The Arizona Court of Appeals in late March decided an important case: Enterprise Life Insurance Company et al. v. ADOI. The decision helps Arizonans maintain control over their choice of health insurance. But the decision is also important because it marks a clean path to present nondelegation and separation-of-powers challenges under the Arizona Constitution.
Under Obamacare (or the Affordable Care Act (ACA)), there are three types of health insurance policies: grandfathered, transitional, and Obamacare-compliant. Grandfathered health-insurance policies are those that were sold before the signing of the ACA in March 2010. Transitional policies were sold after ACA was passed, but before its provisions went into effect. Both grandfathered and transitional policies are exempt from the substantive and procedural requirements of Obamacare. Insurance companies can offer grandfathered policies for renewal in perpetuity without Obamacare compliance, but transitional policies must eventually comply with the ACA.
Some health insurance companies, plaintiffs in this suit, decided to only renew existing grandfathered and transitional policies, and not offer new ACA-compliant policies, in Arizona. That was their business judgment—and bigger insurers were already offering ACA-compliant policies in Arizona. The Arizona Department of Insurance (ADOI), construing this decision as the companies’ intent to exit the market, issued letters to the companies directing them to terminate all in-force grandfathered and transitional policies and take further steps to properly exit the market—and stay out of the Arizona health insurance market for five years as a penalty.
The Administrative Law Judge (ALJ) of the Office of Administrative Hearings (OAH)—a separate Arizona state agency that conducts administrative trials from several Arizona state agencies and occupational licensing boards, and which plays a prominently good role in NCLA’s Phillip B. v. Faust case—concluded that ADOI had no authority under the relevant statute to order health insurers out of Arizona. On administrative appeal to ADOI, it rejected the ALJ’s reasoning and decision. Having exhausted administrative appeals, the insurance companies then appealed to state court. The state trial court affirmed ADOI’s decision to kick the companies out of Arizona.
The Arizona Court of Appeals, Arizona’s intermediate appellate court, reversed. It concluded that ADOI could not kick and then keep health insurance companies out of Arizona for five years.
The Court, in a strongly worded opinion, said that instead of protecting existing insureds by providing “guaranteed renewability”—a goal that even Obamacare espouses—ADOI’s decision accomplishes “precisely the opposite result”: “forcing the termination of an individual’s insurance coverage against the wishes of both the insurer and the insured.”
ADOI had argued that a particular state statute gives ADOI the authority to issue orders “reasonably implied” from the state statutory scheme it administers. The Court concluded that the plain meaning of Arizona statutes prohibits ADOI from issuing such cease-and-banish orders against health insurance companies. ADOI cannot force companies to cancel existing policies and completely exit Arizona’s insurance market.
ADOI’s exercise of power depends entirely on the legislature’s grant of authority to the agency, the Court explained. In other words, if the plain meaning of the statute shows the agency has no delegated authority to issue a particular rule or issue a specific adjudicative decision, then that is the end of the inquiry. The plain meaning of the statute controls. This is in marked—and welcome—contrast to the U.S. Supreme Court’s City of Arlington v. FCC rule that, based on an implied delegation theory, requires that federal courts give Chevron deference to an agency’s expansion of its own jurisdiction.
More broadly, the Court concluded, ADOI’s arguments ignore the separation of powers; the “scope of an agency’s power is measured by statute and may not be expanded by agency fiat.” Any “excursion” beyond what is granted by the legislature, the Court held, “is treated as an usurpation of constitutional powers vested only in the major branch of government.” “ADOI’s order, and the well-established principle that an agency’s power is dependent on a grant of statutory authority, cannot coexist.”
The health-insurance implications of this decision are obvious and important for insurers and insureds alike. For now, individuals can continue to purchase grandfathered and transitional policies in Arizona and decide for themselves what type of insurance best suits their individual needs.
In addition, this decision marks an important turning point in the development of the nondelegation and separation-of-powers doctrines under the Arizona Constitution. The Court applied ordinary tools of statutory interpretation and the plain-meaning rule to interpret the relevant state statutes. These tools are and should be ordinary because they are objective. Under such analysis, it was obvious to the Court that ADOI had no “reasonably implied” delegated authority to issue a cease-and banish order, and it was evident that ADOI’s adjudicative determination ignored the separation of powers. Here’s to hoping that federal courts will similarly turn the page on nondelegation and separation-of-powers to curtail federal-agency excursions as well.