A case before a federal appeals court that challenges a new type of employee health plan has insurers and state regulators worried about its potential to create an end-run around Obamacare and state insurance regulations.
The U.S. Labor Department is fighting back against a decision from a federal judge in Texas that allowed two companies to offer health plans to individuals who agree to have their internet activity tracked and sold.
If upheld by the U.S. Court of Appeals for the Fifth Circuit, opponents say the ruling could open the door for junk health plans that undermine the Affordable Care Act, evade state insurance regulations, and drive up the cost of premiums by pulling the healthiest people away from the federal marketplace.
Companies would be able to offer consumers plans that are stripped of federal and state insurance protections, said Kris Haltmeyer, vice president of legislative and regulatory policy for the Blue Cross Blue Shield Association. The association filed a rare friend-of-the-court brief supporting the Labor Department in its appeal.
“Importantly, they would also be deprived of state authority to regulate these entities and to ensure they can pay the claims that they promised to,” he said.
Bounds of ERISA
Under the arrangement, individuals who agree to become “limited partners” of Data Marketing Partnership LP and agree to have their internet activity tracked can join an employee-health plan.
The district court ruled these individuals are “working owners” and compelled the Labor Department to deem the insurance plan they’re joining a single-employer health plan under the Employee Retirement Income Security Act (ERISA).
Large employer plans under ERISA are preempted from state regulations, and they aren’t required to offer the same 10 essential health benefits that individual and small group plans have to offer under the ACA, or insure people regardless of a pre-existing condition.
What’s being offered is a company health plan for a startup data company that’s trying to be the next Google or Facebook, said Jonathan Crumly, an attorney with Taylor English Duma LLP who represented the companies in the district court proceedings.
“The structure is 100% legal within the bounds of ERISA,” he said in a interview with Bloomberg Law.
In a statement, Randall Johnson, a representative of L.P. Management Services, said the companies needed to provide a benefit to attract individuals to work in order to grow its user base and reach profitability. L.P. Management Services, which is named in the litigation, is the general partner that’s responsible for the business operations of the partnership between Data Marketing Partnership and the individuals who sign on as limited partners.
“To do this, we turned to a group of health benefit experts to build out group health plans that provide a full menu of coverages that are all subject to ERISA regulation and are fully reinsured,” he said. “Our companies are equal opportunity employers and we do not discriminate in who can be employed or join as a partner nor do we discriminate in who is eligible to participate in the group health plans.”
But the Labor Department says these “limited partners” are not employees under ERISA.
At least one state has already received consumer complaints and taken action against this type of arrangement. The Washington Insurance Commission sent cease-and-desist letters in March to two affiliated companies—Data Partnership Group and American Partnership Group LP—and fined them $25,000 and $50,000, respectively, for violating state insurance laws.
L.P. Management Services is a general partner of the two companies, which operate similarly to Data Marketing Partnership, Crumly said.
With the cease-and-desist letters, Washington “made the fundamental mistake of ignoring the trial court’s decision,” he said. “They don’t have jurisdiction.”
Crumly, who is representing the companies in the Washington matter, said he’s planning to appeal those state orders.
The National Association of Insurance Commissioners (NAIC), which filed a friend-of-the-court brief in support for the Labor Department, argues the companies are trying to exploit the provisions in ERISA that exempt self-insured employee benefit plans from state insurance regulations.
“While this case on its face is about one entity, it’s really about what arrangements can and can’t exist and who can do anything about it,” said Pennsylvania Insurance Commissioner Jessica Altman, who spearheaded NAIC’s brief. “State regulators feel very strongly that we need to have the ability to protect our consumers.”
Under ERISA, only a past or present employee of an employer can participate in a health plan, but in 2004 the U.S. Supreme Court extended the definition of employee to cover small business owners. It held “working owners” can qualify as participants in an ERISA plan if the plan covers at least one other person who satisfies the common law definition of “employee.”
The companies here are “trying to drive a truck through that somewhat narrow decision and say anyone who’s associated with our business and does a limited amount of work like downloading an app and browsing the internet is just like a small business owner and just like an employee under ERISA,” said Nandan Joshi, an attorney with the Public Citizen Litigation Group, the litigation arm of the consumer advocacy group Public Citizen.
A core function of state insurance regulations is to ensure insurers have enough money to pay claims they’re obligated to pay on behalf of the policyholders. The reason ERISA plans aren’t regulated by states is because they’re offered by true employers that have every incentive to do right by their employees, said Katie Keith, a health law professor at Georgetown University.
The companies here aren’t true employers, so “the same incentives aren’t there,” she said.
But Crumly argues the companies’ health plans are backed by extremely well-funded layers of reinsurance and that L.P. Management Services detailed that in its November 2018 request for an advisory opinion from the Labor Department stating these arrangements are ERISA-covered health plans.
Reinsurance is an insurance policy for an insurer that transfers some of the financial risk to another insurance company, according to the Insurance Information Institute.
If there’s ever a claim made by a health provider under the plan that there isn’t sufficient funds in the trust account to pay, the reinsurance pays immediately, he said. “There’s no scam here.”
If there’s concern the court’s ruling could open the door to sham plans that leave consumers with medical bills, Crumly said the Labor Department should have responded with an advisory opinion that required the kind of massive consumer protection provisions L.P. Management Services and Data Marketing Partnership voluntarily put in place.
“Why don’t they propose regulations that protect against that instead of punishing the good actors that are providing great health coverage for people in the middle of a pandemic?” he asked.
The companies’ reply to the Labor Department’s opening brief is due April 30.
The case is Data Mktg. P’ship v. United States Dep’t of Labor, 5th Cir., No. 20-11179.