Labor Department Lawsuit Could Expand Lower-Cost, Less-Protective Health Plans

A long-running lawsuit over who qualifies as an employee — and who can therefore access employer-sponsored health coverage — is drawing close attention from health policy experts. The result could encourage the growth of cheaper insurance plans that offer fewer protections and less comprehensive benefits.

Court filings suggest that a settlement in the case against the Department of Labor may be possible, though the terms of any agreement remain unclear.

The dispute comes as premiums on Affordable Care Act marketplaces continue to rise, prompting millions of people to drop coverage this year. The Trump administration has also pushed to expand alternative insurance options, including short-term plans that do not follow ACA rules on preexisting conditions or required benefits.

“Depending on what happens with the settlement, this could be an even bigger expansion,” said Katie Keith, director of the Center for Health Policy and the Law at Georgetown University Law Center. “People are worried that it is the opening salvo into promoting junk plans that don’t meet the ACA requirements.”

The plaintiff, Data Marketing Partnership, filed the lawsuit in 2019 during the first Trump administration. The company is seeking formal recognition as an employer so its limited partners can continue buying into a form of job-based health insurance that is not subject to state insurance rules and does not have to provide the same level of coverage required under the ACA.

Understanding the case requires looking closely at how the coverage is structured.

Consumers may encounter the arrangement, often described as “limited partnership” coverage, through online marketing or other promotional channels. The offer is insurance through Data Marketing Partnership, administered by LP Management Services. To qualify, consumers must download an app that monitors their internet searches. The company may then sell that data.

Some people may be deterred by the tracking requirement. Others may see it as a trade-off that allows them to become limited partners and gain access to the company’s employee health plans. The unresolved legal question is whether those partners can legally be treated as employees.

The court’s decision could have broad consequences for regulators and consumers. Health policy and insurance market experts warn that approval of the arrangement could lead to a surge in aggressively marketed, lightly regulated plans that leave consumers with few protections because they would fall outside state oversight.

“If this took off, you logically could see the rise of a whole bunch of what, functionally, would be unregulated insurance companies,” said Ali Khawar, who served as principal deputy assistant secretary at the Department of Labor’s Employee Benefits Security Administration during the Biden administration and now runs a consulting firm.

It remains unclear whether the department will shift its longstanding position in the case. Any settlement, however, could introduce further uncertainty into insurance markets.

Insurers are already seeking double-digit premium increases for ACA coverage next year, partly because declining enrollment often means healthier policyholders are leaving first. That trend could intensify if more consumers are drawn toward alternatives such as limited-partnership policies.

States React as Federal Litigation Continues

The Department of Labor defended its position through both the first Trump administration and the Biden administration. In a strongly worded advisory opinion issued in early 2020, the agency said people who merely download software to “capture data as they browse the Internet” are not “employees or bona fide partners.”

A federal district judge in Texas — the same judge who had previously ruled the ACA unconstitutional in a decision later rejected by the Supreme Court — called that advisory opinion “arbitrary and capricious” in a 2020 ruling favoring the data marketing company. The U.S. Court of Appeals for the 5th Circuit largely upheld the lower court’s decision but sent the case back for further review of whether someone who downloads the software could be considered a “working owner” or a “bona fide partner.”

The employer-employee relationship is central because of a 1974 federal law created to help large, self-insured employers offer retirement and health benefits to workers without complying with different rules across multiple states.

That law, the Employee Retirement Income Security Act, allows these plans to avoid most state insurance regulations, which typically govern other kinds of coverage and help consumers resolve problems with their policies. As self-insured employer plans, they also do not have to comply with certain ACA requirements, including coverage for 10 broad categories of “essential health benefits.”

“If the case goes the wrong way, it could impact consumers or hamstring the states,” said Marie Grant, Maryland’s insurance commissioner.

Disputes over what counts as an employer-sponsored plan are not new, and other organizations have tried to market similar coverage. Several states have taken action against companies selling limited-partnership policies.

In 2024, Maryland fined The Vitamin Patch after investigating complaints and determining that the company was not licensed to sell insurance in the state.

Washington ordered another company to stop offering its plans in 2021 and assessed a $25,000 penalty.

Maine and Connecticut warned consumers in 2024 about this kind of coverage.

“These plans do not provide comprehensive medical coverage and can leave consumers with large, unpaid medical bills,” Connecticut’s notice said.

Maine’s announcement identified several entities offering these types of health insurance arrangements, including The Vitamin Patch, Affiliated Workers Alliance, Consumer Data Partners, Employers Business Alliance, Socios Buenos, and Strategic Limited Partners.

State insurance commissioners filed legal arguments in the Department of Labor case, warning that they could lose the ability to enforce consumer protections if the plans are treated as employer coverage.

“This is not a Republican-Democrat thing,” Khawar said. “It’s really a story about state authority, the way such authority would be significantly undermined in insurance markets.”

What Consumers Could Face

Supporters of limited-partnership plans argue that they provide another option for consumers and may cost less than ACA marketplace coverage.

When the lawsuit was filed, attorneys general from seven conservative-leaning states urged the Department of Labor to approve Data Marketing’s request to classify its limited partners as employees. They said the arrangement could help people who “earn too much to qualify” for ACA subsidies and serve as a temporary option until the law could be repealed and replaced. They also argued that states would keep some regulatory authority and that the Department of Labor, which oversees self-insured employer plans, could establish requirements to “encourage” financially stable companies to enter the market.

The attorneys general acknowledged that critics might argue ACA alternatives could pull younger and healthier people out of the marketplace, raising costs for those who remain. They countered that this shift had already occurred.

Data Marketing’s attorneys told KFF Health News they could not comment because the case is in active litigation. Neither the White House nor the Centers for Medicare & Medicaid Services, which oversees the ACA marketplaces, responded to questions about whether the Department of Labor has changed its position or how the administration views limited-partnership health plans.

In court filings, however, Data Marketing said it would have to end the insurance coverage without an employer designation, affecting about 50,000 policyholders. The company also argued that losing the coverage would hurt its revenue because the insurance is “a significant attractor” for people to join the partnership and allow access to their electronic data.

Ellen Montz, who helped oversee ACA implementation in the Biden administration and is now a managing director at Manatt Health, offered a different assessment. “The only reason why these sorts of products exist is because they aren’t beholden to consumer protection rules of the ACA and can essentially make money by attracting good risk, people who are healthy,” she said.

Grant, Maryland’s insurance commissioner, echoed that concern, warning that wider use of these plans could push ACA premiums even higher if older or sicker consumers are left in the marketplace while healthier people move elsewhere.

Nineteen patient advocacy groups sent a letter to the Department of Labor on Aug. 11 urging it to continue defending the case. They warned that a settlement recognizing these arrangements as creating an employer-employee relationship could “significantly” weaken “both state regulatory authority and decades of bipartisan efforts to promote stable, well-functioning health insurance markets.” Some of the groups had filed a legal brief supporting the department in 2021.

Days after that letter, U.S. Rep. Bobby Scott, D-Va., the ranking member of the House Education and Workforce Committee, warned the department against expanding “questionable employment relationships” and the insurance products tied to them.

He cited reports of call centers misleading consumers “who think they are enrolling in comprehensive health insurance but instead sign up for junk coverage under the guise of creating an employment relationship with what the consumer believed to be a traditional health insurer.”

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