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 turned to the question of whether the employer mandate was a valid exercise of congressional power under the Commerce Clause, Unlike the individual mandate, where the Supreme Court held that the Commerce Clause did not empower Congress to require an individual to enter the insurance market if the individual chose not to purchase insurance, the court noted that Congress could certainly regulate an employer’s terms of compensation paid to employees because the employers were already engaged in interstate commerce. The mandate does not require employers to purchase something in the private market because they are free to self-insure the benefits (and thereby the benefits would simply be another version of employer-paid compensation). It was not a great leap from these conclusions to a holding that insurance benefits were a reasonably-regulated element of that compensation, and therefore the mandate is no different (in a constitutional sense) from minimum wage laws. As an alternative holding, the court found that the employer mandate was a constitutional exercise of Congress’s taxing authority, under the same rationale as the Supreme Court’s holding in NFIB. And, of course, the claim by the two individual plaintiffs was similarly unavailing, because the NFIB holding essentially controlled that claim.

Finally, in addressing the religion-based challenges raised by both the University and the individual plaintiffs, the court noted that precedent under the Free Exercise Clause holds that laws of general applicability are constitutional even if they have an “incidental effect of burdening a particular religious practice” (citing Church of the Lukumi Babalu Aye, Inc. v. City of Hialeah, 508 U.S. 520, 531 (1993)). Given the ACA allows individuals to purchase, and employers to offer, a plan that covers no abortion services, the court held that the ACA did not impose an undue burden on plaintiffs’ religious practices. The plaintiffs then argued that two religious exemptions in the ACA violate the Establishment Clause and their Fifth Amendment equal protection rights because those exemptions were not available to the plaintiffs. The “religious conscience” exemption was upheld as identical to a similar exemption in the Social Security Act, even though it does not cover all potential religious exemptions, because the SSA’s exemption has been repeatedly upheld as constitutional. The “health care sharing ministry” exemption was upheld even though it has a cutoff date for establishment of an exempt ministry, because the date was not selected to eliminate any particular group or sect and has a rational basis – it ensures that the exempt ministry has a track record, and that no new ministry can be established for the purpose of evading the ACA mandates.

The court refused to consider the plaintiffs’ challenge to the contraception mandate, finding that it was outside the scope of the complaints filed in the case and because many other courts are considering the validity of the contraception mandate in properly-filed cases, there was no compelling reason for this court to address the issue. In a footnote, however, the court noted that the contraceptive devices and emergency contraception pills that the plaintiffs objected to are not classified as abortifacients under well-established federal law, because they act before implantation and federal law defines “pregnancy” as beginning at implantation and ending at delivery.