On July 1, 2016, in the case of Central United Life Insurance Company v. Burwell (No. 15-5310), the US Court of Appeals for the District of Columbia Circuit ruled that the US Department of Health and Human Services (HHS) exceeded its authority when it announced its plan “to amend the criteria for fixed indemnity insurance to be treated as “excepted benefits” under the Public Health Services Act (PHSA).” The HHS rule, which provided that fixed indemnity coverage may only be offered to individuals who have minimum essential coverage, was permanently enjoined by the District Court , and that injunction was affirmed by the Court of Appeals.

The Patient Protection and Affordable Care Act of 2010 (ACA), among other things, updated the PHSA's coverage requirements and mandated that all applicable individuals maintain “minimum essential coverage.” Despite the ACA’s sweeping reforms to the health insurance market, it left intact and incorporated the PHSA’s rules regarding excepted benefits, specifically stating that the term “minimum essential coverage” does not include the excepted benefits described in the PHSA.

In May 2014, HHS announced its plan “to amend the criteria for fixed indemnity insurance to be treated as an excepted benefit” in the individual health insurance market. In addition to the requirements codified in the PHSA, HHS added another. To be an “excepted benefit” HHS required that fixed indemnity coverage be “provided only to individuals who have minimum essential coverage.” The very nature of fixed indemnity insurance, however, renders such plans incapable of satisfying those requirements, so this new rule effectively eliminated standalone fixed indemnity plans altogether.”

Where Congress exempted all such conforming excepted benefit plans from the PHSA’s coverage requirements, HHS, with this additional criterion, exempts less than all. THE PHSA lists only certain defined criteria for a fixed indemnity plan to have excepted benefits status. So long as these conditions are met, the plan qualifies as an excepted benefit. The Court found that “disagreeing with Congress’s expressly codified policy choices isn’t a luxury administrative agencies enjoy. Nothing in the PHSA suggests Congress left any leeway for HHS to tack on additional criteria to the statutory requirements applicable to fixed indemnity coverage.”

The Court found that HHS’s rule misreads the PHSA, which only requires that fixed indemnity plans be offered as independent and noncoordinated benefits. “Because HHS lacked authority to demand more of fixed indemnity providers than Congress required, the District Court’s injunction against the HHS rule regarding fixed indemnity coverage is affirmed.”

We'll be watching this space to see which health insurers will try to take advantage of this ruling, and the reaction/reception they will receive from HHS and state regulators.