THE AFFORDABLE CARE ACT’S EMPLOYER “PAY OR PLAY” MANDATE: A TAX OR REGULATION?

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The Affordable Care Act’s Employer “Pay or Play” Mandate: A Tax or Regulation?

Beckett Cromwell*

Introduction – About the Affordable Care Act

Imagine you are injured in a routine accident, and you have no means of paying for your hospital visit; however, you do not have prescribed medical insurance coverage or saved up cash to pay your medical bills out of pocket. Hopelessness begins to set in as you need medical attention but cannot bear the financial consequences of paying for the treatment yourself. The Patient Protection and Affordable Care Act or simply the “Affordable Care Act” was implemented in two parts as a way to help Americans manage their healthcare insurance coverage in a cheaper and more efficient way.[2] The overall goals of the Affordable Care Act are to, “make affordable health insurance available to more people; expand the Medicaid program to cover all adults with income below 138% of the [federal poverty line]; and support innovative medical care delivery methods designed to lower the costs of health care generally.”[3] These are undoubtedly broad goals that require specific implementation in order to achieve them.

Key features of the Affordable Care Act include an increased access to medical insurance, increased protections for consumer medical coverage holders, emphasized early disease and illness detection and prevention, and lower care costs with improved system performances.[4] The Affordable Care Act widened the availability of consumer insurance coverage in two ways.[5] First, it allowed individual consumers to compare various plans and coverage options that were offered by individual states at the state level and gave a choice as to which coverage plan they wanted based on their health needs or other factors.[6] Second, as mentioned previously, the Act expanded Medicaid coverage to encompass more individuals and families below the poverty line, and as of 2018, in the eight years since the implementation of the Act in 2010, “the number of uninsured people in the country [had] fallen by about 20 million.”[7] The Department of Health and Human Services (HHS) enhanced early disease and illness detection and prevention in early 2022 as a response to the COVID-19 pandemic.[8] This allowed for an estimated 150 million patients to have free-of-charge access to important preventative measures and diagnostic testing such as “vaccinations, contraception, and cancer screening” which is required by the Affordable Care Act.[9] These key features are important mechanisms enabling the Act to achieve its aforementioned broad goals of ensuring more Americans have cost-effective health insurance, precisely what Congress hoped to accomplish when it voted on and passed this healthcare reform legislation. Both premiums paid for health insurance and the number of uninsured Americans have gone down since the passing of the Affordable Care Act, thus making strides towards Congress’ goals of the Act.[10] This may be but a coincidence or a correlation and not caused by the Affordable Care Act but there are some metrics allowing the argument to be made.

Although the Act is arguably successful in achieving what it set out to accomplish, the Affordable Care Act has not been without controversy, and since its enactment, “the public was almost evenly divided between those who supported it and those who opposed it.”[11] Like many legislative bills, partisan issues arose and made the garnering of votes to have the bill pass through Congress a challenge itself, before each side of the aisle could even agree to the terms inside.[12] Upon the initial vote, partisan issues were prevalent as reports of up  to “80 percent of Democrats” supported the Affordable Care Act and around “81 percent of Republicans were strongly negative” toward the bill.[13] As a simple reminder, the Affordable Care Act was passed under a Democrat-controlled Congress under then-President Barack Obama.[14] Simple partisan divide is one reason for the opposition to the bill, but not the only reason.[15] Many people, including Republicans, were not in favor of the Affordable Care Act because of the “individual mandate” with some calling it “by far the most unpopular provision of the law”[16] and “one of U.S. history’s most contested laws.”[17] It required “all Americans to obtain health insurance or pay a tax penalty[.]”[18] Thus, Congress’ goals were bound to be met as Americans were obligated to have health insurance coverage, and by requiring people to have insurance, logically the number of uninsured Americans would go down, so the individual mandate was the driving force of the Act.[19]

I.      The Supreme Court’s Affordable Care Act Stance Background

In 2012, a Supreme Court case, National Federation of Independent Business v. Sebelius (NFIB) issued major guidance as to the individual mandate found in the Affordable Care Act.[20] In this case, the Supreme Court held that the individual mandate was constitutional under Congress’ taxing power, not under the Commerce Clause.[21] This was an unexpected decision because the lower courts that reviewed this case addressed the Commerce Clause argument and not Congress’ taxing power.[22] That still left the issue of whether the exaction was deemed a tax or a penalty.[23] The Court held that “because we have a duty to construe a statute to save it, if fairly possible, § 5000A can be interpreted as a tax.”[24] The Supreme Court used their precedential canon of construction and construed § 5000A as a tax in order to retain its constitutionality.[25] Should they have done this? Yes, it is easier to patch a hole in a leaky roof rather than replace the entire roof, but at some point a complete renovation will need to be undertaken to preserve the integrity of the structure. “As this note later discusses the employer mandate under the Affordable Care Act, it is imperative to think about the above statement as it relates to the consequences of a “tax” determination.

In 2016, Donald Trump, a Republican, won the Presidential election and took control of the White House.[26] As stated earlier, Republicans strongly disfavored the individual mandate found in the Affordable Care Act.[27] Consequently, included in The Tax Cuts and Jobs Act of 2017[28] –spearheaded by Republicans in Congress – was a provision that in all practical effect, nullified the individual mandate.[29] In an explanation of the Tax Cut and Jobs Act, the Joint Committee on Taxation stated the explanation of the provision is to “reduce[] the amount of the individual shared responsibility payment, enacted as part of the Affordable Care Act, to zero.”[30] Thus, in effect, there is no consequence for not abiding. The individual mandate “tax” is still zero dollars as of the completion of this note with no public plan to change any time soon.

Although Congress and the Supreme Court appear to have decided the individual mandate, the employer mandate that is still in effect[31] The employer mandate worked in conjunction with the individual mandate to fulfill Congress’ goals of lower costs of medical care and reducing the number of uninsured Americans.[32] The employer mandate provides that “certain employers (called applicable large employers or ALEs) must either offer health coverage that is “affordable” and that provides “minimum value” to their full-time employees (and offer coverage to the full-time employees’ dependents), or potentially make an employer shared responsibility payment to the IRS[.]”[33] In simple terms, places of employment that have more than fifty full-time employees or full-time equivalent employees are deemed ALEs and are subject to the employer mandate and must offer healthcare coverage to their employees as required by the Affordable Care Act or else they pay an exaction to the IRS.[34] This mandate went into effect in 2015 and requires that if you are an ALE then ninety-five percent of your full-time employees must have been offered healthcare coverage insurance.[35] Once again, this was another way of ensuring the Congressional goals of the Act were to be successful as more Americans would be accounted for when it came to healthcare insurance. Although the employer mandate seemingly infringed less on private citizens’ rights, the same partisan favor and disfavor was prevalent.[36] With regards to the employer mandate, thirty-four percent of Republicans favored it as compared to seventy-eight percent of Democrats.[37]

The penalty that is associated with non-conformance of the employer mandate is up for debate.[38] Even though the language of the statute in § 4980H does not provide the phrase “excise tax” anywhere, let alone “excise,”[39] the section falls under subtitle D which is “miscellaneous excise taxes.” Thus, some people view the employer shared responsibility payment for noncompliance with the mandate as an excise tax instead of a mere penalty.[40] So, like the individual mandate and the discussion in NFIB, there is division as to whether the payment is a “tax” or a “penalty.”[41]

The analysis may seem straightforward, as the U.S. Supreme Court has already decided that the individual shared responsibility payment that attached to the individual mandate was a tax, but it is hard to conclude that a fair comparison can be made between the two mandates because it is not necessarily a one-for-one comparison.[42] Further consideration shall be made upon different variables regarding the employer aspect that were not prevalent in the individual mandate, and there is always the possibility that the Supreme Court rushed to judgment when deciding that the individual mandate penalty was a “tax.” It appears the Supreme Court was trying to save the constitutionality of the Act as its main goal in NFIB, and may have not given enough thought as to whether the payment was a “tax” or if that was merely a means to save the Affordable Care Act from being nullified and rendered unconstitutional.[43]

Further, this note explores the differing rationales from the various circuits that are split in agreement concerning the employer shared responsibility payment as it pertains to the employer mandate as part of the Affordable Care Act. Part I, above, delved into the caselaw history of the individual mandate stemming from the Affordable Care Act in NFIB and the justifications for rendering the mandate to be a “tax,” but also considering possible Supreme Court shortcomings. Part II examines the split created by the Fourth, Fifth, and D.C. Circuits. Part III compares and contrasts the varying circuits decisions while weighing the holdings made by each court and concludes that due to the purpose behind the enactment of the Affordable Care Act, the categorization of the exaction as a tax imposes a punitive damage rather than a proper deterring effect and thus the exaction should be labeled as a penalty and not a tax.

II.    Differing Circuits

Circuit courts are split as to the classification of the employer shared responsibility payment that attaches to the employer mandate under the Affordable Care Act.[44] There are varying different views as it pertains to the characteristic of the employer shared responsibility payment and whether it is a “tax” or not.[45] The Fifth and D.C. Circuits have held the employer shared responsibility payment to be a tax and thus the Anti-Injunction Act[46] strips the court’s jurisdiction from any suit as the suit restrains the collection of a tax if it has not been previously paid.[47] The Fourth Circuit held employer shared responsibility payment to not be a tax because, as the individual mandate is concerned, Congress treats “penalties and liabilities” found in subchapter 68B of the Internal Revenue Code as taxes for the purposes of the Anti-Injunction Act and neither the individual mandate nor the employer mandate was found in subchapter 68B.[48] In sub-part A of this section, the Anti-Injunction Act and its procedural importance to tax liability litigation is considered. Sub-part B looks at the D.C. and Fifth Circuit’s interpretation of the employer mandate of the Affordable Care Act and their concluded agreement that the mandate is indeed a tax. Sup-part C of this section looks at the Fourth Circuit’s determination that the exaction under the employer mandate of the Affordable Care Act is not a tax but is a penalty.

A.     Anti-Injunction Act

Before we begin the analysis between the various Circuits and how their characterization of the employer shared responsibility payment under the Affordable Care Act differs, it should be noted what the Anti-Injunction Act is and its importance to the discussion as it may either be invoked or useless depending on the court’s characterization of the employer shared responsibility payment. The Anti-Injunction Act is designed to allow for the collection of taxes in even the most mitigating of circumstances and provides that “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person.”[49] The rule stems from the rule elucidated in Flora v. United States, which provides that a person who disagrees with the assessment of a tax must first pay the full amount of tax owed and then file an administrative complaint to have the tax recovered as damages in a suit.[50] In short, Congress does not want the revenue they raise from tax collection to be limited by egregious lawsuits.[51] They want to be able to answer questions and decide issues later.

This is important as it pertains to the employer shared responsibility payment that attaches to failed completion of the employer mandate because a court cannot rule on a case before the tax is paid.[52] The key word in that sentence is “tax.” If the payment under the Act is deemed to not be a tax, then the Anti-Injunction Act will never apply as it only applies to suits that “restrain[] the assessment or collection of any tax[.]”[53] In an instance where the Anti-Injunction Act precludes a lawsuit from being brought, courts will not have subject-matter jurisdiction over the case.[54]

For example, if there is a suit brought in the D.C. Circuit by a company that owes an exaction to the Internal Revenue Service for a failure to abide by the employer mandate and another company in the Fourth Circuit that also owes an exaction to the IRS, one would be able to bring suit in the Fourth Circuit while the other would be barred from bringing suit in the Fifth and D.C. Circuits to challenge their exaction owed because of the Anti-Injunction Act.[55] This is why the characterization of tax or penalty is very important as it creates a procedural hurdle for courts and parties to overcome and disallow a court from hearing a suit.[56]

B.     Indeed a Tax – The Congressional Intent Theories

The D.C. Circuit and Fifth Circuit agree that the employer shared responsibility payment is a “tax” and thus the Anti-Injunction Act as described above applies. A lawsuit may not be brought until the tax has been paid to the Internal Revenue Service and an administrative claim for a refund has been filed.[57]

i.       The Fifth Circuit – Hotze v. Burwell

In the Fifth Circuit case, Hotze v. Burwell, Braidwood Management was the employer responsible for paying the employer shared responsibility payment as they met the requisite employment of more than 50 individuals.[58] Stephen Hotze and Braidwood Management sued over both the individual and employer mandate.[59] They argue that the individual and employer mandates violate both the Origination Clause and the Takings Clause of the Constitution.[60] Concerning the employer mandate, the defendants argued that the Anti-Injunction Act barred any action filed by Braidwood as they had yet to pay the assessed tax and file an administrative claim seeking refund first.[61] The defendants argued that the Affordable Care Act is not a revenue raising bill, but a bill to expand healthcare coverage and therefore the Origination Clause does not apply.[62] The district court followed this argument and found that there was proper jurisdiction and dismissed Hotze’s and Braidwood’s claim.[63] On appeal, the Fifth Circuit stated that the district court improperly concluded as to the merits of the Origination Clause argument and should have dismissed for lack of subject-matter jurisdiction.[64] Turning to the employer mandate analysis, the court recognized that “the employer mandate is the ACA provision that imposes a ‘tax’ on certain employers who fail to provide ‘affordable’ health-insurance coverage to their employees.”[65] As mentioned earlier, the Anti-Injunction Act bars any suit “for the purpose of restraining the assessment or collection of any tax[.]”[66] The Court recognizes the purpose behind the Anti-Injunction Act when it cites NFIB and states it “protects the Government's ability to collect a consistent stream of revenue, by barring litigation to enjoin or otherwise obstruct the collection of taxes.”[67]

The parties did not dispute that if the payment under the employer mandate were to be construed as a tax, then it would violate the Anti-Injunction Act and bar suit.[68] Instead, the court addressed whether the payment was a tax. The Anti-Injunction Act would apply if such payment was a tax, ending the need for further analysis.[69] The court recognized that both the Affordable Care Act and Anti-Injunction Act were created by Congress, so it was imperative to look at Congress’s intent when determining what is deemed a tax under the Anti-Injunction Act.[70] The court found that when looking at the language of the statute, Congress referred to the individual mandate as a “penalty” but referred to the employer mandate and many other exactions within the Affordable Care Act as a “tax.”[71] Going further, the court stated that “the employer-mandate exaction functions like a tax—it is collected by the IRS ‘in the same manner’ as a tax, . . . and the funds raised go to the general Treasury.”[72] There are numerous instances where the court highlighted the fact that the employer shared responsibility payment is referred to as a “tax” in the statute; the court showcases three portions of the Affordable Care Act where the payment is referred to as a tax.[73] The court here regurgitated what the Supreme Court said in NFIB stating “textual evidence is the ‘best evidence’ of whether an exaction constitutes a ‘tax’ for the purposes of the [Anti-Injunction Act].”[74] Finally, the court held that “the text of the ACA explicitly indicates that the employer-mandate exaction indeed is a ‘tax[;]’” therefore, the Anti-Injunction Act barred the employer-mandate as a consequence of Braidwood’s failure to pay the tax (the employer mandate) before filing suit.[75]

ii.     The D.C. Circuit – Optimal Wireless v. Internal Revenue Service

As mentioned previously, the D.C. Circuit, in parallel with the Fifth Circuit, held the exaction assessed from the employer mandate was indeed a tax and not a penalty. In Optimal Wireless v. Internal Revenue Service, appellant, Optimal Wireless operated as a company that provided wireless communications services in several states, including, Texas, New Mexico, Oklahoma, and Louisiana.[76] Prior to the D.C. Circuit taking the case, “[t]he district court dismissed Optimal’s suit for lack of jurisdiction[]” and “held that an exaction under § 4980H is a ‘tax’ for purposes of the Anti-Injunction Act, which strips courts of jurisdiction over suits having the ‘purpose of restraining the assessment or collection of any tax.’”[77] The court recognized the potential imposition of the Anti-Injunction Act when it stated, “Optimal plainly seeks to ‘restrain [] the assessment or collection’ of an exaction under § 4980H.”[78] Thus, prompting the court to derive a distinction between a tax or penalty as the case’s jurisdictional bar hinges upon this classification.[79]

The court began its discussion by going through background of the Affordable Care Act, its purpose, and a few nuances of the Act, such as what happens if an employer fails to offer a plan that provides “minimum essential coverage” or if an employee were to “claim[] a premium tax credit or cost-sharing reduction[.]”[80] As the Optimal Wireless court illustrated, there are two ways to violate the employer mandate of the Act and be subject to an exaction in the event that an employer does not provide minimum coverage or does not provide coverage at all.[81] First, liability is imposed on an employer in the form of an exaction “if it ‘fails to offer to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan . . . for any month.’”[82] Second, liability is imposed on an employer in the form of an exaction “if it does ‘offer [] to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage’ but an employee is still certified as having received a premium tax credit or cost-sharing reduction.”[83] The court distinguished the two liability hooks by simplifying them and stating “Section 4980H(a) applies when an employer does not provide minimum essential coverage at all, whereas Section 4980H(b) applies when the employer offers coverage but that coverage fails to qualify as affordable or as providing minimum value.”[84] Through another distinguishing factor, the court explained that “Section 4980H(a)’s exaction amount is a function of the employer’s total number of full-time employees, whereas Section 4980H(b)’s exaction amount is a function of only the number of employees certified as having received a premium tax credit or cost-sharing reduction.”[85] In Optimal Wireless, the court specifically highlighted different ways that a company may be held liable and how the exaction assessed against it may differ whereas the court in Hotze provides more of a generic overview of employer liability.[86]

In Optimal Wireless, the court determined that Optimal Wireless was liable for an exaction under the first hook, Section 4980H(a), as “one or more of Optimal’s employees had been enrolled in a qualified health plan for which a premium tax credit was allowed.”[87] Optimal’s exactions totaled “$395,640 for 2016 and $736,383 for 2017[,]” which is, in this author’s opinion, no small sum, especially when you consider the pay first, ask for a refund second model that the Anti-Injunction Act prescribes.[88] Optimal originally filed suit in federal district court against both the Internal Revenue Service and the Department of Health and Human Services (HHS), arguing that the regulations that should apply require HHS, and not the IRS, “to issue the certification concerning an employee’s receipt of a premium tax credit or cost-sharing reduction, but HHS had not done so.”[89] The government argued dismissal of Optimal Wireless’s case on several grounds, the main one being the Anti-Injunction Act strips the court of jurisdiction to hear the case as the requisite exaction has not been paid yet.[90] The district court granted the government’s motion to dismiss for lack of jurisdiction, holding that the exaction imposed under Section 4980H is a “tax” and that the Anti-Injunction act is applicable.[91]

Optimal Wireless began its argument in the D.C. Circuit by arguing that to even conclude that the exaction that Section 4980H imposes is a “tax” that it “must contain a clear statement” saying so.[92] Their principal basis behind this argument was that there are harsh consequences that are associated with the statute, such as the imposition and requisite full payment of the exaction before a party is allowed to sue for a refund.[93] The court maintained that Optimal Wireless is confused with the statute, as it is really the Anti-Injunction Act that imposes the harsh consequences and not § 4980H of the Affordable Care Act.[94] The court reasoned that the “question of whether another statute is best read to implicate the Anti-Injunction Act’s jurisdictional bar – which here turns on whether Section 4980H imposes a “tax” – is governed by ordinary principle of statutory interpretation, not by any clear-statement rule.”[95] By looking at NFIB, the D.C. Circuit attempted to use the Supreme Court’s “congressional intent” theory where “Congress repeatedly described the exaction for noncompliance with the individual mandate as ‘a “penalty” rather than a tax,” the Anti-Injunction Act’s jurisdictional bar did not apply.”[96] When the D.C. Circuit here applied that same approach to the exaction under the employer mandate, the opposite conclusion was reached.[97] In the instance of the employer mandate, Congress expressly referred to the employer mandate exaction under Section 4980H as a “tax” on four separate occasions, whereas with the individual mandate it was described as a “penalty” and not a tax.[98]

Concerning the four references of “tax” associated with the employer mandate, “three are found in Section 4980H itself.”[99] The court went through the instances that the word is encountered to determine the context behind its use and whether Congress intended for the “tax” phrasing to be applied to the exaction as a whole or if the phrasing was mere surplusage.[100] The first instance pertained to employers offering unaffordable or “inadequate in value” coverage, stating that the “aggregate amount of tax determined under [subsection (b)(1)] ... shall not exceed the product of the applicable payment amount and the number of individuals employed by the employer as full-time employees during such month.”[101] The second instance pertained to deductions and states “[f]or denial of deduction for the tax imposed by this section, see section 275(a)(6).”[102] The last instance found explicitly in Section 4980H refers to the same section as before, but this time the title of the subsection itself its “Tax nondeductible.”[103] Lastly, in the sole reference not found within Section 4980H, another section implored the Secretary of the HHS to create “a separate appeals process for employers who are notified that that ‘may be liable for a tax imposed by section 4980H of Title 26.”[104] The court concluded that “[t]he multiple statutory references to Section 4980H’s exaction as a “tax” thus render it a tax for purposes of the Anti-Injunction Act.”[105] Optimal attempted and failed to provide another justification aside from the Anti-Injunction Act for the usage of the word “tax,” but the court here relied on precedent that states “Congress said what it meant and meant what it said” as a means to upholding the usage of tax as Congress would not mistakenly and inappropriately use this terminology in contravention of their intentions.[106]

Even though Congress used other terms such as “assessable payment” or “penalty” when describing the exaction, those terms do not dissuade the court that “tax” was the true and main meaning of exaction under Section 4980H. A tax is a type of assessable payment and “[i]f Congress had only used the more general term ‘assessable payment’ to describe an exaction under Section 4980H, it might be unclear whether the exaction qualifies as a ‘tax’ for the purposes of the Anti-Injunction Act.”[107] Since “Congress also used the more specific term ‘tax’ to describe the same exaction (and did so repeatedly), it thereby established the applicability of the Anti-Injunction Act.”[108] The court here was equally convinced with the term “penalty” as they were with the term “assessable payment.”[109] The court drew a comparison between “tax” and “penalty” in that both can be used to describe an exaction and just because a tax seeks to influence conduct, like a penalty, that alone is not enough to strip an exaction of its “tax” status.[110] While recognizing that “Congress cannot change whether an exaction is a tax or a penalty for constitutional purposes simply by describing it as one or the other[,]” Congress does have the power to “describe something as a penalty but direct that it nonetheless be treated as a tax for purposes of the Anti-Injunction Act.”[111] A common way that Congress does so is to “expressly label the exaction as a ‘tax,’ as [they] did for the exaction under Section 4980H.”[112]

In its holding, the Court concluded that “[b]ecause Congress repeatedly called the Section 4980H exaction a tax, Optimal’s suit is barred by the Anti-Injunction Act.”[113] The Court here used the same Congressional intent theory elucidated in Hotze to uphold the employer shared responsibility payment as a “tax” with regard to the Anti-Injunction Act.[114] While the Congressional Intent theory rules the day in the Fifth and D.C. Circuits when determining that the exaction is a “tax,” a competing jurisdiction, the Fourth Circuit, uses a different spin on the Congressional intent theory to conclude that the exaction is not a tax. An analysis of that theory will be covered in the next sub-part.

C.     Not a Tax

The Fourth Circuit, in Liberty Univ., Inc. v. Lew, held that the employer mandate under the Affordable Care Act did not constitute a “tax” under the Anti-Injunction Act.[115] Plaintiffs, including Liberty University and other individuals, brought suit challenging both the individual mandate and the employer mandate of the Affordable Care Act.[116] Prior to the case’s current position, the original district court dismissed the lawsuit, and upheld the constitutionality of both the individual and employer mandate of the Affordable Care Act.[117] The Fourth Circuit, on appeal, determined that the Anti-Injunction Act disallowed jurisdiction over Plaintiffs’ claims as they were seeking to contest the exaction without paying it in full first.[118] Consequently, because the Anti-Injunction Act stripped the court of jurisdiction, the Fourth Circuit remanded the case back down to the district court with an instruction to dismiss for lack of jurisdiction.[119] The Supreme Court granted certiorari, vacated the Fourth Circuit’s judgment, and remanded the case to further consider the implications of a the newly-decided NFIB case covering some of the same issues.[120]

The court began discussion of the employer mandate by defining various terms, determining when exactions must be paid, and how much the exaction is, among other things.[121] As mentioned in the above discussion of other circuit’s cases, and helpful to reiterate when drawing comparisons, this court determined that an employer mandate is required when an “applicable large employer” – which is an employer with “an average at least fifty full-time employees during the preceding year[]” – does not provide “affordable health care coverage to its full-time employees and their dependents[.]”[122] If at least one of the employers’ full-time employees is eligible for “an applicable premium tax credit or cost-sharing reduction” in an effort to alleviate the costs of the medical coverage, the employer is then required to make the exaction or “assessable payment.”[123] An employee becomes “eligible for an ‘applicable premium tax credit’ or ‘cost-sharing reduction’ if the employer fails to offer the employee ‘affordable’ coverage providing ‘minimum value’ and the employee’s income falls between 100% and 400% of the poverty line.”[124] The court then discussed how the exaction is calculated under various scenarios, but that is not necessarily germane to our discussion.[125] It is important to note, however, that the court recognized that pertaining to the employer mandate, “the Secretary of the Treasury has the authority to assess and collect the exaction in the same manner as a tax[,]” which was important to highlight since the individual mandate was deemed a “tax” in NFIB and the statute prescribes identical collection treatment to the employer mandate at issue.[126] The court here, highlighted the two liability hooks found in Section 4980H in (a) and (b) and states that “[i]n effect, then, § 4980H(a) imposes an assessable payment on an applicable employer who fails to offer coverage to its full-time employees and their dependents, while § 4980H(b) imposes an assessable payment on an applicable employer who provides coverage that does not satisfy the mandate’s affordability criteria.”[127]

Liberty University “employs approximately 3900 full-time faculty and staff[]” and is self-insured whole offering various insurance policies, savings accounts, and other reimbursement options to employees for their health care.[128] Liberty contended that depending on the definition of “minimum essential coverage” among other items, the University’s coverage may be deemed to be insufficient or unaffordable and thus cause them to be subject to payment of an exaction under the employer mandate of the ACA.[129] Even though one of the goals of the Act was to lower the costs of health care coverage for Americans, Liberty also asserts that “the employer mandate will ‘increase the cost of care . . . [and] will directly and negatively affect [the University] by increasing the cost of providing health insurance coverage[.]”[130] Finally, as a policy consideration, Liberty is a Christian institution that has certain moral beliefs, including the pro-life belief and that by helping fund abortions through paying an exaction, it is adverse to their religious grounding.[131] Bypassing the other issues, the Court here, on remand, “must decide whether the Anti-Injunction Act bars this pre-enforcement challenge to the employer mandate[.]”[132]

What Liberty contested regarding the employer mandate here “is a pre-enforcement suit to enjoin the collection of an exaction that is codified in the Internal Revenue Code, and which the Secretary of the Treasury is empowered to collect in the same manner as a tax.”[133] The court here recognized from NFIB that application of the Anti-Injunction Act is in effect “only where Congress intends it to[,]” which is the same argument that the Fifth and D.C. Circuits made when looking at Congressional intent.[134] The Secretary of the Treasury uses two instances found in the Affordable Care Act referencing the exaction stemming from the employer mandate as a “tax” to bolster their position that the Anti-Injunction Act bars a challenge to the employer mandate without first paying the exaction in full then seeking a refund.[135] When refuting this observation by the Secretary, the court attempted to contradict him by highlighting that “the Secretary virtually ignores the fact that the Act does not consistently characterize the exaction as a tax[,]” but instead used the term “assessable payment” from time-to-time, including the first instance the exaction was mentioned.[136] Regarding the two instances found in the Affordable Care Act that reference the exaction from the employer mandate as a “tax,” one of them is in a “tax-specific context” and the court maintained that the use of another word besides “tax” would lead to interpretive confusion.[137] The first provision provides “[f]or denial of deduction for the tax imposed by this section . . .” and the second provision provides that “[n]o deduction shall be allowed for the following taxes[.]”[138] The court attempted to illustrate that through its cross-referencing sections of the code, Congress intended to be crystal clear that the exaction is a “tax” which is requisite for deductibility.[139] The court was less confident about an obvious justification for the second instance of the word “tax” being used in the Act.[140] The court did not place much weight on the inability to provide a concrete justification for this other instance of “tax” being used.[141] Instead, they realized that one instance of a lack of explanation is okay “[b]ecause Congress initially and primarily [referred] to the exaction as an ‘assessable payment’ and not a ‘tax,’ the statutory text suggests that Congress did not intend the exaction to be treated as a tax” under the analysis of the Anti-Injunction Act.[142]

While concluding the discussion, the court recognized that “Congress did not otherwise indicate that the employer mandate exaction qualifies as a tax for [Anti-Injunction Act] purposes, though of course it could have done so.”[143] The court here made it a point to highlight that the Supreme Court in NFIB noted that “26 U.S.C. § 6671(a) provides that the ‘penalties and liabilities’ found in subchapter 68B of the Internal Revenue Code are ‘treated as taxes’ for purposes of the [Anti-Injunction Act].”[144] The court stated that “[t]he employer mandate, like the individual mandate, is not included in subchapter 68B, and no other provision indicates that we are to treat its ‘assessable payment’ as a tax.”[145]

Overall, the court in Liberty University thinks that “to adopt the Secretary’s position would lead to an anomalous result[]” because “the Supreme Court has expressly held that a person subject to the individual mandate can bring a pre-enforcement suit challenging that provision[,] [b]ut, under the Secretary’s theory, an employer subject to the employer mandate could bring only a post-enforcement suit challenging that provision.”[146] The court found it hard to believe that Congress, in just two isolated uses of the word “tax,” would have vastly different treatments of the mandates in terms of the Anti-Injunction Act’s applicability.[147] In layman’s terms, the court here believed that when Congress acts, it acts purposefully, and here they did not refer to the exaction as a tax initially, and they did not include it as a “tax” in subchapter 68B of the Internal Revenue Code. If Congress intended to have the exaction under the employer mandate be a tax, then they would have made it clear. The court, in few words, decided the “tax” versus “penalty” issue by stating “the employer mandate exaction, like the individual mandate exaction, does not constitute a tax for the purposes of the [Anti-Injunction Act]. Therefore, the [Anti-Injunction Act] does not bar this suit.”[148]

Conclusion – Not a Tax

With the circuit courts being split in multiple directions, the question arises – which interpretation is correct? The answer to this question carries great importance as a Plaintiff’s rights can vary depending on their geographic location. The procedural and jurisdictional limitations that the Anti-Injunction Act places on the employer mandate are varied throughout circuits and need to be addressed.

As mentioned previously, precedent states “Congress said what it meant and meant what it said[,]” so it is imperative to examine their actions under a proverbial “microscope” when parsing a statute.[149] When examining the Fourth Circuit’s spin on the Congressional intent theory versus the Fifth and D.C. Circuit’s version of the Congressional intent theory, the notion that the exaction under the employer mandate is not a “tax” becomes clear.

Refer earlier to the introduction when the note discussed the overarching goal of the Affordable Care Act was to provide more affordable health care coverage to more Americans. A punishment would deter a company from doing something in the future whereas taxes are more routine in nature. To align with the goals of the Affordable Care Act, the exaction to be labeled as a “penalty” makes the most sense. This is a regulatory punishment to ensure more Americans are properly accounted for in terms of health care. There was never a revenue raising aspect of the employer mandate that typically accompanies a tax.

Further, of the interpretations, the one that makes the most sense with Congressional intent is the “penalty” classification. If Congress wanted to ensure that the employer mandate was a “tax,” then they could have and would have done so. It would have been easier for Congress to have expressly said that the exaction was a “tax” for purposes of the Anti-Injunction Act as only where they intended the Anti-Injunction Act to apply is where it applies.[150] With all the time that goes into writing, lobbying, and amending a bill, Congress would have wanted to ensure that they were sending out a complete product that was not contradictory. Congress would not want to have two separate instances of the word “tax” being used that have vastly different consequences in terms of the Anti-Injunction Act.

For that reason, the proper interpretation when considering Congressional intent, the goals of the Affordable Care Act, and the language of the statute is that the employer mandate exaction is a “penalty” and not a “tax.” 

* J.D Expected 2025, University of Kentucky J. Rosenberg College of Law; BS Accounting & Finance 2021, University of Kentucky.

[2] What is the Affordable Care Act?, U.S. Dep’t Health & Hum. Servs., https://www.hhs.gov/answers/health-insurance-reform/what-is-the-affordable-care-act/index.html] (last updated Apr. 20, 2023) [permalink unavailable]; See also John Han, Why and How the Affordable Care Act Was Passed, Review (May 9, 2018), https://virginiapolitics.org/online/2018/5/9/why-and-how-the-affordable-care-act-was-passed [https://perma.cc/6CQG-UVSB].

[3] About the Affordable Care Act, U.S. Dep’t of Health & Hum. Servs., https://www.hhs.gov/healthcare/about-the-aca/index.html (last updated Mar. 17, 2022) [permalink unavailable].

[4] Will Kenton, Affordable Care Act (ACA): What It Is, Key Features, and Updates, Investopedia (last updated Sept. 23, 2022), https://www.investopedia.com/terms/a/affordable-care-act.asp [https://perma.cc/9N7N-FZZQ].

[5] Adrianna McIntyre & Zirui Song, The US Affordable Care Act: Reflections and Directions at the Close of a Decade, PLOS Med. (Feb. 26, 2019), https://journals.plos.org/plosmedicine/article/file?id=10.1371/journal.pmed.1002752&type=printable [https://perma.cc/3RPG-72ZF].

[6] Id.

[7] Id.

[8] HRSA Updates the Affordable Care Act Preventive Health Care Guidelines to Improve Care for Women and Children, U.S. Dep’t of Health & Hum. Servs. (Jan. 11, 2022), https://www.hhs.gov/about/news/2022/01/11/hrsa-updates-affordable-care-act-preventive-health-care-guidelines-improve-care-women-children.html [permalink unavailable].

[9] Id.

[10] Mike Patton, Obamacare 10 Years Later: Success or Failure?, Forbes (Nov. 11, 2020, 4:59 PM), https://www.forbes.com/sites/mikepatton/2020/11/11/obamacare-10-years-later-success-or-failure/?sh=3e7154c24844 [https://perma.cc/7NRD-6ZVD].

[11] Julie Rovner, Why Do So Many People Hate Obamacare So Much?, NPR (Dec. 13, 2017, 11:48 AM), https://www.npr.org/sections/health-shots/2017/12/13/570479181/why-do-so-many-people-hate-obamacare-so-much [https://perma.cc/M8UL-U53H].

[12] See, e.g., Susan Milligan, How Partisan Politics Threatened Even Must-Pass Legislation in Congress, U.S. News & World Rep. (Oct. 1, 2021, 6:00 AM), https://www.usnews.com/news/the-report/articles/2021-10-01/how-partisan-politics-threatened-even-must-pass-legislation-in-congress [permalink unavailable] (highlighting the Build Back Better bill from 2021 as an example showing how the contents of the bill provide for necessary infrastructure improvements that all Americans enjoy the benefits of and need, but Congress cannot come to an agreement due to political strife).

[13] Rovner, supra note 11.

[14] 111th United States Congress, Ballotpedia https://ballotpedia.org/111th_United_States_Congress [https://perma.cc/KZK7-BG7M] (showing the breakdown of Congress at the time that the Affordable Care Act or “Obamacare” was passed. The Democratic Party had control over the House, Senate, and Presidency at the same time, the first occurrence for them since the 103rd Congress in 1993. This was a major boost to gathering support for getting the bill passed and possibly a reasonable irritant for the objectives of dissenting Republicans).

[15] Rovner, supra note 11.

[16] Id.

[17] John E. McDonough, The Tortured Saga of America’s Least-Loved Policy Idea, Politico (May 22, 2021), https://www.politico.com/news/magazine/2021/05/22/health-care-individual-mandate-policy-conservative-idea-history-489956 [permalink unavailable].

[18] Matthew Fiedler, The ACA’s Individual Mandate In Retrospect: What Did It Do And Where Do We Go From Here?, 39 Health Affs. 429, 429 (2020).

[19] See id.

[20] Nat’l Fed’n of Indep. Bus. v. Sebelius, 567 U.S. 519, 561–74 (2012).

[21] Id. at 575.

[22] Erika K. Lunder & Jennifer Staman, NFIB v. Sebelius: Constitutionality of the Individual Mandate, Cong. Rsch. Serv. (Sept. 3, 2012), https://www.crsreports.congress.gov/product/pdf/R/R42698/3 [permalink unavailable].

[23] NFIB, 567 U.S. at 562–63.

[24] Id. at 574 (emphasis added).

[25] Id. at 575.

[26] 2016 Presidential Election Results, N.Y. Times (Aug. 9, 2017, 9:00 AM), https://www.nytimes.com/elections/2016/results/president [https://perma.cc/A8C6-7JE7].

[27] Rovner, supra note 11.

[28] Tax Cut and Jobs Act of 2017, Pub. L. No. 115-97.

[29] General Explanation of Pub. L. No. 115-97 at 91, https://efaidnbmnnnibpcajpcglclefindmkaj/https://www.govinfo.gov/content/pkg/CPRT-115JPRT33137/pdf/CPRT-115JPRT33137.pdf [permalink unavailable].

[30] Id. at 92.

[31] 26 U.S.C. § 4980H.

[32] About the Affordable Care Act, supra note 3.

[33] Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act, Internal Revenue Serv., https://www.irs.gov/affordable-care-act/employers/questions-and-answers-on-employer-shared-responsibility-provisions-under-the-affordable-care-act (last accessed Oct. 26, 2024) [https://perma.cc/745Z-M4UX].

[34] Id.

[35] Nanci N. Rogers & Joe Keavy, Treasury and IRS Issue Final Employer Mandate Rules for the Affordable Care Act, Robbins Schwartz (Feb. 13, 2014), https://www.rsnlt.com/news/law-alerts/2014/02/13/treasury-and-irs-issue-final-employer-mandate-rules-for-the-affordable-care-act/ [https://perma.cc/5DY6-X7JV].

[36] Rakesh Singh & Chris Lee, Majority Favors the Affordable Care Act’s Employer Mandate, But Opinion Can Shift When Presented With Pros and Cons, KFF (Dec. 18, 2014), https://www.kff.org/health-reform/press-release/majority-favors-the-affordable-care-acts-employer-mandate-but-opinion-can-shift-when-presented-with-pros-and-cons/ [https://perma.cc/XF2B-8GSX].

[37] Id.

[38] Compare Hotze v. Burwell, 784 F.3d 984, 996–99 (5th Cir. 2015) (holding that the employer shared responsibility payment under § 4980H to be a tax) with Liberty Univ., Inc. v. Lew, 733 F.3d 72, 88–89 (4th Cir. 2013) (holding the employer shared responsibility payment under § 4980H to not be a tax).

[39] See 26 U.S.C. § 4980H.

[40] Erik P. Doerring, Section 4980H Employer Shared Responsibility Payments (ESRP): The New “IRS Employment Tax Penalty”?, Burr & Forman LLP (Apr. 15, 2019), https://www.burr.com/tax-law-insights/section-4980h-employer-shared-responsibility-payments-esrp-the-new-irs-employment-tax-penalty [https://perma.cc/N3JW-HGKN].

[41] Compare Hotze, 784 F.3d at 996–99 (holding that the employer shared responsibility payment under § 4980H to be a tax) with Liberty Univ., 733 F.3d at 88–89 (holding the employer shared responsibility payment under § 4980H to not be a tax).

[42] Nat’l Fed’n of Indep. Bus. v. Sebelius, 567 U.S. 519, 574 (2012).

[43] Id. at 575.

[44] See Liberty Univ., 733 F.3d at 88–89; Hotze, 784 F.3d at 996–99; Korte v. Sebelius, 735 F.3d 654, 669–70 (7th Cir. 2013); Optimal Wireless v. Internal Revenue Serv., 77 F.4th 1069, 1076 (D.C. Cir. 2023).

[45] Compare Optimal Wireless, 77 F.4th at 1076 and Hotze, 784 F.3d at 996–99 with Liberty Univ., 733 F.3d at 88–89 and Korte, 735 F.3d at 669–70.

[46] 26 U.S.C. § 7421.

[47] Optimal Wireless, 77 F.4th at 1076; Hotze, 784 F.3d at 996–99.

[48] Liberty, 733 F.3d at 88–89.

[49] 26 U.S.C. § 7421(a).

[50] Flora v. United States, 362 U.S. 145, 159–60 (1960).

[51] See 26 U.S.C. § 7421(a).

[52] Id.

[53] Id. (emphasis added).

[54] Dye v. United States, 516 F. Supp. 2d 61, 73 (D.D.C. 2007).

[55] Compare Liberty Univ., 733 F.3d at 87-89 with Optimal Wireless, 77 F.4th at 1076–77 (The effect of the Anti-Injunction Act allowed the plaintiff in Liberty University to bring a claim in the Fourth Circuit that the plaintiff from Optimal Wireless was barred from bringing in the Fifth and D.C. Circuits).

[56] See Optimal Wireless, 77 F.4th at 1076–77.

[57] Optimal Wireless, 77 F.4th at 1073, 1077; Hotze v. Burwell, 784 F.3d 984, 997, 999 (5th Cir. 2015); Comm’r v. Lundy, 516 U.S. 235, 240 (1996).

[58] Hotze, 784 F.3d at 989.

[59] Id.

[60] Id.

[61] Id. at 990.

[62] Id.

[63] Id.

[64] Id. at 991.

[65] Id. at 996.

[66] 26 U.S.C. § 7421(a).

[67] Hotze, 784 F.3d at 996 (citing Nat’l Fed’n of Indep. Bus. v. Sebelius, 567 U.S. 519, 543 (2012)).

[68] Hotze, 784 F.3d at 996.

[69] Id.

[70] Id. at 997.

[71] Id.

[72] Hotze, 784 F.3d at 997 (citing 26 U.S.C. § 4980H(d)(1)).

[73] Hotze, 784 F.3d at 997.

[74] Hotze, 784 F.3d at 997 (citing NFIB, 567 U.S. at 544).

[75] Id. at 997, 999; 26 U.S.C. 7421(a); Comm’r of Internal Revenue Serv. v. Lundy, 516 U.S. 235, 240 (1996).

[76] Optimal Wireless v. Internal Revenue Serv., 77 F.4th 1069, 1072 (D.C. Cir. 2023).

[77] Id. at 1070–71.

[78] Id. at 1073 (citing 26 U.S.C. § 7421(a)).

[79] Id.

[80] Id. at 1071.

[81] Id.

[82] Id. (citing 26 U.S.C. § 4980H(a)(1)).

[83] Id. at 1071–72 (citing § 4980H(b)).

[84] Id. at 1072.

[85] Id.

[86] Compare Optimal Wireless, 77 F.4th at 1071–72, with Hotze v. Burwell, 784 F.3d 984, 988 (5th Cir. 2015).

[87] Optimal Wireless, 77 F.4th at 1072.

[88] Id.

[89] Id. (citing 42 U.S.C. § 18081(e)(4)(B)(iii); 45 C.F.R. § 155.310(h)).

[90] Id.

[91] Id.

[92] Id. at 1073.

[93] Id.

[94] Id. at 1073–74.

[95] Id.

[96] Id. at 1073–74.

[97] Id. at 1074.

[98] Id.

[99] Id.

[100] See id.

[101] Id. (citing 26 U.S.C. § 4980H(b)(2)).

[102] Id. (citing 26 U.S.C. § 4980H(c)(7) (emphasis added)).

[103] Id. (citing 26 U.S.C. § 4980H(c)(7) (emphasis added)).

[104] Id. (citing 42 U.S.C. § 18081(f)(2)(A) (emphasis added)).

[105] Id.

[106] Id.

[107] Id. at 1075.

[108] Id.

[109] Id.

[110] Id.

[111] Id. at 1076 (quoting Nat’l Fed’n of Indep. Bus. v. Sebelius, 567 U.S. 519, 544 (2012)).

[112] Id. (citing CIC Servs., LLC v. Internal Revenue Serv., 593 U.S. 209, 212–13 (2021)).

[113] Id.

[114] Id. at 1074; Hotze v. Burwell, 784 F.3d 984, 999 (5th Cir. 2015).

[115] Liberty Univ., Inc. v. Lew, 733 F.3d 72, 89 (4th Cir. 2013).

[116] Id. at 83.

[117] Id.

[118] Id.

[119] Id. (citing Liberty Univ., Inc. v. Geithner, 671 F.3d 391 (4th Cir. 2011)).

[120] Id. (citing Nat’l Fed’n of Indep. Bus. v. Sebelius, 567 U.S. 519 (2012)).

[121] Id. at 84–85.

[122] Id. at 84.

[123] Id.

[124] Id. at 84–85.

[125] Id. at 85.

[126] Id.

[127] Id.

[128] Id. at 86.

[129] Id.

[130] Id.

[131] Id.

[132] Id. at 87.

[133] Id.

[134] Id.

[135] Id. at 88.

[136] Id.

[137] Id.

[138] Id.

[139] Id.

[140] Id.

[141] Id.

[142] Id.

[143] Id.

[144] Id. (citing Nat’l Fed’n of Indep. Bus. v. Sebelius, 567 U.S. 519, 543 (2012)).

[145] Id.

[146] Id.

[147] Id.

[148] Id. at 89. (emphasis added).

[149] Optimal Wireless v. Internal Revenue Serv., 77 F.4th 1069, 1074 (D.C. Cir. 2023).

[150] Liberty Univ., Inc. v. Lew, 733 F.3d 72, 87 (4th Cir. 2013).