[00:00:02] Speaker 01:
Case number 19-5125, State of New York at L, New York v. United States Department of Labor at L, Appellants.

[00:00:09] Speaker 01:
Mr. Shee for the Appellants, Mr. Grieco for the Appellees.

[00:00:13] Speaker 01:
Mr. Shee, good morning.

[00:00:14] Speaker 04:
Good morning, Your Honor.

[00:00:15] Speaker 04:
May it please the Court, Mike Shee for the Government, and with me at council table are Michael Rab and Mark Stern.

[00:00:21] Speaker 04:
Before I proceed, I'd like to reserve three minutes.

[00:00:23] Speaker 01:
Okay, you need to... No problem.

[00:00:25] Speaker 04:
Can you hear me better now?

[00:00:26] Speaker 04:
Yes.

[00:00:27] Speaker ?:
Awesome.

[00:00:28] Speaker 04:
ERISA defines employer to include a group or association of employers that act in its members' interests.

[00:00:35] Speaker 04:
Congress enacted this definition to distinguish between commercial insurance entities, which can't sponsor ERISA plans under this provision, and employer-driven initiatives, which can.

[00:00:45] Speaker 04:
The Department of Labor's previous guidance used three criteria to determine whether a group is acting in its members' interests, which the rule challenged here is modified in some respects.

[00:00:55] Speaker 04:
And to understand the difference, it's easiest to look at a few concrete examples.

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So under the guidance, for example, the American Council for Engineering Companies established a plan that gives health care coverage

[00:01:07] Speaker 04:
to about 90,000-plus employees of more than 1,700 employers across all 50 states.

[00:01:14] Speaker 04:
But under the old guidance, it wasn't possible for a city's Chamber of Commerce to sponsor a similar plan.

[00:01:20] Speaker 04:
So the rules' alternative criteria make that possible, while also retaining the guidance's requirement that the group be controlled in form and substance by its members.

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Now, neither the states nor the district court can explain why groups that meet the rules criteria are acting any less in the interest of employers than groups that meet the guidance's criteria.

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Both sets of criteria are designed to ensure that the group continues to act as the agent of its employer members.

[00:01:47] Speaker 00:
What about the state's argument that the criteria are not adequate to prohibit

[00:01:54] Speaker 00:
commercial insurance companies from becoming bona fide?

[00:01:59] Speaker 04:
So two responses to that.

[00:02:00] Speaker 04:
First, Your Honor, Section B8 of the rule already expressly prohibits commercial insurance providers from being a group or association under the rule.

[00:02:11] Speaker 04:
And so that's already dealt with expressly.

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What the criteria are for

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are to figure out whether, given the diversity of business organizations out there, a particular group looks too much like a commercial insurance provider or not.

[00:02:24] Speaker 04:
And the key to distinguish, as the Department of Labor explained, is whether the entity is acting as the agent of the employers or is instead standing in some sort of third-party bargaining relationship like an insurance company.

[00:02:39] Speaker 04:
And so the rule accomplishes this key objective by retaining the old guidance's control requirement.

[00:02:46] Speaker 04:
And that control requirement is incredibly robust.

[00:02:49] Speaker 04:
As the rule explains, for example, on page 2920, under this requirement, it's sufficient if an employer can nominate and elect the directors who run the group, whether they can remove the people who run the group with or even without cause,

[00:03:03] Speaker 04:
and whether they can approve or veto all decisions with respect to the health care coverage plan that they're getting.

[00:03:09] Speaker 04:
And so all of that, which has to be present for any group that tries to become a group under the association health plan rule, is sufficient to ensure that a commercial insurance provider doesn't somehow sneak in, even notwithstanding the express prohibition on them doing so under B-8.

[00:03:27] Speaker 04:
But that's not all the rule provides.

[00:03:29] Speaker 04:
The rule also has a robust non-discrimination requirement, which stops the group from discriminating on the basis of... Well, what has that got to do with acting in the interests of employers?

[00:03:41] Speaker 04:
So it just reinforces, so to back up, Your Honor, the key point is control, right?

[00:03:48] Speaker 04:
And we think that it had the department.

[00:03:49] Speaker 00:
But what does the non-discrimination provision have to do with it?

[00:03:52] Speaker 04:
The non-discrimination provision just helps the Department of Labor sort when presented with a particular group, whether it is or isn't acting, because, you know,

[00:04:00] Speaker 04:
It's unlikely that a commercial insurance provider, according to the Department of Labor, would want to be in some sort of engagement where they can't discriminate.

[00:04:12] Speaker 04:
And so that's true also for the commonality requirement that's still in the rule.

[00:04:16] Speaker 04:
That's true still for the business purpose requirement that's still in the rule.

[00:04:20] Speaker 04:
But the fact that the Department of Labor elected under the rule to go further than what ERISA might require doesn't mean that what the Department of Labor did in interpreting what it means for a group to act in the interest of its employer members was unreasonable, particularly not under the Chevron standard.

[00:04:40] Speaker 03:
Can I ask you about that?

[00:04:42] Speaker 03:
Of course.

[00:04:42] Speaker 03:
So as I understand it,

[00:04:45] Speaker 03:
The dispute here centers on three issues.

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One is the business purpose of the group entity.

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One is the commonality of interest among the members and one is control.

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And your rule is criticized for watering down the first two of those.

[00:05:05] Speaker 03:
Is it your position that some form of those first two requirements is required by ERISA?

[00:05:16] Speaker 04:
So it would be sufficient just to have control.

[00:05:22] Speaker 04:
But we don't need just to have control.

[00:05:25] Speaker 04:
And the court doesn't need to go that far because, as Your Honor has pointed out, the rule isn't so restricted.

[00:05:31] Speaker 03:
I mean, if a group of small employers want to create an entity for the sole purpose of

[00:05:43] Speaker 03:
providing a group plan and there are all sorts of perfectly good reasons for doing that, efficiencies of scale, you get a better deal and they create it and they control it and it goes off and gets the welfare benefits for people.

[00:06:00] Speaker 03:
I would think that entity is clearly acting indirectly in the interest of the constituent employers and is a group or association of employers acting

[00:06:13] Speaker 03:
for the employer, that's the language of the statute, end of case.

[00:06:19] Speaker 03:
So why are we even talking about the first two of these three criteria?

[00:06:23] Speaker 04:
I agree with you completely, Your Honor.

[00:06:25] Speaker 04:
So in our view, what it means to act in the interest of employers, that language is just to distinguish between people who are negotiating at arm's length from you and people who are your agent.

[00:06:40] Speaker 04:
and the control requirement is essential to that because that reflects the agency.

[00:06:44] Speaker 03:
But in the explanation of the rule, you seem to put some stock in

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the fact that these first two requirements were being preserved in substance.

[00:06:58] Speaker 04:
Yes, Your Honor.

[00:06:58] Speaker 04:
And so I think the best place to look in the rule to figure out what the Department of Labor meant by that is, for example, on page 28, 922, where they describe.

[00:07:10] Speaker 04:
I'm sorry, 922.

[00:07:11] Speaker 04:
Yeah, 922.28, 922 of the final rule.

[00:07:15] Speaker 04:
OK.

[00:07:15] Speaker 04:
So on that page, the Department of Labor in discussing the nondiscrimination requirements

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is addressing just what all of these different criteria in the rule are meant to do.

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And the department said,

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In our view, it's nice to have the commonality requirement that we've got, and it's nice to have the substantial purpose requirement that we've got and the non-discrimination requirement, because it assists in figuring out whether an entity is more like an entrepreneurial insurance venture or an employer-driven venture.

[00:07:48] Speaker 03:
But the fact that... So those are designed as belt and suspenders provisions to screen out

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insurance companies?

[00:07:59] Speaker 03:
Is that the idea?

[00:08:00] Speaker 03:
Yeah.

[00:08:02] Speaker 03:
And the reason we know this is so is because... So why... Sorry, this may be a simple question.

[00:08:08] Speaker 03:
But suppose the hypothetical everyone is worried about is that the group employer is the insurance company.

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And they

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self insurer and that gets them within ERISA regulation as opposed to state insurance regulation and everyone worries about that.

[00:08:37] Speaker 03:
Why, even in the case of the insurer, just on the narrow question of issue here, which is the meaning of the definition employer, why wouldn't they be an employer?

[00:08:53] Speaker 03:
So if they contract with a bunch of companies and they say, we want to act in order to provide you welfare benefits.

[00:09:02] Speaker 04:
I understand your honest question now, I'm sorry.

[00:09:04] Speaker 04:
So I think I've got two answers.

[00:09:07] Speaker 04:
The first is that the key word, I think, in the definition is act in the interest of employers.

[00:09:13] Speaker 04:
And so it's not enough.

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for a company to say, you know, I give some things to employers that they like, such as healthcare coverage.

[00:09:22] Speaker 04:
So that means that, you know, they're deriving some benefit from their relationship with me.

[00:09:30] Speaker 04:
How the Department of Labor has always interpreted that rule is requiring some additional safeguards in form or substance, whether or not the safeguards need to be invoked in any given case.

[00:09:40] Speaker 03:
And so that's the reason why... To make sure they are genuinely acting in the interest of the employer.

[00:09:45] Speaker 04:
Exactly.

[00:09:46] Speaker 04:
So look, it's possible, I guess, that a private insurance company, you know, even negotiating at arm's length... That concern... Right.

[00:09:53] Speaker 03:
I mean, so that concern applies if the group employer is an insurance company or just like some random fraudster.

[00:10:03] Speaker 03:
Yes.

[00:10:04] Speaker 03:
And you solve that problem with the control criterion and the rest is icing on the cake.

[00:10:08] Speaker 03:
Yes.

[00:10:09] Speaker 04:
And so the fundamental error that the district court made in this case was to interpret acting in the interests of, which the district court recognized as ambiguous, as somehow still requiring the stringent form of the commonality requirement and the stringent form of the business purpose requirement that the department had in its prior guidance.

[00:10:37] Speaker 00:
I want to try a different subject on you here.

[00:10:42] Speaker 00:
I understand your argument about why the new standards survive Chevron 2, and even if I agreed with you about that,

[00:10:57] Speaker 00:
We still have to confront the state's argument, don't we, that small employers will stay small employers, even if they band together to form an AHP that's bona fide, because they don't, quote, employ employees as required by the Affordable Care Act.

[00:11:18] Speaker 00:
So I guess I have two questions about that.

[00:11:21] Speaker 00:
Number one, what do you?

[00:11:24] Speaker 00:
What's your answer to that argument?

[00:11:25] Speaker 00:
And two, if the states are right, then it doesn't seem like this change in ERISA regulations will accomplish the objective the department set for itself.

[00:11:39] Speaker 00:
That is to allow small businesses to join associations and become major businesses, and therefore subject to the major insurance market.

[00:11:53] Speaker 04:
I have two answers to that, your honor, one with your first question and one with the second.

[00:11:57] Speaker 04:
So, you know, as I understand the state's Affordable Care Act arguments, they think that the final rule is unlawful because it contravenes two pieces of it, and only two.

[00:12:10] Speaker 04:
conflict, as it were, is the employee counting provisions of the ACA.

[00:12:15] Speaker 04:
And the second conflict is the shared responsibility provisions of the ACA.

[00:12:19] Speaker 00:
Just focus on the definition of large employer.

[00:12:22] Speaker 00:
It says, means an employer who employed an average of at least 50 employees.

[00:12:32] Speaker 00:
And their argument is that can't possibly be an association.

[00:12:36] Speaker 04:
So just, again, two things here, Your Honor.

[00:12:39] Speaker 04:
The first is that ERISA defines employer in the way that we've been discussing.

[00:12:46] Speaker 00:
And the ACA incorporates the ERISA definition.

[00:12:48] Speaker 00:
Correct.

[00:12:49] Speaker 00:
But they're arguing that, I'm saying, even if you're totally right, that the final rule survives under Chevron 2, under ERISA,

[00:13:05] Speaker 00:
does it accomplish its goal because of the Affordable Health Care Act's definition of the large employer?

[00:13:16] Speaker 00:
In other words, these associations can't be qualified because they don't employ anyone.

[00:13:24] Speaker 00:
They don't employ employees.

[00:13:26] Speaker 00:
That's their argument.

[00:13:27] Speaker 04:
I understand Your Honor's point.

[00:13:30] Speaker 04:
I think the fundamental response is that nothing in the Department of Labor's rule affects how association health plans, whether created under the old guidance or the new rule, are treated.

[00:13:41] Speaker 04:
So the provision that you're referring to, it's implemented by CMS.

[00:13:46] Speaker 00:
So in other words, we don't

[00:13:51] Speaker 00:
No.

[00:13:51] Speaker 00:
So there's a two-step process here, right?

[00:13:55] Speaker 00:
Number one, you have to convince the court that the ERISA final rule is OK.

[00:14:02] Speaker 00:
And then number two, we're going to have to see how HHS defines employee to see whether or not these newly created bonafide associations will, in fact, be able to qualify as major employers, correct?

[00:14:20] Speaker 04:
We disagree, Your Honor, so – Oh, I thought that's what you said.

[00:14:23] Speaker 04:
No, sorry, so – You disagree?

[00:14:25] Speaker 04:
No, so the only basis that the – Wait, did you say you agree or disagree?

[00:14:29] Speaker 04:
We disagree with the two-part stand – like, you know, the fact that the government needs to approve two to prevail.

[00:14:34] Speaker 00:
No, no, no, not here.

[00:14:36] Speaker 00:
Maybe I asked the question wrong.

[00:14:38] Speaker 00:
Your position is that in order to prevail here, you just need to defend – we just need to accept your Chevron 2 argument about the definition

[00:14:46] Speaker 00:
about the ERISA definition of employer, right?

[00:14:49] Speaker 00:
And then what happens under the Affordable Care Act is for another day, correct?

[00:14:54] Speaker 00:
Yes.

[00:14:54] Speaker 00:
Okay.

[00:14:55] Speaker 00:
Now, so Paul, but I'm not sure it's quite that simple, because the reason the department gave for changing these standards, the criteria, was to make it possible for small employers, right, small employers,

[00:15:15] Speaker 00:
to be able to join together in associations and function in the major market.

[00:15:22] Speaker 00:
That's the purpose of it.

[00:15:23] Speaker 04:
Yes.

[00:15:24] Speaker 04:
That's one of the several purposes.

[00:15:26] Speaker 00:
Let's hold that for a second.

[00:15:28] Speaker 00:
You just mentioned my second question.

[00:15:31] Speaker 00:
Let's just talk about that purpose.

[00:15:33] Speaker 00:
Suppose I think that the word employee in the health care finance is just plain old unambiguous.

[00:15:42] Speaker 00:
It seems like it is.

[00:15:43] Speaker 00:
It says employee, employees.

[00:15:45] Speaker 00:
And associations don't employ employees.

[00:15:48] Speaker 00:
Now, if I think that, then how can the final order survive under Chevron 2 if its reason for making the change, for amending the standards, is to accomplish something that can't be legally accomplished?

[00:16:04] Speaker 00:
Doesn't that make it arbitrary and capricious?

[00:16:06] Speaker 04:
So, you know, first as to the methodology, second as to the merits.

[00:16:10] Speaker 04:
So as to the methodology, whether it's arbitrary, capricious or not, is separate from whether the department's interpretation is reasonable under a risk.

[00:16:18] Speaker 00:
But then as to the... These whole hypotheticals assumes that.

[00:16:21] Speaker 00:
Stick with my question.

[00:16:23] Speaker 00:
My question is assuming... You know the way Chevron 2 works.

[00:16:27] Speaker 00:
Chevron 2, the way this court interprets Chevron 2 is that

[00:16:32] Speaker 00:
The agency's interpretation of the statute has to be reasonable, and it has to give a rational explanation for it, right?

[00:16:39] Speaker 00:
So even a rational, even a reasonable interpretation of a regulation can fail if the agency has failed to give a rational explanation for why it's done it.

[00:16:49] Speaker 00:
We have lots of cases that say that.

[00:16:51] Speaker 00:
I'm asking you about the second part of that.

[00:16:53] Speaker 04:
So as to the second part.

[00:16:54] Speaker 00:
Do you see my point?

[00:16:55] Speaker 00:
I do.

[00:16:55] Speaker 04:
OK.

[00:16:56] Speaker 00:
So if I think the word employ is unambiguous, doesn't that mean that

[00:17:02] Speaker 00:
that the regulation, in fact, does fail?

[00:17:05] Speaker 04:
There's a couple of reasons why you shouldn't think that, Your Honor.

[00:17:08] Speaker 04:
The first is that, as CMS has repeatedly explained since as far back as, I think, 1997 and then 2002,

[00:17:16] Speaker 04:
the relevant definitional provisions of the ACA, which come from the PHS Act, are not limited in the manner that Your Honor is suggesting.

[00:17:25] Speaker 04:
Is that the bulletin you're talking about?

[00:17:26] Speaker 04:
Yes, that's the bulletin in 2011.

[00:17:28] Speaker 00:
But is there any indication in that bulletin that they were actually interpreting the phrase employee?

[00:17:33] Speaker 04:
Yes, Your Honor.

[00:17:34] Speaker 04:
Does it say that?

[00:17:36] Speaker 04:
Yes, Your Honor.

[00:17:37] Speaker 04:
So if you look at the 2011 bulletin, the idea is, you know,

[00:17:42] Speaker 04:
Who is the relevant employer under the employee counting provisions?

[00:17:46] Speaker 04:
And the bulletin says the relevant employer is, in this case, the Association Health Plan.

[00:17:51] Speaker 04:
And that's not an oddity, because as we pointed out in the reply brief, and you can see this, the statute is 42 USC 18024B4 recognizes that there are a number of different groups of employers that are nonetheless treated as a single employer under the statute.

[00:18:11] Speaker 04:
And so that just underscores the fact that the term employer is used in the ACA, which came from the PHS Act, doesn't have to mean, and indeed has been interpreted by CMS, not to mean what your question posits.

[00:18:27] Speaker 04:
But the reason I've kind of been resisting

[00:18:30] Speaker 04:
going down this road is because at no point has anybody challenged the validity of the CMS interpretation of the Affordable Care Act.

[00:18:39] Speaker 04:
And association health plans have been around for quite a while under the old guidance.

[00:18:44] Speaker 04:
And the same CMS interpretation that was in the 2011 bulletin was applied to association health plans created under the previous guidance.

[00:18:53] Speaker 04:
I see.

[00:18:53] Speaker 00:
Right.

[00:18:54] Speaker 00:
And so... I'm sorry.

[00:18:57] Speaker 00:
Finish your...

[00:18:57] Speaker 04:
And so, you know, the upshot is not only has nobody challenged the CMS interpretation in this case, but also no one appears to have had a problem with CMS's interpretation of the ACA as applied to other association health plans.

[00:19:13] Speaker 00:
So what about, just two more questions.

[00:19:16] Speaker 00:
Number one, now let's go on to the other issue you raised.

[00:19:18] Speaker 00:
You said there are other reasons

[00:19:20] Speaker 00:
for the department to have made these changes other than facilitating the ability of small employers to get out from under the more onerous provisions of the small market.

[00:19:37] Speaker 00:
What are those?

[00:19:38] Speaker 04:
So a couple of reasons, Your Honor, include the fact that if you're a small employer, it's difficult to get the benefit of bargaining power if you don't have that many employees.

[00:19:50] Speaker 00:
Isn't that the same as being able to participate in the major?

[00:19:53] Speaker 04:
I think it's slightly different because it doesn't really touch on whether you have to comply with the ACA's essential benefits requirements or so on.

[00:20:02] Speaker 04:
As the department explained.

[00:20:05] Speaker 00:
What is another reason?

[00:20:07] Speaker 04:
You said there were several.

[00:20:09] Speaker 04:
Yeah, so one is you can get the benefits of negotiating from a position of relative strength.

[00:20:14] Speaker 04:
And another is you can get the benefits of being able to more precisely tailor your coverage to the needs of the members in your group.

[00:20:25] Speaker 04:
And so on the very first page of the final rule, the department walks through a lot of different policy reasons for why the alteration to the criteria were made.

[00:20:37] Speaker 04:
very few of those have anything to do with how association health plans are treated under the Affordable Care Act.

[00:20:45] Speaker 00:
So just to go back to where we were at the beginning.

[00:20:47] Speaker 00:
So would the government be satisfied?

[00:20:49] Speaker 00:
I know this is an odd question to ask a litigant about an opinion, but we do it sometimes.

[00:20:54] Speaker 00:
Would the government be satisfied with an opinion that says, yes, this final order, this final rule survives under Chevron 2, but the court expresses no opinion whatsoever about its impact on the Affordable Care Act?

[00:21:08] Speaker 04:
Yes, Your Honor.

[00:21:08] Speaker 04:
So, you know, the reason we're here is because the district court held that under ERISA, the Department of Labor Black Authority didn't do what it did.

[00:21:15] Speaker 00:
Okay.

[00:21:18] Speaker 04:
Unless the court has any further questions, I'll reserve the remainder of my time.

[00:21:21] Speaker 04:
Thank you.

[00:21:22] Speaker 01:
Okay.

[00:21:23] Speaker 01:
We'll give you a couple minutes in reply.

[00:21:27] Speaker 01:
Good morning.

[00:21:29] Speaker 02:
May it please the Court, Matthew Grico, on behalf of the Appellees.

[00:21:34] Speaker 02:
There are two reasons why this Court should affirm, and it may affirm on either of them.

[00:21:39] Speaker 02:
First, the final rule unreasonably interprets ERISA to rework the operation of the ACA, a much more recent enactment.

[00:21:46] Speaker 02:
Second, the final rule violates separate language in the ACA that classifies a plan as small group or large group coverage

[00:21:52] Speaker 02:
based on the number of employees who work directly for each individual employer.

[00:21:57] Speaker 02:
I'd like to begin with the ACA, because Judge Tatel has correctly identified the simplest way to resolve this case, which is that even if the court were to conclude that the department's interpretation of employer were reasonable, which it is not, nevertheless, the aggregation principle stated in the final rule at page 225 of the joint appendix, which the department states is the only purpose for which the word employer is being

[00:22:22] Speaker 02:
reinterpreted, is an illegal aggregation principle because it violates the ACA.

[00:22:28] Speaker 02:
And the fatal clause is page 225 of the Joint Appendix.

[00:22:33] Speaker 02:
It's the last paragraph of... Is that in the rule or the preamble?

[00:22:37] Speaker 02:
That is the final paragraph of the first section of the preamble.

[00:22:41] Speaker 02:
Right.

[00:22:41] Speaker 02:
Where is it in the rule?

[00:22:43] Speaker 02:
So this court has recognized a number of times that if the preamble to a rule assumes an interpretive principle to be true for purposes of the rule's future application and does not substantiate that interpretation, and furthermore, there is no record in the past to reach that interpretation, then that is also part of what is before the court.

[00:23:02] Speaker 03:
Well, that is clearly right with regard to Judge Tatel's line of questioning about

[00:23:10] Speaker 03:
arbitrary and capricious review, whether you think of that as part of Chevron step two or otherwise.

[00:23:16] Speaker 03:
If their explanation depends on that proposition, we can look at whether it makes sense.

[00:23:25] Speaker 03:
But in terms of what's before us, what's before us is a district court order setting aside specific provisions of a regulation

[00:23:38] Speaker 03:
with the force and effect of law, and I don't see this issue addressed in any of those provisions.

[00:23:46] Speaker 02:
So a couple of things, Judge Katz.

[00:23:48] Speaker 02:
First of all, in the arguments below, all of these arguments were raised as an independent basis for challenging the rule.

[00:23:55] Speaker 02:
And of course, the district court didn't need to reach them because it concluded that the rule was unreasonable under ERISA.

[00:24:01] Speaker 02:
Secondly, because DOL takes pains throughout the final rule to repeatedly state that this is the only purpose for which the word employer is being reinterpreted, and that it does not apply, for example, under the employer mandate, and does not apply anywhere else that borrows

[00:24:16] Speaker 02:
the definition of employer from ERISA, it is a necessary part of the reasoning of the rule.

[00:24:21] Speaker 02:
And they are relying on the assumption that this aggregation principle will work, even though there is no rule-making record to say that it would.

[00:24:28] Speaker 02:
And the fatal flaw in the final rule is that the Affordable Care Act does not only import

[00:24:36] Speaker 02:
irris's definition of employer.

[00:24:38] Speaker 02:
It also imports irris's definition of employee.

[00:24:41] Speaker 02:
And nowhere does the final rule grapple with the fact that both the Supreme Court in nationwide mutual insurance company versus Darden and DOL itself in its MIWA, Multi-employer welfare arrangement, MIWA manual from 2013, which remains on the books and which it has never challenged or withdrawn, both say that the word employee

[00:25:02] Speaker 02:
always means the direct employee of an individual employer.

[00:25:06] Speaker 02:
As you look to the direct common law employer.

[00:25:09] Speaker 02:
That's what Darden's, that's what Nationwide Insurance Company versus Darden says, that's what Camille Emanuel says.

[00:25:14] Speaker 02:
And another way to understand this is that when Congress enacted ERISA, it made the word employer, to a limited extent, a term of art.

[00:25:23] Speaker 02:
It says that

[00:25:24] Speaker 02:
In addition to having its common law meaning, employer can also, in some cases, mean someone who acts in the interest of an employer.

[00:25:30] Speaker 02:
However, Congress did not, when it enacted the definition of employee in Orissa Section 3.6, make the word employee a term of art.

[00:25:39] Speaker 02:
That word has only its original common law meaning.

[00:25:41] Speaker 02:
And so, for example, in the MIWA manual, what DOL says is that

[00:25:46] Speaker 02:
Even if a group or association qualifies as an employer for purposes of ERISA, the employees are still counted only as employees of each individual employer.

[00:26:01] Speaker 02:
So that means that even if DOL's interpretation of ERISA were reasonable,

[00:26:07] Speaker 02:
All that would mean is that they qualify as an employer.

[00:26:10] Speaker 02:
It does not qualify them as a large employer.

[00:26:12] Speaker 02:
There is an incorrect intuitive leap in the final rule that if you qualify as an employer, then it's simply a matter of counting employees and being a large employer.

[00:26:22] Speaker 00:
And that intuitive leap is incorrect.

[00:26:23] Speaker 00:
I got that, but could you just focus on this one question that I asked your counsel for the government there, which is

[00:26:30] Speaker 00:
Do we actually, does this court have to go beyond deciding the straightforward or risk question?

[00:26:38] Speaker 00:
That is, does the final rule survive Chevron too?

[00:26:43] Speaker 00:
That's all.

[00:26:44] Speaker 00:
Do we have to go beyond that?

[00:26:45] Speaker 00:
Do we have to say anything about the Affordable Care Act in this case?

[00:26:49] Speaker 02:
If the court agrees with the court below that the... No, forget the court below.

[00:26:56] Speaker 00:
Just talk about this court.

[00:26:58] Speaker 00:
Do we have to decide that question?

[00:27:01] Speaker 00:
Let's assume that we, obviously, if we struck down the definition of

[00:27:09] Speaker 00:
the final order, then that would end the case.

[00:27:13] Speaker 00:
But let's assume that we agreed with the government that this does survive Chevron, too.

[00:27:20] Speaker 00:
It's just a hypothetical, okay?

[00:27:23] Speaker 00:
Let's just assume we do.

[00:27:24] Speaker 00:
And that's all we decide.

[00:27:27] Speaker 00:
Then the question of what effect this has on the Affordable Care Act and the ability

[00:27:38] Speaker 00:
small employers who are now able to join bona fide associations, their ability to qualify in the major market, that's a different question for another case.

[00:27:51] Speaker 00:
You have to wait and see how HHS interprets the statute.

[00:27:55] Speaker 02:
So I would disagree with the very last part of that.

[00:27:59] Speaker 02:
It is a question that is presented in this particular case.

[00:28:02] Speaker 00:
It is.

[00:28:02] Speaker 00:
Tell me why.

[00:28:03] Speaker 02:
So as this court has recognized in a number of cases, the

[00:28:09] Speaker 02:
When there is an interpretation, even if it's in the preamble to the rule, if there is one interpretation that is central to the rule, the rule cannot evade, cannot escape the, cannot escape review of that interpretive principle based on the fact that it doesn't happen to mention that in the portion that's actually going into the CFR.

[00:28:27] Speaker 03:
So is that?

[00:28:28] Speaker 03:
Well, it's true if legally operative text in a rule rests on an interpretation that's expressed in the preamble.

[00:28:37] Speaker 03:
I hear that the interpretation expressed in the preamble doesn't seem to bear on any question about what the rule means.

[00:28:48] Speaker 03:
It's just a statement about the downstream effectiveness or not when someone

[00:28:57] Speaker 03:
starts to figure out what are the consequences of this ERISA rule for purposes of the Affordable Care Act.

[00:29:04] Speaker 00:
Just to add to Judge Katz's question, actually the Labor Department has no authority to interpret the provisions

[00:29:13] Speaker 00:
of the Affordable Care Act.

[00:29:14] Speaker 00:
So whatever it says in the preamble is not something we would defer to anyway.

[00:29:19] Speaker 02:
Is that right?

[00:29:20] Speaker 02:
The last part, that they don't have the power to interpret the Affordable Care Act, that is certainly true.

[00:29:25] Speaker 02:
But it is something that works against them here, not for them, because there are, as we lay out in our brief, there are provisions that require the term employer to be interpreted with the same effect.

[00:29:34] Speaker 02:
throughout, everywhere that it is used.

[00:29:37] Speaker 02:
They have done more than merely say, oh, here's how we think it's going to affect the aggregation principle.

[00:29:42] Speaker 02:
They have also said, oh, it does not apply for purposes of the employer mandate or, in fact, for any purpose other than the aggregation principle.

[00:29:51] Speaker 02:
So by attempting to so limit the effect of the rule,

[00:29:55] Speaker 02:
It is also a basis on which this court could conclude that the rationale for the rule is arbitrary and compressive.

[00:30:02] Speaker 02:
The reason they have given for reinterpreting ERISA is based entirely on the Affordable Care Act and not based on ERISA itself.

[00:30:10] Speaker 02:
They don't give any reasons relative to the purposes or policies underlying ERISA to sustain the rule.

[00:30:16] Speaker 02:
They merely say, this will be helpful in avoiding the requirements of the ACM.

[00:30:20] Speaker 00:
OK, but that means for us to accept your argument, the one I was teasing out with government counsel.

[00:30:24] Speaker 00:
about this is that we have to, in order to accept that argument, we have to agree with you that the word employee in the definition is, in fact, unambiguous and that the Department of Labor's interpretation is inaccurate, right?

[00:30:43] Speaker 02:
You said the word employee?

[00:30:45] Speaker 00:
Yeah, I'm sorry.

[00:30:46] Speaker 00:
Employee.

[00:30:48] Speaker 02:
Yeah, employee.

[00:30:49] Speaker 02:
So, well, first of all, the word Supreme Court in nationwide mutual insurance company versus Darden did say that the word employee always has a specific common law meaning, and DOL itself has never disputed that.

[00:31:01] Speaker 02:
So the fact that the final rule attempts to interpret the word employer in isolation, and in fact, it attempts to interpret the words

[00:31:08] Speaker 02:
in the interest of in isolation, not removed from the broader statutory context of ERISA, shows that they are trying to drive a truck through a very small hole to attempt to rework how the ACA works by changing a definition in a much older statute and changing it for only one purpose, which again is why it is before the court in this case.

[00:31:33] Speaker 03:
I would say also that- But just on ERISA, your

[00:31:37] Speaker 03:
position, if I'm following it, is that employer and employee are not mirror images.

[00:31:49] Speaker 02:
That is exactly right, Judge Casas.

[00:31:50] Speaker 02:
They are not mirror images.

[00:31:51] Speaker 03:
The ERISA piece of this goes to the non-intuitive, non-common law

[00:32:01] Speaker 03:
statutory definition of employer.

[00:32:04] Speaker 02:
And your ACA argument focuses on the employee piece of it.

[00:32:18] Speaker 02:
an interpretive assumption that is incorrect.

[00:32:21] Speaker 03:
If your background rule is right, which is that the way this scheme works, rules governing who is an employer don't necessarily govern who is an employee, seems like that's further ground for the minimalist disposition that Judge Tatel suggests, which is we deal with the employer concept under ERISA and we leave open

[00:32:48] Speaker 03:
the employee questions under the ACA.

[00:32:51] Speaker 02:
The court should go ahead and confront the gap in the rule because of the agency's failure to grapple with the separate definition of employee, which is a necessary step to get to the aggregation principle that the rule actually states.

[00:33:11] Speaker 02:
No agency has ever actually looked at the text of the ACA and looked at the employer who employed language, the language that says a large employer is an employer who employed an average of at least 51 employees from 42 USC 18024 B1.

[00:33:28] Speaker 02:
No agency has looked at that language and concluded, oh, it is reasonable to conclude from that language

[00:33:32] Speaker 02:
that an association can count its employees.

[00:33:36] Speaker 00:
The Council told me that the CMS bulletin does do that.

[00:33:39] Speaker 02:
It does not.

[00:33:40] Speaker 02:
The CMS rule, the main thrust of the CMS bulletin is to say that you look to the size of the individual employer.

[00:33:46] Speaker 02:
It then says, quote, it speculates that there may be, quote, rare instances in which you look to the size of the employer.

[00:33:52] Speaker 02:
But there is no textual, size of the association, but there is no textual analysis associated with that rare instances suggestion.

[00:33:59] Speaker 02:
It is just

[00:33:59] Speaker 02:
a throwaway line by another agency.

[00:34:03] Speaker 00:
You agree that it's HHS that has the authority to interpret this language, not the labor.

[00:34:09] Speaker 00:
Let me just finish my question.

[00:34:11] Speaker 00:
I hear your point that, because I asked government counsel the same question, if the reason DOL has modified the criteria for bona fide associations is

[00:34:29] Speaker 00:
to accomplish a purpose that is unlawful, namely under the Affordable Care Act.

[00:34:36] Speaker 00:
I understand your point that that would make, you could argue that would make the rule arbitrary and capricious, even if it was on its face a reasonable interpretation of ERISA.

[00:34:46] Speaker 00:
But how can we make that judgment since HHS has not yet interpreted these provisions?

[00:34:52] Speaker 02:
Well, that's just put around, because if one agency is reliant... Sorry, go ahead.

[00:34:57] Speaker 00:
You just told me that HHS hasn't ever interpreted this language.

[00:35:03] Speaker 00:
Right.

[00:35:04] Speaker 00:
And since it's entitled to Chevron deference, unless we're prepared to say the language is unambiguous, then how can we say, in this case,

[00:35:12] Speaker 00:
that the Department of Labor's rationale is arbitrary and capricious if the agency, if HHS has interpreted that language.

[00:35:19] Speaker 02:
Because when a statutory interpretation question comes first to a court before an agency, then the court should arrive at the correct interpretation of the rule.

[00:35:27] Speaker 00:
There was a case a couple of years ago.

[00:35:29] Speaker 00:
I mean, why would we interpret that statute?

[00:35:34] Speaker 00:
If HHS interpreted it, we would defer to it if it was reasonable, correct?

[00:35:38] Speaker 02:
If it was reasonable and that, yes.

[00:35:42] Speaker 00:
So why wouldn't we say in this case, okay, we're going to decide the ERISA question, just like the district judge did, and we're going to leave its impact on the Affordable Care Act

[00:35:56] Speaker 00:
to be worked out later and litigated once we have the agency's interpretation of that language, which is under the statute responsible for interpreting it.

[00:36:06] Speaker 02:
Because that's not what this court has historically done when it's confronted with a regulation.

[00:36:09] Speaker 02:
Really?

[00:36:11] Speaker 02:
When this court has been confronted with a regulation that assumes the correctness of another interpretation that has never actually been aired, this court has gone ahead and concluded that.

[00:36:22] Speaker 00:
Can you give me a case that says that?

[00:36:24] Speaker 00:
I'm sorry?

[00:36:25] Speaker 00:
What case would you cite?

[00:36:26] Speaker 02:
I'm blanking on the name of the case, but there was a case a couple of years ago in which Judge Henderson referred to the cross your fingers and hope it goes away principle of statutory interpretation.

[00:36:36] Speaker 02:
That is what we have here.

[00:36:38] Speaker 00:
Sorry?

[00:36:39] Speaker 00:
You said one might use that for this whole case.

[00:36:44] Speaker 00:
I thought your answer, by the way, would have been, well, look, it's unambiguous.

[00:36:50] Speaker 00:
You don't have to wait for HHS.

[00:36:52] Speaker 02:
That is also true.

[00:36:53] Speaker 02:
As I said before, the Supreme Court has unambiguously interpreted the word employee under Nationwide Insurance Company.

[00:37:00] Speaker 02:
So you wouldn't get to shovel on step two in an interpretation of employee.

[00:37:05] Speaker 03:
But what we have here is a circumstance where DOL has- I mean, that's a harder lift for you, right?

[00:37:12] Speaker 03:
If we think your interpretation of the ACA is the more plausible one, but it's a 55-45 case, that's not the same as saying that this issue is so clear that you can win

[00:37:31] Speaker 02:
Well, what's clear at a minimum about the word employee from Nationwide or from the MUA manual is that the employee only connects back to the direct common law employer.

[00:37:40] Speaker 02:
There's no ambiguity about that.

[00:37:42] Speaker 02:
But even if that weren't true, the problem here is that what DOL is relying on, DOL is attempting to base an aggregation principle that will fundamentally change

[00:37:51] Speaker 02:
how the market size definitions that are central to the ACA, how they will work by relying on an assumption that the aggregation principle works, even though neither DOL nor HHS has done the work of reaching that interpretation, nor could they because it would violate the plain text of the Affordable Care Act.

[00:38:12] Speaker 02:
And there are a couple of additional problems.

[00:38:13] Speaker 00:
Can I just interrupt and ask this?

[00:38:15] Speaker 00:
I'm sorry.

[00:38:15] Speaker 00:
I just don't want to lose my thought.

[00:38:17] Speaker 00:
Do you care about the interpretation of a risk of beyond

[00:38:22] Speaker 00:
its impact on the Affordable Care Act?

[00:38:25] Speaker 02:
For purposes of this case, what we're concerned about is that the final rule states an aggregation principle.

[00:38:31] Speaker 00:
Yeah, I got that.

[00:38:33] Speaker 00:
But setting aside the aggregation principle for purposes of the Affordable Care Act, you don't really care about this interpretation of arrested, do you?

[00:38:43] Speaker 02:
It is an unreasonable interpretation of ERISA, but at the end of the day, we care about... That's not why you're here.

[00:38:50] Speaker 02:
We are here because they are attempting to change the way the Affordable Care Act works.

[00:38:54] Speaker 02:
And they have said in the rule that the only reason that they are adopting this rule is to change how the Affordable Care Act works.

[00:39:02] Speaker 02:
And there are a couple of final points I'd like to make about this.

[00:39:07] Speaker 02:
First of all, DOL has no delegation of authority to change how the ACA works.

[00:39:12] Speaker 02:
As in cases such as King v. Burwell or Brown v. Williamson, the court should apply a measure of common sense as to whether Congress intended this agency to have the authority to change the operation of a statute that is fundamentally delegated to a different agency.

[00:39:28] Speaker 02:
They are also affirmatively violating a provision in 26 U.S.C.

[00:39:34] Speaker 02:
4980 H.C.

[00:39:36] Speaker 02:
6, which says any term in this section, which is also used in the Patient Protection and Affordable Care Act, shall have the same meaning as when used in such act.

[00:39:44] Speaker 02:
But that section I just quoted, that's the employer mandate.

[00:39:47] Speaker 02:
And they are affirmatively saying that their reinterpretation of employer does not apply to that provision.

[00:39:53] Speaker 02:
So setting aside whether you think the definition of large employer is unambiguous or whatever receives Chevron deference, they have a separate problem in that they have made an affirmative

[00:40:05] Speaker 02:
They have affirmatively said this word is not going to apply the same in the employer mandate, even though there's a provision in the employer mandate saying that they have to give it the same interpretation.

[00:40:15] Speaker 02:
That is an independent basis on which this court can declare the final rule to violate the Affordable Care Act.

[00:40:22] Speaker 02:
And finally, I would say that the paradox of what they have done is that under the final rule,

[00:40:32] Speaker 02:
Employees of small employers who join an association that, if the final will repel, we get to count as a single large employer, will have the least protection from the Affordable Care Act of any employees in the country.

[00:40:45] Speaker 02:
Because Congress intended employees of small employers to have the greatest protection.

[00:40:50] Speaker 02:
And then employees of large employers would have at least the protection that comes from the employer mandate, which requires the payment of the mandate if the large employer does not provide 50% of essential health benefits.

[00:41:02] Speaker 02:
But under the final rule, directly contrary to Congress's intent, the employees of small employers would now have effectively no statutory protections that apply to either the small group or large group markets, which is contrary to Congress's intent and suggests that the department has gone beyond the delegation of authority Congress intended to have.

[00:41:24] Speaker 02:
Thank you.

[00:41:25] Speaker 01:
Does Mr. Shee have any time left?

[00:41:29] Speaker 01:
Why don't you take two minutes?

[00:41:35] Speaker 03:
Can I just ask you, if you assume for the sake of argument that we agree with New York about the meaning of the Affordable Care Act, would you still want this rule on the ERISA side?

[00:41:50] Speaker 03:
Yes.

[00:41:52] Speaker 04:
Okay.

[00:41:52] Speaker 04:
Why?

[00:41:53] Speaker 04:
So as we explain on the very first page of the rule, and you can find it on page 222 of the Joint Appendix, third column on the top,

[00:42:03] Speaker 04:
That paragraph, I think, is probably the most succinct explanation for why the Department of Labor wants the rule.

[00:42:09] Speaker 04:
I'm sorry, which column?

[00:42:10] Speaker 04:
The third column, first full paragraph.

[00:42:13] Speaker 04:
It says, this is an innovative option for expanding access to employer-sponsored coverage.

[00:42:18] Speaker 04:
Working owners, here's where it talks about things such as the ACA, the regulatory complexity and burden that currently characterizes the market for individual and small group health coverage.

[00:42:27] Speaker 04:
But then the entire rest of that paragraph has nothing whatsoever.

[00:42:30] Speaker 04:
to do with the ACA.

[00:42:32] Speaker 04:
So it explains, for example, that association health plans can help reduce the cost of health coverage by giving groups increased bargaining power vis-a-vis hospitals, doctors, and pharmacy benefit providers.

[00:42:43] Speaker 03:
Then it says more economies of scale.

[00:42:47] Speaker 03:
Does that work?

[00:42:48] Speaker 03:
Again, assume for the sake of argument that your opponents are right about the Affordable Care Act.

[00:42:55] Speaker 03:
Can a group plan work if

[00:43:00] Speaker 03:
you have all the different constituent employers and some are individual employers and some are small employers and some are large employers and that triggers three entirely different regulatory schemes under the ACA and all of that is subsumed in one plan.

[00:43:22] Speaker 03:
We think it would certainly be hard.

[00:43:24] Speaker 04:
Right, and I think that's why CMS and IRS have interpreted the Affordable Care Act with respect to not only plans created under the rule, but way back in the day, plans created under the old guidance, to not be subject to that sort of regulatory complexity.

[00:43:40] Speaker 03:
Yeah, but you're fighting, now you're fighting the hypo.

[00:43:43] Speaker 03:
Assume New York is right on the Affordable Care Act.

[00:43:46] Speaker 03:
Could plans work with

[00:43:50] Speaker 03:
underlying employees subject in the same group plan, subject to the three different tiers of ACA regulation?

[00:44:01] Speaker 04:
I don't want to get out too far in front of the agency because, you know, the agency didn't have to address that because it just relied on what the other agencies have said about how the ACA applies to these plans.

[00:44:11] Speaker 04:
But what I would say is, like, yes, Your Honor, it would make it

[00:44:15] Speaker 04:
harder, and that would be a consideration for the agency to take into account if you disagree with what those agencies have done with respect to all association health plans.

[00:44:23] Speaker 04:
But whatever the court thinks about that question, it is emphatically not before it, because that would be more of an arbitrary capricious challenge to what the Department of Labor has done.

[00:44:34] Speaker 04:
And as page 48 of the brief explains.

[00:44:37] Speaker 03:
And you think the paragraph that you cited to me would support the proposition that there are independent benefits.

[00:44:46] Speaker 03:
Even if my instinct is right that that three tier scheme would collapse, you could at least have group plans where every employer is in the small market.

[00:44:56] Speaker 03:
Absolutely, unless the court has further questions.