Ohio v. United States

• Decision Date: 17 February 2017
• Docket Number: No. 16-3093,16-3093
• Parties: The State of OHIO et al., Plaintiffs–Appellants, v. UNITED STATES of America et al., Defendants–Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

849 F.3d 313

The State of OHIO et al., Plaintiffs–Appellants,

v.UNITED STATES of America et al., Defendants–Appellees.

No. 16-3093

United States Court of Appeals, Sixth Circuit.

Argued: September 27, 2016

Decided and Filed: February 17, 2017

Rehearing En Banc Denied May 26, 2017^*

ARGUED: Frederick D. Nelson, OFFICE OF THE OHIO ATTORNEY GENERAL, Columbus, Ohio, for Appellants. Alisa B. Klein, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellees. ON BRIEF: Frederick D. Nelson, Eric E. Murphy, Peter T. Reed, OFFICE OF THE OHIO ATTORNEY GENERAL, Columbus, Ohio, David P. Fornshell, WARREN COUNTY PROSECUTOR, Lebanon, Ohio, Stuart Kyle Duncan, SCHAERR | DUNCAN LLP, Washington, D.C., for Appellants. Alisa B. Klein, Mark B. Stern, Samantha L. Chaifetz, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellees. Jeffrey A. Chanay, OFFICE OF THE KANSAS ATTORNEY GENERAL, Topeka, Kansas, for Amicus Curiae.

Before: COLE, Chief Judge; DAUGHTREY and MOORE, Circuit Judges.

OPINION

KAREN NELSON MOORE, Circuit Judge.

This case involves a novel challenge to the Patient Protection and Affordable Care Act ("Affordable Care Act" or "ACA"), and presents us with the question of whether one of the ACA's tax provisions applies to state government employers with the same force that it applies to private employers. Plaintiffs–Appellants the State of Ohio and several of its political subdivisions and public universities ("Ohio" or the "State") filed suit against, inter alia, the United States Department of Health and Human Services ("HHS"), alleging that the Federal Government illegally collected certain monies from the State in order to supplement the Affordable Care Act's Transitional Reinsurance Program ("Program"). Arguing that the Program's mandatory payment scheme applies only to private employers and not to state and local government employers, Ohio sought a refund of all payments made on its behalf and a declaration that the Program would not apply to the State in the future. Ohio also argued that application of the Program against the State violated the Tenth Amendment to the United States Constitution and principles of intergovernmental tax immunity. The district court, in a thorough and reasoned opinion, granted a motion to dismiss filed by the United States, and denied a motion for summary judgment filed by Ohio. The district court concluded that the Program applies to state and local government employers just as it applies to private employers, and that the Program as applied to Ohio does not violate the Tenth Amendment. For the reasons stated below, we AFFIRM .

I. BACKGROUND

Congress enacted the Affordable Care Act in 2010 to address concerns regarding nationwide access to affordable, quality healthcare. King v. Burwell , –––U.S. ––––, 135 S.Ct. 2480, 2485–86, 192 L.Ed.2d 483 (2015) ("The Patient Protection and Affordable Care Act adopts a series of interlocking reforms designed to expand coverage in the individual health insurance market."). Among the ACA's provisions are (1) a tax credit to help individuals purchase health insurance through public healthcare Exchanges; (2) a ban on insurers considering an individual's health when deciding whether to provide insurance or in setting the premium; and (3) a requirement that each individual maintain insurance coverage or remit payment to the Internal Revenue Service. Id. at 2486–87. While many of the ACA's requirements have been the subject of widespread litigation and controversy, this case revolves around a lesser-known provision, the Transitional Reinsurance Program. See 42 U.S.C. § 18061. The Program is a premium-stabilization arrangement that aims to combat volatility in the individual market by collecting payments from "health insurance issuers" and "group health plans" and distributing those payments over a three-year period to health insurance issuers that cover high-risk individuals in the individual market. See Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2014 (Final Rule), 78 Fed. Reg. 15,410, 15,411 (Mar. 11, 2013) ("The Affordable Care Act establishes ... a transitional reinsurance program ... to provide payments to health insurance issuers that cover higher-risk populations and to more evenly spread the financial risk borne by issuers."). Specifically, the ACA mandates that:

(1) In general

In establishing the Federal standards under section 18041(a) of this title, the Secretary, in consultation with the National Association of Insurance Commissioners (the "NAIC"), shall include provisions that enable States to establish and maintain a program under which—

(A) health insurance issuers, and third party administrators on behalf of group health plans, are required to make payments to an applicable reinsurance entity for any plan year beginning in the 3–year period beginning January 1, 2014 (as specified in paragraph (3)[ ) ], and

(B) the applicable reinsurance entity collects payments under subparagraph (A) and uses amounts so collected to make reinsurance payments to health insurance issuers described in subparagraph (A) that cover high risk individuals in the individual market (excluding grandfathered health plans) for any plan year beginning in such 3–year period.

42 U.S.C. § 18061(b)(1) (footnote omitted); see also id . § 18041(a)(1)(C), (c)(1) (providing that HHS may establish reinsurance programs for states that decline to do so). Ohio's reinsurance program is operated by HHS.

The State of Ohio and several of its political subdivisions have paid contributions (totaling approximately $5.4 million for benefit year 2014) to the Program under protest. Additionally, four state universities that have joined Ohio in this suit (University of Akron, Shawnee State University, Bowling Green State University, and Youngstown State University) have paid nearly $765,000 to the Program. R. 13 (Am. Compl. at 9–13) (Page ID #67–71).

Of the approximately $25 billion in revenue that is expected to be generated from the Program, $20 billion is paid to certain health insurance providers to supplement those providers covering high-risk individuals. 42 U.S.C. § 18061(b)(3)(B)(ii). The remaining five billion dollars are "deposited into the general fund of the Treasury of the United States and may not be used" for the Program. Id. §§ 18061(b)(3)(B)(iii), (iv), and (b)(4).

The term "health insurance issuer" as it applies to the transitional reinsurance program,

means an insurance company, insurance service, or insurance organization (including a health maintenance organization, as defined in paragraph (3)) which is licensed to engage in the business of insurance in a State and which is subject to State law which regulates insurance (within the meaning of section 514(b)(2) of the Employee Retirement Income Security Act of 1974 [29 U.S.C.A. § 1144(b)(2) ]. Such term does not include a group health plan.

42 U.S.C.A. § 300gg–91(b)(2). The term "group health plan,"

means an employee welfare benefit plan (as defined in section 3(1) of the Employee Retirement Income Security Act of 1974 [29 U.S.C.A. § 1002(1) ] ) to the extent that the plan provides medical care (as defined in paragraph (2)) and including items and services paid for as medical care) to employees or their dependents (as defined under the terms of the plan) directly or through insurance, reimbursement, or otherwise.

42 U.S.C.A. § 300gg–91(a)(1). The amount owed by each health insurance issuer and group health plan is determined by multiplying enrollment count (as self-reported by each required entity) by a previously determined contribution rate for each applicable benefit year. 45 C.F.R. § 153.405(a).

On January 26, 2015, Plaintiffs (State of Ohio; Warren County, Ohio; The Ohio Department of Administrative Services; University of Akron; Shawnee State University; Bowling Green State University; and Youngstown State University) filed this action against the United States, HHS, and the Secretary of HHS in her official capacity. R. 1 (Compl.) (Page ID #1). On February 13, 2015, Plaintiffs filed an Amended Complaint adding Plaintiff Ohio Turnpike and Infrastructure Commission. R. 13. (Am. Compl.) (Page ID #58). The Amended Complaint alleges that:

1. The United States illegally or erroneously assessed or collected tax revenue from Plaintiffs;

2. The Secretary's interpretation of group health plans is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law; and

3. Defendants collected tax revenues in violation of the Tenth Amendment to the United States Constitution, anti-commandeering principles, and the Intergovernmental Tax Immunity Doctrine.

R. 13 (Am. Compl. at 14–18) (Page ID #72–76). On March 25, 2015, the United States District Court for the Southern District of Ohio issued a scheduling order memorializing the parties' agreement to forgo discovery and submit the case on motions. R. 16 (Sched. Order) (Page ID #85). Defendants filed a motion to dismiss for failure to state a claim on April 10, 2015. R. 17 (Mot. to Dismiss) (Page ID #86). Plaintiffs filed a motion for summary judgment and a memorandum in opposition to Defendants' motion to dismiss on May 15, 2015. R. 18 (Mot. for S. J. and Opp. to Mot. to Dismiss) (Page ID #114). Defendants filed a response in opposition to the motion for summary judgment and in reply in support of their motion to dismiss on July 2, 2015. R. 21 (Def. Resp. in Opp. to Mot. for S. J. and Reply in Support of Mot. to Dismiss) (Page ID #189). Plaintiffs filed a reply in support of their motion for summary judgment and a memorandum in opposition to Defendants' motion to dismiss on August 4, 2015. R. 22 (Plaintiffs' Reply in Support of Mot. for S. J. and in Opp. to Mot. to Dismiss) (Page ID #223). The district court held a hearing on the motions on December 22, 2015.

On January 5, 2016, the district court granted Defendants' motion to dismiss for failure to state a claim and denied Plaintiffs' motion for summary judgment....