UnitedHealthcare of N.Y., Inc. v. Vullo, 17-CV-7694 (JGK)

• Decision Date: 11 August 2018
• Docket Number: 17-CV-7694 (JGK)
• Citation: 323 F.Supp.3d 470
• Parties: UNITEDHEALTHCARE OF NEW YORK, INC., et al., Plaintiffs, v. Maria T. VULLO, in her official capacity as Superintendent of Financial Services of the State of New York, Defendant.
• Court: U.S. District Court — Southern District of New York

323 F.Supp.3d 470

UNITEDHEALTHCARE OF NEW YORK, INC., et al., Plaintiffs,

v.Maria T. VULLO, in her official capacity as Superintendent of Financial Services of the State of New York, Defendant.

17-CV-7694 (JGK)

United States District Court, S.D. New York.

Filed August 10, 2018

Signed August 11, 2018

Steven Rosenbaum, Jon-Michael Dougherty, Covington & Burling, LLP, Washington, DC, for Plaintiffs.

Kelly Lynn Munkwitz, C. Harris Dague, New York State Office of Attorney General, Albany, NY, Christine Anne Ryan, David Stannard O'Loughlin, Office of The Attorney General of The State of New York, New York, NY, for Defendant.

OPINION & ORDER

JOHN G. KOELTL, District Judge:

The plaintiffs, UnitedHealthcare of New York and Oxford Health Insurance, Inc., bring this action against the defendant, Maria T. Vullo, the Superintendent of Financial Services of the State of New York. This case involves the interplay between a proposed risk adjustment program by the New York State Superintendent of Financial Services for individual and small group insurance markets in New York State, and a federal risk adjustment program under the Affordable Care Act (the "ACA"). A risk adjustment program attempts to balance risks to insurers by requiring insurers with less risky groups of insureds to contribute to a pool to assist insurers with more risky pools. The plaintiffs contend that some of the funds awarded to them by the federal program will be taken away to assist other insurers in New York State because of specific New York State considerations. They contend that the New York State program is therefore preempted by the federal program and constitutes and unconstitutional taking and illegal exaction of their property in violation of the Fifth and Fourteenth Amendments and 42 U.S.C. § 1983. The defendant moves to dismiss the complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). The plaintiffs have moved for summary judgment.

I.

In defending a motion to dismiss for lack of subject matter jurisdiction pursuant to Rule 12(b)(1), the plaintiffs bear the burden of proving the Court's jurisdiction by a preponderance of the evidence. Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000). In considering such a motion, the Court generally must accept the material factual allegations in the Complaint as true. See J.S. ex rel. N.S. v. Attica Cent. Sch., 386 F.3d 107, 110 (2d Cir. 2004). The Court does not, however, draw all reasonable inferences in the plaintiffs' favor. Id.; Graubart v. Jazz Images, Inc., No. 02-cv-4645, 2006 WL 1140724, at *2 (S.D.N.Y. Apr. 27, 2006). Indeed, where jurisdictional facts are disputed, the Court has the power and the obligation to consider matters outside the pleadings, such as affidavits, documents, and testimony, to determine whether jurisdiction exists. See APWU v. Potter, 343 F.3d 619, 627 (2d Cir. 2003) ; Filetech S.A. v. France Telecom S.A., 157 F.3d 922, 932 (2d Cir. 1998) ; Kamen v. Am. Tel, & Tel. Co., 791 F.2d 1006, 1011 (2d Cir. 1986). In doing so, the Court is guided by that body of decisional law that has developed under Federal Rule of Civil Procedure 56. Kamen, 791 F.2d at 1011 ; see also Donelli v. Cty. of Sullivan, No. 07-cv-2157 (JGK), 2009 WL 2365551, at *1 (S.D.N.Y. July 31, 2009).

On a motion to dismiss pursuant to Rule 12(b)(6), the allegations in the complaint are accepted as true. Grandon v. Merrill Lynch & Co., 147 F.3d 184, 188 (2d Cir. 1998). In deciding a motion to dismiss pursuant to Rule 12(b)(6), all reasonable inferences must be drawn in the plaintiffs' favor. Gant v. Wallingford Bd. of Educ., 69 F.3d 669, 673 (2d Cir. 1995) ; Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989). The Court's function on a motion to dismiss is "not to weigh the evidence that might be presented at a trial but merely to determine whether the complaint itself is legally sufficient." Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985). The Court should not dismiss the complaint if the plaintiffs have stated "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). "A claim has facial plausibility when the plaintiff[s] plead[ ] factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). While the Court should construe the factual allegations in the light most favorable to the plaintiff, "the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions." Id. When presented with a motion to dismiss pursuant to Rule 12(b) (6), the Court may consider documents that are referenced in the complaint, documents that the plaintiffs relied on in bringing suit and that are either in the plaintiffs' possession or that the plaintiffs knew of when bringing suit, or matters of which judicial notice may be taken. See Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002).

II.

The following facts are taken from the plaintiffs' complaint and from public documents of which the Court can take judicial notice. The facts alleged in the complaint are accepted as true for purposes of the defendant's motion.

This case concerns the interaction of two government programs that were developed to regulate the health insurance market. One program was authorized by New York State and implemented by the defendant, Superintendent Vullo. The second program was authorized by the federal government and is implemented by two agencies of the federal government, the Department of Health and Human Services ("HHS") and the Centers for Medicare and Medicaid Services ("CMS"). The plaintiffs' claims in this case concern the interaction of the state program with the federal program.

Both the state and federal programs are "risk adjustment" programs that operate in the health insurance market. The purpose of a risk adjustment program is "to encourage insurers to compete for enrollees' business based on the value and efficiency of an insurer's particular health insurance plan, rather than only competing for the healthiest enrollees." Compl. ¶ 27. Risk adjustment programs fulfill this purpose by requiring insurers with enrollees who are healthier than the state-covered average in a given plan year to make payments into a common fund. Compl. ¶ 28. Those funds are then transferred to insurers that incurred higher claim costs due to having enrollees who are sicker than the state-covered average in that same plan year. Compl. ¶ 28. This system eliminates an insurer's incentive to seek to cover only the healthiest individuals, because such an insurer will be required to pay into the fund if its overall population of insureds is healthier than the state average. Various methodologies are employed by risk adjustment programs to determine which insurance companies must pay into the fund and which insurance companies are owed money from the fund in any given plan year.

In 1992, New York State enacted a law that required the Superintendent of the Department of Financial Services to promulgate regulations creating New York-specific risk adjustment pools. N.Y. Insurance Law § 3233. In accordance with this mandate, on March 9, 1993, the Superintendent adopted regulations creating a risk adjustment program for the individual and small group health insurance markets in New York. 11 NYCRR Part 361. From 1993 through 2013, the Superintendent administered this risk adjustment program in New York in the small and individual group insurance markets.

The ACA was enacted in 2010 and made fully operational on January 1, 2014. Compl. ¶ 19. The ACA is administered by HHS and CMS. Compl. ¶ 21. One feature of the ACA was the development of a federal risk adjustment program (the "FRAP"), which the ACA authorized HHS to develop. 42 U.S.C. § 18063. In accordance with this mandate, HHS promulgated regulations establishing the FRAP and rules that would govern the FRAP's administration. 45 C.F.R. § 153.310. Under these regulations, States can choose whether to administer the FRAP themselves or elect to have HHS administer the FRAP on their behalf. 45 C.F.R. § 153.310(a)(3) & (4). If a State elects to administer the FRAP itself, the State must comply with various requirements set forth in the regulation. 45 C.F.R. § 153.310(c) & (d). New York State opted to have HHS implement the FRAP on Its behalf. Compl. ¶ 45. HHS therefore operates the FRAP in New York. Compl. ¶ 45.

HHS developed the risk adjustment methodology to be applied under the FRAP. The methodology determines which insurance companies owe money into the program and which companies are owed money from the program in any given plan year. Compl. ¶ 46. The final risk adjustment methodology is "detailed and complex" and has been amended by HHS over time. Compl. ¶ 46. HHS uses data provided by the insurers to calculate the amount of the payments. Compl. ¶ 47.

On May 11, 2016, HHS published an interim final rule that addressed the implementation of the FRAP. 81 Fed. Reg. 29146. With respect to risk adjustment, the rule noted:

Based on our experience operating the 2014 benefit year risk adjustment program, HHS has become aware that certain issuers, including some new, rapidly growing, and smaller issuers, owed substantial risk adjustment charges that they did not anticipate. HHS has had a number of discussions with issuers and State regulators on ways to help ease issuers' transition to the new health insurance markets and the effects of unanticipated risk adjustment charge amounts. We believe that a robust risk adjustment program that addresses new market dynamics due to rating reforms and guaranteed issue is critical to the proper functioning of these new markets. However, we are sympathetic to these concerns and recognize that States are the primary regulators of their insurance markets. We encourage

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