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Court Settles Dustup Over Obamacare-Linked Charges

WASHINGTON (CN) - The D.C. Circuit refused Tuesday to revive a challenge by life insurers after the District of Columbia's health insurance exchange saddled them with fees to overcome a funding shortfall.

Finding that the fees qualify as taxes under President Barack Obama's health care law, the court said it lacks jurisdiction to hear the challenge.

The District of Columbia opened its Health Benefit Exchange Authority to comply with the Patient Protection and Affordable Care Act in 2010,

Though the government had provided initial funding to get exchanges off the ground, the funding was set to expire at the end of 2014. D.C.'s exchange became cash-strapped quickly, with estimates suggesting the exchange would run costs 10 times its operating budget.

Exchanges in other states charged user fees to participating health insurance issuers, but D.C.'s exchange sought to meet the funding shortfall by levying a charge against all insurance policies above a certain premium threshold sold in its borders.

The American Council of Life Insurers balked because the gambit involved charging products like long-term care insurance that are not even traded on the exchange.

"In effect, the emergency legislation imposes 'user fees' on non-users," the council said in a 2014 federal complaint.

D.C. told the court that the challenged user fees were in fact a tax, however, and the D.C. Circuit affirmed a federal judge's dismissal of the case Tuesday.

Even though the exchange initially described the fees charges, they represent a tax that the council lacks standing to challenge in federal court, according to the ruling.

"Of course, all charges raise revenue," Judge Stephen Williams wrote for a three-person panel. "The key question is whether a charge raises revenue merely to cover the cost of offering a service to the payers of the fee ... or whether it also raises revenue for purposes that aren't especially beneficial or useful to the payers, or required for pursuit of their businesses."

Unlike the taxes at issue here, charges are more likely to be levied by an administrative agency, rather than a legislature; they typically target a more narrow population; and the revenue is less widely used, the court found.

"When benefit and burden do not at least roughly correspond, a charge is a tax," Williams wrote.

The ruling emphasizes that the insurers received "no immediate benefit in exchange for their payment of the charge."

"The majority of the funds raised by the charge come from premiums for policies not traded on the exchange," Williams added. "Such redistribution of resources marks the charge as a tax."

In a statement, the council highlighted the court's finding that its members received no immediate benefit from the health exchange charges.

It said the jurisdictional ruling provided it with "a clean slate."

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