The Biden Labor Department says a federal trial court in Texas erred last year when it signed off on a low-cost group health insurance alternative that some experts say could serve to undercut the Affordable Care Act.
The department submitted its opening foray this week in an appellate battle over whether health coverage two data mining partnerships offer in exchange for stats on internet usage qualifies as an employer-sponsored benefit plan under the Employee Retirement Income Security Act.
The novel limited-partnership business model threatens to undermine a major tenet of the Obama-era health law by steering enrollees away from state-sponsored insurance exchanges in order to subvert the ACA’s goal to keep health-care costs affordable by grouping healthy and sick people together.
Government attorneys argued in a brief with the U.S. Court of Appeals for the Fifth Circuit that a Northern District of Texas judge wrongfully concluded a DOL advisory opinion on the matter was a final agency action. The court “abused its discretion” by entering an injunction that forbade the department from refusing to acknowledge the plan’s ERISA status, the brief said.
Even assuming that the advisory opinion was reviewable, the DOL asserted, the data-sharing arrangement under which insurance recipients were classified as “limited partners” in the venture didn’t make them employees or even “working owners” of the company who could qualify as participants in an ERISA-governed plan.
“Limited partners are no different from consumers purchasing insurance from commercial-insurance companies, and their limited-partner designation is a sham designed to allow plaintiffs to evade state insurance regulations,” the department wrote in its brief.
The dispute began in 2018, when Data Marketing Partnership LP and LP Management Services LLC lobbied the Labor Department for confirmation that the “potentially novel” health plans they envisioned would be federally regulated under ERISA, rather than subject to regulation by as many as 50 states.
The partnerships say their “legitimate and innovative business model” now provides health coverage to 50,000 “working owners” who’ve signed up for the data tracking arrangement.
The department ultimately rejected the proposal, but not before the partnerships filed a lawsuit asking a federal court to bless the arrangement under the Administrative Procedure Act.
U.S. District Judge Reed O’Connor—the same judge who ruled the Affordable Care Act unconstitutional in 2018—ruled in favor of the data mining firms.
He said the partners qualify as “working owners” under the definition previously used by the department, because they have an equity ownership right in the business enterprise, and because they are actively engaged in providing services to the business. The department’s conclusion to the contrary imposed new definitions and requirements that aren’t supported by its prior positions or applicable precedent, he said.
“The Department simply does not agree that the services are a legitimate business enterprise, which is not a consideration required by law,” O’Connor wrote. “The court will not impose an extra-textual view of what services or industry in which business enterprises must engage to qualify for ERISA coverage.”
ERISA allows a health plan to cover “any number of working owners” so long as it also covers a single common-law employee, he said.
O’Connor’s “working owners” distinction has roots in the U.S. Supreme Court’s 2002 decision in Yates v. Hendon, which determined that a doctor who was the sole shareholder and president of a professional corporation could qualify as a participant in an ERISA plan because he wore “two hats, as an employer and an employee.”
Limited partners fail to meet that definition because they lack any employment relationship with the companies, the DOL said in its brief filed with the New Orleans-based court. Limited partners merely install software on their computers that is used to monitor internet use sold to third-party marketing firms. Any other reading would allow insurance companies, for example, to classify their customers as limited partners in order evade state regulation.
The federal government’s attorneys also argued that the district court didn’t have jurisdiction to rule or enjoin the department because the advisory opinion didn’t bear the markings of a final agency action. Data Marketing Partnership LP and LP Management Services LLC were premature in suing the DOL because the agency didn’t come to its opinion based on concrete facts borne out of a formal investigation, the Labor Department contends.
“The opinion merely states that, assuming plaintiffs’ hypothetical facts are accurate, the department would not regard plaintiffs’ plan as an employee benefit plan under ERISA,” the brief reads. “The opinion does not preclude the department from regulating plaintiffs’ plan under ERISA in the future—for example, if the department determines, after a full investigation, that plaintiffs’ factual representations were inaccurate and that the plan is in fact subject to ERISA.”
Attorneys for the companies didn’t respond Thursday to voicemail messages seeking comment. Their opposition brief is due April 30.
The case is Data Marketing Partnership v. U.S. Dep’t of Labor, 5th Cir., No. 20-11179, brief filed 3/31/21.