States Take Aim At Health Insurance Providers Fee In New Litigation

courtIs another case related to the Affordable Care Act en route to the Supreme Court docket?

By Lynsey Mitchel and Rachel Landauer on November 2, 2015Posted in Centers for Medicare and Medicaid Services (“CMS”), Medicare

Three states—Kansas, Louisiana and Texas—filed a complaint in federal court on October 22, 2015 challenging the constitutionality and legality of the Affordable Care Act’s health insurance providers fee.[1]

The health insurance providers fee is an annual fee imposed on various health insurance issuers.[2] Regulation establishes an aggregate amount to be collected each year. (The total for the 2015 fee year, for example, is $11.3 billion.) The fee owed by a given entity is based on the ratio of its net premiums written for insurance of U.S. health risks during a data year to the aggregate net premiums written for insurance of U.S. health risks of all covered entities in the same period. Covered entities generally include companies licensed to provide insurance under state laws, health maintenance organizations and, most relevant to the lawsuit, entities providing health insurance under Medicare, Medicaid and the Children’s Health Insurance Program (CHIP).

Standards adopted by the Centers for Medicare and Medicaid Services identify an actuarially sound capitation rate for a Medicaid managed care organization as one that reflects the fee and, since the fee is not tax deductible, tax amounts the organization will pay on the fee.[3] Therein arises the controversy. In states contracting with managed care organizations to provide Medicaid and CHIP—states such as Kansas, Louisiana and Texas—a portion of the fee burden thereby falls on the state.

The plaintiffs contend that the health insurance providers fee is unconstitutional and illegal on a number of grounds. Among them is the argument that the fee is an unconstitutionally coercive exercise of Congressional power. Capitation rates that do not take into account the fee are not certifiable as actuarially sound and, therefore, state payments to the managed care entities are ineligible for federal matching funds. Yet the federal portion of the states’ Medicaid budgets is substantial. In Texas, for example, federal Medicaid funds represented approximately 17% of the total state budget for 2015. The plaintiffs also argue that the federal government’s reliance on actuarial standards published by the American Academy of Actuaries comprises an unconstitutional delegation of rulemaking authority to a private entity.

As to relief, the states seek declaratory judgment in their favor, a refund of fee amounts already paid and an injunction enjoining the federal government from (a) collecting the fee from states or Medicaid and CHIP managed care organizations and (b) denying Medicaid and CHIP funds following a refusal to pay the fee.

Is another case related to the Affordable Care Act en route to the Supreme Court docket? Will the government proffer a resolution? Exemption from the fee provision already exists for some entities, such as certain non-profit corporations. At the time this post was written the defendants—the United States of America, the Department of Health and Human Services, the Internal Revenue Service, and Sylvia Burwell and John Koskinen in their official capacities—had not filed an answer; It is too early to predict how the challenge will proceed from among the many potential outcomes.


[1] The Complaint is available here.

[2] The fee was enacted as § 9010 of the Affordable Care Act.

[3] This practice was recently set forth in actuarial standard of practice No. 49, Medicaid Managed Care Capitation Rate Development and Certification, published by the Actuarial Standards Board in March 2015.