Transitional Reinsurance Ruling May Hinge on Term Definition

The Bloomberg BNA Tax Management Weekly State Tax Report filters through current state developments and analyzes those critical to multistate tax planning.

By Christopher Brown

Sept. 29 — The definition of “group health plan” makes it clear that the transitional reinsurance tax imposed on health insurers under the Affordable Care Act doesn't apply to health plans set up by state and local governments, the state of Ohio told the Sixth Circuit in oral arguments ( Ohio v. United States, 6th Cir., No. 16-3093, oral arguments 9/27/16 ).

The case turns on a matter of straightforward statutory interpretation, said Frederick Nelson, who represented the state, two state agencies, Warren County and five public universities.

Nelson, director of major litigation for the office of Ohio Attorney General Mike DeWine, explained that the statute creating the Transitional Reinsurance Program refers to the Employment Retirement Income Security Act (ERISA) for its definition of “group health plan,” the entities subject to the transitional reinsurance tax. He added that ERISA’s language doesn't include any terms that would encompass the state of Ohio or other governmental entities that are plaintiffs in the lawsuit.

“By its direct terms, ERISA’s listing of covered entities does not cover the government,” Nelson told the court. “Given that language, and the deliberate omission of government from the list of definitions, it would be improper to conclude that what Congress omitted should be included.”

ERISA vs. Public Health Law

The Sixth Circuit is reviewing a district court's January ruling that upheld the constitutionality of the program on the grounds that it regulates public entities in their capacity as employers. The ruling also rejected the public employers' argument that coverage they provided to their workers didn't qualify as a “group health plan” and should be absolved from contributions to the Transitional Reinsurance Program.

The transitional reinsurance tax, as applied to public employers, violates both the anti-commandeering and intergovernmental tax immunity doctrines under the Tenth Amendment, according to Ohio’s challenge of the ACA provision. Ohio seeks to reverse a lower court ruling upholding the tax, as well as a refund of all monies collected by the Department of Health and Human Services (HHS) (2016 Weekly State Tax Report 34, 7/1/16).

Alisa B. Klein, an appellate attorney in the civil division of the Department of Justice, raised the district court opinion at several points, noting that the lower court worked its way through various chains of definitions and provisions of ERISA to show that an employee benefit plan encompasses health plans set up by state or local governments. “Employee benefit plan” is the term that links ERISA to the definitions in the Transitional Reinsurance Program.

But the real starting point of the analysis is the Public Health Service Act rather than ERISA, Klein said.

Encompassing Government Employers

“There’s no disputing that the meaning of group health plan in Title 1 of the Affordable Care Act (ACA), including the Transitional Reinsurance Program, has the same meaning that it has long had under the Public Health Service Act (PHSA),” she said. And it’s been clear for at least 20 years “ that the term ‘group health plan,' which is an umbrella term, includes not only health plans offered by private employers, but by state and local governments and the federal government.”

In effect, Title 1 of ACA says that the term “group health plan” has the same meaning in the Transitional Reinsurance Program that it has under PHSA, Klein said.

“You can tell just from looking at PHSA, from a whole series of provisions, that a non-federal governmental plan, another term for a state and local government plan, is a group health plan,” she added. “ERISA can’t change that, and it’s clear from PHSA alone that the term group health plan covers state and local governments.”

Effects on ACA

Nelson and Klein also disagreed on the impact of exempting state and local governments from the Transitional Reinsurance Program on the rest of the Affordable Care Act, including such “big ticket items” as guaranteed issue, community rating, preventive care requirements and coverage for adult children up to the age of 26.

Nelson said that Congress knew what it was doing when it chose to exclude state and local governments from the Transitional Reinsurance Program and incorporated language distinguishing their obligations throughout various ACA sections and provisions.

“The district court listed provisions, just as the Department of Health and Human Services has done, that would be implicated by our argument,” he said. “But what we have pointed out with regard to those so-called key provisions, which certainly do apply against state entities,” is that the statute says that those provisions “shall apply” to non-federal government plans.

But Klein said that the district court was correct in finding that an exemption for state and local governments would have “enormous implications” for the rest of ACA.

“Congress, when it reorganized PHSA as part of ACA, took great care to prevent states from opting out of the landmark reforms of ACA,” she said. “As the district court explained in great detail, that careful codification would be undermined if the court were to say that a state or local plan is not a group health plan in the first instance.”

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To contact the editor responsible for this story: Ryan C. Tuck at

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