Eleven states are backing the U.S. Labor Department effort to reverse a 2020 Texas federal court decision that effectively greenlighted low-cost group health plans that evade state regulation.
The Labor Department called the proposition “a sham” in its opening brief asking the U.S. Court of Appeals for the Fifth Circuit to overturn the ruling last week. The states and the District of Columbia joined in that effort Wednesday, as did the National Association of Insurance Commissioners and the Public Citizen Litigation Group, in briefs opposing the offering of health insurance in exchange for internet usage data.
The battle centers on whether a growing number of similar plans that skirt state regulation under a federal preemption clause can qualify as employer benefits, offering substandard coverage that otherwise would be barred by the Affordable Care Act. U.S. District Judge Reed O’Connor, the Northern District of Texas jurist who ruled the ACA unconstitutional in 2018, said last year that participants in these plans are “working owners” of the companies.
Signatories to the states’ brief disagreed, arguing that data marketing schemes draw healthy participants out of state commercial marketplaces set up by the ACA while dumping sick participants into them.
“People who are lured towards the data marketing arrangement and similar schemes are exposed to misleading marketing, discrimination in enrollment, gaps in coverage, unfair claims handling, and financial peril,” according to their filing. “Data marketing and similar schemes, if allowed to operate without oversight by state regulators, will harm the very consumers that state insurance regulators strive to protect.”
Insurance departments representing Colorado, Washington state, Connecticut, Hawaii, Maine, Maryland, New Mexico, Oregon, Pennsylvania, South Dakota, Vermont, and Washington, D.C., jointly signed onto the brief.
The NAIC and Public Citizen argued in their friend-of-the-court filing that the companies named in the suit, Data Marketing Partnership LP and LP Management Services LLC, had failed to satisfy the “working owners” test laid out in the 2002 Supreme Court decision Yates v. Hendon. Likewise, plan participants aren’t self-employed individuals because they don’t earn income. Plan participants can only be classified as customers, they argued, and therefore fall under state regulation.
The companies’ opposition brief is due at the New Orleans-based Fifth Circuit on April 30.
The case is Data Marketing Partnership v. LABR, 5th Cir. App., No. 20-11179, 4/7/21