a penalty (although the Obama administration, the defendant in the suit, had explicitly rejected this position) and that Congress could exercise its taxing power to implement the monetary assessment.

Fast forward to 2019 and a group of state attorneys general again challenged the constitutionality of the ACA. The Tax Cut and Jobs Act of 2017 zeroed out the tax for failure to maintain coverage. Plaintiffs argued to US District Judge Reid O'Connor that without a tax, Chief Justice Roberts' upholding of the ACA based on Congress's taxing power no longer held. The plaintiffs won that case in US District Court before the law was subsequently upheld by the Supreme Court once again.

The Current Case

In the case of Braidwood Management Inc. v. Becerra, plaintiffs brought another case before Judge O'Connor (who has become the go-to federal judge when ACA opponents file a case). They argued that covering select preventive services in full under the ACA was unconstitutional because the independent agencies that recommended the preventive services violated the appointments clause of the Constitution. That provision states that members of independent agencies must be nominated by the president and confirmed by the Senate.

Judge O'Connor ruled in favor of the plaintiffs and defendants by distinguishing among the agencies that identify appropriate preventive services to be covered in full under ACA-qualified medical plans.

The Current Ruling

Three boards provide input on the list of select preventive services covered in full under the ACA:

• The Advisory Committee on Immunization Practices (ACIP) recommends immunizations for children, adolescents, and adults.
• The Health Resources and Services Administration (HRSA) reviews certain evidence-based preventive care and screenings for infants, children, and adolescents. It also can recommend expansion of the preventive care and screenings for women not included in the Public Health Service Act Section 2713(a)(1).
• The US Preventive Services Task Force (USPSTF), which grades select preventive screening and other services based on their efficacy. A service that receives a grade of "A" or "B" is incorporated into the list of preventive care covered in full.

Judge O'Connor ruled that the ACIP- and HRSA-approved services were constitutional because these advisory bodies make recommendations to duly-appointed federal agencies, which then make the final determination on how those preventive services are incorporated into plans under the ACA. And he upheld select preventive care approved by USPSTF prior to March 23, 2010 (the date that the ACA became law). But he ruled that the list of services approved by USPSTF after that date was unconstitutional because its grades had the force of law (they automatically became part of the list of services covered in full under the ACA), unlike the recommendations of the other boards.

What Can/Should Employers and Insurers Do?

The quick answer: probably nothing. Because it's complicated to do otherwise. And the issue may revert to the pre-decision policy if the circuit court of appeals or ultimately the Supreme Court reaches a different decision from Judge O'Connor's.

The list of ACIP and HRSA services is unchanged by the ruling. So is the USPSTF services prior to March 23, 2010. So, making changes in plan design would require knowing the source of each service and whether the decision applies to that service.

The USPSTF services added to the list on or after March 23 are subject to the ruling, which declared them unconstitutional. But:

• The departments of Treasury, Health and Human Services, and Labor, in Tri-Agency guidance issued last week, recommend that insurers and employers continue to cover the affected services with no cost-sharing pending the further litigation.
• Some state laws have adopted the federal list of preventive services as covered in full under state law. These state laws may restrict an employer's or insurer's opportunity to alter coverage for these services.
• Existing contracts may prohibit insurers or employers from changing the list of covered services or cost-sharing during the plan year.
• Federal and state law may require notification to affected employees and covered dependents, including reissuing an updated Summary of Benefits and Coverage (SBC) if this document references the cost-sharing associated with a select preventive service (which it generally does not) or sending a summary of material reduction in covered services or benefits within 60 days of the change.

Thus, it's risky for an employer (self-insured plan) or insurer (insured plan) to make any changes before the case is further litigated. The Biden Administration promptly appealed, which moves the case to the Fifth Circuit Court of Appeals in New Orleans. The Fifth Circuit, like the United States District Court for the Northern District of Texas on which Judge O'Connor sits, is a conservative court, so it may affirm his ruling. Regardless of the circuit court's opinion, the case almost certainly will be appealed to the Supreme Court. The Court chooses to hear only about 200 of the 10,000-plus cases that it receives annually, but challenges to the ACA typically beat the odds and appear on the docket.

Effect on Health Savings Accounts

All services except select preventive care must be applied to the deductible on HSA-qualified plans. Select preventive care is defined by the Internal Revenue Service. That definition includes all services that are mandated by the ACA. If higher courts uphold the district court decision and certain services that are mandated by the ACA to be covered in full no longer have that cost-sharing status, then continuing full coverage would disqualify the plan.

The recent Tri-Agency guidance makes clear that plans that continue to provide full coverage for services graded "A" or "B" by the USPSTF will remain HSA-qualified. If Judge O'Connor's decision is ultimately upheld by a higher court and an employer or insurer provides full coverage (perhaps as the result of a state mandate in the case of an insurer), the plan may be disqualified. In that case, no one enrolled in the plan could open and fund a Health Savings Account. But that's a discussion for another day - or perhaps never, depending on the higher courts.

The Bottom Line

Most employers and insurers will treat the district court decision as a data point. It's factual, but functionally not actionable at this point. This issue probably won't be settled until mid-2024 with a Supreme Court decision.

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