On July 17, 2020, the Court of Appeals for the District of Columbia, by a vote of 2-1, upheld a Trump-era rule that dramatically expanded access to short-term, limited duration insurance (STLDI). The majority rejected the plaintiffs’ arguments that the short-term plan rule is contrary to Congress’s intent in adopting the Health Insurance Portability and Accountability Act (HIPAA) and an unreasonable interpretation in light of the Affordable Care Act (ACA).
Like the district court, the DC Circuit points to the history of the definition of STLDI. Congress delegated authority to the federal government to define STLDI under HIPAA in 1996, and the duration was defined as up to 12 months for nearly two decades—from 1997 through 2016. The ACA did not alter the statutory STLDI exclusion when enacting the law in 2010. In part due to this history, the majority concludes that the federal government is entitled to deference in defining STLDI and that its interpretations were reasonable.
The court reaches its conclusion while acknowledging the serious gaps in STLDI coverage. As Judge Thomas B. Griffith—writing for himself and Judge Gregory G. Katsas—puts it, “You get what you pay for.” STLDI plans, he notes, offer “skimpier coverage” and “higher deductibles” and “expose consumers with undiagnosed preexisting conditions to the risk of cancellation.” (The dissent also notes concerns about STLDI, including the fact that most STLDI does not cover outpatient drugs, mental health services, or maternity care.) Although the current interpretation is permissible, Judge Griffith notes that a future administration could narrow the definition because the government has “wide latitude” to define STLDI.
Judge Judith W. Rogers dissented. Relying heavily on the Supreme Court’s decision in King v. Burwell, she concludes that the rule “flies in the face” of the ACA “by expanding a narrow statutory exemption beyond recognition” to create an alternative market exempt from the ACA’s reforms. Though Congress allowed limited exemptions to the ACA’s requirements, STLDI was never intended to be a form of primary coverage. The Trump-era rule thus exploits this limited exemption by allowing STLDI to compete with ACA plans as an alternative coverage option. As she puts it, “It is difficult to imagine a starker conflict between a statutory scheme and a rule that purports to administer it.”
The ruling preserves the status quo, meaning that STLDI can continue to be sold for up to 12 months and renewed or extended for up to three years in states that allow it. The rule has had a significant impact already: enrollment in STLDI products has increased by at least 27 percent since the new rule was finalized. From here, the plaintiffs could ask for en banc review, meaning a rehearing by the full panel of judges on the DC Circuit, or appeal the decision to the Supreme Court. A statement from the Association for Community Affiliated Plans (ACAP), an association of safety net health plans and the lead plaintiff in the case, suggests that the plaintiffs will request en banc review.
Background
STLDI does not have to comply with the ACA’s market reforms. This means that short-term insurers can charge higher premiums based on health status, exclude coverage for preexisting conditions, impose annual or lifetime limits, opt not to cover entire categories of benefits, rescind coverage, and require higher out-of-pocket cost-sharing than under the ACA. These coverage limitations can lead to significant gaps for consumers who enroll in these products and become sick or injured.
These limitations (and the fact that STLDI is generally only available to consumers who can pass medical underwriting) mean that STLDI is much less expensive than ACA coverage and enrollment tends to skew younger and healthier. The sale of these plans thus results in adverse selection against the ACA individual market, as healthier consumers exit the ACA market to enroll in STLDI and premiums rise for ACA coverage.
A year-long investigation by the U.S. House of Representatives’ Energy and Commerce Committee, which culminated in a 197-page report, reiterated many concerns that have been raised about STLDI in other analyses. Prior studies showed that STLDI is marketed using misleading and fraudulent practices, discriminates against individuals with preexisting conditions, offers limited financial protection, and engages in post-claims underwriting. Other analyses—from the Kaiser Family Foundation and the Leukemia and Lymphoma Society as well as a Trump administration assessment—have found that the sale of STLDI raises premiums for people with preexisting conditions who purchase coverage in the ACA markets. The House’s report found that these STLDI practices are widespread among the 14 major sellers and marketers of STLDI plans
History Of STLDI Regulation
The majority’s decision summarizes the history of federal regulation of STLDI, much of which is recounted in detail here. In short, STLDI was excluded from the definition of individual health insurance coverage when Congress enacted in HIPAA in 1996. This is the only reference to STLDI in federal statute. Implementing rules in 1997 defined STLDI as coverage that extends no later than 12 months from the effective date; final HIPAA regulations adopted in 2004 included the same definition.
When the ACA was enacted in 2010, the law did not disturb HIPAA’s definition of individual health insurance coverage, meaning STLDI remained exempt from federal health insurance protections and statutorily undefined. Data from the National Association of Insurance Commissioners shows that the STLDI market was quite small in 2009, the year before the ACA was enacted. Citing concerns that short-term coverage was being sold as primary coverage and adversely impacting the ACA risk pool, the Obama administration limited short-term plans to a maximum duration of three months without renewals in 2016.
In October 2017, President Trump issued an executive order directing federal agencies to “expand the availability of STLDI” and “consider allowing such insurance to cover longer periods and be renewed by the consumer.” The Departments of Health and Human Services, Labor, and Treasury issued the proposed rule on short-term plans shortly thereafter. The final rule was issued in August 2018 with an effective date in October 2018.
The Final Rule
The 2018 rule dramatically expanded access to STLDI, allowing these plans to be sold for up to 12 months and renewed or extended (at the insurer’s option) for up to 36 months. The final rule also included updated notice requirements. The rule went into effect on October 2, 2018.
The government confirmed that states can regulate STLDI and adopt standards that are more stringent than the federal rule. States can, for instance, impose a shorter maximum duration, prohibit renewals or extensions, or require additional disclosures. Although a number of states have taken action to limit the availability of STLDI in the wake of the final rule, many have not.
The U.S. House of Representatives has repeatedly taken aim at the STLDI rule, advancing multiple bills to prohibit enforcement or implementation of the rule and to prevent adoption of a substantially similar rule in the future. However, none of these bills has been passed by the U.S. Senate.
The Lawsuit
Given concern about the effects of STLDI on enrollees and the ACA market, a coalition of safety net health plans and consumer advocates sued over the new rule in September 2018. The suit was filed by ACAP, the National Alliance on Mental Illness, Mental Health America, the American Psychiatric Association, AIDS United, the National Partnership for Women and Families, and the Little Lobbyists.
The plaintiffs argue that the Trump-era rule is inconsistent with the ACA and HIPAA and should be invalidated. They assert that the sale of STLDI hurts those they represent or serve through higher premiums and deductibles, fewer benefits, higher out-of-pocket costs, and no premium tax credits. Those harmed include individuals with mental health issues or substance use disorders, individuals living with HIV, women, and families with children who have complex medical needs and disabilities.
The STLDI rule was upheld by a district court in July 2019. The court rejected the plaintiffs’ arguments, holding that the government was entitled to deference in defining STLDI and that its interpretations were reasonable. Allowing short-term plans to be sold for up to 12 months and extended for up to 36 months was neither inconsistent with nor impermissible under HIPAA or the ACA. The plaintiffs appealed to the DC Circuit, which heard oral argument in March 2020.
The Decision
On July 17, 2020 (almost exactly one year since the district court’s decision), a divided three-judge panel of the DC Circuit affirmed the district court’s ruling to uphold the Trump administration’s new interpretation of STLDI. As noted above, the decision was written by Judge Griffith, joined by Judge Katsas, while Judge Rogers dissented (and would have remanded the rule back to the government).
The majority concludes that the federal government’s new interpretation of STLDI is based on a permissible construction of HIPAA and the ACA and is thus entitled to deference under the Chevron framework. Under Chevron, courts determine whether a statute is ambiguous. If so, the court considers whether an agency’s interpretation is reasonable or not. Courts defer to agency interpretations so long as the interpretation is not procedurally defective, arbitrary or capricious, or contrary to the statute.
The plaintiffs argued that the government’s interpretation of “short-term” as 364 days and “limited duration” as up to 36 months is inconsistent with HIPAA and contravenes the purpose of the ACA. The majority, like the district court, disagrees. Judge Griffith finds that “short-term, limited duration insurance” under HIPAA and the ACA is ambiguous with respect to term and duration. Thus, the question is whether the government’s interpretations are reasonable. The court concludes that they are.
“Short-Term” And “Limited Duration”
The majority rejects two of the plaintiffs’ arguments for why defining “short-term” as 364 days was unreasonable. First, ACAP argued that the ACA’s exemption to the individual mandate for “short coverage gaps” of three months or less foreclosed the government’s interpretation of “short-term” under HIPAA. Congress presumptively intended for the ACA’s definition of “short” as three months to apply to the phrase “short-term” under HIPAA in the definition of STLDI.
The majority rejects this idea, noting that Congress would have amended HIPAA when it enacted the ACA if it meant to do so. Amendment by implication is generally disfavored, and there are no indicators here that Congress intended to amend the long-standing reference to, or definition of, STLDI. If Congress had wanted to define “short-term” for purposes of STLDI as less than three months, then it would have.
Second, the plaintiffs argued that the interpretation contradicts the plain text of HIPAA because “short-term” must be meaningfully shorter than the standard insurance term. Since the standard term is one year (365 days), defining “short-term” as just one day shy (364 days) is not meaningfully different from traditional individual market coverage.
The court disagrees, finding the definition of “short-term” to be reasonable so long as the policy is any degree shorter than the standard term of 365 days. There is no requirement in the text, Judge Griffith notes, to be “meaningfully” shorter, a standard he finds unworkable and is too amorphous. He attempts to bolster this point by citing federal tax law on the difference between “short-term” and “long-term” capital gains. This part of federal statute defines short-term versus long-term based on one year, although Congress defined this one-day difference, not an agency. In any event, the majority concludes that a 364-day STLDI policy is “perfectly reasonable” even if a 365-day policy would not be.
The government’s definition of “limited duration” as limited to 36 months is similarly reasonable, Judge Griffith states. ACAP argued that allowing STLDI to be renewed for up to three years at a time was not of limited duration; if these policies could be renewed for triple the length of their duration, they are not “short-term.” The court rejects this argument, noting that nothing in HIPAA prevents insurers from renewing expired STLDI policies and that renewals (at insurers’ option) were allowed under prior regulations. The majority reasons that the 36-month cap is, itself, a limit on duration and thus a reasonable interpretation.
Contravening The ACA
The rule is neither inconsistent with nor impermissible under HIPAA or the ACA, Judge Griffith writes in his majority opinion. ACAP argued that the STLDI rule was irreconcilable with the ACA because it allowed a parallel, shadow market for non-comprehensive plans. The majority disagrees because the exemption for STLDI is “baked into the statute itself.” The ACA, by incorporating HIPAA’s definition of individual health insurance coverage, exempted STLDI plans from the ACA’s major consumer protections and single risk pool requirement.
Judge Griffith concludes that the Trump administration did not create a new category of insurance to evade the ACA. Rather, the government “crafted rules to clarify which policies fall within the exception Congress created” and those rules “reasonably defined the contours” of the STLDI exception. Congress is presumed to have knowledge of the government’s prior interpretation of STLDI (as up to 364 days), Judge Griffith opines, although he presents no evidence that Congress was actually aware of the prior STLDI interpretation when it enacted the ACA. Judge Griffith believes that Congress’s failure to change the statutory reference to STLDI is “powerful evidence” that the current rule is consistent with the ACA.
The majority also suggests that Congress encouraged individuals to purchase ACA-compliant coverage but did not foreclose other coverage options such as STLDI. Here, the court points to the statutory exemption for fixed indemnity coverage, which was also preserved under the ACA. While the ACA “nudges” individuals towards comprehensive coverage and away from products like STLDI and fixed indemnity policies, it did not fully foreclose their availability.
Further, the ACA has “multiple competing missions”—including expanding coverage, decreasing premiums, and maximizing quality—that, Judge Griffith concludes, the government reasonably balanced in the STLDI rule. Among these considerations, the government balanced providing STLDI to individuals in the Medicaid coverage gap against higher premiums for unsubsidized consumers.
Finally, the majority points to what it views as only “modest effects” of the STLDI rule on the ACA markets. Under King v. Burwell, the government cannot adopt a definition of STLDI that would “destabilize the individual market.” But Judge Griffith believes that is not the case here because the government “reasonably predicted” that the rule would have a limited impact. As evidence of the rule’s minimal disruption, the court points to premium reductions for the benchmark plan in 2019 and 2020 and stagnant marketplace enrollment. (The decision does not address the recent House investigation noted above showing that enrollment in STLDI increased significantly from late 2018 to 2019 because of the rule.)
Judge Rogers disagrees. She writes that the STLDI rule recreates the problems that the ACA was designed to solve and promotes STLDI plans as a way to circumvent the essential requirements put in place by Congress in the ACA. The rule also fractures the ACA’s single risk pool, undermining the goal of minimizing adverse selection and broadening the risk pool to include healthy people. She takes issue with the majority’s characterization of the rule’s “modest effects,” noting that executive branch cannot simply “chip away at a statute” by undermining its statutory scheme “so long as the effect of each regulatory action is sufficiently modest.” She writes, “It is difficult to imagine a starker conflict between a statutory scheme and a rule that purports to administer it.”
Arbitrary And Capricious
The majority rejects ACAP’s assertion that the government failed to 1) consider the rule’s impact on the marketplace risk pool or 2) adequately explain its departure from the 2016 rule. The court points to instances in the record where the government asserted that the change in duration of STLDI plans “could have an impact” but that it would be relatively minor. As evidence of the government’s explanation for its shift, the court refers again to the agencies’ balancing of harm to the ACA markets with the extension of STLDI coverage to some uninsured people. (Judge Rogers takes issue with this in her dissent, noting that the government’s own data did not support this contention: the government expected most STLDI enrollees would move from another type of coverage and that the total number of people without current coverage would increase by only 0.2 million people.)
Finally, the majority disagrees with ACAP that the rule would produce coverage gaps for those whose STLDI policy expired mid-year. (Those who lose STLDI coverage do not qualify for a special enrollment period and must thus wait until the next open enrollment period to enroll in ACA-compliant coverage.) The Trump-era rule, the government reasoned, helped address this coverage gap by extending the allowable duration of STLDI to up to one year, leaving less room for coverage gaps.
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Appeals Court Upholds Rule Relaxing Short-Term Plan Restrictions - Health Affairs
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