Recently, the attorneys general of eleven states and the District of Columbia filed suit to challenge the Department of Labor's (DOL) new association health plan (AHP) regulations (the "AG Litigation"). Although it is unclear at this time whether the AG Litigation will be successful in invalidating the regulations, it creates a potential impediment for a key aspect of the Trump administration's effort to change the health insurance marketplace.
The AHP Regulations
An AHP is a group health plan that is sponsored by an association of employers and is treated as a single employee benefit plan for regulatory purposes. According to the DOL, AHPs offer small employers (and now self-employed individuals) the following key advantages over sponsoring a group health plan at the individual employer level (or procuring individual coverage):
- Because AHPs can negotiate with insurers or healthcare providers on behalf of the entire group (instead of each employer negotiating individually), the AHP will theoretically obtain lower premium rates; and
- Because AHPs typically have enough participants to qualify as a "large group" plan, an AHP is not subject to the more stringent Affordable Care Act (ACA) requirements imposed on plans in the "small group" and individual markets.
Although the concept of AHPs predates the DOL's new regulations, associations had difficulty forming AHPs under prior law. Before the new regulations, an association could form an AHP only if it satisfied stringent "commonality of interest" standards. Those standards require that the association be formed for a purpose unrelated to the provision of benefits, and that it have a common economic or representational interest in a narrow sense. As a practical matter, few employers could satisfy these requirements, and AHPs have not been commonplace.
To encourage the formation of AHPs by associations, the new regulations create a more flexible standard. Under the new regulations:
- In contrast to prior law, the association now may have the "primary" purpose of offering and providing health coverage. However, the association must have at least one "substantial" purpose unrelated to offering and providing health coverage or other employee benefits to its employer members. An example of such substantial purpose could be providing educational materials and hosting conferences.
- In contrast to prior law, there will now be sufficient "commonality of interest" if the employer members are in the same trade, industry, line of business, or profession, or have their principal place of business in the same region (which cannot be larger than a state or metropolitan area).
- The association must have a formal organizational structure with a governing body and by-laws.
- The AHP cannot discriminate on the basis of any health status factor, and may not separately rate each participating employer group based on any health status factor.
- The functions and activities of the association must be controlled by its employer members, and the employer members that participate in the AHP must control the plan.
It is important to note that the federal AHP regulation does not preempt state laws governing insured and self-funded Multiple Employer Welfare Arrangements (MEWAs). Existing law in certain states limits or precludes various forms of AHPs, and officials in a number of states have indicated that they are contemplating new laws or guidance in anticipation of the effective date of the final AHP regulation.
The AG Litigation
In the view of the attorneys general who filed the AG Litigation, the DOL's expansion of AHPs represents a threat to consumers and states alike. The AG Litigation asserts:
- The new AHP regulations allow smaller employers and sole proprietors to shift into the "large group" insurance market and to evade the ACA protections for "small group" health plans. As a result, participants in AHPs will not necessarily have access to all of the essential health benefits (required only in "small group" plans) and will instead be provided stripped-down plans offering limited benefits.
- By shifting participants into the "large group" market, the new AHP regulations will destabilize the "small group" and individual insurance markets and will result in price increases for consumers in those markets.
- The new AHP regulations reverse long-standing legal interpretations of the requirements for employers to form and participate in AHPs, in a manner that is not consistent with the law.
- The new AHP regulations fail to account for the widespread fraud and abuse committed by AHPs. By encouraging the formation of AHPs without more rigorous standards, the DOL will impose new burdens on states to police fraudulent activity by AHPs.
Thus, the AG Litigation contends, rather than providing a benefit to self-employed individuals and smaller employers, the new regulations act to the detriment of consumers and states and are part of a larger Trump administration agenda to dismantle the ACA without proper action from Congress. The AG Litigation asks the court to vacate the regulations.
It is too early to tell what impact the AG Litigation will have on the rollout of the new regulations. The regulations are set to take effect in phases, beginning on September 1, 2018 for fully insured AHPs, on January 1, 2019 for existing self-insured AHPs, and on April 1, 2019 for new self-insured AHPs. Also, as noted, a number of states have pending laws or guidance that will impact AHPs in those states.
We will continue to monitor the AG Litigation and its impact on the AHP regulations and the evolving state regulation of AHPs. Should you have questions about AHPs, please contact any of the authors or any attorney in Venable's Employee Benefits and Executive Compensation Group.