Is Obama’s “like it/keep it” fix legal?

The following is a guest post by Nicholas Bagley, University of Michigan Assistant Professor of Law. (By the way, Nick is now on Twitter. Follow him!)

President Obama announced today an administrative fix that would allow people in the individual market to keep canceled policies even if those policies don’t comply with the Affordable Care Act. A heated debate has already broken out over whether this makes for good policy. How badly will the renewal of canceled plans disrupt the insurance markets? Can state insurance commissioners move fast enough to approve the sale of previously canceled plans? Will this provoke insurance companies—they’re apparently furious—to turn on the administration?

I had another question. What’s the legal authority for the President to do this? As I wrote on Monday, the ACA require all plans sold on the individual market after January 1, 2014 to adhere to a new slate of rules. The administration now says that some of those plans don’t have to. What gives?

We haven’t seen a legal justification for the fix yet. What we do have, however, is a letter from CMS that characterizes the administrative fix as a “transitional policy.” That word—“transitional”—may remind you of an earlier administrative fix. When the Obama administration delayed the employer mandate, the delay was also billed as “transition relief.” The delay sparked immediate controversy, in part from lawyers who thought it demonstrated a disregard for the law.

As it turned out, the administration had a halfway-decent legal argument up its sleeve. The IRS, which administers the employer mandate, had developed over the years a bipartisan habit of affording time-limited transitional relief to ease compliance concerns that cropped up in connection with tax legislation. The administration could credibly point to that practice and say that Congress had acquiesced in the IRS’s broad view of the scope of its rulemaking authority. (I explained all this in greater detail here.)

The administration may intend to make the same kind of claim here: that CMS’s generic grant of rulemaking authority has long been understood to include the power to offer time-limited transition relief from regulatory obligations. It looks like there’s something to this. Nonprofit employers that objected on religious grounds to the contraceptive-coverage mandate, for example, were recently afforded a “transitional enforcement safe harbor” exempting them from that obligation. Similarly, CMS recently extended transition relief (without calling it that) to certain employer-sponsored plans when it gave them a one-year exemption from annual limitations on out-of-pocket maximums.

But here’s the thing. Generic grants of rulemaking authority are not traditionally thought to give agencies the power to revise the effective dates of statutes. That’s why the delay of the employer mandate was so controversial. Although the IRS’s practice was sufficiently well-entrenched that it gave the administration a reasonable legal basis for acting, I’m skeptical that CMS has developed a similarly well-entrenched practice. (The two examples above are of quite recent vintage.) I could be wrong about that; maybe CMS really does do this kind of thing all the time. But if I’m not, the administrative fix may be vulnerable to even sharper claims of illegality than the delay of the employer mandate.

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