N.M. Health Connections v. U.S. Dep't of Health & Human Servs.

• Citation: 312 F.Supp.3d 1164
• Decision Date: 28 February 2018
• Docket Number: No. CIV 16–0878 JB/JHR,CIV 16–0878 JB/JHR
• Parties: NEW MEXICO HEALTH CONNECTIONS, a New Mexico Non–Profit Corporation, Plaintiff, v. UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES; Centers for Medicare and Medicaid Services; Sylvia Mathews Burwell, Secretary of the United States Department of Health and Human Services, in her official capacity and Andrew M. Slavitt, Acting Administrator for the Centers for Medicare and Medicaid Services, in his official capacity, Defendants.
• Court: U.S. District Court — District of New Mexico

312 F.Supp.3d 1164

NEW MEXICO HEALTH CONNECTIONS, a New Mexico Non–Profit Corporation, Plaintiff,

v.UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES; Centers for Medicare and Medicaid Services; Sylvia Mathews Burwell, Secretary of the United States Department of Health and Human Services, in her official capacity and Andrew M. Slavitt, Acting Administrator for the Centers for Medicare and Medicaid Services, in his official capacity, Defendants.

No. CIV 16–0878 JB/JHR

United States District Court, D. New Mexico.

Filed February 28, 2018

Nancy Ruth Long, Long Komer & Associates, P.A., Santa Fe, New Mexico, and Barak A. Bassman, Leah Greenberg Katz, Marc D. Machlin, Sara Richman, Pepper Hamilton, LLP, Philadelphia, Pennsylvania, Attorneys for the Plaintiff.

Chad A. Readler, Acting Assistant Attorney General, Joel McElvain, Assistant Branch Director, Arjun Garg, Serena Orloff, James R. Powers, Trial Attorneys, United States Department of Justice, Civil Division, Federal Programs Branch, Washington, D.C., Attorneys for the Defendants.

MEMORANDUM OPINION AND ORDER

JAMES O. BROWNING, UNITED STATES DISTRICT JUDGE

THIS MATTER comes before the Court on: (i) the Plaintiff's Motion for Summary Judgment, filed April 13, 2017 (Doc. 32)("Health Connection's Motion"); and (ii) the Defendants' Cross–Motion for Summary Judgment, filed June 1, 2017 (Doc. 34)("Defendants' Motion"). The Court held a hearing on January 22, 2018. The primary issues are: (i) whether the Administrative Procedure Act, 5 U.S.C. § 702 ("APA"), waives sovereign immunity for all of Plaintiff New Mexico Health Connections' claims; (ii) whether incorporating statewide average premiums in Defendant United States Department of Health and Human Services' ("HHS")¹ risk-adjustment formula is contrary to law or arbitrary and capricious; (iii) whether HHS' approach to predicting costs for hierarchal condition category ("HCC") and non-HCC eligible enrollees is arbitrary and capricious; (iv) whether HHS' decisions regarding partial year enrollees and the use of prescription drug data in its risk adjustment model are arbitrary and capricious; and (v) whether HHS' risk adjustment formula effectively bans bronze health insurance plans and is contrary to law. The Court concludes that: (i) the APA waives sovereign immunity for all of the claims presented, thereby giving the Court subject-matter jurisdiction; (ii) HHS' use of statewide average premiums in its risk adjustment methodology is not contrary to law, but is arbitrary and capricious; (iii) HHS' approach to predicting costs for HCC and non-HCC eligible enrollees is not arbitrary and capricious; (iv) HHS' decisions regarding partial year enrollees and the use of prescription drug data in its risk adjustment model are not arbitrary and capricious; and (v) HHS' risk adjustment formula does not, in effect, ban bronze health insurance plans. Accordingly, the Health Connection's Motion is granted in part and denied in part. The Defendants' Motion is granted in part and denied in part. The Court sets aside and vacates the agency action as to the statewide average premium rules and remands the case to the agency for further proceedings. It otherwise dismisses Health Connections' remaining claims with prejudice.

FACTUAL BACKGROUND

Health Connections seeks APA review of agency action, so rule 56 of the Federal Rules of Civil Procedure does not apply even though both Health Connections and HHS ostensibly filed motions for summary judgment. See Olenhouse v. Commodity Credit Corp., 42 F.3d 1560, 1580 (10th Cir. 1994) ("Reviews of agency action in the district courts must be processed as appeals. " (emphasis in original) )(" Olenhouse"); id. ("[M]otions for summary judgment are conceptually incompatible with the very nature and purpose of an appeal."). See also Jarita Mesa Livestock Grazing Ass'n v. U.S. Forest Serv., 305 F.R.D. 256, 281 (D.N.M. 2015) (Browning, J.). Accordingly, district courts reviewing agency action do not determine whether a "genuine dispute as to any material fact" exists, Fed. R. Civ. P. 56, and instead "engage in a substantive review of the record to determine if the agency considered relevant factors or articulated a reasoned basis for its conclusions," Olenhouse, 42 F.3d at 1580. See Jarita Mesa Livestock Grazing Ass'n v. U.S. Forest Serv., 305 F.R.D. at 281 ("District courts may not entertain motions for summary judgment or any other procedural devices that shift the appellant's substantial burden—arbitrary-or-capricious review for questions of fact and Chevron deference for questions of statutory interpretation—onto the agency."). While engaging in that substantive review, "the district court should govern itself by referring to the Federal Rules of Appellate Procedure." Olenhouse, 42 F.3d at 1580. To be clear, the Court recounts the following undisputed facts as a comprehensive factual background for its APA review and not as a summary-judgment analysis.²

1. The Affordable Care Act.

Congress enacted The Patient Protection and Affordable Care Act, Pub. L. No. 111–148, 124 Stat. 119 (2010)(codified at 42 U.S.C. §§ 300gg–1 to – 19, 18001 – 18022 )("ACA") "to expand coverage in the individual health insurance market." King v. Burwell, ––– U.S. ––––, 135 S.Ct. 2480, 2485, 192 L.Ed.2d 483 (2015) (Roberts, C.J.). To effect that goal, the ACA: (i) bars insurers from considering pre-existing medical conditions when deciding whether to sell insurance and determining prices; (ii) requires individuals to make an individual shared responsibility payment to the Internal Revenue Service unless they maintain health-insurance coverage; and (iii) gives certain individuals tax credits to make health insurance more affordable for them. See King v. Burwell, 135 S.Ct. at 2485 ; 26 U.S.C. § 5000A (describing the individual shared responsibility payment requirement).

Additionally, the ACA establishes Health Benefit Exchanges ("Exchanges"), online marketplaces where individuals can purchase health insurance and potentially obtain federal subsidies. See 42 U.S.C. §§ 18031 – 18033. Qualified health plans sold on the Exchanges must provide bronze-level, silver-level, gold-level, or platinum-level coverage. See 42. U.S.C. § 18021(a)(1)(defining a qualified health plan); 42 U.S.C. § 18022(d)(1) (setting out four coverage levels). Bronze-level plans are designed such that, on average, the insurance company pays sixty percent of its policyholders' covered healthcare costs; that percentage increases to seventy, eighty, and ninety percent for silver-, gold-, and platinum-level plans, respectively. See 42 U.S.C. § 18022(d)(1) ; The ‘Metal’ Categories: Bronze, Silver, Gold & Platinum, HEALTHCARE.GOV, http://www.healthcare.gov/choose-a-plan/plans-categories/. Consequently, bronze-level plans tend to attract individuals who anticipate fewer healthcare needs, i.e., healthier people, whereas gold-level and platinum-level plans tend to attract individuals who anticipate more healthcare needs, i.e., sicker individuals. See State Health Insurance Exchange Risk Adjustment and Plan Metals Level Memorandum at 3 (dated December 15, 2011)(A.R. 000811); Risk Adjustment Implementation Issues, Draft for Discussion Purposes at 31 (dated September 12, 2011)(A.R. 004397).

The ACA also establishes the Consumer Operated and Oriented Plan ("CO–OP") program. 42 U.S.C. § 18042(a). The CO–OP program provides loans and grants to new nonprofit health-insurance issuers, which fosters competition in the individual health-insurance market. 42 U.S.C. § 18042(a) - (b). See also Memorandum of Law in Support New Mexico Health Connections' Motion For Summary Judgment ¶ 19, at 10, filed April 13, 2017 (Doc. 33)("Plaintiff Mem.")("Congress created the CO–OP program to enhance competition.").³ To receive these loans or grants, however, insurers must offer their health-insurance plans on the Exchanges. See 45 C.F.R. § 156.515(c). See also Plaintiff Mem. ¶ 21, at 10.

The ACA expands healthcare access, but it also increases health-insurance-industry risk. That the ACA requires insurers to cover all individuals, healthy or otherwise, means an unlucky insurer could end up providing coverage to a particularly sickly group of customers. See 42 U.S.C. § 300gg–1(a) ("[E]ach health insurance issuer that offers health insurance coverage in the individual or group market in a State must accept every employer and individual in the State that applies for such coverage."). The ACA makes things even worse for those unlucky insurers by prohibiting them from responding to the increased cost of providing healthcare coverage to sicker individuals by charging those individuals higher prices. See 42 U.S.C. § 300gg(a) (prohibiting price discrimination based on factors other than geography, age, tobacco use, and whether coverage extends to an individual to a family). Taken together, those two ACA requirements "threaten to impose massive new costs on insurers, who are required to accept unhealthy individuals but prohibited from charging them rates necessary to pay for their coverage." Nat'l Fed'n of Indep. Bus. v. Sebelius, 567 U.S. 519, 548, 132 S.Ct. 2566, 183 L.Ed.2d 450 (2012).

The ACA contemplates three kinds of programs—two temporary and one permanent—that ameliorate the risks it creates. See 42 U.S.C. §§ 18061 – 18063. First, under transitional reinsurance programs, which operate only from 2014 to 2016, insurers make payments to "an applicable reinsurance entity," typically HHS, and reinsurance entities use those funds to provide "reinsurance payments" to insurers that cover "high risk individuals." 42 U.S.C. § 18061(b)(1). According to HHS, "[t]he reinsurance program will reduce the uncertainty of insurance risk in the individual market by partially offsetting issuers' risk associated with high-cost enrollees." HHS Notice of Benefit and Payment Parameters for 2014, 78 Fed. Reg. 15,410, 15,411 (dated March 11, 2013) (A.R.000227–28)("2014 Final Rule"). "Each State is eligible to establish...