The Legal Battle Over Health Plans Could Let Insurers Skip Key Protections

What's at Stake in This Legal Battle?

At its core, this case hinges on a fundamental question: Are people who sign up for a certain type of health plan through Data Marketing Partnership (DMP) employees? If so, they could be eligible for coverage under federal laws that protect workers and ensure comprehensive benefits. If not, those plans would be treated more like private insurance products — and potentially exempt from many consumer protections.

The Department of Labor has long maintained that individuals who simply download an app to track their internet browsing are not employees. But the court's decision could have far-reaching consequences for how health coverage is structured and regulated in the United States.

"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, former principal deputy assistant secretary of the Department of Labor's Employee Benefits Security Administration.

This case matters because it's about more than just one company or a few dozen people. It touches on how self-insured employer plans operate under the Employee Retirement Income Security Act (ERISA), which allows large employers to offer benefits without having to comply with state insurance regulations. When those rules don't apply, consumers may end up with policies that are cheaper but less comprehensive.

How the Plan Works

The Data Marketing Partnership model works like this: A consumer signs up for a limited partnership health plan through an app that tracks their online behavior. In return, they gain access to a group of employees' health insurance — something they might not otherwise qualify for. But here's where things get complicated: Are those consumers employees?

The case has been simmering since 2019, with arguments made both ways. Proponents say these plans provide an affordable alternative for people who earn too much to qualify for ACA subsidies but can't afford full-coverage policies. Critics worry about how the lack of oversight might affect consumer safety and market stability.

Why State Regulators Are Concerned

States have historically played a major role in regulating insurance markets, ensuring that consumers receive basic protections such as coverage for preexisting conditions and essential health benefits. If the court sides with DMP, it could significantly weaken state authority in these areas.

Maryland's insurance commissioner, Marie Grant, expressed her concerns clearly: "If the case goes the wrong way, it could impact consumers or hamstring the states." That warning reflects a growing trend among state officials who fear that unregulated plans could erode consumer protections across the country.

Several states have already taken action. In 2024, Maryland fined The Vitamin Patch for offering unauthorized health insurance, and Washington ordered another company to stop selling its plans in the state after finding violations. These cases show how quickly regulators can respond when they see gaps in consumer safeguards.

What Happens If DMP Wins?

If Data Marketing Partnership is officially recognized as an employer under ERISA, it would mean that individuals who participate in their limited partnership program are considered employees. That status would entitle them to the same protections and benefits as traditional workers — including access to comprehensive health coverage.

However, if DMP loses, those same individuals could fall through the cracks. Their plans might be excluded from most state regulations, leaving them vulnerable to being sold by companies that offer little in the way of real healthcare coverage. The risk is not just theoretical: Critics point to how some insurers already use loopholes to provide minimal benefits at low cost.

Ellen Montz, a former official involved in implementing the ACA, warned that "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."

Policy Implications Beyond Health Insurance

The implications of this case go beyond healthcare. If successful, it could change how we think about the relationship between companies and consumers in an increasingly digital economy. It also raises important questions about federalism — specifically, whether states should retain the power to regulate insurance or whether federal agencies like the Department of Labor should have more authority.

That tension isn't new. Other industries have faced similar debates over time — think of gig economy workers and their rights. But in this case, the stakes are particularly high because health coverage is essential for millions of Americans.

Current Legal Developments

The Department of Labor has been defending its position throughout the Trump and Biden administrations. However, recent court rulings have added uncertainty to the situation. In 2020, a Texas district judge ruled that DMP's advisory opinion was arbitrary and capricious, which led to further appeals.

The Fifth Circuit Court of Appeals upheld much of that decision but ordered a reconsideration of whether someone who downloads software can be classified as either a "working owner" or a "bona fide partner." That final ruling leaves open the possibility for a settlement — and potentially, major changes to how health plans are offered in the U.S.

Meanwhile, nineteen patient advocacy groups have urged the Department of Labor to continue its defense. Their letter emphasized that a settlement creating an employer-employee relationship could undermine decades of bipartisan efforts to create stable insurance markets.

The Risk of Market Fragmentation

If limited-partnership plans become widespread, they could fragment the healthcare marketplace in ways that hurt consumers and insurers alike. The logic is simple: when healthier individuals opt out of traditional ACA plans, those who remain are often sicker and more expensive to cover.

Maryland's Grant pointed out that this dynamic can cause premiums to rise sharply — a problem that's already happening with ACA plans. As people seek alternatives like DMP's offerings, they may be trading away comprehensive coverage for cheaper options, which ultimately affects everyone in the system.

The result? A two-tiered healthcare system where only those who can afford high-quality insurance get full protection. That scenario would be especially harmful in rural areas and low-income communities, where access to quality care is already limited.

How We Got Here

The roots of this debate lie in how ERISA was designed. Originally passed in 1974, the law was intended to help large employers offer retirement and health benefits without having to navigate multiple state laws. It created a system where self-insured plans were largely exempt from state regulation — a provision that has been both praised and criticized over the years.

Today, as we face rising healthcare costs and an aging population, questions about the balance between federal and state authority in insurance are more relevant than ever. This lawsuit is just one example of how that tension plays out in practice.

What's Next for Health Policy?

The outcome of this case will shape not only how health insurance works but also how we approach regulation in a rapidly changing digital economy. As technology continues to blur the lines between business and personal life, policymakers need to ensure that laws keep pace with innovation without sacrificing consumer safety.

Whether or not a settlement is reached soon, this case highlights a larger truth: the intersection of employment, healthcare, and digital data has become one of the most complex issues facing American policy today. And until we find answers — both legal and practical — there will be more pressure on regulators to act quickly.

For now, we're watching closely as the Department of Labor decides whether to continue defending its position or pursue a compromise that could redefine how Americans access health coverage.