On July 17, 2020, a panel majority of the D.C. Circuit Court of Appeals upheld a rule issued by the Department of Treasury, the Department of Labor, and the Department of Health and Human Services (collectively, the “Departments”) that loosened the restrictions on the sale of short-term limited duration insurance (“STLDI”) plans that do not meet the ACA’s requirements for minimum essential health benefits. The Court of Appeals rejected the Association for Community Affiliated Plans (“ACAP”) and other industry organizations claims that the rule was arbitrary and capricious.
1. The Departments Rewrote the Rules for STLDI Plans, Carving Out Space In the Market for Non-ACA Compliant Health Insurance Plans
STLDI was first defined in 1996 in connection with the exemption of such plans from many of the requirements of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”). HIPAA defined “individual health insurance coverage” to exclude “short-term limited duration insurance” and delegated the task of defining STLDI to the Departments. In 1997, the Departments defined STLDI as “coverage that expires ‘within 12 months of the date the contract becomes effective.’” Ass’n for Cmty. Affiliated Plans v. United States Dep’t of the Treasury, No. 19-5212, 2020 WL 4032806, at *1 (D.C. Cir. July 17, 2020) (quoting Interim Rules for Health Insurance Portability for Group Health Plans, 62 Fed. Reg. 16,894, 16,958 (Apr. 8, 1997)).
With the passage of the ACA in 2010, Congress incorporated by cross-reference HIPAA’s definition of “individual health insurance coverage,” including its exclusion of STLDI, therefore exempting STLDI from many of the ACA’s requirements, including the “guaranteed issue” and “community rating” requirements which prohibit insurers from denying coverage or charging higher premiums to individuals based on preexisting conditions and the essential health benefits requirements for insurance policies.
Because they could exclude coverage for preexisting conditions and many other services, STLDI plans typically have carried lower premiums than ACA plans with higher deductibles.
In 2016, the Departments became concerned that STLDI policies were drawing healthy individuals away from the risk pool for ACA insurance, causing premiums to rise as the ACA exchange risk pool deteriorated. Thus, the Departments revised the definition of STLDI in the ACA to cover only plans that expired “less than 3 months after the original effective date of the contract.” Id. at *2 (quoting Excepted Benefits; Lifetime and Annual Limits; and Short-Term, Limited-Duration Insurance, 81 Fed. Reg. 75,316, 73,326 (Oct. 31, 2016)).
The 2016 Rule was short-lived. In 2018, the Departments proposed returning to the original definition of STLDI and, after a comment period, issued a final rule defining STLDI as coverage with an initial contract term of less than one year and a maximum duration of three years counting renewals. The Departments explained that the new rule was intended to : “(1) increase[e] access to affordable health insurance, especially among the uninsured, and (2) increase[e]consumer choice.” Id.
ACAP and others challenged the 2018 STLDI Rule, arguing that the rule was contrary to the ACA and also was arbitrary and capricious. The district court granted summary judgment in favor of the Departments, holding that (1) the 2018 STLDI Rule was a reasonable interpretation of HIPAA and the ACA and (2) the change from the 2016 Rule to the 2018 STLDI Rule was not arbitrary and capricious. Specifically, Judge Leon noted that, “the ACA’s various reforms are interdependent and were designed to work together as features of the individual Exchange markets . . . However, Congress clearly did not intend for the law to apply to all species of individual health insurance. In addition to maintaining the STLDI exemption, Congress exempted multiple forms of individual health insurance from the ACA's reforms and the State-specific risk pools.”
2. The DC Circuit Court Rejected Arguments that the New Rules Violated the ACA, Upholding the Departments Actions.
In a panel majority opinion by Judge Griffith, the D.C. Circuit Court affirmed the District Court’s grant of summary judgment in favor of the Departments.
Appellants first argued that the 2018 STLDI Rule is inconsistent with HIPAA’s plain text and is an unreasonable interpretation of HIPAA considering the ACA’s structure and purpose. The Court disagreed, affording the Departments Chevron deference. Chevron USA, Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43 (1984). The Court first found that the term STLDI was ambiguous because it was only incorporated into the ACA through reference to HIPAA’s definition of “individual health insurance coverage,” and accordingly turned to the question of whether the agency had reasonably interpreted an ambiguous statute. The majority held that this definition was not unreasonable, because “short-term” has been defined in other areas of federal law, such as tax law, as “less than one year.” Although Appellants encouraged the court to impose a limitation that STLDI policies should be “meaningfully” shorter than the standard one-year term of insurance policies, the Court rejected this limitation because it “finds no support in the text and strikes us as unworkable.” Ass’n for Cmty. Affiliated Plans, No. 19-5212, 2020 WL 4032806, at *5. The Court likewise rejected Appellants’ challenge to the Rule as not being for “limited duration”, concluding that a limit of three years is “quite literally, ‘limited’ in ‘duration’” and noting that the Departments had justification for the three year limit—the same duration of coverage under COBRA. Id.
Appellants next argued that the STLDI Rule was “irreconcilable with the structure and policy of the ACA . . . and will ravage the government Exchanges.” Id. (quoting ACAP Br. at 25). The Court disagreed, finding that the exception for STLDI is “baked into the [ACA] itself.” Id. Although the Court accepted that Congress likely hoped that individuals would purchase insurance on the ACA-compliant market, the Court rejected Appellants’ argument that the Departments were trying to fit a “regulatory elephant” into a “statutory mousehole.” Id. (quoting Whitman v. Am. Trucking Ass’ns, Inc., 531 U.S. 457, 468 (2001)). Rather, the Court found that the 2018 STLDI Rule fits within the goal of the ACA and emphasized the deference due to the Departments:
The STLDI Rule reasonably balances those goals by expanding coverage to the uninsured, including those in the Medicaid coverage gap, at the expense of higher unsubsidized premiums for comprehensive insurance. Balancing the costs and benefits of expanding the length of STLDI policies is the Departments’ bailiwick. And whatever choice we might have made in their shoes, we cannot substitute our judgment for theirs.
Id. at *7.
Finally, the Court rejected Appellants’ argument that the STLDI Rule was arbitrary and capricious, concluding that the Departments appropriately considered the impact the rule would have on the Exchanges and met their obligation to explain their pivot from the STLDI definition in the 2016 Rule.
Judge Rogers dissented, contending that the STLDI Rule “flies in the face of [the ACA] by expanding a narrow statutory exemption beyond recognition to create an alternative market for primary health insurance that is exempt from the ACA’s comprehensive coverage and fair access requirements.” Id. at *9.
3. Regulators and Consumers Need to Be Vigilant as STLDI Plans are Introduced Into the Market Under the New Rule
In a statement on the decision, ACAP’s CEO Margaret A. Murray said that “junk plans undermine the Affordable Care Act in letter and spirit, and wind the clock back on a number of important consumer protections.” She further stated that “People need access to high-quality, comprehensive insurance that gives them peace of mind and guaranteed benefits, not a junk plan that may fail to cover essential benefits and may leave them with nothing more than hundreds of thousands of dollars in medical bills—and might even treat COVID as a pre-existing condition.” Kevin Stawicki, Trump’s ACA-Skirting Insurance Rule Survives At DC Circ., Law360 (July 17, 2020).
Going forward, there is a risk that the 2018 STLDI Rule could cause premiums for ACA-compliant primary health plans to rise as healthier individuals increasingly turn to the lower cost STLDI as primary insurance. Moreover, health care providers may discover that patients whom they agreed to treat as insured have significant coverage gaps that result in an inability to collect payment for services rendered. However, it is important to bear in mind that states remain the primary regulators of insurance markets, and some states have taken steps to either ban or limit the sale of STLDI plans, including California, Hawaii, Maryland, Vermont, Washington, Colorado, Delaware, New Mexico, and Maine. See Louise Norris, ‘So long’ to limits on short-term plans, HealthInsurance.org (July 16, 2020) https://www.healthinsurance.org/so-long-to-limits-on-short-term-plans/.
