Available at https://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2014cv1954-33

A federal district court has enjoined HHS from enforcing a regulation that treats individual fixed indemnity insurance as an excepted benefit only if purchasers of the insurance attest that they have minimum essential coverage. The regulation was adopted by HHS in May 2014 as part of a package of regulations addressing insurance market reform. Under the regulation, individual health insurance coverage that pays a fixed dollar amount can be an excepted benefit if it meets certain conditions. While HHS interpreted its prior regulation as permitting only per-period benefits (e.g., $100 per day of hospitalization), the new regulation permits fixed dollar benefits to be paid per-service (e.g., $50 per visit) as well as per-period. It also adds a requirement that purchasers attest to having minimum essential coverage. (The regulation did not change the rules for group policies.) In this case, an insurer that sold insurance paying benefits on a per-service basis challenged the attestation rule, claiming the rule exceeded HHS’s authority and threatened the viability of the insurer’s business. HHS responded that its regulation was a reasonable interpretation of an ambiguous statute (in this case, a provision of the PHSA) and simply filled a gap left by Congress.

In its opinion, the court acknowledged that the term “fixed indemnity insurance” is not defined by the statute, that the legislative history offers no guidance, and that HHS has authority to interpret the statute. The court concluded, however, that the attestation rule has no basis in the statutory text. HHS has the authority to make regulations to accomplish the goals of the PHSA but not to import “wholly foreign concepts” by requiring that purchasers have other coverage, even if doing so is consistent with and helps achieve the PHSA’s purpose. Since enforcement of the rule would cause the insurer irreparable harm, and HHS cannot pursue even worthy policies beyond its statutory authority, the court granted the insurer’s request for a permanent injunction.

Comment: When HHS proposed the attestation requirement, it implied that the requirement was needed to balance the regulation’s expansion to include per-service benefits. This ruling upsets that balance. Excepted benefit status is crucial for fixed indemnity policies because they are not designed to comply with health care reform, and insurers want to be able to sell those policies to individuals who have no other coverage. HHS, by contrast, is concerned that individuals may purchase fixed indemnity coverage in lieu of major medical, mistakenly thinking that this coverage satisfies the individual mandate or provides equivalent protection to major medical coverage. HHS may also be worried about the effect on the major medical market if more individuals opt out. Given these competing interests, we probably have not seen the last of this issue.