Am. Council of Life Insurers v. Dist. of Columbia Health Benefit Exch. Auth.

Decision Date13 November 2014
Docket NumberCivil Action No. 14–cv–1138 BAH
Citation73 F.Supp.3d 65
CourtU.S. District Court — District of Columbia
PartiesAmerican Council of Life Insurers, Plaintiff, v. District of Columbia Health Benefit Exchange Authority, et al., Defendants.

A. Pilar Mata, Daniel H. Schlueter, Todd A. Lard, Vanessa A. Scott, James J. Briody, Sutherland, Asbill & Brennan, L.L.P., Barbara A. Smith Grieco, Erin E. Murphy, Bancroft PLLC, Washington, DC, for Plaintiff.

William F. Causey, Andrew J. Saindon, Office of the Attorney General for the District of Columbia, Washington, DC, for Defendants.


BERYL A. HOWELL, United States District Judge

This case raises a constitutional challenge to the funding mechanism enacted by the District of Columbia to continue the operations of the District of Columbia Health Benefit Exchange (the D.C. Exchange) beginning on January 1, 2015. The D.C. Exchange was established under the auspices of the Patient Protection and Affordable Care Act (“ACA”) to, inter alia, [e]nable individuals and small employers to find affordable and easier-to-understand health insurance;” [f]acilitate the purchase and sale of qualified health plans;” [r]educe the number of uninsured;” and [a]ssist individuals and groups to access programs, premium assistance tax credits, and cost-sharing reductions.” Health Benefit Exchange Authority Establishment Act (“Establishment Act”), D.C. Code § 31–3171.02. Indeed, the D.C. Exchange currently facilitates access to health care for approximately 50,000 residents of this jurisdiction. See Compl. ¶ 44, ECF No. 1. To ensure sufficient funding for the operations of the D.C. Exchange when, after December 31, 2014, all federal funding assistance ceases, the District passed two separate laws, the Health Benefit Exchange Authority Financial Sustainability Emergency Amendment Act of 2014 (the “Emergency Amendment Act” or “EAA”), D.C. Act 20–356, and the Health Benefit Exchange Authority Financial Sustainability Temporary Amendment Act of 2014 (“TAA”), D.C. Act 20–256, both of which authorize a Health Carrier Assessment (the “HC Assessment”) on health insurance issuers doing significant business in the District, even if those issuers do not participate, or sell products eligible for sale, on the D.C. Exchange. Id. ¶¶ 45–47.

The plaintiff, American Council of Life Insurers (ACLI), a trade association with approximately 300 member insurance companies operating throughout the United States, including the District of Columbia, filed this suit against the District of Columbia, the District of Columbia Health Benefit Exchange Authority (the Authority) and various D.C. government officials in their official capacities1 (collectively, defendants), alleging that the Emergency Amendment Act violates multiple parts of the U.S. Constitution by authorizing imposition of the HC Assessment on the plaintiff's members when those members do not participate in, or receive any benefit from, the D.C. Exchange.2 See Compl. at 22 (Plaintiff prays for relief ... [t]hat the Court declare that the Emergency Legislation, as construed by the Authority, is unconstitutional and is preempted by the ACA and is thus unenforceable”). The plaintiff has moved, twice, to enjoin preliminarily the defendants from assessing and collecting the HC Assessment on premiums or other receipts from products that are not sold on the D.C. Exchange, see Compl., ¶ 88; Pl.'s Mot. for Prelim. Inj. (“Pl.'s P.I. Mot.”), ECF No. 11; Pl.'s Emergency Mot. for Prelim. Inj. (“Pl.'s P.I. Emerg. Mot.”), ECF No. 32, and the defendants have moved to dismiss the Complaint, under Federal Rule of Civil Procedure 12(b)(6), for failure to state a claim upon which relief can be granted, Defs.' Mot. to Dismiss (“Defs.' Mot.”), ECF No. 25. As discussed more fully below, the defendants' motion is granted, the plaintiff's motions are denied, and the Complaint is dismissed.


The plaintiff claims that the HC Assessment on health insurance companies, which do not participate in, or sell products eligible for sale on, the D.C. Exchange, is preempted by the ACA and violates the Takings, Equal Protection and Due Process Clauses of the Fifth Amendment to the U.S. Constitution, as well as the non-delegation doctrine. Evaluation of these constitutional challenges is aided by review of pertinent provisions in the ACA and the Establishment Act, which is the law containing both the amendments—the Emergency Amendment and the TAA (the “Challenged Amendment) that is at issue. This statutory review is followed by a summary of the procedural history of this case.

A. The Relevant Statutes
1. The ACA

The ACA was enacted to “increase the number of Americans covered by health insurance and decrease the cost of health care.” Nat'l Fed'n of Indep. Bus. v. Sebelius (NFIB), ––– U.S. ––––, 132 S.Ct. 2566, 2580, 183 L.Ed.2d 450 (2012). To this end, the law requires that (1) States create their own Exchange in compliance with federal regulations or that (2) the Secretary create a federally-managed program (a “Federal Exchange”) in the State. Compl. ¶¶ 1, 28. Only those health insurance plans that meet certain minimum requirements established by federal law are eligible for sale as Qualified Health Plans (“QHPs”) on either State or Federal Exchanges. Generally, QHPs are comprehensive health plans that offer “essential health benefits” and meet other federal and state regulatory standards. Id. ¶ 30 (citing 42 U.S.C. § 18031(a) -(d) ). Plans that do not meet these requirements, called “Excepted Plans,” are prohibited from sale on Exchanges. Compl. ¶ 26. Excepted plans include disability income, worker's compensation policies, longterm care coverage, fixed indemnity insurance, and certain group health insurance policies. Id. (citing 42 U.S.C. § 300gg–91(c) ).

The ACA authorizes initial federal funding to the States and the District for the purpose of establishing State Exchanges. Id. ¶¶ 3, 43. In total, the initial federal funding provided to the States and the District to set up State Exchanges exceeded $4.8 billion. See Pl.'s Mem. in Supp. of Prelim. Inj. Mot. (“Pl.'s P.I. Mem.”), at 8 (citing Daniel H. Schlueter Decl. (“Schlueter Decl.”) Ex. D, Annie L. Mach, et al.,Cong. Research Serv., R43066, Federal Funding For Health Insurance Exchanges 4–5 (2014), ECF No. 11–1). All federal funding for State Exchanges ceases, however, after December 31, 2014, at which time the States are expected to operate their Exchanges without federal funding. See id.

The same ACA provision, Section 1311(d)(5)(A), 42 U.S.C. § 18031(d)(5)(A), both terminates federal funding assistance “beginning January 1, 2015 and directs States to take responsibility for the “continued operations” of State Exchanges. This ACA provision is the lynchpin to the plaintiff's preemption challenge. See id. ¶¶ 3, 29. To ensure adequate funding “to support [the] operations” of State Exchanges, ACA's Section 1311(d)(5)(A) authorizes the States and the District to allow the State Exchanges “to charge assessments or user fees to participating issuers” and “to otherwise generate funding.” 42 U.S.C. § 18031(d)(5)(A).

2. District Authorizing Laws

One year after Congress enacted the ACA, the District opted to create a local Exchange and passed the Establishment Act, D.C. Code § 31–3171.01 et seq., declaring the District's intent to operate the D.C. Exchange. Compl. ¶ 4. The Establishment Act established the Authority and set out the responsibilities of this new entity. See D.C. Code § 31–3171.01. First, the Authority is tasked with maintaining the D.C. Exchange, see Compl. ¶¶ 35–36, and, as part of this responsibility, it must certify QHPs to be sold on the D.C. Exchange based on the plans' compliance with D.C. and federal regulations. Id. ¶¶ 37–38 (citing D.C. Code § 31–3171.04(a) ).

Second, the Authority is responsible for the administration of the Health Benefit Exchange Authority Fund (the Fund), which was also created by the Establishment Act to finance the D.C. Exchange. Id. ¶ 39. The Fund derives monies from multiple sources, including:

(1) Any user fees, licensing fees, or other assessments collected by the Authority;
(2) Income from investments made on behalf of the Fund;
(3) Interest on money in the Fund;
(4) Money collected by the executive board as a result of a legal or other action;
(5) Donations;
(6) Grants;
(7) All general revenue funds appropriated by a line item in the budget submitted pursuant to section 446 of the District of Columbia Home Rule Act, approved December 24, 1973 (87 Stat. 801; D.C. Official Code § 1–204.46 ), and authorized by Congress for the purposes of the Authority; and
(8) Any other money from any other source accepted for the benefit of the Fund.

D.C. Code § 31–3171.03(b) ; Compl. ¶ 40. The Establishment Act authorizes the Authority to generate funds “necessary to support the operation of the Authority,” D.C. Code § 313171.03(e)(2), by charging (A) User fees; (B) Licensing fees; and (C) Other assessments on health carriers selling qualified dental plans or qualified health plans in the District, including qualified health plans and qualified dental plans sold outside the exchanges,” id. at (e)(1); see also Compl. ¶ 41.

Facing the December 31, 2014 termination of all federal funding, Compl. ¶ 3, and an estimated $28.75 million in operating costs for the D.C. Exchange in 2015, id. ¶ 44, the Authority appointed the Financial Sustainability Advisory Working Group (the “Working Group”) to develop a plan to fund the D.C. Exchange after federal funding ceased. Id. ¶ 45. The Working Group “consist[ed] of, among others, health insurance issuers offering [QHPs] on the D.C. Exchange.” Id. After weighing several alternatives, the Working Group ultimately proposed a broad assessment that would apply to health insurance issuers generating significant revenues from businesses in the District, regardless of whether they participated in the Exchange or could sell products on the Exchange. See ¶¶...

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