Minuteman Health, Inc. v. U.S. Dep't of Health & Human Servs.

Decision Date30 January 2018
Docket NumberCiv. Action No. 16–11570–FDS
Citation291 F.Supp.3d 174
CourtU.S. District Court — District of Massachusetts

Barak B. Bassman, Leah Greenberg Katz, Sara B. Richman, Pepper Hamilton LLP, Philadelphia, PA, Marc D. Machlin, Pepper Hamilton LLP, Washington, DC, William M. Taylor, Jaclyn M. Essinger, Pepper Hamilton LLP, Boston, MA, for Plaintiff.

Matthew JB Lawrence, Serena M. Orloff, U.S. Department of Justice, Washington, DC, Rayford A. Farquhar, United States Attorney's Office, Boston, MA, for Defendants.


SAYLOR, District Judge.

This is an action brought under the Administrative Procedure Act ("APA") challenging certain regulations promulgated by the Department of Health and Human Services ("HHS") under the Patient Protection and Affordable Care Act ("ACA"), Pub. L. No. 111–148, 124 Stat. 119 (2010).

Minuteman Health, Inc. is a nonprofit health-insurance provider that offered plans in Massachusetts in 2014, and in both Massachusetts and New Hampshire from 2015 to 2017. In 2014, it was required under HHS and Massachusetts regulations implementing the ACA's risk-adjustment program to pay 71% of its gross premium revenues to the program. In 2015, it was required to pay 40% of its New Hampshire revenues and 39% of its Massachusetts revenues. Perhaps unsurprisingly, it was not able to survive the loss of such a huge percentage of its revenues. It is now in receivership and is not offering plans to subscribers.

In substance, Minuteman challenges the HHS regulations that forced it to make those large transfer payments. It contends that the regulations at issue (1) were arbitrary and capricious, and therefore in violation of the APA, 5 U.S.C. § 706, and (2) were beyond HHS's statutory authority because they contravene the statute providing for risk adjustment, 42 U.S.C. § 18063.

The issues posed in this lawsuit are far from simple. The ACA is a notoriously complex statute, health insurance is notoriously difficult to administer effectively, and the federal health-care bureaucracy is notoriously cumbersome. The implementation of the statute and its regulations can hardly be called an unqualified success, and it appears to have triggered a host of unintended consequences. But the role of this Court is not to sit in judgment on the wisdom of the law, nor is it to judge the actions of HHS with the benefit of hindsight. Rather, it is to consider this specific challenge to certain regulations implemented under the act by HHS, and to analyze that challenge according to a specific legal framework: in essence, to determine whether HHS acted arbitrarily or unreasonably based on the record before it at the relevant time.

The essential facts are not disputed, and both parties have cross-moved for summary judgment. In substance, the Court concludes that HHS acted within the bounds of its authority, even when the consequences of its choices may not always have been optimal. Accordingly, and for the reasons set forth below, defendant's motion will be granted and plaintiff's motion will be denied.

I. Background
A. Factual Background
1. The Patient Protection and Affordable Care Act

The ACA was passed to regulate health insurance in the United States. Among other things, it "bars insurers from taking a person's health into account when deciding whether to sell health insurance or how much to charge"; "requires each person to maintain insurance coverage or make a payment to the Internal Revenue Service"; and "gives tax credits to certain people to make insurance more affordable." King v. Burwell , ––– U.S. ––––, 135 S.Ct. 2480, 2485, 192 L.Ed.2d 483 (2015).

Congress recognized, however, that prohibiting insurers from denying coverage to individuals based on their health status, combined with insurers' lack of knowledge of the health status of the anticipated new enrollees, would create a substantial risk of premium volatility. To alleviate the effects of that uncertainty, the ACA established three premium-stabilization programs, colloquially known as the "3Rs": the reinsurance, risk-corridors, and risk-adjustment programs. See generally 42 U.S.C. §§ 18061 – 18063.1 While reinsurance and risk corridors were temporary programs meant to stabilize premiums in the first few years of the ACA's implementation and have now been discontinued, the risk-adjustment program, which is the subject of this litigation, is permanent. See Standards Related to Reinsurance, Risk Corridors, and Risk Adjustment, 77 Fed. Reg. 17,220, 17,221 (Mar. 23, 2012) ("Premium Stabilization Rule"); see 42 U.S.C. §§ 18061(b)(1)(A), 18062(a), 18063.

The goal of the risk-adjustment program is to spread the costs of covering higher-risk members across insurers throughout a given state, thereby reducing incentives for insurers to engage in "risk-avoidance" techniques, such as designing or marketing their plans in ways that tend to attract healthier individuals, who cost less to insure. Mark A. Hall, Risk Adjustment Under the Affordable Care Act: Issues and Options ¸ 20 KAN. J.L. & PUB. POL'Y 222, 224 (2011). In broad terms, it requires issuers with healthier members to pay into the program, which in turn provides subsidies to issuers with less-healthy members.

The key provisions of the statute are contained within a single, short section. It provides that "each State shall assess a charge on health plans and health insurance issuers ... if the actuarial risk of the enrollees of such plans or coverage for a year is less than the average actuarial risk of all enrollees in all plans or coverage in such State for such year that are not self-insured group health plans," and, correspondingly, "each State shall provide a payment to health plans and health insurance issuers ... if the actuarial risk of the enrollees of such plans or coverage for a year is greater than the average actuarial risk of all enrollees in all plans and coverage in such State for such year that are not self-insured group health plans." 42 U.S.C. § 18063(a) (emphases added).

Congress delegated to HHS the responsibility for administering many of the programs under the ACA, including the risk-adjustment program. See id. § 18063(b) ("The Secretary [of Health and Human Services], in consultation with States, shall establish criteria and methods to be used in carrying out the risk-adjustment activities under this section.").2 Under the ACA, HHS was to promulgate overarching standards for the risk-adjustment program, and the states would operate the program independently within those guidelines. See 42 U.S.C. § 18041(c) ; 45 C.F.R. § 153.310. The statutory scheme allowed HHS to operate the program on behalf of any state that chose not to do so. 45 C.F.R. § 153.310(a)(2) ; see 42 U.S.C. §§ 18041(c)(1), 18063. In practice, the vast majority of states opted from the beginning to allow HHS to administer the program. The only state to run its own program was Massachusetts, and even Massachusetts ceded responsibility to HHS beginning in the 2017 benefit year. See HHS Notice of Benefit and Payment Parameters for 2014, 78 Fed. Reg. 15,410, 15,439 (Mar. 11, 2013) ("2014 Final Rule"); HHS Notice of Benefit and Payment Parameters for 2017, 81 Fed. Reg. 12,204, 12,230 (Mar. 8, 2016) ("2017 Final Rule").

Other parts of the ACA relevant to this action include the Consumer Operated and Oriented Plan Program (the "CO–OP" program), 42 U.S.C. § 18042, and the actuarial categorization of plans on the Health Benefit Exchanges, id. § 18022(d).

The CO–OP program, among other things, makes loans available to "qualified nonprofit health-insurance issuers" in order to encourage new entrants and bolster competition in the health-insurance market. Id. § 18042(b)(1) ; (Pl. Mem. in Supp. Summ. J. Ex. 11); see also 42 U.S.C. § 18042(c)(4) ("[A]ny profits made by the organization are required to be used to lower premiums, to improve benefits, or for other programs intended to improve the quality of health care delivered to its members."). CO–OP loan applicants must submit business plans to HHS, which, if approved, are incorporated into the final loan agreement. (Pl. Mem. in Supp. Summ. J. Exs. 11, 12). Congress appropriated $6 billion in the ACA to assist the launch of the CO–OP program. 42 U.S.C. § 18042(g).

The Health Benefit Exchanges are state-run insurance marketplaces created by the ACA to facilitate consumer choice and competition. 42 U.S.C. §§ 18031 – 18033. To allow consumers to compare products more easily, health plans sold on the exchanges are regulated in various ways. Id. §§ 18021–18024. Most relevant here, health plans sold on the exchanges are categorized as either catastrophic plans, which are only available to certain groups of enrollees, or one of four "metal levels": platinum, gold, silver, or bronze. Id. § 18022(d), (e). The metal levels correspond to the actuarial value of the plan—that is, the percentage of the full actuarial value of the benefits provided under the plan that the plan will actually cover. A platinum plan has an actuarial value of 90%, gold 80%, silver 70%, and bronze 60%. Id. § 18022(d).

2. Risk–Adjustment Methodology

As described by HHS, the risk-adjustment program "is intended to provide payments to health-insurance issuers that attract higher-risk populations, such as those with chronic conditions, and eliminate incentives for issuers to avoid higher-risk enrollees." Program Integrity: Exchange, Premium Stabilization Programs, and Market Standards; Amendments to the HHS Notice of Benefit and Payment Parameters for 2014, 78 Fed. Reg. 65,046, 65,048 (Oct. 30, 2013). "The risk-adjustment program is intended to reduce or eliminate premium differences between plans based solely on expectations of favorable or unfavorable risk selection or choices by higher-risk enrollees in the individual...

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  • N.M. Health Connections v. U.S. Dep't of Health & Human Servs.
    • United States
    • U.S. District Court — District of New Mexico
    • February 28, 2018
    ...designing risk adjustment to be budget neutral may be a reasonable policy choice. See Minuteman Health, Inc. v. U.S. Dep't of Health and Human Servs., 291 F.Supp.3d 174, 201 (D. Mass. 2018) (Saylor, J.)("Although the statute does not require the program to be budget-neutral, it does not pro......
  • New Mex. Health Connections, Non-Profit Corp. v. U.S. Dep't of Health & Human Servs., CIV 16-0878 JB-JHR
    • United States
    • U.S. District Court — District of New Mexico
    • October 19, 2018
    ...Court for the District of Massachusetts, when the Honorable F. Dennis Saylor IV decided Minuteman Health, Inc. v. United States Department of Health and Human Services, 291 F.Supp.3d 174 (D. Mass. 2018), on January 30, 2018,5 no one filed a motion for leave to file an amicus brief or filed ......
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    • United States
    • U.S. Court of Appeals — Tenth Circuit
    • December 31, 2019
    ...Ct. Doc. 25, Ex. A at 2.14 Other lawsuits challenging the risk adjustment program include Minuteman Health Inc. v. U.S. Dep’t of Health & Human Servs. , 291 F. Supp. 3d 174, 202 (D. Mass. 2018) (holding HHS’s use of the statewide average premium was not arbitrary and capricious), appeal not......
  • Vista Health Plan, Inc. v. U.S. Dep't of Health & Human Servs.
    • United States
    • U.S. Court of Appeals — Fifth Circuit
    • March 17, 2022
    ...2018, a district court in Massachusetts ruled in favor of HHS on the same issue. See Minuteman Health, Inc. v. U.S. Dep't of Health & Hum. Servs. , 291 F. Supp. 3d 174, 198–205 (D. Mass. 2018).Addressing the conflicting judgments, HHS issued a press release on July 7, 2018, advising insurer......
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