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Judge Tackles AHP ‘End Run’ Around ACA

Regulatory Compliance

Concluding that “DOL’s Final Rule stretches the definition of ‘employer’ beyond what ERISA’s text and purpose will bear,” a federal judge has thrown the Labor Department’s association health plan rule for a loss. 

The association health plan (AHP) rule, finalized last June, claimed to make insurance more affordable for small businesses, allowing plans to be customizable to tailor benefit design to small businesses’ needs, as well as providing a way to reduce administrative costs and strengthen negotiating power with providers from larger risk pools and greater economies of scale. It did so by interpreting ERISA’s definition of “employer” to let small businesses and the self-employed band together to buy employee health care plans from the large-group insurance market.

A month later, the District of Columbia and 11 states (California, Delaware, Kentucky, Maryland, Massachusetts, New Jersey, New York, Oregon, Pennsylvania, Virginia and Washington) filed suit challenging the finalized AHP rule, claiming that it violated the “text, structure and purpose” of the ACA.

And now, a federal judge has agreed with that assessment.

Outlining his rationale for the ruling, U.S. District Judge John Bates noted that, “for decades, DOL has interpreted these provisions narrowly so as to allow only so-called ‘bona fide associations’ with close economic and representational ties to their employer members to qualify as ‘employers’ under the statute,” but that “in 2018, DOL abruptly reversed course.”


He went on to explain that the DOL’s “Final Rule allows virtually any association of disparate employers connected by geographic proximity to qualify as single ERISA plans. These associations no longer have to be viable apart from offering an association health plan (‘AHP’) and may form solely for the purpose of creating an AHP. In addition, the Final Rule brings sole proprietors without any employees within ERISA’s scope by counting them as both ‘employers’ and ‘employees.’ Because the ACA defines terms key to its implementation – including ‘employer’ and ‘employee’ – according to the definition of these terms in ERISA, the Final Rule expands AHPs in a way that allows small businesses and some individuals to avoid the healthcare market requirements imposed by the ACA.”

“The Final Rule is clearly an end-run around the ACA,” Bates writes, proceeding to cite comments from both President Trump and Labor Secretary Acosta that “the Final Rule was designed to expand access to AHPs in order to avoid the most stringent requirements of the ACA.”

Bates notes that “DOL’s explanation of how the Final Rule operates under the ACA relies on a tortured reading of the ACA’s statutory text that undermines the market structure that Congress so carefully crafted,” the judge wrote in his memorandum opinion. “DOL’s regulatory interpretation sows discord among the Final Rule, ERISA, and the ACA, which serves as further evidence that the Final Rule unreasonably interprets ERISA and fails to carry out congressional intent.”

“In short,” he concludes, “the Final Rule exceeds the statutory authority delegated by Congress in ERISA,” and that “the Final Rule’s provisions defining ‘employer’ to include associations of disparate employers and expanding membership in these associations to include working owners without employees are unlawful and must be set aside.”

The case is State of New York et al. v. U.S. Department of Labor et al., case number 1:18-cv-01747, in the U.S. District Court for the District of Columbia.

The Department of Labor last October released proposed rules that would expand access to multiple employer retirement plans for small employers and self-employed workers, while also maintaining fiduciary oversight that were modeled after the AHP concept. That rule would permit association retirement pans (ARPs) and professional employer organizations (PEOs) to sponsor defined contribution retirement plans for their members.