Health Reform WK-EDGE Reinsurance not a tax, sovereign immunity not waived
Tuesday, August 1, 2017

Reinsurance not a tax, sovereign immunity not waived

By Susan Smith, J.D., M.A.

The Electrical Welfare Trust Fund (Trust Fund), a self-funded, self-administered group health plan, failed to sustain its tax refund suit against the U.S. government based on the claim that it was not subject to the reinsurance mandate nor its alternative request for a waiver of sovereign immunity under Administrative Procedure Act (APA) (5 U.S.C. §702) because the Trust Fund was seeking money damages. Therefore, the court granted the government’s motion to dismiss the case (The Electrical Welfare Trust Fund v. U.S., July 21, 2017, Chasanow, D.).

The reinsurance mandate. The Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) requires all individuals to maintain "minimum essential" health coverage (ACA Sec.1501 as amended by Sec. 10106) and prohibits health insurance providers from discriminating against individuals with pre-existing conditions by denying them coverage (ACA Sec. 1201). Because of the increased number of previously uninsured high risk individuals in the market place, premiums could rise for all insured individuals; to stabilize premiums, the ACA established the Transitional Reinsurance Program (TRP), which requires all health insurance issuers and third party administrators to make payments to a reinsurance entity for any plan beginning in the three-year period beginning January 1, 2014 (ACA Sec. 1341, as amended by Sec. 10104). The money collected by reinsurance entities was reallocated to health insurance issuers that incurred higher costs due to coverage of high risk individuals.

The Secretary issued a regulation defining a "contributing entity" with respect to group health plans as "a self-insured group health plan whether or not it that uses a third party administrator for the 2014 benefit year and a self-insured group health plan that uses a third party administrator for the 2015 and 2016 benefit years (see 45 C.F.R. Sec. 153.20).

The Trust Fund’s contentions. As a self-funded, self-administered group health plan, the Trust Fund was subject to and paid the reinsurance mandate for the 2104 benefit year. It was not subject to the 2015 and 2016 benefit years because it was self-administered. The Trust Fund, however, filed the tax refund suit for the 2014 benefit year on behalf of itself and similarly situated self-funded, self-administered health plans contending that the Secretary’s interpretation of the statute impermissibly included such plans among those required to pay the reinsurance contributions for 2014. It also contended that the ACA is unambiguous as to which entities must abide by the reinsurance mandate. The Trust Fund argued that the reinsurance contribution constitutes an "internal revenue tax" that was erroneously assessed to it in 2014 or, alternatively, the contribution met the standard of "any sum" provision of the Tax Refund Statute (28 U.S.C. §1346(a)(1)).

Although the government moved to dismiss the case for lack of subject matter jurisdiction arguing that sovereign immunity bars the Trust Funds claims, federal district courts have jurisdiction over civil actions against the U.S. for the recovery of any internal-revenue taxes alleged to have been assessed or collected erroneously or any sum alleged to have been excessive or wrongfully collected under internal revenue laws.

Reinsurance payments or taxes? The court noted that in light of Congress’ decision not to label certain exactions as taxes in the ACA while labelling other exactions as taxes was "an expression of its intent as to how the individual mandate should relate to other statutory provisions applicable to taxes, such as the Anti-Injunction Act (26 U.S.C. §7421(a)). The court pointed out that Congress labelled the reinsurance mandate as a "payment" and a "contribution" and required contributions to be paid to third-party reinsurance entities as opposed to the Internal Revenue Service (IRS). In addition, oversight of the TRP was given to the HHS Secretary not the IRS or Secretary of Treasury and the provisions were codified in Title 42 of the U.S. Code not the Internal Revenue Code. The court concluded that Congress did not intend for the reinsurance mandate to be considered an internal revenue tax. In addition, the court rejected the Trust Fund’s contention that "any sum" may refer to amounts that are neither taxes nor penalties. The court found the "any sum" provision inapplicable stating that "any sum" language has only been used to reach payments that could be described as incidental to the recovery of an internal revenue tax.

Lack of subject matter jurisdiction. The court concluded that the Trust Fund had not alleged a claim for waiver of sovereign immunity under the APA because it is seeking monetary damages. Furthermore, the Trust Fund does not have standing to make a claim on behalf of those class members who have yet to make payments. Finally, the count determined that the Trust Fund did not show that waiver of sovereign immunity applied to any of its tax refund claims.

The case is Civil Action No. DKC 16-2186.

Attorneys: Charles F. Fuller (McChesney and Dale PC) for The Electrical Welfare Trust. Matthew J. Berns, U.S. Department of Justice, for the United States of America.

Companies: Electrical Welfare Trust Fund, Inc.; United States of America

Cases: CaseDecisions NewsFeed EssentialBenefitNews IndividualMandateNews InsurerNews ReinsuranceNews MarylandNews

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