Court: Iowa Universities Can’t Be Sued for Unpaid Insurance Fees

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Iowa’s three public universities cannot be sued for allegedly refusing to pay their share into a state program that subsidizes insurance for Iowa residents who have health risks, the Iowa Court of Appeals has ruled.

The program, known as the Iowa Individual Health Benefit Reinsurance Association, lost the legal authority to file lawsuits under a 2001 state law, the three-member panel ruled unanimously. The ruling dismisses a case that has major financial implications for the three universities and dozens of other employers and insurers who pay into the health fund.

Iowa lawmakers created the program in 1995 to help state residents who had pre-existing medical conditions that left them unable to obtain coverage, requiring insurers to sell basic plans at below-market rates.

To pay for the insurers’ losses, the association charges annual assessments to employers that fund their own health care plans in proportion to their market share. The idea is to spread out the expense of covering the high-risk population among all insurers. Tens of thousands of Iowa residents have obtained policies through the program over the years.

The association contended that the universities, like the state of Iowa and school districts and municipalities with self-funded plans, are members of the association and required to pay the assessments. For years, the schools agreed: Iowa State University and the University of Northern Iowa paid starting in 1997. But after the University of Iowa became self-insured in 2010, all three universities contended they were not covered by the law and didn’t have to pay.

The association charged the UI $508,000, ISU $198,000 and UNI $78,000 to cover their share for 2010 — about 5 percent of the $16.7 million in insurance losses that year. The universities have since declined to submit information required to calculate annual assessments, and have been charged similar amounts every year since.

The association filed suit in 2013 seeking to collect what was then estimated at $1.5 million in debt for two years of unpaid assessments, warning that other members will eventually see major rate hikes if the schools can opt out. The total in dispute has grown since then.

Before the merits of the case were debated, the universities sought to dismiss the lawsuit by arguing the association didn’t have the power to sue. A judge agreed.

Judge Amanda Potterfield noted in the June 24 ruling that lawmakers specifically took away the association’s right to sue, including its ability to seek recovery of assessments, in a 2001 amendment. The association argued that, as a nonprofit corporation, it had that authority.

The association’s attorney, Greg Lederer, said his client would consider asking the Iowa Supreme Court for further review.

“I am amazed that this case has not received more attention,” he said. “All of the members of the association are paying for the refusal of the state universities to pay their assessments. There are people and entities all over the state that are going, ‘ouch’.”