Federal Court Throws Out New Rule Blocking Sale of Fixed-Indemnity Insurance PlansPublications - Client Alert | October 12, 2015
United States District Judge Royce Lamberth has issued a permanent injunction blocking the U.S. Department of Health and Human Services (“HHS”) from enforcing a rule barring insurance companies from selling fixed indemnity plans to individuals unless the insureds certified that they had “minimum essential coverage” under the Affordable Care Act. Fixed indemnity plans provide a predetermined benefit to the insured whenever he or she received a particular service, regardless of what the provider charges.
HHS promulgated the new rule under the Affordable Care Act, commonly referred to as Obamacare, effective as of January 1, 2015. In November of 2014, Central United Life Insurance Co. and Senior Security Benefits Inc. filed suit against HHS, its Secretary, Sylvia Burwell, and others, and moved for a permanent injunction, seeking to enjoin HHS from enforcing the new rule, on the grounds that the rule exceeded the HHS’s authority, violated the Constitution, and was arbitrary and capricious. Companies faced penalties of $100 per day for selling plans to people who did not have other health insurance that met the Affordable Care Act’s minimum requirements.
The government challenged the ability of the plaintiffs to bring the suit, claiming that because replacing the new rule with the former rule regarding fixed indemnity plans would not remedy their injury, the companies lacked standing – i.e., a sufficient connection to, and harm from, the challenged rule, which would support the companies’ participation in the lawsuit. The court rejected the government’s argument, calling it “a recipe for eluding judicial review,” noting “[i]f a company selling fixed indemnity insurance doesn’t have standing to challenge a rule imposing requirements on companies selling fixed indemnity insurance, who does?”
HHS also argued that because it had yet to enforce the new rule, the plaintiffs had not been harmed, and the suit was not “ripe” or ready for litigation. The court rejected that argument as well, noting a court can review an agency rule without waiting for enforcement. The court also found that the rule had no basis in the text of the Affordable Care Act, and “plainly exceeds the scope of the statute.” The statute allows for the possibility of a buyer possessing other coverage but does not require it, the court found. Judge Lamberth also rejected the government’s argument that the plaintiffs’ requested injunction would be against the public interest because the policy goal was a worthy one which the injunction would forestall. “Forcing federal agencies to comply with the law is undoubtedly in the public interest, and defendants have not shown to the Court’s satisfaction that this clear benefit would be outweighed by the harms putatively caused by plaintiffs’ policies,” the court wrote.
The Court granted the plaintiffs’ motion for permanent injunction, enjoining the government from enforcing the restrictions on the sales and marketing of fixed indemnity insurance plans insofar as the restrictions prohibit or penalize the sale of those plans to anyone other than individuals attesting that they have the “minimum essential coverage” required by the Affordable Care Act. The government has not appealed the ruling as of the time this alert was issued.
The case is Central United Life, Inc., et al. v. Sylvia M. Burwell, et. al., Case No. 1:14-cv-01954-RCL, in the United States District Court for the District of Columbia.
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