Health Reform WK-EDGE Exchange charges for higher-premium policies a tax, not a fee
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Friday, March 11, 2016

Exchange charges for higher-premium policies a tax, not a fee

By Kayla R. Bryant, J.D.

A charge on some insurance policies on the District of Columbia’s health insurance exchange was a tax, rather than a fee. The U.S. Court of Appeals for the D.C. Circuit agreed with the District of Columbia exchange’s argument that the district court did not have jurisdiction over the matter, and remanded the case filed by the American Council of Life Insurers to be dismissed. Jurisdiction over DC tax challenges is exclusive to the tax division of the D.C. Superior Court (American Council of Life Insurers v. District of Columbia Health Benefit Exchange, March 1, 2016, Williams, S.).

Raising money. Immediately after the D.C. exchange was established under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) and opened for business, it experienced a funding shortfall. To raise money, the DC Health Benefit Exchange Authority charged insurers for certain policies above a particular premium threshold. This included products not able to be sold on the exchange, such as long-term care insurance. The American Council of Life Insurers (the Council) raised challenges on behalf of insurers who did not sell products on the exchange but were subject to supporting its operating costs through this charge. The district court rejected the Council’s arguments and dismissed the complaint, and the Council appealed.

Tax or fee? In the district court case, both the exchange and the Council agreed that the charge was not a tax. However, on appeal, the exchange changed its position. In analyzing the charge to determine whether it was a tax or fee, the appeals court noted that a fee is a “rough match” between the sum paid and the benefit provided. A charge that falls on a broad population and benefits the general population is more likely to be a tax. The court found that because the payers of the charge (the insurers) receive none of the benefit, characterizing it as a redistribution of resources, it is a tax. Federal district courts do not have jurisdiction over tax challenges.

The case is No. 14-7206.

Attorneys: Paul D. Clement (Bancroft PLLC) for American Council of Life Insurers. Loren L. Alikhan, Office of the Attorney General, for the District of Columbia Health Benefit Exchange Authority.

Companies: American Council of Life Insurers; District of Columbia Health Benefit Exchange Authority

Cases: CaseDecisions NewsFeed HealthInsuranceExchangeNews InsurerNews DistrictofColumbiaNews

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