On October 12, 2017 the Trump Administration issued the “Executive Order Promoting Healthcare Choice and Competition Across the United States” (Executive Order 13813). The general purpose of the Executive Order was to expand healthcare coverage options available to both individuals and small employer groups outside of the Patient Protection and Affordable Care Act (“ACA”) market. One of the expansion options available under the Executive Order was modification of the Department of Labor (“DOL”) guidelines to permit individuals and small employer groups access to Association Health Plans (“AHPs”). The DOL issued proposed rules for AHPs on January 5, 2018. The final AHP Rule (“AHP Rule”) was issued by the DOL on June 21, 2018.
Key components of the AHP Rule include:
- Permits existing AHPs to continue in the current form and establishes a new pathway for “bona fide associations” to establish and maintain AHPs.
- Creates new commonality of interest standards permitting commonality based on either business lines or geography. Unlike prior law, an AHP may now include employers in unrelated trades or businesses within the same state or a metropolitan boundary. Alternatively, an AHP could satisfy the commonality requirement by limiting participation to employers within the same trades.
- Permits uses of standards for the same trades, such as:
- North American Industry Classification System codes (also used in Form 5500 Annual Reports);
- Standard Industrial Classification codes (which precede the NAICS);
- The OECD International Standard Industrial Classification;
- Any other “generally-accepted classification system” of the same sort;
- The “line of business” test set forth in Treasury Regulations governing membership in VEBAs.
- Lessens the organizational requirements for associations.
- Confirms that AHPs will continue to be subject to both Federal and state regulation.
- Permits organizations operating under the AHP Rule to enroll working owners, including self-employed individuals and partners, subject to minimum work hours and earnings standards.
- Permits formation of an association for the primary purpose of offering benefits, so long as the association has another substantial business purpose. An association can satisfy the “substantial business purpose” test by demonstrating that it would be a viable entity without sponsorship of the plan.
- Maintains non-discrimination requirements for health conditions and premium rates.
- Retains annual and lifetime maximum prohibitions.
A number of jurisdictions have joined together to file litigation challenging the AHP Rule. State of New York, et al. v. United States Department of Labor, et al, Civ. Action 18-1747, U.S. District Court for the District of Columbia, filed July 26, 2018. The plaintiff States include Kentucky, New York, Maryland, New Jersey, Massachusetts, the District of Columbia, California, Delaware, Oregon, Pennsylvania, Virginia, and Washington.
Primarily, the plaintiffs allege that the AHP Rule is intended to undermine and dismantle the ACA by manipulating ERISA to shift a larger number of small employers into the large group insurance market.
Claims made by the plaintiffs include:
- The application of ACA standards to both large and small employers violates the ACA by allowing AHPs to be treated as “large employers” for some purposes, but not for purposes of the shared responsibility protection.
- The treatment of self-employed individuals (“working owners”), with no other employees, as both an employer and an employee, is contrary to ERISA as well as long-settled case law.
- Having the primary goal of selling insurance, as long as there was some other substantial business purpose, lacks specificity.
- Commonality of interest is not satisfied by simply having a primary purpose of selling insurance.
- The AHP Rule is inconsistent with ERISA, thus the DOL is lacking in authority to issue the AHP Rule.
- The AHP Rule fails to take into account the historical fraud and abuse in AHPs.
While Kentucky is one jurisdiction challenging the AHP Rule, based on public comments by Kentucky Department of Insurance representatives, it appears that the Kentucky Department of Insurance is moving forward with drafting regulations to address the new AHP Rule and we are optimistic that the AHP Rule will bring long-needed relief to the regulatory environment for Association Health Plans.