Fourth Circuit Upholds Employer Mandate

On July 11, 2013, the U.S. Court of Appeals for the Fourth Circuit issued its decision in Liberty University, Inc. v. Lew, No. 10-2347, holding that the employer mandate in the Affordable Care Act (ACA) is constitutional under either the Commerce Clause or as a tax, and that it does not violate the University's free exercise of religion (the controversial contraception mandate was viewed as not properly before the court). This is the first Court of Appeals opinion that has addressed the employer mandate's constitutionality since the Supreme Court's opinion in National Federation of Independent Business v. Sibelius, 132 S. Ct. 2566 (2012) (NFIB), which upheld the individual mandate against a constitutional challenge.

The first question the court addressed was whether the suit was barred by the Anti-Injunction Act (AIA). In NFIB, the Supreme Court held that the AIA did not bar a challenge to the individual mandate because Congress had characterized the penalty imposed on individuals as a penalty rather than a tax. The United States in Liberty University argued that because some sections of the ACA do refer to the penalty on employers as a tax, the AIA barred the University's challenge at this time. The court dismissed this argument on the grounds that one of the two uses of "tax" is explainable as relating to the employer's inability to deduct the penalty on its tax returns, and the other, while unexplained, is overwhelmed by the far more frequent use of the term "assessable penalty." Furthermore, it would make no sense for Congress to intend challenges to the employer mandate to be barred by the AIA but not challenges to the individual mandate. Therefore, the court held, the same AIA analysis of NFIB applies here, and the suit is not barred or premature.

The next question was whether the University had standing, because the United States observed that the coverage the University currently provides would appear to satisfy the ACA's mandate, and in any event the requirement does not become effective until January 1, 2015. The University countered that it had adequately alleged that the mandate might increase its cost of coverage and might impose additional administrative burdens, and that it needed to address its compliance by modifying or evaluating its practices and plans before the effective date of the mandate. On a motion to dismiss, the court held that this satisfied the pleading standard for showing an injury in fact.1

The court then...