A federal appeals court says the U.S. Department of Health and Human Services has no authority under the Affordable Care Act to regulate how consumers use fixed indemnity health insurance or other “excepted benefits” products.   

A three-judge panel at the District of Columbia U.S. Court of Appeals has ruled in favor Central United Life Insurance Company, which is a unit of the Houston-based Manhattan Life Group, and Senior Security Benefits of White Settlement, Texas.

“HHS lacked authority to demand more of fixed indemnity providers than Congress required,” Circuit Judge Janice Rogers Brown writes in an opinion for the panel that heard the case, Central United Life et al. v. Burwell et al. (Case Number 15-5310).

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The companies sued HHS, HHS Secretary Sylvia Mathews Burwell and other Obama administration plaintiffs over a May 2014 HHS effort to keep consumers from buying fixed indemnity health insurance unless they could show that they already had “minimum essential coverage,” or what the government classifies as solid major medical coverage, and were using the indemnity insurance to fill in any gaps left by the minimum essential coverage.

An indemnity insurance policy pays a policyholder a fixed amount of cash when the policyholder has a covered experience, such as entering the hospital, or needing a major operation.

Before ACA major medical coverage rules started to take effect, many consumers who were unable or unwilling to pay for major medical coverage, or unable to qualify to buy major medical coverage, used indemnity insurance as an alternative to major medical coverage  

Since the ACA rules took effect, regulators have tried to encourage consumers to shift to use of major medical coverage, in part because of concerns about the quality of the coverage provided by the indemnity policies and other major medical alternatives.

Regulators and major medical issuers also have concerns about the possibility that healthy consumers who are unable to qualify for substantial ACA major medical insurance premium subsidies, or who are unaware of the existence of the subsidies, may use the alternative products in place of major medical coverage. If large numbers of healthy consumers use alternative products in place of major medical coverage, that could drive up the ratio of claims to premium revenue in the major medical market and push major medical costs higher.

A district court judge in Texas sided with Central United Life and Senior Security Benefits. In September 2015, the judge granted an injunction prohibiting HHS from requiring fixed indemnity insurance buyers to have minimum essential coverage.

The D.C. Circuit panel has upheld the injunction.

For a look at what Brown says about the case in her opinion, read on. 

Excepted benefits definition

The D.C. Circuit panel sees no new ambiguity in the definition of “excepted benefits.” (Photo: Allison Bell/LHP)

 

1. Brown says the ACA leaves the old Public Health Service Act definition of “excepted benefits” intact.

Since Congress passed the Health Insurance Portability and Accountability Act of 1996, federal regulators have defined “excepted benefits” as products such as dental insurance, disability insurance, long-term care insurance and hospital indemnity insurance that may be subject to some federal laws and regulations, such as laws prohibiting fraud, but are not major medical plans and are not normally subject to the kinds of major medical plan rules found in HIPAA, or in the Employee Retirement Income Security Act of 1974.

ACA uses the definition of excepted benefits given in Section 201 of the Public Health Service Act, Brown writes.

“Despite the ACA’s sweeping reforms to the health insurance market, it left intact and incorporated the PHSA’s rules regarding excepted benefits,” Brown writes. “At no point does the ACA give even the slightest indication the definition of ‘excepted benefits’ was suddenly debatable.”

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Branch blocking tracks

HHS has tried to block insurers from continuing down the path of offering potential alternatives to minimum essential coverage. (Photo: Thinkstock)

 

2. Brown says HHS tried to keep consumers from using stand-alone fixed indemnity insurance as a substitute for minimum essential coverage.

The Public Health Service Act requires an “excepted benefit” to be separate from an employer’s group health plan, Brown writes.

“HHS’s attempt to regulate consumers under a provision directed at providers confirms the agency’s rule was an act of amendment, not interpretation,” Brown writes.

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Happy excepted benefits usersThe ACA gives HHS no new authority over users of excepted benefits products, the D.C. Circuit Court panel says. (Photo: Thinkstock) 

 

3. Brown says the “excepted benefits” definition rules regulate the insurance providers, not the insurance users, and that HHS has no statutory right to require the users to coordinate their excepted benefits products with their major medical coverage.

Because the HHS secretary was adding to the ACA, the courts have no obligation to defer to the secretary’s authority with regard to fixed indemnity insurance, Brown writes.

HHS “colored outside the lines of its authority,” Brown writes.

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