The US Court of Appeals for the Sixth Circuit has ruled that the transitional reinsurance program under the Affordable Care Act (ACA) applies to state and local government employers with the same force that it applies to private employers (State of Ohio v. USA, (6th Cir. 2017); see Practice Note, Affordable Care Act (ACA) Overview: Insurance Market Reforms). The decision, which affirms a district court's judgment in its entirety, rejects a challenge to the program by the State of Ohio and certain of its political subdivisions and public universities (including Bowling Green State University and Youngstown State University).

The plaintiffs in this litigation asserted that:

In an amicus brief, more than a dozen states voiced their support for Ohio's litigation position.

As background, the transitional reinsurance program, which the Sixth Circuit characterized as a "lesser-known" ACA provision, is intended to stabilize premiums in the individual health insurance market by offsetting (in part) insurance risk associated with high-cost enrollees (see Legal Updates, Final Rules on Reinsurance, Risk Adjustment, and Risk Corridor Program and ACA Transitional Reinsurance Payment Form and Manuals Issued). The program, which operated from 2014 through 2016, collects payments from health insurers and third-party administrators (on behalf of group health plans) and distributes those payments to health insurers that cover high-cost individuals (42 U.S.C. § 18061(b)(1)(A)). According to the Sixth Circuit, the State of Ohio and its political subdivisions paid contributions to the program, under protest, of roughly $5.4 million for 2014.

The plaintiffs filed their complaint against the US and HHS in early 2015. A year later, the district court denied the plaintiffs' motion for summary judgment and granted the defendants' motion to dismiss. Among other findings, the district court concluded that:

The plaintiffs appealed.

Affirming the district court's "thoughtful, evenhanded, and well-reasoned" opinion on de novo review, the Sixth Circuit held that the ACA's transitional reinsurance program was intended to apply to the State of Ohio (see Practice Note, ERISA Litigation: Standard of Review).

Among arguments, the court rejected Ohio's assertion that the ACA's definition of "group health plan" did not include plans offered to state employees. Though acknowledging that the ACA provision addressing the reinsurance program did not expressly define group health plan, the court accepted the federal government's argument that:

Because the PHSA's definition of group health plan permits certain nonfederal governmental plans to elect to be excluded from some PHSA provisions, the Sixth Circuit concluded that Congress must have intended that a subset of the term group health plan includes certain nonfederal governmental plans (see Standard Document, NMHPA Notice for Nonfederal Governmental Plans). The court found further statutory support for its conclusion under the Employee Retirement Income Security Act (ERISA), which envisions that governmental plans are a type of employee welfare benefit plan. Specifically, the fact that Congress provided an exclusion for governmental plans from certain ERISA provisions applicable to employee welfare benefit plans meant that governmental plans are, in the first instance and subject to the exclusion, employee welfare benefit plans under ERISA.

The court also noted that Congress has expressly exempted state and local governments from certain plan-related requirements in the past, but it chose not to do so regarding the ACA's transitional reinsurance program.

The court also rejected arguments raised by Ohio involving:

Though the Sixth Circuit's analysis, which tracks through the inner statutory workings of the PHSA and ERISA, may seem academic, the court notes that there was a fair amount of money riding on the outcome of this litigation – in addition to a requested declaration that the ACA's transitional reinsurance program not apply to the State of Ohio in the future. In passing, the court noted that, besides making payments to eligible health insurers, a specified portion of the $25 billion projected to be collected under the program (that is, 20%, or $5 billion) was supposed to be directed to the general fund of the US Treasury.