Pension & Benefits News Rule governing short-term limited duration insurance withstands challenge
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Tuesday, August 4, 2020

Rule governing short-term limited duration insurance withstands challenge

By Pension and Benefits Editorial Staff

Contrary to the insurers’ challenge to the Departments’ definition of short-term limited duration insurance (STLDI), a DC Circuit Court that found that the Departments of Treasury, Labor, and Health and Human Services (the Departments) acted reasonably when they exercised their policymaking authority. The court ruled that the STLDI rule was not contrary to law nor arbitrary and capricious and as such, the court affirmed the lower court’s decision granting the Departments’ motion for summary judgment.

STLDIs were introduced in 1992, when Congress carved out an exception in the Health Insurance Portability and Accountability Act (HIPAA). Congress gave the Departments authority to define STLDI by regulation. For decades, the Departments defined them as plans with an initial contract term of less than one year, which was ultimately documented in a final rulemaking.

When the Patient Protection and Affordable Care Act (ACA) was enacted in 2010, it retained the STLDI as well as the Departments’ definition. Specifically, Congress incorporated by cross-reference HIPAA’s definition of "individual health insurance coverage," which included the exclusion of STLDI. Thus, STLDIs were not subject to many of the ACA’s reforms, because they applied only to "individual health insurance coverage."

The court discussed some history behind and reforms arising from the ACA, noting the Medicare coverage gap made coverage under the ACA for those below the poverty line unattainable. The court explained that when the Exchanges under the ACA opened in 2014 and premiums rose, people turned to the less expensive STLDI policies.

In 2016, the Departments were concerned that the STLDIs were drawing from the risk pool for ACA-compliant coverage. Thus, they pulled back on the definition covering STLDI to those policies expiring in less than three months after the original date of the contract.

In 2018, the Departments proposed a return to the original definition of STLDI, ultimately issuing a final rule that defined STLDI as "coverage with an initial contract term of less than one year and a maximum duration of three years counting renewals," the court wrote, citing federal regulations, The Departments elucidated two reasons for the change. These were to increase access to affordable health insurance, especially among the uninsured and to increase consumer choice.

The insurers challenged this STLDI rule, claiming it was contrary to law and arbitrary and capricious. The district court granted the Departments’ motion for summary judgment and the insurers appealed.

 

At the outset, the insurers argued that the rule is contrary to law because it is inconsistent with HIPAA’s “plain text” and that it is an unreasonable interpretation of that text because of the ACA. The court disagreed, noting that the phrase STLDI is not included in the ACA. Rather, ACA cross-references HIPAA’s definition of individual health insurance coverage, which in turn is defined to exclude STLDI. Noting that the phrase STLDI is ambiguous, the court said it would defer to the Departments interpretation so long as it was "based on a permissible construct of HIPA and the ACA."

Next, the court found that the Departments’ interpretation of the term short term was reasonable. The court explained that the Departments have discretion to define STLDI to include policies shorter than the standard policy term. The court also rejected the insurers attack on the term "limited duration."

Additionally, the court analyzed the insurers’ argument that the STLDI Rule is irreconcilable with the structure and policy of the ACA. The court disagreed, stating the balance of costs and benefits of expanding the length of STLDI policy was up to the Departments. The court said, "whatever choice we might have made in their shoes, we cannot substitute or judgment for theirs."

The court found that the Departments reasonably predicted that the Rule’s potential effects on premiums would be relatively small and the effects on enrollment would be blunted. The court also emphasized that experience confirmed these predictions. Thus, the court rejected the insurers’ argument that the rule is invalid based on speculation.

The STLDI rule was not arbitrary and capricious, ruled the court. The insurers’ laid out numerous arguments to bolster it assertion that the rule was arbitrary and capricious, all of which were rejected by the court. For example, the court rejected the insurers’ argument that the Departments failed to consider the effects of rule and that they acted outside of their discretion to balance the statutes competing policy goals.

Noting that its role was narrow, the court found that the Departments reasonably exercised their policymaking authority granted to them and therefore maintained the STLDI Rule in place.

SOURCE: Association for Community Plans v. U.S. Department of the Treasury (D.C. Cir.), No. 19-5212, July 17, 2020.

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