UnitedHealthcare of N.Y., Inc. v. Lacewell
| Decision Date | 20 July 2020 |
| Docket Number | Docket No. 18-2583-cv,August Term, 2018 |
| Citation | 967 F.3d 82 |
| Parties | UNITEDHEALTHCARE OF NEW YORK, INC., Oxford Health Insurance, Inc., Plaintiffs-Appellants, v. Linda A. LACEWELL, in Her Official Capacity as Superintendent of Financial Services of the State of New York, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Second Circuit |
Neal Kumal Katyal, Hogan Lovells US LLP (Eugene A. Sokoloff, Hogan Lovells US LLP, Steven Rosenbaum, Covington & Burling LLP, on the brief), Washington, D.C., for Plaintiffs-Appellants UnitedHealthcare of New York, Inc. and Oxford Health Insurance, Inc.
Steven C. Wu, Deputy Solicitor General (Matthew W. Grieco, Assistant Solicitor General of Counsel, on the brief), for Letitia James, Attorney General, State of New York, New York, NY, for Defendant-Appellee Linda A. Lacewell, Superintendent of Financial Services of the State of New York.
Before: POOLER, LOHIER, and CARNEY, Circuit Judges.
The Patient Protection and Affordable Care Act (ACA) was designed to expand coverage in individual health insurance markets nationwide. See Pub. L. No. 111-148, 124 Stat. 119 (2010), amended by the Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152, 124 Stat. 1029 (2010). The ACA directed the United States Department of Health and Human Services (HHS), which administers the ACA, to issue regulations that establish standards and a federal methodology for a risk adjustment program. Under the federal program, amounts collected from insurers whose plans have lower-risk enrollees (that is, enrollees who are healthier than average) are used to fund payments to insurers whose plans have higher-risk enrollees. See 42 U.S.C. § 18041(a) ; id. § 18063.
The plaintiffs UnitedHealthcare of New York and Oxford Health Insurance are healthcare insurers in the New York insurance market that expected to receive significant payments in 2017 using the federal risk adjustment program. The plaintiffs challenged an emergency regulation promulgated in 2017 by New York's Superintendent of the Department of Financial Services (DFS) that would significantly reduce the amount of risk adjustment funding to which they are entitled in 2017 and subsequent years using HHS's federal methodology. The plaintiffs principally argue that the New York regulation is preempted by the ACA's risk adjustment provisions and HHS's implementing regulations requiring, among other things, that any deviation by a State from the federal risk adjustment methodology must be approved by HHS.1
The primary question on appeal is whether New York's emergency regulation was preempted by the ACA and HHS's regulations, or whether it was approved by HHS as required under § 1321(b) of the ACA, 42 U.S.C. § 18041(b), and HHS's risk adjustment regulations, 45 C.F.R. § 153.320(a). The United States District Court for the Southern District of New York (Koeltl, J.) held that the emergency regulation was not preempted, and it therefore denied the plaintiffs’ motion for summary judgment and dismissed their complaint. We granted the plaintiffs’ motion to enjoin enforcement of the New York regulation pending appeal. After receiving the views of HHS relating to its regulations and approval process, we reverse the District Court's judgment and remand with instructions to grant the plaintiffs’ motion for summary judgment as to the claim of preemption. In doing so, we recognize that the very able and distinguished District Judge unsuccessfully sought HHS's views regarding this dispositive question. We also vacate the District Court's dismissal of the plaintiffs’ remaining claims under the Takings Clause of the Fifth Amendment and remand for further proceedings as to those claims.
In 2010 Congress directed the Secretary of HHS to "issue regulations setting standards" for "the establishment of ... risk adjustment programs," 42 U.S.C. § 18041(a)(1), (a)(1)(C), and to "establish criteria and methods to be used in carrying out ... risk adjustment activities," 42 U.S.C. § 18063(b). In general, risk adjustment in health insurance markets is designed to "foster a stable marketplace" by "provid[ing] payments to health insurance issuers that cover higher-risk populations and to more evenly spread the financial risk borne by issuers."2 Standards Related to Reinsurance, Risk Corridors and Risk Adjustment, 76 Fed. Reg. 41,930, 41,931 (proposed July 15, 2011) [hereinafter "Proposed Standards"]. The ACA therefore mandates 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 ... is less than the average actuarial risk of all enrollees in all plans or coverage in [the] State." 42 U.S.C. § 18063(a)(1) (emphases added). In turn, "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 ... is greater than the average actuarial risk of all enrollees in all plans and coverage" in the State. Id. § 18063(a)(2) (emphases added). Finally, § 1321 of the ACA provides that "[n]othing in this title shall be construed to preempt any State law that does not prevent the application of the provisions of this title." Id. § 18041(d).
In 2012 HHS promulgated regulations for establishing risk adjustment methodologies and programs in the individual and small-group health insurance markets. The regulations define "risk adjustment methodology" as "the risk adjustment model, the calculation of plan average actuarial risk, the calculation of payments and charges, the risk adjustment data collection approach, and the schedule for the risk adjustment program." 45 C.F.R. § 153.20 ; see Standards Related to Reinsurance, Risk Corridors and Risk Adjustment, 77 Fed. Reg. 17,220, 17,246 (Mar. 23, 2012) [hereinafter "2012 Standards"]. The regulations provide that "[a]ny risk adjustment methodology used by a State, or HHS on behalf of the State, must be a Federally certified risk adjustment methodology." 45 C.F.R. § 153.320(a) ; see 2012 Standards, 77 Fed. Reg. at 17,249. A risk adjustment methodology can become "Federally certified" in one of two ways: it can be "developed by HHS" or "submitted by a State ... [and] reviewed and certified by HHS."3 45 C.F.R. § 153.320(a)(1)–(2) ; see 2012 Standards, 77 Fed. Reg. at 17,249. Our principal focus in this case is on the latter process for federal certification or approval.
The approval process has a regulatory history stretching back roughly nine years. When HHS first proposed its risk adjustment regulations in 2011, it "interpret[ed] the statutory provision regarding the Secretary's establishment of criteria and methods for risk adjustment ... to require substantive Federal oversight of the risk adjustment process." Proposed Standards, 76 Fed. Reg. at 41,939 (emphasis added). HHS explained that States would be allowed "to utilize alternate risk adjustment methodologies," but made clear that "States taking advantage of this flexibility must submit their proposed alternate risk adjustment methodologies for HHS review and certification." Id. Under the 2012 regulations described above, a State can either operate its own risk adjustment program or let HHS operate the program on its behalf. Any State that elects to operate its own risk adjustment program must apply to HHS for permission to do so. See 45 C.F.R. § 153.310(d). A State that declines to operate its own risk adjustment program, by contrast, "forgo[es] implementation of all State [risk adjustment] functions" under the ACA. Id. § 153.310(a)(2)–(4). In promulgating the 2012 regulations, HHS reaffirmed that States that "wish[ed] to deviate from" the federal risk adjustment methodology developed by HHS would have to "submit an alternate methodology to HHS for approval." 2012 Standards, 77 Fed. Reg. at 17,232.
In 2016 HHS again "encourage[d] States to examine whether any local approaches, under State legal authority, [were] warranted to help ease th[e] transition to new health insurance markets." Amendments to Consumer Operated and Oriented Plan Program (Interim Final Rule), 81 Fed. Reg. 29,146, 29,152 (May 11, 2016). HHS later that year "reiterate[d] that States in which HHS is operating its risk adjustment methodology are not permitted to modify the methodology, but that States may take temporary, reasonable measures under State authority to mitigate effects under their own authority." Amendments to Consumer Operated and Oriented Plan Program (Final Rule), 81 Fed. Reg. 94,058, 94,159 (Dec. 22, 2016). Similarly, in 2017 HHS proposed a new risk-payment-reduction rule that would "tailor the risk adjustment methodology to particularities of reduced risk selection in a State's small group market" by "permit[ting] States’ primary insurance regulators to request a percentage adjustment in the calculation of the risk adjustment transfer amounts in the small group market in their State." HHS Notice of Benefit and Payment Parameters (Proposed Rule), 82 Fed. Reg. 51,052, 51,073 (proposed Nov. 2, 2017) [hereinafter " Proposed Rule"]. In announcing the proposed rule, HHS recognized that its risk adjustment methodology, "which is calibrated on a national dataset, may in some circumstances, overcompensate for risk differences in the small group market for [a] particular State." Id. "In such cases," HHS emphasized, "States have the statutory authority to operate their own State risk adjustment program," but only "under a Federally-certified alternate risk adjustment methodology as they deem fit." Id. (emphasis added).
Likewise, in April 2018, after a notice and comment period, HHS promulgated a new regulation that allowed States to request reductions in "risk adjustment transfers ... by up to 50 percent in States...
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