966 F.3d 782
D.C. Cir.2020Background
- HIPAA (1996) excluded “short-term limited duration insurance” (STLDI) from the statutory definition of "individual health insurance coverage," and the Departments historically defined STLDI as policies with initial terms under 12 months (with insurer consent renewals).
- The ACA (2010) incorporated HIPAA’s definition, so STLDI remained exempt from many ACA requirements (guaranteed issue, community rating, essential health benefits).
- In 2016 the Departments tightened the definition, capping STLDI at under 3 months (to deter its use as primary coverage and limit adverse selection); insurers nonetheless marketed year‑round coverage via serial short contracts.
- In 2018 the Departments reversed course, defining STLDI as plans with an initial term under 1 year and maximum duration (including renewals) of 3 years, plus enhanced disclosure requirements, citing goals of expanding affordable options and choice.
- ACAP challenged the 2018 Rule as contrary to law and arbitrary and capricious; the district court granted the Departments summary judgment and the D.C. Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Departments’ STLDI definition violates HIPAA/ACA text (Chevron step) | Rule contradicts plain meaning of “short‑term” (must be meaningfully shorter than annual) and ACA’s “short coverage gaps” (less than 3 months) | Term is ambiguous; agency’s construction (initial <1 year; total ≤3 years) is a permissible interpretation entitled to Chevron deference | Court: ambiguous term; defers to Departments as a reasonable construction under Chevron (rule upheld) |
| Whether the Rule is inconsistent with ACA’s structure (creates a parallel market and destabilizes Exchanges) | Rule undermines ACA’s interlocking reforms (essential benefits, guaranteed issue, single risk pool), drawing healthy enrollees out and raising premiums | ACA itself exempts STLDI; agencies reasonably balanced competing goals and predicted only modest premium effects, largely blunted by subsidies | Court: STLDI exception is statutory; Rule consistent with ACA structure and predictions of modest market impact are reasonable |
| Whether the change from the 2016 Rule to the 2018 Rule was arbitrary and capricious under the APA | Departments failed to adequately consider Exchange impacts, coverage gaps, and offered insufficient reason for reversing the 2016 Rule | Agencies explained the empirical basis for change, considered harms and benefits, and adopted disclosures to mitigate risks; reasonable policy judgment | Court: change adequately explained and justified; not arbitrary or capricious |
| Interpretation of “limited duration” and renewal limits; relevance of ACA’s 3‑month "short coverage gaps" | "Limited duration" means nonrenewable; ACA’s 3‑month gap provision controls meaning of "short" | No implicit repeal/amendment of HIPAA by ACA; ‘‘short‑term’’ and ‘‘limited duration’’ can have distinct, reasonable meanings; three‑year cap aligns with other temporary continuations | Court: rejected plaintiff’s textual arguments; agencies reasonably gave independent meanings to terms and permissibly set the multi‑year limit |
Key Cases Cited
- Chevron USA, Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) (framework for deference to reasonable agency interpretations of ambiguous statutes)
- King v. Burwell, 135 S. Ct. 2480 (2015) (interpretation of ACA in light of Congress’s plan and market stability concerns)
- Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117 (2016) (agencies may change policy if they provide reasoned explanation)
- FCC v. Fox Television Stations, Inc., 556 U.S. 502 (2009) (agency need not show new policy is better, only reasoned explanation for change)
- Utility Air Regulatory Group v. EPA, 573 U.S. 302 (2014) (statutory interpretation must consider specific and broader statutory context)
- MCI Telecommunications Corp. v. American Tel. & Tel. Co., 512 U.S. 218 (1994) (agencies bound by statutory means Congress prescribed while pursuing statutory objectives)
- Louisiana Energy & Power Authority v. FERC, 141 F.3d 364 (D.C. Cir. 1998) (deference to reasonable agency predictions about regulatory impacts)
- Central United Life Insurance Co. v. Burwell, 827 F.3d 70 (D.C. Cir. 2016) (discussion of statutory exceptions and interpretation incorporated into ACA)