Private enforcement of the Affordable Care Act: toward an "implied warranty of legality" in health insurance.

• Author: Monahan, Christine H.

NOTE CONTENTS INTRODUCTION I. THE CONTINUING VITALITY OF STATE LAW UNDER THE ACA A. State Regulatory and Enforcement Powers Under the ACA B. Existing State Causes of Action 1. Breach of Contract 2. State Consumer Protection Statutes 3. Insurer Bad Faith Laws II. AN "IMPLIED WARRANTY OF LEGALITY" IN HEALTH INSURANCE A. The Implied Warranty of Habitability B. The Power of Common Law Courts C. Constructing an Implied Warranty of Legality 1. Basis for Finding Violations 2. The Defense of Waiver 3. Remedies D. Addressing Potential Barriers to Adoption 1. The Costs of (Non-) Compliance 2. The Filed Rate and Primary Jurisdiction Doctrines III. THE IMPLIED WARRANTY OF LEGALITY BEYOND THE ACA A. Preemption and the Parallel Claims Exception B. Guiding Principles for Future Applications CONCLUSION INTRODUCTION

The individual health insurance market plays an important residual function in the U.S. health care system, serving individuals and families who cannot access or afford employer-sponsored insurance but who earn too much to qualify for Medicaid. (1) Until recently, however, this market frequently failed to provide these consumers adequate or affordable health coverage. Premiums were often prohibitively expensive for consumers, (2) especially women, older adults, and less healthy people whom insurers could charge higher rates. (3) Insurers also considered some consumers--from pregnant women and expectant fathers to individuals who had suffered from acne, allergies, or bunions--"uninsurable" and would deny them any coverage. (4) In addition, some insurers would strategically rescind coverage when consumers became sick, denying consumers the benefits for which they had contracted and paid. (5) To the extent that individual consumers could obtain and retain individual health insurance coverage, their policies typically provided limited protection against out-of pocket medical costs, covered fewer benefits, and imposed greater restrictions than did employer-sponsored plans. (6)

These practices played a central role in Congress's decision to enact the Patient Protection and Affordable Care Act, commonly known as the ACA. (7) The first set of ACA reforms, collectively referred to as the Patient's Bill of Rights, became effective on September 23, 2010, six months after the law was enacted. (8) Among other things, the Patient's Bill of Rights prohibits insurers from imposing annual and lifetime dollar limits on coverage, (9) discriminating against children with pre-existing conditions, (10) and rescinding coverage absent fraud or intentional misrepresentation by the consumer. (11) These rules also require insurers to cover preventive care without cost-sharing (12) and to allow children to stay on their parent's health plan until they reach the age of twenty-six. (13) Even more robust patient protections became effective in 2014. For example, in 2014, the ACA extended the rules against pre-existing condition denials to adults (14) and imposed community rating requirements that limit insurers' ability to vary rates based on individual characteristics, such as age, gender, and health status. (15) The ACA also required insurers to cover a broad range of "essential health services," including prescription drugs, maternity care, and rehabilitative and habilitative services. (16) Plans sold through the newly launched health insurance marketplaces must meet additional requirements, such as network adequacy and marketing rules. (17)

Despite these new rules, consumers still face obstacles to adequate and affordable health coverage. Multiple insurers, for instance, have continued to charge consumers copays for preventive services, such as birth control, that the law requires insurers to make available without cost-sharing. (18) Other insurers have issued policies excluding coverage of transplant services for new enrollees, contravening the law's prohibitions on benefit-specific waiting periods. (19) And one insurer has been accused of cheating individual market enrollees out of $35 million in rebates under the ACA's medical loss ratio rules, which require insurers to pay refunds if they do not spend eighty percent or more of premium dollars on health care expenditures or quality improvement. (20)

Consumers injured by these insurer violations and others are presented with limited options for recourse. Consumers may appeal certain adverse benefit denials using their health plans' internal procedures and hope that their insurers self-correct or, if that fails, ask an external reviewer to reconsider their claims. (21) If the appeals process does not address consumers' problems, consumers may take their complaints to state and federal regulators, and hope--perhaps in vain--that these regulators intervene. (22) But what consumers cannot do, at least under federal law, is sue. Despite the myriad ways in which the ACA transformed the substantive laws governing individual health insurance, the ACA did not create a private right of action that could empower consumers to require insurers to comply with these rules and pay damages if consumers are injured when they do not. (23)

The law's reluctance to provide a private right of action under federal law may stem, in part, from the law's deference to the historic role of states when it comes to insurance regulation. (24) States have long been the primary regulators of insurance, a fact that Congress recognized and enshrined in the McCarran-Ferguson Act of 194s. (25) The Act officially declared that federal law shall not be construed to limit or override state laws regulating insurance unless Congress's intent to do so is clear. (26) While the ACA was an unprecedented federal intervention into state authority, it did not disrupt the general framework established by the McCarran-Ferguson Act: federal law serves as a floor upon which state law can build. (27) Thus, consumers may turn to state law where the ACA is lacking. (28) As this Note will show, however, relying on already established state laws to enforce the ACA is much like trying to fit a square peg into a round hole. You might squeeze it in sometimes, but the hole is not the best fit and often will not work at all. For example, consumers may be able to bring a breach of contract claim under state law when the policy terms of their insurance plans are ambiguous and the ACA favors one interpretation, but consumers may be without a remedy for violations of provisions that are not expressly incorporated in their contracts. (29)

In response to the inadequacy of existing options, this Note proposes that state courts recognize an "implied warranty of legality," a single, comprehensive state cause of action that allows consumers to privately enforce the ACA. (30) Under the implied warranty of legality, the sale of an individual health insurance policy would carry with it an implied, enforceable promise that the policy and the insurer administering it are and will remain in full compliance with the ACA for the policy's term. (31) Failure to comply with the ACA would constitute a breach of the implied warranty and be actionable in court for either prospective (i.e., injunctive) or compensatory relief, with the goal of placing the consumer in the position he or she would have been in had no violation occurred.

The implied warranty of legality has a robust lineage. This Note draws inspiration from the original judicial opinions that created the implied warranty of habitability, which revolutionized the relationship between landlords and tenants using a theory based on the classic doctrines of implied warranties of merchantability and fitness. (32) The implied warranty of legality also may be viewed as an expansion of and improvement upon the reasonable expectations doctrine--a half-century old approach to interpreting insurance contracts that is meant to favor consumers, who are often relatively powerless and information-poor market actors. (33)

Like other implied warranties, the implied warranty of legality is attractive for its intuitive simplicity. Just as the implied warranty of merchantability promises consumers that the goods they purchase "are fit for the ordinary purposes for which such goods are used" (34)--for example, that a refrigerator keeps its contents cold--the implied warranty of legality promises consumers who purchase individual health insurance that the policy does what the law says it must. Unlike the reasonable expectations doctrine, however, the implied warranty of legality imposes no new, unexpected obligations on insurers. Rather, it holds insurers accountable for promises implicit in the private health insurance market in a post-ACA world.

More broadly, the instinct behind this proposal--to provide a remedy for individuals who have suffered an injury due to others' legal violations--is centuries old. (35) Civil recourse theorists, such as John Goldberg, draw on social contract theory to argue that the state should provide opportunities for redress via private law in order to compensate for the law's restrictions on individuals' ability to seek private retribution. (36) Others, like Nathan Oman, frame the impulse for recourse as a question of honor. (37) Oman points to John Grisham's novel The Rainmaker, where a mother sues an insurance company for denying medical treatment to her dying son, to help illustrate this point: "By suing the company, by standing up to it, the mother transformed herself from a passive victim into an agent, an equal who could demand and receive respect." (38) The implied warranty of legality seeks to give real consumers that same opportunity

The remainder of this Note proceeds in three major parts. Part I begins by explaining the important role of state law in this area. Critically, the ACA preserves states' traditional role in health insurance regulation and does not preempt state causes of action that enable consumers to sue to enforce the law. Yet existing state causes of action that...