Health Plans Undercutting Obamacare Get Boost From Texas Ruling

(Bloomberg Law) -- The U.S. judge in Texas who ruled that Obamacare's individual mandate was unconstitutional has signed off on a kind of low-cost insurance alternative that could pull young, healthy people away from the exchanges and drive up health-care costs for those left behind.

U.S. District Judge Reed O'Connor in Fort Worth overruled the U.S. Labor Department's objections to novel plans proposed by two would-be providers, including a small Georgia company that proposes to offer health plans to individuals who agree to have their internet activity tracked.

O'Connor's decision on Monday could be another significant broadside against the Affordable Care Act, a health law passed by Democrats and long despised by leading Republicans. The Supreme Court, which upheld the law by a slim majority in 2012, is reviewing a separate O'Connor decision that said Congress's reduction of the law's penalty provision to zero rendered the entire law unconstitutional.

The Georgia plan has an intriguing back story, including intersections with people in President Donald Trump's circle. The plan's lobbying campaign to win Labor Department approval was financed by companies connected to a California businessman who was behind a $1 million loan to the family of Trump's onetime campaign chairman, Paul Manafort. That businessman obscured his relationship to both the Manafort loan and the lobbying effort using companies and trusts, Bloomberg News has previously reported.

Participants who agree to the data-sharing partnership would be considered “working owners and bona-fide partners,” giving them access to the Georgia company's medical insurance, the judge said.

The ruling creates an opening for some insurers to cherry-pick their enrollees, experts said, an end-run around the ACA's goal to keep health-care costs affordable for all enrollees by grouping healthy and sick people together.

Unpaid Claims

If the decision stands, it could open the door to “a wave of fraudulent payers organized as Ponzi schemes leaving unpaid claims the likes of which this country has never seen,” said Marc Machiz, who served three stints in the Labor Department and supports the ACA. “These are very dangerous and should be stopped.”

The bureaucratic battle over the legitimacy of the new plans placed Trump's Labor Department in the odd position of opposing an approach to health care that is consistent with the president's policy goals. Asked if the Labor Department would appeal O'Connor's decision, a spokesman directed requests to the Justice Department, which is representing the agency in court. The Justice Department didn't respond.

Attorneys general for seven states say the data-mining health plan could be a good fit for “younger, healthier people” who have opted out of ACA coverage “by the millions” and remain uninsured. The attorneys general from Louisiana, Georgia, Arkansas, Indiana, Nebraska, Texas, and South Carolina defended the plan structure in a February 2019 letter to former Labor Secretary Alex Acosta.

The plan's backers say it would provide much-needed health coverage options for more than 15 million Americans who are self-employed or work for small businesses, earn too much to qualify for Obamacare subsidies, and are currently uninsured or under-insured. More than 50,000 people have already agreed to have their data tracked, according to court documents.

In his ruling, O'Connor, an appointee of President George W. Bush, compelled the Labor Department to deem the companies' health plans single-employer plans that are covered by the Employee Retirement Income Security Act, known as ERISA, which would allow them to be treated as large employer plans.

Large employer plans aren't required to offer the same 10 essential health benefits individual and small group plans must offer under the ACA, which include emergency services, maternity care and prescription drug coverage.

ACA protections for pre-existing conditions apply to all plans, which means employers that offer coverage must extend it to all their workers. But the law doesn't say anything about who employers can hire. Under the data mining health-plan system, health analysts who examined the plan say the Georgia company, LP Management Services LLC, and another Texas-based company called Data Marketing Partnership LP could choose which “partners” are selected for the program, screening out those who might have health problems.

The creators of the plan may have the best intentions to pay claims and charge affordable rates, Machiz said, but the arrangement could be exploited by others to provide substandard coverage and exclude individuals.

“Even if they're not crooks, the next guy” could be, said Machiz, who was the Labor Department's chief ERISA lawyer.

An attorney for the companies said the benefits offered by the plans include a range of affordable options for participants, including full major medical plans that offer comprehensive coverage with low or no deductibles.

“All plans are subject to the Affordable Care Act and comply with its requirements,” said Jonathan Crumly, a lawyer for Taylor English Duma LLP, who spoke on behalf of both companies. “All plans also fulfill the rigorous coverage requirements of ERISA, the same coverage requirements that apply to over 160 million Americans participating in group health plans.”

Crumly said O'Connor's ruling will allow his clients to expand their business and attract and retain the best personnel possible.

Two Years of Lobbying

The promoters behind the health plan have spent more than two years lobbying the Labor Department and White House for its approval. When that failed, they turned to the courts, filing the lawsuit last year in Texas. In December, Bloomberg News reported on the lobbying and court effort.

According to documents reviewed by Bloomberg, the companies that financed the lobbying for the health plan included firms connected to Arjan “Ari” Zieger, a California businessman who lent $1 million to Manafort's family in August 2017, before Manafort was charged with financial crimes. Manafort was subsequently convicted of fraud charges in a case growing out of Special Counsel Robert Mueller's probe of Russian interference in the 2016 election.

In a statement last year, Zieger's lawyer said “there is absolutely no connection between the lawful, fully documented loan made to the Manafort family” and Zieger's “many other investments and business activities,” including the insurance effort.

Zieger and his lawyer, Keith Berglund, didn't immediately respond to requests for comment for this article.

Even as Republicans led by Trump have assailed the ACA and tried to repeal it, the president promised in Tuesday's presidential debate that any replacement would offer coverage for people with pre-existing conditions.

He hasn't offered any plan. If the Justice Department chooses to appeal, the case will go to the U.S. Court of Appeals for the Fifth Circuit. Trump has appointed six judges to the bench.

The case is Data Mktg. P'ship v. U.S. Dep't of Labor, N.D. Tex., No. 4:19-cv-00800, opinion 9/28/20.

More:
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