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Joel McElvain: "Recent Developments in ACA Litigation"
1. Recent Developments
In ACA Litigation
Petrie-Flom Center
Health Law Year in P/Review
December 7, 2018
Joel McElvain
Senior Fellow and Distinguished Visiting Scholar
Solomon Center for Health Law and Policy, Yale Law School
2. Three pending cases, and one on the horizon
1. Texas v. United States (N.D. Tex.)
2. State of New York v. U.S. Department of Labor (D.D.C.)
3. Association for Community Affiliated Plans v. U.S. Department of
Treasury (D.D.C.)
4. Litigation on the horizon: Section 1332 waivers
4. Texas v. United States
26 U.S.C. 5000A:
(a) Requirement to maintain minimum essential coverage
An applicable individual shall … ensure that the individual, and any dependent of
the individual who is an applicable individual, is covered under minimum essential
coverage for such month.
(b) Shared responsibility payment
(1) In general
If a taxpayer who is an applicable individual, or an applicable individual for whom
the taxpayer is liable …, fails to meet the requirement of subsection (a) …, then, …
there is hereby imposed on the taxpayer a penalty with respect to such failures in
the amount determined under subsection (c).
5. Texas v. United States
• National Federation of Independent Business v. Sebelius, 567 U.S. 519 (2012)
• Chief Justice Roberts, writing only for himself, but in the controlling opinion for
the Court, reasoned that Section 5000A was not valid under the commerce
power. “The Framers gave Congress the power to regulate commerce, not to
compel it.” NFIB, 567 U.S. at 555 (opinion of Roberts, C.J.).
• The Chief Justice – this time writing for a majority of the Court, held that the
same provision survived under the taxing power. “Neither the Act nor any other
law attaches negative legal consequences to not buying health insurance, beyond
requiring a payment to the IRS.” NFIB, 567 U.S. at 568. “… § 5000A need not be
read to do more than impose a tax. That is sufficient to sustain it.” Id. at 570.
6. Texas v. United States
• Plaintiffs – several state attorneys general – argue that the ACA is
unconstitutional in full in light of the Tax Cuts and Jobs Act of 2017.
• They argue as follows:
• The TCJA reduced the amount of the § 5000A penalty to zero, but left
26 U.S.C. § 5000A(a) intact.
• Section 5000A no longer raises revenue for the federal government,
and thus cannot be valid as a tax. And NFIB holds that the section is
invalid as a regulation of commerce.
• Under the doctrine of severability, Section 5000A is essential to the
operation of the ACA as a whole, so the entire statute falls with it.
7. Texas v. United States
• The Department of Justice filed a brief for the defendants in the case
that agreed with the plaintiffs’ theory in large part.
• DOJ agrees that 5000A is unconstitutional under either the commerce
or the taxing power.
• DOJ agrees that 5000A is essential to the operation of some of the
ACA’s provisions. It contends that the Act’s guaranteed-issue and
community-rating provisions stand or fall with Section 5000A.
• DOJ contends that the remainder of the Act survives, however.
8. Texas v. United States
• Another group of state attorneys general, led by the State of
California, has intervened as defendants in the case. They defend the
ACA in full.
• They argue that 5000A qualifies as a tax; many taxes are suspended,
or have delayed effective dates, and are not considered to be
unconstitutional.
• They argue that, if 5000A as amended is unconstitutional, the proper
remedy is to strike the TCJA.
• They argue that, if the severability question goes instead to the ACA,
it is clear that the 115th Congress intended only to repeal the
individual mandate
9. State of New York v. U.S.
Dep’t of Labor
(Association Health Plans)
10. State of New York v. U.S. Dep’t of Labor
• Issue: what is an “employer” for purposes of the definitions in ERISA –
“employer” can include an association of employers “acting …
indirectly in the interest of an employer,” 29 U.S.C. 1002(5).
• DOL has read that to mean that some true commonality of interest,
apart from the provision of benefits, must exist among the
membership for an association to qualify as an employer. The
employers must also control the association.
• DOL has read the statute to mean that a sole proprietorship is not an
“employer.”
11. State of New York v. U.S. Dep’t of Labor
• Why does this matter? The ACA extended some of its consumer
protections to all insurance markets, but others only to the individual
and small group markets.
• Guaranteed-issue and community-rating apply only in the individual
and small group markets. 42 U.S.C. 300gg-1(a), 300gg-3, 300gg.
Likewise, the essential health benefits requirements apply only in
these markets. 42 U.S.C. 300gg-6(a), 18022(b).
• For purposes of distinguishing between “small” and “ large”
employers, the dividing line is an average of 50 employees. 42 U.S.C.
300gg-91(e)(2-5).
12. State of New York v. U.S. Dep’t of Labor
• The new AHP rule:
• The “bona fide association” test is replaced with a rule that multiple
employers may form an association that is treated as the “employer”
if the employers are in the “same trade, industry, line of business, or
profession,” or if they “have a principal place of business” in the same
geographic area (such as a state or a metropolitan area).
• Associations must have some substantial business purpose apart from
providing health coverage, although providing coverage may be the
association’s primary purpose.
• The rule declares that sole proprietors may qualify as “employers.”
13. State of New York v. U.S. Dep’t of Labor
• Twelve states, led by the State of New York, filed suit to challenge the
AHP rule. They argue that:
• (1) the rule is contrary to the ACA in that it undermines the consumer
protections in the small group market, and in that both the ACA and
ERISA adopt the common-law definition of employer, which looks to
whether the entity actually controls the job functions of the
employee.
• (2) the sole proprietor portion of the rule is contrary to the ACA,
which defines “employer” as having two or more employees.
• (3) the rule is internally inconsistent, in that DOL declared that its new
definition of “employer” would apply only in the context of AHPs.
14. State of New York v. U.S. Dep’t of Labor
• The Department of Labor has defended the rule, arguing:
• (1) ERISA expressly defines “employer” to mean “an association of
employers,” and leaves it to the agency to define what qualifies as an
association.
• (2) in Labor’s view, the ACA definitions do not control over the ERISA
definitions, and nothing in the statute bars a sole proprietor from being
treated as an employer.
• (2) the revised “employer” rule is reasonable, in that it requires the
association to show “at least one substantial business purpose” apart from
providing health benefits.
• The parties are briefing summary judgment motions; the final brief is due
December 19.
15. Ass’n for Community Action
Plans v. U.S. Dep’t of Treasury,
No. 18-cv-2133 (D.D.C.)
(Short-term, limited-duration insurance)
16. Ass’n for Community Action Plans v. U.S.
Dep’t of Treasury
• The ACA extends many of its consumer protections, including the
guaranteed-issue requirement and the community-rating
requirement, to the individual health insurance market.
• 42 U.S.C. 300gg-91(b)(5): “The term ‘individual health insurance
coverage’ means health insurance coverage offered to individuals in
the individual market, but does not include short-term limited
duration insurance.”
• The statute does not define what STLDI means. The definition
matters, since STLDI is exempt from many of the ACA’s requirements.
17. Ass’n for Community Action Plans v. U.S.
Dep’t of Treasury
• In 1997 – before the ACA, and in a different context – HHS and
Treasury adopted a rule defining STLDI as a plan lasting up to 34 days.
This was for purposes of HIPAA – a short-term plan was exempt from
HIPAA’s continuation of coverage requirements.
• After the passage of the ACA, the definition of STLDI became more
relevant. In 2016, HHS and Treasury adopted a rule defining STLDI; to
qualify, “coverage must be less than three months in duration,
including any period for which the plan may be renewed.”
• In 2018, the agencies adopted a new rule, reverting to the 364-day
definition of short-term, and permitting renewals for up to three
years.
18. Ass’n for Community Action Plans v. U.S.
Dep’t of Treasury
• Several plaintiffs – an association of insurers, as well as several
providers and consumers – have sued to challenge the rule.
• They argue that the rule is inconsistent with the ACA – the Act was
intended to bring all comers into the single risk pool of the individual
market, whereas, in the plaintiffs’ view, this rule would allow the
creation of two parallel markets.
• They argue that the definition of “short term” violates the statute as
there is not a meaningful distinction between a 364-day plan and a
365-day plan.
• The plaintiffs also challenge the part of the rule allowing renewals for
up to three years.
19. Ass’n for Community Action Plans v. U.S.
Dep’t of Treasury
• The agencies defend the rule, arguing that the statute is ambiguous, and that the
agencies have the authority to resolve the ambiguity under Chevron.
• They argue that the 364-day rule was in place when the ACA was passed, so
Congress should be presumed to have approved of that rule.
• The agencies express doubt that the rule will have the consequences the
plaintiffs claim. Many insureds will remain in the ACA-compliant market due to
subsidies; estimates vary as to the overall effect the rule will have on the market.
• The agencies argue that “short-term” can reasonably be read to be up to one-
year, and the three-year renewal period is reasonably “limited.”
• The plaintiffs initially moved for a preliminary injunction, but withdrew the
motion. Summary judgment is being briefed in January and February, and
argument will be held on February 19.
21. Section 1332 waivers
• The ACA comprehensively reforms the individual insurance market, but
allows a process for states to seek waivers to adopt alternative plans, if
they can show that their alternative better accomplishes the Act’s goals.
• Section 1332 of the ACA, 42 U.S.C. 18052, does not permit waivers of the
Act’s core protections, such as guaranteed-issue and community-rating, but
does permit waivers of the Act’s rules establishing exchanges – that is, the
types of plans that are “qualified health plans” eligible for sale on the
exchanges, and the structure of subsidies for these plans.
• If a waiver is approved, the state receives pass-through funding form the
federal government, in the amount of forgone subsidies, to run its plan.
22. Section 1332 waivers
• The Act imposes four “guardrails” before a waiver may be approved
“The Secretary may grant a request for a waiver under subsection (a)(1) only if the
Secretary determines that the State plan--
“(A) will provide coverage that is at least as comprehensive as the coverage defined in
section 18022(b) of this title and offered through Exchanges established under this title as
certified by Office of the Actuary of the Centers for Medicare & Medicaid Services based
on sufficient data from the State and from comparable States about their experience with
programs created by this Act and the provisions of this Act that would be waived;
“(B) will provide coverage and cost sharing protections against excessive out-of-pocket
spending that are at least as affordable as the provisions of this title would provide;
“(C) will provide coverage to at least a comparable number of its residents as the
provisions of this title would provide; and
“(D) will not increase the Federal deficit.” 42 U.S.C. 18052(b)(1).
23. Section 1332 waivers
• In 2015, HHS and Treasury adopted guidance that reads the guardrails
strictly, and that also required states to show that particular subgroups of
their populations would not be harmed before a waiver could be approved.
• In October 2018, the agencies adopted new guidance that reads the
guardrails more loosely. “Coverage” that is comprehensive and affordable
now would only need to be made available to state residents. Conversely,
the third guardrail, that “coverage” actually reach the same number of
state residents as before, is met if any “meaningful” coverage reaches
those residents, regardless of the scope of that coverage.
• On November 29, HHS released a discussion paper describing the kinds of
waiver applications that states may wish to consider. In particular, HHS
invites states to seek waivers that would subsidize STLDI, AHPs, or other
non-compliant coverage.
24. Section 1332 waivers
• The new guidance is highly vulnerable to a legal challenge.
• “[T]he normal rule of statutory interpretation,” after all, is “that identical
words used in different parts of the same statute are generally presumed
to have the same meaning.” IBP, Inc. v. Alvarez, 546 U.S. 21, 33-34 (2005).
• The phrase “provide coverage” appears in three adjoining clauses within a
single sentence. “[T]he presumption that a given term is used to mean the
same thing throughout a statute” is “surely at its most vigorous when a
term is repeated within a given sentence.” Mohamad v. Palestinian Auth.,
566 U.S. 449, 456 (2012).
• Congress almost certainly intended Section 1332 as an alternative means
to accomplish the ACA’s goals, not as a vehicle to promote non-compliant
coverage.