OVERVIEW

On Dec. 14, 2018, a federal judge ruled in Texas v. United States that the entire Affordable Care Act (ACA) is invalid due to the elimination of the individual mandate penalty in 2019. The decision was not stayed, but the White House announced that the ACA will remain in place pending appeal. The Department of Health and Human Services (HHS) also confirmed that it will continue administering and enforcing all aspects of the ACA.

This lawsuit was filed by 20 states as a result of the 2017 tax reform law that eliminates the individual mandate penalty. In 2012, the U.S. Supreme Court upheld the ACA on the basis that the individual mandate is a valid tax. With the penalty’s elimination, the court in this case ruled that the ACA is no longer valid under the U.S. Constitution.

ACTION STEPS

This ruling is expected to be appealed and will likely be taken up by the Supreme Court. As a result, a final decision is not expected to be made until that time. The federal judge’s ruling left many questions as to the current state of the ACA; however, the White House announced that the ACA will remain in place pending appeal.

Background

The ACA imposes an “individual mandate” beginning in 2014, which requires most individuals to obtain acceptable health insurance coverage for themselves and their family members or pay a penalty. In 2011, a number of lawsuits were filed challenging the constitutionality of this individual mandate provision.

In 2012, the U.S. Supreme Court upheld the constitutionality of the ACA in its entirety, ruling that Congress acted within its constitutional authority when enacting the individual mandate. The Court agreed that, while Congress could not use its power to regulate commerce between states to require individuals to buy health insurance, it could impose a tax penalty using its tax power for individuals who refuse to buy health insurance.

However, a 2017 tax reform bill, called the Tax Cuts and Jobs Act, reduced the ACA’s individual mandate penalty to zero, effective beginning in 2019. As a result, beginning in 2019, individuals will no longer be penalized for failing to obtain acceptable health insurance coverage.

Texas v. United States

Following the tax reform law’s enactment, 20 Republican-controlled states filed a lawsuit again challenging the ACA’s constitutionality. The plaintiffs, first, argued that the individual mandate can no longer be considered a valid tax, since there will no longer be any revenue generated by the provision.

In addition, in its 2012 ruling, the Supreme Court indicated (and both parties agreed) that the individual mandate is an essential element of the ACA, and that the remainder of the law could not stand without it. As a result, the plaintiffs argued that the elimination of the individual mandate penalty rendered the remainder of the ACA unconstitutional.

The U.S. Justice Department chose not to fully defend the ACA in court and, instead, 16 Democratic-controlled states intervened to defend the law.

Federal Court Ruling

In his ruling, Judge Reed O’Connor ultimately agreed with the plaintiffs, determining that the individual mandate can no longer be considered a valid exercise of Congressional tax power. According to the court, “[u]nder the law as it now stands, the individual mandate no longer ‘triggers a tax’ beginning in 2019.” As a result, the court ruled that “the individual mandate, unmoored from a tax, is unconstitutional.”

Because the court determined that the individual mandate is no longer valid, it now had to determine whether the provision is “severable” from the remainder of the law (meaning whether other portions of the ACA can remain in place or whether the entire law is invalid without the individual mandate).

In determining whether the remainder of the law could stand without the individual mandate, the court pointed out that “Congress stated three separate times that the individual mandate is essential to the ACA … [and that] the absence of the individual mandate would ‘undercut’ its ‘regulation of the health insurance market.’ Thirteen different times, Congress explained how the individual mandate stood as the keystone of the ACA … [and,] ‘together with the other provisions’ [the individual mandate] allowed the ACA to function as Congress intended.” As a result, the court determined that the individual mandate could not be severed, making the ACA invalid in its entirety.

Impact of the Federal Court Ruling

Judge O’Conner’s ruling left many questions as to the current state of the ACA, because it did not order for anything to be done or stay the ruling pending appeal. However, this ruling is expected to be appealed, and the White House announced that the ACA will remain in place until a final decision is made. On Dec. 17, 2018, HHS also confirmed that it will continue administering and enforcing all aspects of the ACA. Many industry experts anticipate that the Supreme Court will likely take up the case, which means that a final decision will not be made until that time.

While these appeals are pending, all existing ACA provisions will continue to be applicable and enforced. Although the individual mandate penalty will be reduced to zero beginning in 2019, employers and individuals must continue to comply with all other applicable ACA requirements. This ruling does not impact the 2019 Exchange enrollment, the ACA’s employer shared responsibility (pay or play) penalties and related reporting requirements, or any other applicable ACA requirement.

By Natasha Kwachka

Lately productivity has been a huge topic of discussion. Some would say productivity can be achieved by a few simple habits put into action. Although I agree with creating positive habits that can contribute to efficiencies, I wonder if there is more that goes into productivity. I recently read an article that discussed taking small moments to disengage, also known as Quiet Time. It caused me to take a deep look inward and truly evaluate how often I took a step away from all the noise. Needless to say, my time spent in silence likely matches many Americans, who would describe this time as “slim to none.” There are huge gains to be made from taking small amounts of time completely dedicated to silence, removing the noise. Take a look at the article I came across.

https://hbr.org/2017/03/the-busier-you-are-the-more-you-need-quiet-time

The State of Alaska released a notice containing directions for Alaskans affected by last week’s earthquake to apply for grants and disaster relief, which can be found at http://ready.alaska.gov. This can be very valuable to those struggling to rebuild after damages incurred last week. Please direct inquiries for disaster assistance to this site and feel free to forward this notice to those looking for help. We also posted this on the RISQ website. The link at http://ready.alaska.gov for individual assistance ALSO applies for business disaster relief. Our office contacted the State Emergency Operations Center, a division of Homeland Security, this morning and confirmed businesses are eligible to apply for relief. If you cannot access the web, the hotline is 855-445-7131, or you can call the SEOC directly at 907-428-7100.

KTVA shared more information today on available resources for disaster relief:

https://www.ktva.com/story/39596417/assembly-receives-quake-assistance-briefing-from-state-feds#.XAl7em-ZNEk.email 

Once you have reduced your debt and created a workable spending plan, you’re ready to begin saving toward retirement. You may do this through a company retirement plan or on your own. Here are a few of the places where you might put your money for retirement:

• Savings accounts, money market mutual funds, certificates of deposit (CDs) and U.S. Treasury bills. These are often referred to as cash or cash equivalents because you can get to them quickly and there’s little risk of losing the money you put in.
• Domestic bonds. You loan money to a U.S. company or a government body in return for its promise to pay back what you loaned, with interest.
• Domestic stocks. You own part of a U.S. company.
• Mutual funds. These pool your money with the money of other shareholders and invest it for you, making it easier to invest and to diversify your money.

Where Should You Put Your Money?

For goals you want to accomplish quickly, it’s best to put your money into one or more of the cash equivalents, like a bank deposit. For goals at least five years into the future, such as retirement, consider putting some money into stocks, bonds, real estate, foreign investments, mutual funds or other assets. Keep in mind that these options are uninsured by the federal government, so they carry the risk that you can lose some of your money. Generally, the longer you have until retirement and the greater your other sources of income, the more risk you can afford. For those who are retiring soon and who will depend on their investment for income during retirement, a low-risk investment strategy is more practical. But if you have more time before retirement, investing carefully in options such as stocks and bonds can help you earn significantly more than keeping all your money in a savings account. The greater the risk, the greater the potential reward, but only you can decide how much risk you are comfortable taking.

Since 1926, the average annual return of short-term U.S. Treasury bills, which roughly equals the return of other cash equivalents such as savings accounts, has been 3.9 percent. The annual return of long-term government bonds over the same period has been 5.3 percent. Large-company stocks, on the other hand, while riskier in the short term, have an average annual return of 11.7 percent.

Many experts advise putting at least some of your money in higher-risk, but potentially higher-returning, assets. These high risk assets can help you stay ahead of inflation, which eats away at your nest egg over time. Remember though, choosing investments is your decision – never invest in anything you don’t understand or feel comfortable with.

Reducing Investment Risk

There are two main ways to reduce risk. First, diversify within each category of investment. You can do this by investing in pooled arrangements, such as mutual funds, index funds and bank products offered by reliable professionals. These investments typically give you a small share of different individual investments and allow you to spread your money among many stocks, bonds and other assets, even if you don’t invest a lot of money. Your risk of losing money is less than if you buy shares in only a few individual companies.

Second, you can reduce risk by investing among different categories of investments. Generally speaking, you should put some of your money in cash, some in bonds, some in stocks and some in other investment vehicles. The factors that cause one investment to do poorly may cause another to do well. Bond prices for example, often go down when stock prices are up (and vice versa). By diversifying into different types of assets, you are more likely to reduce risk and improve return than if you put all your money into one investment or one investment category.

Deciding on an Investment Mix

How you diversify is called asset allocation. Your decision will depend on many factors, including how many years until your retirement, the size of your current nest egg, other sources of retirement income, how much risk you are willing to take, your current financial picture, and so on. Your asset allocation will also change over time. When you are younger, you might invest more heavily in stocks than bonds and cash. As you get older, you may reduce your exposure to stocks and hold more in bonds and cash. You also may change your asset allocation as your goals, risk tolerance or financial situation change.

Rebalancing Your Portfolio

Once you’ve decided on your investment mix and invested your money, some of your investments will go up and others will go down over time. Eventually, you will have a different investment mix than you intended. Reassessing your mix, or “rebalancing,” brings your portfolio back to your original plan. Rebalancing also helps you to make more logical investment decisions. Let’s say your original investment called for 10 percent in U.S. small company stocks. Because of a stock market decline, they now represent 6 percent of your portfolio. You would sell assets that had increased and purchase enough U.S. small company stocks so they again represent 10 percent of your portfolio.

How do you know when to rebalance? There are two methods of rebalancing: calendar and conditional. Calendar rebalancing means that once a quarter or once a year you reduce the investments that have gone up and add to investments that have gone down. Conditional rebalancing is done whenever an asset class goes up or down more than a certain percentage. This method lets the market tell you when it is time to rebalance.

Article adapted from the U.S. Department of Labor publication of the same title. www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/publications/savingsfitness