Recent Litigation Revolving Around the ACA (Benefit Minute)

Posted in: Benefit Minute, Employee Benefits

Individual Mandate

The 2018 tax reform law eliminated the penalty for failing to comply with the ACA’s individual mandate beginning in 2019.  As a result, twenty Republican states filed a lawsuit in Texas arguing that the individual mandate is fundamental to the ACA. They believe that, without the mandate, the ACA is no longer workable and should be struck down as unconstitutional.

The case is being defended by Democratic attorneys general from fifteen states and the District of Columbia who argue that striking down the ACA would cause “immediate and irreparable harm” to residents of their states.  Their supporters also argue that this is a backdoor attempt to do what Congress could not – pass legislation repealing the ACA.

While the Department of Justice typically defends existing federal law, the DOJ announced that it would not do so in this case.  The DOJ sided with the Republican states regarding the individual mandate and also stated its position that only the guarantee issue and community rating provisions of the ACA (and not the entire law) should be struck down because they are so closely tied to the individual mandate.  Eliminating these provisions would end preexisting condition protections.

The next step in this ongoing litigation is a September 2018 hearing where the judge will listen to arguments to decide whether he should grant the Republicans’ request for an injunction to temporarily halt the ACA until this case can be decided.

Association Health Plans

In response to the final regulation issued by the Department of Labor that allows for the expansion of non-ACA compliant Association Health Plans, eleven Democratic states and the District of Columbia filed a lawsuit challenging the final regulation, asserting that it violates existing federal law and harms consumers and states.  The lawsuit is based on the Administrative Procedures Act, which allows challenges to regulations that are “arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law.”  Among the specific arguments raised in the lawsuit:

  • the ACA and its overall structure is violated by allowing small employers to be treated as small for some purposes (such as the employer mandate) and large for other purposes (determining insurance market size);
  • allowing working owners with no employees to be covered under an AHP is contrary to ERISA;
  • new commonality of interest rule is insufficient to meet the established test under ERISA;
  • DOL exceeding its authority by trying to change ERISA;
  • DOL did not appropriately consider the history of abuse related to association health plans and multiple employer welfare arrangements; and
  • states are unfairly burdened as they will have primary responsibility for oversight responsibility.

The states are asking the court to declare the final regulation invalid, set it aside and enjoin the DOL from implementing or enforcing the rule.

Cost-Sharing Reductions

Individuals enrolled in Marketplace plans who have household income up to 250% of the federal poverty level (based on household size) are eligible for cost-sharing subsidies in addition to premium assistance subsidies.  These cost sharing reductions lower the total out-of-pocket costs for medical expenses.

In October 2017, the Department of Health and Human Services ceased reimbursing insurance carriers for these cost-sharing payments after a district court judge sided with House Republicans, ruling that the cost-sharing subsidies were illegal because the funds were never appropriated by Congress.

At that time, nineteen states filed a lawsuit challenging this decision.  Since then, insurance carriers, who are still obligated under the law to provide the cost-sharing reductions, have responded by “silver loading” which is increasing the premium rate for silver-level insurance plans (it was silver plans that qualified for cost-sharing reductions).  By doing this, the insurance carriers receive more premium revenue to offset lost cost-sharing reimbursements and the federal government now pays out more in premium assistance subsidies due to the higher insurance premiums.

Due to silver loading, which does not significantly harm either insurance carriers or individuals who are entitled to premium assistance and cost-sharing subsidies, the states that filed the original lawsuit asked that it be either stayed or dismissed.  On July 18, 2018, the case was dismissed without prejudice, which means that it can be refiled again in the future if and when silver loading is no longer permitted.  However, in another case brought by an insurance carrier entitled to cost-sharing reduction payments, a court ruled in favor of the insurer, saying that the failure of Congress to appropriate funds did not relieve the government of its obligation to pay insurers.   The federal government will presumably appeal this decision.

Risk Corridor Payments

The risk corridor program was a three-year program to stabilize premiums in the Marketplace during the initial implementation period when it was expected that individuals with serious health conditions would enroll in Marketplace plans. It required profitable health insurers to pay funds into the program which would then be used to subsidize insurers with high claim costs.   However, as with the cost-sharing reductions, the ACA did not specify another source for payments if funds from profitable insurance carriers were insufficient, and Congress subsequently passed an appropriations bill that required the risk corridor program to be budget neutral.  As a result, billions of dollars in risk corridor payments were never made to insurers.

Several insurance carriers who incurred significant losses sued the federal government, arguing that the ACA required the federal government to make full payment to the insurers, that the risk corridor program was an implied contract entered into by the federal government, and that failure to make full payments violated the Fifth Amendment.  In June 2018, an appeals court ruled that government does not have to pay health insurers the full amount owed to them in risk corridors payments because Congress intended to cap them via the appropriations process.  The insurers have now asked for a rehearing by the entire Federal Circuit, which is being opposed by the Department of Justice.

Undermining the ACA

In August 2018, four cities (Baltimore, Chicago, Cincinnati and Columbus, Ohio) sued the Trump administration for allegedly undermining the ACA in violation of the Constitution and jeopardizing access to affordable, quality health insurance. The lawsuit, which was filed in Maryland federal court, claims that actions by the administration have served to discourage enrollment in health coverage, raise health insurance prices, sow uncertainty and reduce competition in insurance markets.


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