The Court of Appeals for the District of Columbia affirmed the District Court’s decision in Central United Life v. Burwell on July 1, 2016. This decision is very significant for those assessing the future strength of, and compliance framework for, the fixed indemnity market.
Central United Life v. Burwell enjoined the U.S. Department of Health and Human Services (HHS) from enforcing that portion of a new rule that limited the sale of fixed indemnity health insurance policies to only those consumers who have certified through a written “attestation” that they have other health insurance coverage that qualifies as minimum essential coverage under the Affordable Care Act (ACA).
Under the Public Health Service Act (PHSA), certain insurance plans qualify as “excepted benefits” and are thus exempted from many of the PHSAs requirements. When the ACA was passed in 2010, it effectively incorporated the PHSAs exemption for “excepted benefits” and applied that exemption to the ACAs “minimum essential coverage” and certain other market reform requirements. The definition of “excepted benefits” expressly includes fixed indemnity plans, which provide limited and fixed medical benefits, and thus are not designed or intended to provide comprehensive medical coverage and do not satisfy the individual mandate contained in the ACA. For that reason, some federal and state regulators have tried to regulate and limit the sale of such products — ostensibly to prevent consumers from confusing the coverage provided under a fixed indemnity policy with comprehensive medical coverage.
Consistent with the foregoing regulatory impulse, in 2014 HHS promulgated a rule that created additional criteria that had to be met in order for a fixed indemnity plan to qualify as an “excepted benefit,” and therefore be exempt from the ACAs “minimum essential coverage” and other requirements. Under the new rule, to qualify as an excepted benefit, a fixed indemnity plan (among other things) can only be sold to individuals who attest, in their fixed indemnity insurance application, that they have other health coverage that qualifies as “minimum essential coverage” under the applicable ACA rules. 45 CFR § 148.220(b)(4).
In its September 2015 decision, the District Court for the District of Columbia found that, by imposing this new “attestation” requirement, HHS was using its regulatory authority “to contravene the very statute they are implementing,” and thus the District Court issued a permanent injunction prohibiting HHS from enforcing the portion of the rule imposing the “attestation” requirement. HHS appealed the District Court decision, arguing that the rule merely changes the regulatory criteria for a fixed indemnity product to be treated as an excepted benefit under the PHSA, and that the PHSA grants HHS the authority to do so.
In its July 1 decision, the Court of Appeals found that the rule “was an act of amendment, not interpretation,” that “HHS lacked authority to demand more of fixed indemnity providers than Congress required,” and that HHS therefore lacked the authority to enforce the rule. Specifically, the court rejected the HHS argument that (i) the PHSA expressly contemplates and requires that fixed indemnity plans be sold only to individuals with other health insurance coverage, and that (ii) the PHSA essentially delegates the definition and scope of that other coverage to HHS.
HHS has 90 days to petition the Supreme Court to review the matter. However, the time period for requesting review by the Supreme Court could be extended if HHS requests en banc review by the entire D.C. Circuit Court of Appeals. If an en banc request is filed and denied, the 90-day period to seek review by the Supreme Court would start following the denial of en banc review.
Foley’s Insurance & Reinsurance Industry Team is monitoring this area and will continue to report on significant developments as they occur.
Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and our colleagues. If you have any questions about this update or would like to discuss this topic further, please contact your Foley attorney or the following: