• Litigating Obama’s like it/keep it fix: The question of standing

    The following is a guest post by Nicholas Bagley, University of Michigan Assistant Professor of Law.

    I argued yesterday that President Obama’s effort to make good on his like it/keep it commitment doesn’t look especially legal. If I’m right about that, here’s a question: would anyone have standing to challenge the administrative fix?

    I think so. Generally speaking, a litigant has standing if three conditions are met: (1) the litigant has suffered (or is about to suffer) a concrete, particularized injury; (2) the challenged government action caused the injury; and (3) a favorable outcome in litigation would at least partly redress the injury.

    In states that will allow old policies to be renewed—they include Florida, Ohio, and Texas—insurers could probably satisfy these conditions. Prior to the fix, insurers priced their exchange plans on the assumption that nearly everyone on the individual market would move to the exchanges. Now, however, the people who renew their old policies won’t be in the exchanges. Since those people tend to be relatively young and healthy, it’ll cost more than anticipated to cover the sicker and unhealthier exchange population. Greater medical outlays mean a dip in earnings for insurers. That’s an imminent injury. The injury, should it come to pass, was caused by the fix. And invalidating the fix would eliminate the injury. That’s the ballgame.

    Or maybe not. The argument in favor of insurer standing isn’t open and shut. A litigant doesn’t have standing where the chain of causation between the challenged action and the private injury is too attenuated. In particular, the Supreme Court has rejected claims of standing where the injury “results from the independent action of some third party not before the court.” That’s arguably the case here. The most immediate cause of an insurer’s injury isn’t the administrative fix. It’s the collective choices of other insurers to renew their plans and of consumers to repurchase them.

    Insurers and consumers may not make those choices. After all, it’s possible that only a trivial number of insurers will renew canceled plans. Many won’t have time to clear their now-canceled plans with state insurance commissioners. Some won’t want to cannibalize their own exchange plans by renewing the plans they used to offer. And others could be discouraged by uncertainty about the enforceability of plan terms that clash with the ACA, a possibility that Jonathan Adler explored last week.

    For their part, a lot of people who are now upset about their canceled coverage might not renew, even if given the chance. Some of them will inadvertently throw away the letters re-offering their canceled plans. Others who have already purchased exchange coverage may not want to go through the rigmarole of canceling it. Still others, as Jonathan Cohn has pointed out, will be pleasantly surprised to learn that they can afford better coverage than they had before.

    Because the injury may therefore never materialize, it may be too speculative, and too loosely connected to the administrative fix, to support standing. Nonetheless, my sense of the case law is that these objections to standing aren’t terribly persuasive. The federal courts often uphold standing for litigants whose injuries are more speculative than the financial harm that some insurers now credibly face. And there’s zero doubt that, without the fix, no insurer would have been injured in quite this way. The causal link between the fix and the asserted injury is tighter here than in other cases where litigants were allowed to sue.

    Standing doctrine is a notoriously slippery area of the law, so predictions are always a bit hazardous. But if an insurer does have standing, I don’t see any other technical impediments to a lawsuit. The administrative fix wasn’t announced in a formal rulemaking, but that shouldn’t matter. It’s still a final agency action of the kind that’s subject to review under the Administrative Procedure Act. And although it takes years for most litigation to wend its way through the courts, an insurer could ask a court to enter a preliminary injunction against the fix. That would speed things up.

    Just because some insurers could sue, however, doesn’t mean that any will. As Adrianna has pointed out, some of the distress over skewed risk pools is overdrawn. Insurers may come to recognize as much. The administration has also said that it will think about making its risk-corridor rules more generous, which could ease insurers’ financial concerns. Apart from all this, insurers have plenty of incentives to play nice with the administration. It’s possible, then, that no one will bother to challenge the fix. We’ll have to see. But if an insurer does want to make a federal case out of this, I think it probably could.

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    • I sell health insurance in Texas and you are incorrect about allowing renewals here. The Texas Department of Insurance has, to date, not allowed renewals of cancelled or soon to cancel policies. There is some discussion of keeping the high risk pool open, but discussion is as far as it has gone.

      • Thanks for the update. I got the info about renewals from Sarah Kliff at the Post (the link is in the post). She’s been on top of this stuff, so I wonder why she counts TX among the renewal states.

    • I think your last point is most relevant.
      How would it look politically for an insurance company to sue over this change? They already are everybody’s favorite whipping boy.
      If they sued, they would just make themselves out to be more greedy than at present. The ACA handed them a big bonus, this would just make them look worse.

    • Sorry, the greatest litigation exposure here is NOT that of the insurance company suing the state or federal government.

      It is the individual who enrolls in such a policy for 2014, and suffers a loss in 2014 that would have been covered under a PPACA-compliant policy, but was not covered or where the policy provided less benefit specifically because the policy did not comply with PPACA mandates.

      Class action heaven! You have state and a federal governments specifically and intentionally violating the law by allowing, ney encouraging insurance companies to sell policies that are NOT compliant with the specific statute.

      Remember, the fact that the federal government says that they will not pursue legal action does not insulate anyone from those who are harmed by non-compliance.

      Finally, today’s chaos can be worsened even if the plaintiffs are found not to have standing – remember, the plaintiffs don’t need to prevail in court, they just need to shake the tree (comparable to the shake down the federal government is pursuing with JP Morgan today).

      • BenefitJack,

        I agree wholeheartedly. The risk of downstream exposure in the circumstance you describe is what makes me wonder whether insurers will go ahead and renew their policies. If they don’t, then there’d be no reason to challenge the fix (and an insurer would perhaps have no standing to do so).

        I meant to explore a slightly different question: assuming off-exchange insurers do move to renew their plans, and an exchange insurer worries a lot about its risk pool, could that exchange insurer try to blow up the policy in advance?

        Nick

        • The best argument for insurance companies may be to sue the Feds and states that allow non-compliant policies to continue – requesting specific dollar recoveries based on what they would have charged for exchange coverage, and in the alternative, allow them to exit from the exchanges.

          To avoid harm, they want a tro / injunction until the litigation is resolved.

    • My understanding of the administration’s fix is that pre-exchange plans would exempt individuals from the mandate if they are renewed, but that insurers were not obligated to renew these plans. Thus, the proximate cause of the insurers’ harm is their own decision to renew these plans, so I don’t really see how they can sue on that basis.

      • The proximate cause of an insurer’s loss might be another company’s decision to renew. If Acme set rates on the basis that WellCo’s non-compliant policies had to be cancelled, freeing up a bunch of healthy WellCo customers for Acme, and then WellCo got to renew the non-compliant policy, all of a sudden Acme’s rates would be wrong.