United States: A Small Administrative Health Care Fix Gets Court Approval (So Far)

Last Updated: July 26 2019
Article by Mark Casciari and Kathleen Cahill Slaught

The hyper-partisan political warfare in the American health care industry is far from over. But another small battle in a federal district court was just resolved in favor of the Trump Administration.

In Association for Community Affiliated Plans v. U.S. Department of Treasury, No. 18-2133, Judge Richard Leon of the federal district court for the District of Columbia granted a summary judgment in favor of the Trump Administration's efforts to reform health care regulation outside the confines of the Affordable Care Act (ACA).

At issue in Association for Community Affiliated Plans is a 2018 rule promulgated by the Departments of Labor, Treasury, and Health and Human Services that broadened the definition of "short-term, limited duration insurance," or STLDI, to mean a contract that caps its maximum initial term at 12 months and (after two renewals) its maximum total duration at 36 months. This category of insurance was exempted from individual market regulations in the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and not addressed by the ACA.

The Trump 2018 rule superseded an Obama Administration rule that capped the maximum term and duration of STLDI to less than three months in duration (including renewals). The Obama rule was itself a cut back on the original 1997 STLDI rule, during the Clinton Administration, that mirrored the Trump 2018 rule (without regard to renewals). The Obama Administration cut back on the original rule because STLDI was not addressed in the ACA, and it feared that the STLDI market would rob the ACA Exchanges of healthy insureds and cause Exchange premiums to rise.

Insurers, providers, and consumers who operate in the ACA Exchanges initiated Association for Community Affiliated Plans   These plaintiffs first argued that the new rule would affect the competitive standing of Exchange insurers, and the court agreed. To be sure, the new rule would cause at least some business to move to the STLDI market. This relative competitive disadvantage was enough to afford federal district court standing to secure a ruling on the merits.

The district court then considered whether the new rule was illegal under the Administrative Procedure Act — is it agency action beyond what Congress has allowed and is it arbitrary or capricious?

The court found that the ACA did not forbid the Trump 2018 definition of STLDI because the original rule went unchallenged in the courts, and because the ACA did not alter that status quo. The court added that there is nothing "extraordinary" about the new rule because it is unlikely to cause an exodus from the individual market Exchanges and thus unlikely to threaten the ACA's structural core. The court also found that the new rule affords consumers the option to pay ACA plan premiums or buy insurance in the STLDI market, in lieu of being uninsured (now that the individual mandate is effectively repealed and thus provides no incentive to pay Exchange premiums). The court also found that the new rule applies a reasonable dictionary definition of "short term" and "duration," the key words in the Congressional delegation of authority to the agencies at issue.

It remains to be seen whether this district court ruling, like so many other judicial resolutions regarding small partisan political battles, will be appealed. At its core, Judge Leon decided that the Trump Administration did not attempt an end-around Congress, and permissibly took a small administrative step to further its political agenda.

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