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Novel Employer Health Plan Sent Back to Lower Court

Aug. 17, 2022, 7:50 PM

A federal appeals court refused to outright bless a new type of employee health plan that skirts state insurance regulations and Obamacare protections.

The US Court of Appeals for the Fifth Circuit on Wednesday told a trial court to take another look at whether two companies can create an employee health plan under the Employee Retirement Income Security Act (ERISA) that allows individuals to join if they agree to having their internet activity tracked.

Under the arrangement, individuals who agree to have their internet usage tracked for more than 500 hours a year via their phone, TV, and computer become “limited partners” of Data Marketing Partnership LP who can join an employee health plan run by L.P. Management Services LLC. The companies then sell the data they track to third-party marketing firms.

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 ERISA.

The Labor Department had said in an advisory opinion that Data Marketing Partnership’s 50,000 “limited partners” weren’t actually “employees” or “bona fide partners,” who are eligible to participate in its employee benefit plan. Data Marketing and L.P. Management Services then challenged that opinion.

In its ruling Wednesday, the Fifth Circuit called the Labor Department’s advisory opinion “arbitrary and capricious,” but said the district court did not consider all the relevant facts and circumstances before it sided with the companies and deemed these particular limited partners to be “bona fide partners” and “working owners” that qualify as plan participants.

The district court had permanently blocked the Labor Department from refusing to acknowledge the ERISA status of the Data Marketing’s health plan, but the appeals court tossed it out. In the court’s unanimous opinion, Judge Andrew Oldham said the injunction turned on interpretive questions the district court has to further address.

Large single-employer self-funded plans under ERISA are preempted from state regulations. They also aren’t required to offer the same 10 essential health benefits that individual and small group plans have to offer under the Affordable Care Act or insure people regardless of a pre-existing condition.

There are financial and reputational incentives for large employers to pay expected health claims, but Data Marketing’s scheme is not a legitimate employment-based arrangement, state insurance regulators in 11 states and the District of Columbia told the appeals court in a friend-of-the-court brief supporting the Labor Department.

They warned that if allowed Data Marketing and L.P. Management Services would be able to pick and choose who can participate in the plan, remove individuals whose claims get too high, and charge rates that aren’t monitored by any regulatory authority.

The companies acknowledged their “limited partners” aren’t employees in the common-law sense, but argued the Supreme Court has recognized that self-employed “working owners” are employees, who are entitled to participate in an ERISA plan if that plan also covers at least one common-law employee.

The companies said their plan includes robust safeguards to ensure its solvency and reliability, including well-funded layers of reinsurance policies issued by entities with more than $7 billion in assets.

The case is Data Mktg. P’ship v. United States Dep’t of Labor, 5th Cir., No. 20-11179.

To contact the reporter on this story: Lydia Wheeler in Washington at lwheeler@bloomberglaw.com

To contact the editors responsible for this story: Brent Bierman at bbierman@bloomberglaw.com; Karl Hardy at khardy@bloomberglaw.com