Health Reform WK-EDGE HHS 2019 rule change requiring separate bills, separate payments, found arbitrary and capricious
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Monday, August 3, 2020

HHS 2019 rule change requiring separate bills, separate payments, found arbitrary and capricious

By Deborah Hammonds, J.D.

Agency failed to give reasonable explanation for changing rule to reflect split between abortion and non-abortion premiums.

Finding the change arbitrary and capricious, a federal district court rejected HHS’ 2019 rule change that required issuers to send enrollees two separate bills, and enrollees to make two separate payments, to reflect the split between abortion and non-abortion premiums (State of California v. HHS, July 20, 2020, Beeler, L).

Section 1303(b)(2)(B) of the Affordable Care Act (ACA) requires health-insurance issuers to collect separate payments from policy holders for premiums for abortion services and for non-abortion services. In 2015, HHS issued a rule that allowed issuers to satisfy the separate-payment requirement by sending a single bill that itemized the premium for abortion services, sending a separate bill for the premium for abortion services, or sending a notice at enrollment specifying the separate charge. In 2019, HHS replaced the 2015 rule with a new rule that required issuers to send enrollees two separate bills, and enrollees to make two separate payments, to reflect the split between abortion and non-abortion premiums. Six states and the District of Columbia sued HHS to invalidate the rule.

Agreeing with the plaintiffs, the court detailed several examples of how HHS’ failure to provide a reasoned explanation for its change supported the conclusion that the 2019 rule change was arbitrary and capricious, including the fact that the 2015 Rule resulted from a GAO audit that revealed actual problems. However, there was nothing in the administrative record showing any noncompliance with section 1303 to support the 2019 rule change. To the contrary, the state Attorney Generals Multistate Comment Letters are filed every year and provide the accounting assurance that no federal funds are used for abortion services.

Further, HHS’s 2015 rule was based on standard health-insurance industry practice of bundled coverage and single-transaction payments, and many commenters described how states, issuers, and enrollees relied on that policy and how HHS’s proposed change of course increased costs, created enrollee confusion, and risked reduced healthcare coverage. Industry reliance on the earlier rule is a relevant consideration.

Also, HHS contended that its 2019 rule is a reasonable interpretation of Congress’s statutory requirement that issuers "collect . . . a separate payment." However, the statute does not require or even suggest separate billings by issuers or separate transaction-payments by consumers. The court also rejected HHS’ contention it was entitled to Chevron deference, finding HHS failed to identify any reasons why it changed course and claiming its statutory interpretation was reason enough was insufficient. HHS must identify some problem that it is solving or benefit that it is achieving, meaning it must give a reasoned explanation.

While agencies can change their policies when they provide a reasoned explanation for the change, in this instance the court determined HHS failed to provide a reasoned explanation for deviating from its prior rule and industry practice. Summary judgment was granted in favor of the plaintiffs and the 2019 rule change was set aside.

The case is No. 20-cv-00682-LB.

Attorneys: Brenda Ayon Verduzco, California Department of Justice, for the State of California. Bradley Philip Humphreys, U.S. Department of Justice, for U.S. Department of Health and Human Services.

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