Federal court strikes down Obamacare insurance standard

A federal appeals court has ruled that consumers must be allowed to buy a type of health insurance that does not meet ACA standards

Life & Health

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A federal appeals court has struck down an Obama administration requirement that insurance companies cannot sell certain types of health insurance as a separate, stand-alone product.

The United States Court of Appeals for the District of Columbia Circuit ruled that the White House had gone beyond the terms of federal law, committing “administrative overreach” in barring the sale of “fixed indemnity” insurance – coverage that pays consumers a fixed dollar amount regardless of how much is actually owed to the provider.

“Disagreeing with Congress’s expressly codified policy choices isn’t a luxury administrative agencies enjoy,” the Court said in its opinion.

The Obama administration had cracked down on fixed indemnity insurance as it is normally less comprehensive than the “minimal essential coverage” required under the Affordable Care Act. Issued in 2014, the rule restric­ted fixed indemnity policy sales to people who already had the more comprehensive coverage that meets ACA standards.

“[Fixed indemnity insurance] is an inadequate substitute for major medical coverage,” the administration said. “It does not provide protection against major medical expenses.”

The administration worried the coverage may also confuse consumers, who may mistakenly buy fixed indemnity insurance in “then mistake belief that it provides comprehensive coverage.”  Typically, these policies provide coverage only for specified diseases, like cancer. Under the policies, consumers have fewer protections as they do not have to provide the “essential health benefits” required by the ACA.

Allowing their sale as a standalone product would undermine the ACA’s goal of “maximizing the number of individuals who have comprehensive, major medical coverage,” the Obama administration said.

The court, however, noted that the coverage has generally been exempt from federal oversight – including under the ACA – and that Congress did not “give even the slightest indication” that it meant to alter that exemption with the ACA.

The plaintiffs, who sell fixed indemnity insurance, successfully argued that the rule would destroy the market for the products.

“Even after the Affordable Care Act, lower-income consumers may not be able to afford major medical coverage,” said Quin M. Sorenson, attorney for Central United Life Insurance.

In states that do not have expanded Medicaid eligibility, as many as three million people fall into a “coverage gap” – they earn too much to qualify for Medicaid, but not enough to qualify for subsidies in the public insurance marketplace. Fixed indemnity plans can provide some coverage where otherwise none exist, Sorenson said.

He was supported by an amicus curiae brief drafted by Wisconsin and 10 other states.
“Fixed indemnity insurance is a rational choice for these individuals because it provides meaningful access to the healthcare system,” the brief said.

The ruling in the case, Central United Life Insurance v. Burwell, was issued by a panel of judges including Janice Rogers Brown, Patricia A. Millett and Douglas H. Ginsburg.
 

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