First Circuit Lets Challenge to ACA Contraceptives Rules Proceed; Other Health Plan Litigation Moves Forward

Practical Law Legal Update w-020-2590 (Approx. 6 pages)

First Circuit Lets Challenge to ACA Contraceptives Rules Proceed; Other Health Plan Litigation Moves Forward

by Practical Law Employee Benefits & Executive Compensation

Litigation Background

This ACA contraceptives dispute involves Trump Administration regulations that were issued by the Departments of Labor (DOL), Health and Human Services (HHS), and Treasury (collectively, Departments) in interim final form in October 2017, and finalized without significant change in November 2018 (final regulations). The final regulations:

Expanded the availability of a religious beliefs exemption under existing ACA guidance to any individual or nongovernmental entity.
Added an exemption for insurers and certain employers with moral objections to providing contraceptives coverage.

For analysis of the ACA's preventive health services and contraceptives rules, see:

Massachusetts brought suit in October 2017 to block enforcement of the interim final regulations, asserting that it would sustain financial harm and other injuries because of the regulations. In March 2018, however, a district court concluded that Massachusetts lacked standing to challenge the regulations because, among other reasons, it had not identified an employer that would use the expanded exemptions or at least one woman who would likely lose contraceptives coverage because of the rules (Massachusetts v. US Dep't of Health & Human Servs., 301 F. Supp. 3d 248 (D. Mass. 2018)). Massachusetts appealed.

In November 2018, the Departments finalized the regulations, with an effective date of January 14, 2019 (see Legal Update, Final Contraceptives Rules Include Religious and Moral Convictions Exemptions). Earlier this year, however, two district courts issued injunctions – one of them nationwide – blocking implementation of the final regulations (see Legal Update, Two District Courts Block Trump Administration's Final ACA Contraceptives Rules).

Outcome on Appeal to First Circuit

At issue in the appeal was whether Massachusetts had Article III standing to challenge the Trump Administration's ACA contraceptives regulations. Holding that it does, the First Circuit concluded that:

Massachusetts' substantive challenges to the regulations were not mooted by the Departments' issuance of the final regulations in November 2018 (though Massachusetts' procedural challenge to the interim final regulations was mooted).
Massachusetts established Article III standing to challenge the substance of the final regulations by demonstrating a sufficiently imminent fiscal injury under a traditional standing analysis.

Substantive and Procedural Mootness

The First Circuit concluded that the final regulations are sufficiently similar to the interim final versions of the regulations that Massachusetts' substantive challenges are not moot. (However, the court concluded that Massachusetts' procedural challenges, based on the Administrative Procedure Act (APA), were mooted because the Departments engaged in notice-and-comment rulemaking in finalizing the regulations.)

Article III Standing for Substantive Challenges

The First Circuit agreed with Massachusetts that it had standing based on imminent fiscal injury to the state resulting from the final regulations. Citing statistics from the Departments' regulatory impact analysis in implementing the contraceptives regulations, Massachusetts argued that it would incur costs because:

The regulations would cause women in the state to lose their contraceptives coverage.
Some women would then obtain state-funded contraceptives services or prenatal/postnatal care for unintended pregnancies (for example, through MassHealth – the state's Medicaid program).

The First Circuit also accepted Massachusetts' argument that some employers in the state would likely use the exemptions. In particular, Massachusetts argued that employers with self-funded health plans (which, under ERISA's preemption rules, are not subject to Massachusetts' requirements for insured health plans) would invoke the expanded exemptions available under the final regulations (see Practice Note, ERISA Litigation: Preemption of State Laws (Overview): Deemer Clause (Exception to the Saving Clause Exception) and ERISA Litigation Toolkit). In this regard, the First Circuit cited data – also from the Departments' regulatory impact analysis – that certain employers (for example, Hobby Lobby) that could formerly invoke the Departments' accommodations to the contraceptives rules would use the expanded exemptions instead (see Legal Update, Supreme Court Strikes Contraceptives Mandate as Applied to For-Profits with Religious Beliefs and Practice Note, Contraceptives Coverage Under the ACA: Accommodation for Nonprofit and Certain For-Profit Entities). The First Circuit also observed that births resulting from lack of access to contraceptives would likely result in significant costs to Massachusetts. (One statistic indicated that Massachusetts would incur more than $15,000 in maternity care and other health care for an unplanned birth in the first year of the child's life.)

Resolving the standing question in Massachusetts' favor, the First Circuit therefore vacated the district court's ruling and remanded for further proceedings.

Health Plan Litigation Round-Up

The Massachusetts contraceptives litigation is but one of several high-profile disputes involving the ACA and other health plan rules working through the courts and resulting in ongoing uncertainty for plan sponsors, health insurers, and their advisors. As the Massachusetts case returns to the district court for further proceedings, the Ninth and Third Circuits are reviewing appeals involving district court injunctions regarding the same regulations. The injunctions were issued earlier this year (see Legal Update, Two District Courts Block Trump Administration's Final ACA Contraceptives Rules).

In other litigation, last week the DOL announced that the Department of Justice has appealed a district court ruling that blocked key provisions of the DOL's association health plan final regulations (see Legal Update, DOL Announces Nonenforcement Policy and Appeal of District Court Ruling Vacating Final Association Health Plan Rules and Practice Note, Association Health Plans).

Also last week, in New Orleans, the Fifth Circuit received briefs from the parties in litigation involving a challenge by several states to the ACA's individual mandate that also strikes at the validity of the entire ACA statute (see Legal Update, Texas Ruling Invalidating ACA Is Appealed to the Fifth Circuit; US House Moves to Intervene). Oral arguments in that litigation will likely occur this July.

And in another development from last week, the City and County of San Francisco challenged Trump Administration final regulations intended to increase enforcement of federal statutory conscience protections for health care entities (see Legal Update, HHS Final Rules Expand Enforcement of Federal Conscience Protections for Health Care Entities: Litigation Involving HHS Final Rules to Enforce Federal Conscience Protections).

First Circuit Lets Challenge to ACA Contraceptives Rules Proceed; Other Health Plan Litigation Moves Forward | Practical Law