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D.C. exchange wins court battle

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The District of Columbia public exchange can tax all health insurers in the district — including many that cannot sell products through the exchange — to pay for its operations, a federal judge says.

U.S. District Judge Beryl Howell came to that conclusion in a recent decision for the U.S. District Court for the District of Columbia.

The American Council of Life Insurers (ACLI) sued for a preliminary injunction that would keep the District of Columbia Health Benefit Exchange Authority board from imposing the tax. 

The Patient Protection and Affordable Care Act (PPACA) requires exchanges to make themselves independent from federal funding starting Jan. 1, 2015. The D.C. exchange board wants to pay for the $29 million 2015 DC Health Link operating budget by imposing an assessment on as many carriers as possible. The assessment would affect any company licensed as a health insurer, even if the insurer sells only supplemental health products, such as dental insurance or disability insurance, not the kinds of major medical products that can be sold through the D.C. exchange.

Exchange managers say that a broad-based assessment can hold costs down, and that expanded access to major medical coverage should make the District of Columbia a bigger, better market for non-medical health products.

The ACLI has argued that the broad-based assessment is unfair and unconstitutional. The ACLI also has noted that the budget of the exchange will be about 10 times the size of the budget of the D.C. Department of Insurance, Securities and Banking insurance bureau.

Howell writes in her ruling that she had to review the ACLI’s allegations that the district had violated insurers’ constitutional right to equal protection under the law based on a “highly deferential” standard of review, and that the D.C. exchange approach “is entitled to a presumption of rationality.” The ACLI did not succeed at showing the broad-based assessment is irrational based on any conceivable set of facts, she writes.

Similarly, the ACLI had to meet a high standard to show that the district had violated the insurers’ right to due process, and it did not succeed at showing that the assessment system is arbitrary enough to violate due process requirements, the judge says.

The D.C. exchange board welcomed the ruling. The ACLI has said it is talking to members to decide what to do next.

See also: DC considers how to fund exchange