The Supreme Court on June 17 ruled that plaintiffs lacked standing to challenge the constitutionality of the Patient Protection and Affordable Care Act (PPACA), thereby upholding the PPACA for the third time. Accordingly, there is no reason to file protective refund claims for previous taxes paid under the PPACA.
The 2017 tax law commonly known as the Tax Cuts and Jobs Act (TCJA) eliminated the individual “shared responsibility penalty” for failing to have “minimum essential health coverage” starting in 2019. As a result, the plaintiffs contended that this individual mandate was not a tax. And because the Supreme Court previously upheld the individual mandate on the grounds that it was a tax, the plaintiffs contended that the PPACA is no longer constitutional.
Act Three: Supreme Court’s Review of the PPACA
The Supreme Court did not address this argument. In a 7-2 decision, the Court instead found that because there is no penalty, the individual plaintiffs did not suffer an injury and thus did not have standing to sue. Likewise, the Court found that the state government plaintiffs did not suffer an injury because the lack of a penalty will not compel more individuals to purchase health coverage from state-run health insurance exchanges. The cases at issue were State of California, et al., v. State of Texas, et al. (19-840) and State of Texas, et al., v. State of California, et al. (19-1019).
The decision has broader implications for individuals. First, the requirement to maintain minimum essential coverage remains in place, but there is no penalty for failing to do so. Second, any protective claims for refund filed in anticipation of the PPACA being struck down are now obsolete. These claims primarily focused on refunds of the Net Investment Income Tax and the additional Medicare tax, both key provisions in the PPACA. If the PPACA had been struck down, then taxpayers who filed such claims might have been entitled to a refund of these taxes.
As a result of the Supreme Court’s ruling, taxpayers who filed protective claims should not receive refunds. There is also no need to file new protective claims, as there are currently no credible challenges to the PPACA.
There are some reported instances where taxpayers who filed protective refund claims received erroneous refunds from the IRS. These taxpayers should temper any premature exuberance over these refunds, as they are required to repay them to the IRS. The IRS provides guidance on how to return an erroneous refund in Topic No. 161 Returning an Erroneous Refund – Paper Check or Direct Deposit. This procedure covers both paper checks and electronic deposits received erroneously. It also includes guidance if the taxpayer has cashed the paper check.
The Supreme Court ruling leaves in place the key components of the PPACA. These include the ban on denying coverage for pre-existing conditions. Also, the federal and state insurance marketplaces will remain open. The “Cadillac tax” on high-cost group health plans was previously repealed in 2019, and this repeal is unaffected by this ruling.
For assistance in understanding the implications of this ruling or for help returning an erroneous protective claim refund, please contact us.
Published on June 22, 2021