On July 1, 2016, the U.S. Court of Appeals for the District of Columbia Circuit affirmed the September 11, 2015, order of the U.S. District Court for the District of Columbia to permanently halt the enforcement of a portion of the HHS “final” regulation restricting the offer and sale of “hospital indemnity or other fixed indemnity insurance” in the individual market to only persons attesting to having “minimum essential coverage” (“MEC”).
As a result, HHS is prohibited from enforcing the “attestation” portion of the final rule nationwide. In addition, because states are the primary enforcers of this standard, the decision has national implications for implementation of the “attestation” requirements by all 50 states and related implementation activities by the National Association of Insurance Commissioners (“NAIC”).
The D.C. Circuit’s decision totally and emphatically agrees with the District Court’s opinion in Central United Life. The District Court’s decision was a clear, concise, and well-reasoned analysis based upon the precise statutory text adopted by the Congress in 1996. The Court of Appeals analysis and affirmation also includes guidance with broad implications for the scope of federal agency rulemaking in general and the application of the federal statutory “conditions” established by Congress for excepted benefits in particular. Importantly, the Court of Appeals for the D.C. Circuit is an appellate panel with a fine-tuned national expertise in the review of federal agency decisions. See Fraser, et al, “The Jurisdiction of the D.C. Circuit,” 23 Cornell Journal of Law and Public Policy 131 (2013).
Rulemaking in General and Excepted Benefits in Particular
For federal agency rulemaking in general, and application of the federal statutory “conditions” to be an excepted benefit in particular, the Court of Appeals provided additional and broad proscriptions in the Central United Life decision.
In the first sentence of the opinion, the Court of Appeals characterized the HHS as having “colored outside the lines of its authority.” Applying the two-step “Chevron” analysis, the it noted that an agency rulemaking “must give effect to the unambiguously expressed intent of Congress.” For fixed indemnity insurance, the Court observes that to have excepted benefits status the statute plainly requires only that the plan:
- (1) is provided under a separate policy; and
- (2) offers independent, noncoordinated benefits.
The Court of Appeals points out that the statute further provides that the plan qualifies as an excepted benefit “if all of the following conditions are met.” Thus, the Court concludes, where Congress exempted all such conforming plans, the HHS final rule provides additional criterion that “exempts less than all.”
The final fixed indemnity rule, the Court notes, actually—and fatally so—amends the statutory language of the Public Health Service Act. The Court declares that “disagreeing with Congress’s expressly codified policy choices isn’t a luxury administrative agencies enjoy” and that “nothing in the Public Health Service Act suggests that Congress left any leeway for HHS to tack on additional criteria.”
Importantly, the Court observes that ever since it first carefully defined what constitutes an “excepted benefit” the Congress has never changed course or put its original definition in any doubt.
Under the federal rules of civil procedure, a petition for rehearing may normally be filed within 14 days; however because one of the parties is a United States agency the rules allow for up to 45 days after entry of the judgment. Very few petitions for rehearing are granted, especially where the Court of Appeals panel was unanimous as was the panel in Central United Life.
Sanctions may be imposed as a penalty for filing a petition for rehearing that is found to be wholly without merit. The party requesting a rehearing must state with particularity each point of law or fact that the party believes the court has overlooked or misapprehended.
Reasons for Striking the Attestation Requirement
The Court of Appeals agreed with the District Court’s ruling that the HHS “final” fixed indemnity regulation restricting the offer and sale of “fixed indemnity” insurance has no basis in the statutory text it purports to interpret and “plainly exceeds the scope of the statute.”
The District Court stated that the agency has relied upon “reasoning divorced from the statutory text” and that HHS cannot rewrite this category of “excepted benefits” coverage in a manner “free from statutory constraint.” The District Court found that the agency attempted to define “fixed indemnity insurance” in a way that “imports wholly foreign concepts” and is not an act of simple definition of the term noting that “minimum essential coverage” did not exist when Congress enacted the “excepted benefits” provisions in 1996.
The District Court characterized the HHS effort to “interpret” as being more “invention” than interpretation because the precise statutory language only requires that “fixed indemnity insurance” must be offered as “independent, noncoordinated benefits.”
The District Court observed that the only reasonable interpretation of this text of the statute is that the statute looks to the seller’s conduct and whether they are offering “excepted benefits” in tandem with other benefits rather than the buyer’s benefits.
Furthermore, the District Court reasoned that the statute “allows for the possibility of a buyer possessing other coverage but does not require it” and that HHS cannot use its authority to contravene the statute they are implementing. Again, the Court of Appeals entirely agreed.
Specific Requirements Struck in Final Fixed Indemnity Rule
In upholding the District Court’s order, the Court of Appeals decision prohibits HHS from enforcing the “restrictions on the sales and marketing of fixed indemnity insurance plans set forth in
Accordingly, the order stops the enforcement of: (1) subsection (b)(4)(i) that benefits are only provided to individuals who “attest” in the application that they have other health insurance coverage that is minimum essential coverage; and (2) subsection (b)(4)(v) requiring the “attestation” for policies issued on or after January 1, 2015; or for policies issued before that date upon first renewal on or after October 1, 2016.
Other provisions of the “final” fixed indemnity regulation were not challenged and remain in-force including: (1) no coordination between the provision of benefits and an exclusion of benefits under any other health coverage; (2) benefits are paid in a fixed dollar amount per period or per service regardless of the amount of expenses incurred and without regard to benefits provided under other health coverage; and (3) display of a notice that the coverage is a supplement to health insurance coverage and not a substitute for major medical coverage, and that lack of major medical coverage (or other “minimum essential coverage”) may result in an additional payment with an individual’s federal taxes.
Importantly of note, there is no statutory language limiting the benefits payable to a “per day” or a “per service” basis. However, this “condition” that is included in the regulations but is not in the statutory text was not challenged in the litigation. The rationale of Central United Life raises a question about this and other additional requirements that the agencies have imposed beyond the statutory text.
Application of Central United Life Injunction to the States
The conditions required to be satisfied in order to be characterized as “excepted benefit” coverage were enacted as part of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”). Under federal law the States have primary enforcement authority with respect to the requirements of the HIPAA insurance market reform amendments and exceptions. See Public Health Service Act sections 2722(a) and 2761(a).
HHS must notice a state and make a “determination” before federal enforcement is employed. As noted, the “final” fixed indemnity regulation in Central United Life is based on the provisions enacted in HIPAA and that were not amended at all by the ACA.
In Central United Life the District Court considered for purposes of “standing” the injury accompanying a rule that places companies in a certain market “out of business.” The continued state enforcement of a federally promulgated rule that is found to be unlawful could give rise to lawsuits filed against state departments of insurance for enforcing requirements that are without any basis under federal or state law. In addition, unlike actions by the federal government, states are also subject to lawsuits for “impairment of contracts” under the U.S. Constitution. See, U.S. Constitution, Article I, Section 10. See also, Allied Structural Steel Co. v. Spannus,
The federal Administrative Procedure Act (“APA”) allows a reviewing court to “set aside” unlawful agency actions. See APA section
1. Maryland.
Maryland is the only state that has enacted statutory requirements based upon the “final” federal regulation. As a result, Maryland has state law statutory standards as the basis of its “attestation” requirement and so would not be dependent upon the legal status of the underlying “final” federal regulation. However, the statutory provision is clearly based upon the rationale of the “final” federal regulation. As a result of the federal appeals court’s ruling in Central United Life the enforceability of this “attestation” requirement in Maryland is without legal authority.
It might be argued that the Maryland law conflicts with, and prevents the application of, the two federal “excepted benefit” conditions by adding a third condition to the offer and sale of these insurance policies that is similar to the federal “attestation” requirement quashed by the Court of Appeals. The Maryland law in effect amends the federal law’s conditions and impedes the treatment of these policies as “excepted benefits” based only on the federal statutory conditions. As the Court of Appeals observed with respect to the federal rule that was struck down, in the same manner this state rule “exempts less than all” such policies that otherwise conform to the conditions of the federal statutory standards.
In such case it would arguably be preempted by the two federal excepted benefits conditions as the “supreme law of the land.” This is because state law adds a third condition to comply with and that becomes an obstacle to the federal law’s two conditions that must be met in order for supplemental insurance to be offered and sold as an “excepted benefit.”
2. Illinois.
Illinois is the only state that has adopted by notice-and-comment formal regulatory requirements based upon the “final” federal regulation. Illinois has no state law statutory standards establishing the “attestation” requirement but relies on general authority in the Illinois Insurance Code. However, the regulation is clearly based upon the rationale of the “final” federal regulation. As a result of the federal appeals court’s ruling in Central United Life the enforceability of this “attestation” requirement in Illinois is without legal authority.
3. District of Columbia.
On October 23, 2014, the Department of Insurance of the District of Columbia issued Bulletin 06-IB-004-8/29 that, in part, requires issuers of “Supplemental Health Policies” to restrict the offer of “hospital indemnity or other fixed indemnity” insurance policies only to individuals who attest in the application that they have other health coverage that is “minimum essential coverage.” The bulletin cites the “final” fixed indemnity regulation published in the Federal Register on May 27, 2014, as the basis and authority for this requirement in the bulletin. As a result of the federal appeals court’s ruling in Central United Life the enforceability of this “attestation” requirement in the District of Columbia is without legal authority.
4. Other Bulletin and Guidance States.
Eighteen states have adopted only bulletins, guidance letters, or FAQs in response to the “final” federal regulation or prior federal ACA-FAQs. However, to the extent that these “bulletins” or “guidance” are based upon the rationale of the “final” federal regulation as a result of the federal appeals court’s ruling in Central United Life the enforceability of this “attestation” requirement is without legal authority. These states are: Arizona; Colorado (notice only); Delaware; Georgia; Idaho (FAQ); Iowa (notice only); Kansas (FAQ); Kentucky; Louisiana; Maine; Mississippi; Montana; Nebraska; Nevada; New Mexico; New York; South Carolina; South Dakota (notice only); Utah; West Virginia; and Wisconsin.
5. California.
California is the only state that has enacted statutory requirements in 1996, long before the “final” federal regulation was issued that supplemental insurers must require that coverage is offered only to persons covered by an individual or group major medical health insurance policy and so would not be dependent upon the legal status of the underlying “final” federal regulation. As a result, the California law would not be directly implicated by the decision in Central United Life because it is not based upon the “attestation” requirement in that “final” federal regulation.
However, it might be argued that the California law conflicts with, and prevents the application of, the two federal “excepted benefit” conditions by adding a third condition to the offer and sale of these policies that is similar to the federal “attestation” requirement quashed by the Court of Appeals. The California law in effect amends the federal law’s conditions and impedes the treatment of these policies as “excepted benefits” based only on the federal statutory conditions. As the Court of Appeals observed with respect to the federal rule that was struck down, in the same manner this state rule “exempts less than all” such policies that otherwise conform to the conditions of the federal statutory standards.
In such case it would arguably be preempted by the two federal excepted benefits conditions as the “supreme law of the land.” This is because state law adds a third condition to comply with and that becomes an obstacle to the federal law’s two conditions that must be met in order for supplemental insurance to be offered and sold as an “excepted benefit.”
6. National Association of Insurance Commissioners (“NAIC”).
The NAIC has been considering revisions to Models 170 and 171 to conform these models to changes made by the ACA. As noted above, the ACA did not amend the conditions enacted in HIPAA for “excepted benefit” coverages. However, because the “final” fixed indemnity regulation adopted by HHS was based upon the agency’s misinterpretation that the 1996 provisions were altered by the ACA, that rationale of the “final” federal regulation and the decision in Central United Life clearly raises a fundamental question about the legal basis of including any “attestation” requirement in the NAIC models that is based upon that “final” federal regulation.
The decision in Central United Life supports the concerns expressed by the Wisconsin Insurance Department. At the very least, the implications of Central United Life must be considered in any revisions for “hospital indemnity or other fixed indemnity” standards to the model regulation, in particular. Also any proposed changes to other “excepted benefits” that are included in Model 170 and 171 must be scrutinized insofar as possible revisions might be aimed at adding “conditions” to be offered and sold as an “excepted benefit.” This is distinguished from the establishment of benefit and coverage standards required for a contract of insurance to be approved as a named type of supplemental insurance policy.
Wisconsin Insurance Department officials have stated on several occasions publicly and in the official minutes of the NAIC national meetings that “the federal agencies promulgating the final regulations concerning hospital indemnity or other fixed indemnity coverage lack sufficient authority to impose such requirements.” The Wisconsin Insurance Commissioner chairs the NAIC’s Regulatory Framework (B) Task Force that is responsible for reviewing Model Regulations 170 and 171.
Led by the Wisconsin Attorney General, 12 states filed an amicus brief in support of Central United Life Insurance Company. The States argued that: (1) the final fixed indemnity rule is illegal because it intrudes upon and undermines the States’ sovereign authority to regulate insurance and is without clear Congressional authorization; and (2) the final fixed indemnity rule is arbitrary and capricious because it damages the States and their citizens while providing no meaningful benefits.
In addition, the States argued that: (1) they have a Congressionally recognized, and sovereign right to regulate the sale of insurance within their borders; (2) fixed indemnity insurance, including stand-alone (a policy for a person without major medical coverage or who has declined to purchase major medical coverage) fixed indemnity insurance, plays a critical role for consumers in the States’ insurance marketplace; (3) Congress has specifically provided that the States, and not the Federal Government, regulate fixed-indemnity insurance; and (4) the final fixed indemnity rule prohibits standalone fixed-indemnity insurance.
The brief underscored that States have diligently exercised their authority to regulate fixed-indemnity insurance with rules that focus on disclosure and fair solicitation and other consumer protections that address any consumer confusion.
Conclusion
In affirming the District Court’s decision in Central United Life, the Court of Appeals articulates clear proscriptive guidance with broad implications for limiting the scope of federal agency rulemaking in general and drawing a hard line for the application of the federal statutory “conditions” established by Congress for excepted benefits in particular.
Central United Life stands for the proposition that the 1996 statutory language establishing the federal conditions for “hospital indemnity or other fixed indemnity” insurance in the individual market was not amended or altered by the ACA in 2010.
HHS exceeded its statutory authority in the “final” federal fixed indemnity regulation. The statutory text only requires that individual “fixed indemnity insurance” must be offered as “independent, noncoordinated benefits.”
The rationale in Central United Life also poses a question that was not raised in the litigation regarding the federal “condition” that benefits must be paid on a “per day” or “per service” basis which are not included in the statutory text. Finally, the Central United Life decision vacates the legal authority underlying any state enforcement of the “attestation” condition.
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