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State Attorneys General to DOL: Not so Fast on Association Health Plans

Eleven states and the District of Columbia have filed suit challenging the Department of Labor’s recently finalized association health plan (AHP) rule.

Arguing that the rule is unlawful and should be vacated, the state attorneys general from California, Delaware, Kentucky, Maryland, Massachusetts, New York, New Jersey, Oregon, Pennsylvania, Virginia, Washington and the District of Columbia filed the complaint July 26 in U.S. District Court for the District of Columbia (State of New York et al. v. U.S. Department of Labor et al., case number 1:18-cv-01747).

The Department of Labor released the final rule June 19, asserting that in addition to providing more choice, it makes insurance more affordable for small businesses and that these plans will be customizable to tailor benefit design to small businesses’ needs.

The attorneys general contend, however, that by permitting a broad range of associations to offer health plans, the rule it upends a “decades-old understanding of a foundational employee benefits law” for the purpose of exempting a significant portion of the health insurance market from the Affordable Care Act’s consumer protections. According to the filing, the final rule will undo the progress the states have made under the ACA to lower the uninsured rates, from 16% in 2010 to 9% in 2017, and stabilize the individual and small group health insurance markets.

“This change will unlawfully allow the creation of AHPs that can sell large group plans that skirt the ACA’s market protections to unrelated, unconnected, and purportedly self-employed individuals, placing these and other consumers’ health and financial security at risk,” they write.

This would be achieved by allowing associations composed of small employers and individuals to sponsor AHPs and then treating such plans as large group plans not subject to the ACA consumer protections imposed on small employer and individual health plans, the filing contends.

“Despite acknowledging that its ‘historical approach’ on the issue ‘was designed to ensure that the Department’s regulation of employee benefit plans is focused on employment-based arrangements, as contemplated by ERISA ... the final rule effectively eliminates the commonality of interest requirement by allowing fly-by-night organizations that have no established track record and that cover all employers in a State to qualify as a ‘bona fide association’ (and thus an ‘employer’),” the attorneys general write.

Moreover, they argue that large plans are subject to a minimum actuarial comprehensiveness standard applied to large employers through the tax code, but AHPs will “avoid this standard” because the employers in the associations will remain small employers for tax code purposes.

ARA Support

The American Retirement Association (ARA) earlier this year lent its support to the DOL’s proposal and its goal of expanding access to employer-sponsored health care coverage for American workers.

The ARA took note of footnote 10 in the final rule, in which the Labor Department references comments about applying this guidance to retirement multiple employer plans. The footnote explains that several commenters asked that the final rule include provisions to expand the circumstances under which employers and self-employed individuals can sponsor and participate in ERISA-covered MEPs that provide retirement benefits. In response, the DOL stated that, “Although those issues are beyond the scope of this rulemaking, the department will consider comments submitted in connection with this rule as part of its evaluation of MEP issues in the retirement plan and other welfare benefit plan contexts.”