Earlier this month, the Court of Appeals for the D.C. Circuit issued its decision in Central United Life Insurance Co., v. Burwell, striking down a Department of Health and Human Services (HHS) rule prohibiting the sale and marketing of “fixed indemnity” plans to consumers who did not otherwise have minimum essential coverage. While at first pass the case focuses on a small set of insurance policies, this decision could have broader implications on the individual market and further threaten the sustainability of the risk pools.
This case focused on “fixed indemnity” policies, which are insurance products that pay out a fixed amount for each medical event, regardless of the actual cost of the service (e.g., the policy pays $100 per physician visit). Fixed indemnity policies are considered “excepted benefits” under the Public Health Service Act (PHSA), so long as (i) they are “provided under a spate policy, certificate, or contract of insurance,” and (ii) “are offered as independent non-coordinated benefits.” The Affordable Care Act (ACA) explicitly excluded excepted benefits from minimum essential coverage.
In 2014, HHS promulgated regulations which sought to make it more difficult for consumers to obtain these types of policies. The rules attempted to amend the criteria for when fixed indemnity policies could qualify as excepted benefits. Under the rule, HHS added a new criteria requiring that for fixed indemnity plans to qualify as an “excepted benefit” they can only be provided to individuals who already have minimum essential coverage. As the court noted, this would have effectively eliminated stand-alone fixed indemnity plans altogether.
Under a Chevron analysis, the court determined that HHS overstepped its authority, pointing out that HHS was attempting to amend the PHSA itself. Further, the court noted that Congress did not provide any leeway for HHS to “tack on” the additional criteria. The court rejected HHS’ argument that it has the authority to supplement the PHSA with reference to the Act’s requirement that the fixed indemnity plans must be “offered as independent, noncoordinated benefits.” During oral arguments the government also argued that this is a consumer protection measure and the rules are necessary and appropriate to carry out the insurance mandates of the ACA. The court did not address either argument in its brief opinion.
However, HHS’ argument that these rules are necessary and appropriate to carry out the ACA should not be discounted. Fixed indemnity policies appeal to the young and healthy – the exact population that is necessary to maintain sustainable risk pools and to keep premiums manageable. HHS sought to foreclose the option of offering fixed indemnity plans unless consumers otherwise had minimum essential coverage. With rising premiums in the individual market, having the option of fixed indemnity plans may tempt the young and healthy to select this type of coverage and incur tax penalty, rather than entering the individual market.
The Administration’s approach to this issue was intentional. If this population started using indemnity plans with greater frequency, it could create additional challenges to the ACA Marketplaces. Though the court ruled against the Administration, Congress can and is likely to consider legislative remedies if increased usage of indemnity plans causes deterioration of the ACA Marketplace.