Sep, 26, 2025

Ruling in Challenge to Marketplace Rule: Initial Analysis and Implications for States 

This expert perspective was updated on August 25 and 27 and September 2 and 26 to reflect a series of developments related to an appeal filed by the Department of Justice, clarifications about the ruling, and new CMS guidance.

Jason Levitis, Urban Institute, and Sabrina Corlette, Georgetown CHIR 

On August 22, a federal District Court judge in Maryland stayed, on a nationwide basis, the implementation of several provisions in the Centers for Medicare & Medicaid Services (CMS) “Marketplace Integrity” final rule. On September 18, the Fourth Circuit Court of Appeals denied the government’s request for emergency relief from the District Court’s decision. As a result, key provisions of the Marketplace Integrity rule will not take effect immediately and will remain on hold while the litigation proceeds. Given these developments and other recent policy changes, CMS is providing insurers in the federal Marketplace an opportunity to revise their 2026 rating filings and encouraging states that run their own Marketplaces to do the same.

The plaintiffs in the case, City of Columbus v. Kennedy, sought relief from eight provisions of the final rule.[1] The effective dates in the Marketplace Integrity rule made some provisions effective as soon as August 25, 2025, and others for the upcoming open enrollment period. The District Court granted an emergency stay of six of the eight provisions, finding that the plaintiffs had shown a “strong likelihood” of success in their claims against those provisions.

The U.S. Department of Justice (DOJ) filed a notice of appeal on August 28 and then on August 29 requested emergency relief from the District Court’s decision, but only with respect to the actuarial value provision (described below). The plaintiffs opposed this relief, asking for the District Court’s stay to remain in place while litigation proceeds. After the Appeals Court agreed, CMS indicated that it would comply with the District Court’s ruling on the actuarial value provision.

As a result of these developments, the following provisions do not take effect as previously scheduled:

  • New requirements to create “data matching issues.” The Marketplace rule requires some applicants with attested income under 100% of the federal poverty level (FPL) and those for whom no federal tax data is available to provide additional documentation supporting their income attestations. The rule made this change effective August 25, 2025 through the 2026 plan year. This provision is now stayed while the litigation proceeds.[2]
  • Permitting coverage denials for past-due premiums. The Marketplace rule provides that issuers may deny coverage to consumers with past-due premiums, notwithstanding the Affordable Care Act’s guaranteed issue requirements. The rule made this change on a permanent basis effective August 25, 2025. This provision is now stayed while the litigation proceeds.
  • Expanding actuarial value (AV) de minimis ranges to permit less generous plans. The Marketplace rule expands the ranges of permissible AVs a plan may have to satisfy the AV requirements for metal levels and cost-sharing reduction variants. The rule made this change on a permanent basis beginning with plan year 2026. This provision is now stayed while the litigation proceeds.
  • Imposing a $5 premium for automatic re-enrollees [Federally-Facilitated Marketplace (FFM) only]. The Marketplace rule provides that the FFM will reduce advanced premium tax credits payments (APTC) for individuals who are automatically re-enrolled in coverage with a zero-dollar net premium. The rule made this change effective for plan year 2026 only (so it would apply during the open enrollment period beginning November 1, 2025). This provision is now stayed while the litigation proceeds. (Separately, H.R.1 effectively eliminates automatic re-enrollment in all Marketplaces effective starting with plan year 2028.)
  • Requiring additional documentation for special enrollment periods (FFM only). The Marketplace rule provides that the FFM will require applicants seeking a special enrollment period (SEP) to submit additional documentation to verify SEP eligibility. The rule made this change effective for plan year 2026 only (so it would apply during the open enrollment period beginning November 1, 2025). This provision is now stayed while the litigation proceeds.

 

In addition, the ruling found no statutory basis for CMS’ long-standing “failure to reconcile” (FTR) rules in either their current or new form. The Marketplace rule provided that—for plan year 2026 only—APTC are cut off when the Internal Revenue Service indicates that an enrollee has failed to reconcile prior APTC for a single year, replacing the Biden-era rule that APTC were cut off after two consecutive years. Given that the statute clearly delineates APTC eligibility rules without any reference to the reconciliation requirement, the Court found that both FTR rules likely lack statutory support. The Court’s Order is not entirely clear on whether its stay applies to FTR rules broadly or merely to the new, tighter FTR rules. CMS’ initial guidance reflecting the Court’s ruling suggested that FTR rules were completely on hold. But on September 23, this guidance was updated to indicate that the two-year rules would remain in effect in 2026, while also noting that it will “continue to work with [state Marketplaces] as they update us on their operational capabilities and timelines.” Faced with this shifting landscape and any operational limitations, state Marketplaces will need to determine how to respond. (Separately, H.R.1 effectively imposes the one-year FTR rule starting with plan year 2028.)

The judge declined to grant relief with respect to CMS’ changes to the premium adjustment percentage methodology and the revocation of the 60-day extension to the time period to resolve data matching issues.

In light of these developments and other recent policy changes (for example, CMS’ recent announcement regarding expanded eligibility for catastrophic plans), CMS has announced that it will open a window for insurers in the FFM to revise their plan submissions. CMS has suggested that states with State-Based Marketplaces should take similar actions, extended the deadline for these states to finalize their rates from October 15 to October 22, and reminded issuers in these states of the need to comply.

This case is separate from the challenge to the rule brought by state attorneys general in State of California v. Kennedy, which also challenges additional provisions of the rule. At this time, there has not yet been a decision in that case.

States should consult with their attorney general’s office or other counsel about how to proceed. SHVS is available to keep states informed about the evolving legal and policy changes. If you have questions, please contact us here.

[1] The City of Columbus plaintiffs did not challenge provisions of the Marketplace final rule relating to eligibility for Deferred Action for Childhood Arrivals (DACA) recipients, coverage of treatment for gender dysphoria, the special enrollment period for people under 150% FPL, and the standard for actions against brokers and agents.

[2] While the Court’s Opinion makes clear that it stayed the rule’s provision relating to situations where tax data is unavailable, that relief was not reflected in the text of the Court’s original Order. On August 25, 2025, the Court granted a plaintiffs’ motion to update the Order to clarify that that provision is stayed.