HB Counsel Client Alert – Court Blocks Association Health Plan Rule
Has the DOL Given Up the Fight?
A federal District Court struck down portions of the new Final Rule on Association Health Plans (AHPs), issued by the Department of Labor (DOL), finding the provisions inconsistent with ERISA and the ACA. The District Court’s decision affects the portions of the Final AHP Rule that allow an AHP to form based upon geography, to form solely for the purpose of creating an AHP, and to include working owners as participants.
In the wake of the ruling, no new AHPs may be formed under the new Final AHP Rule; however, bona fide association plans formed under prior guidance are not affected. Although the DOL has appealed the ruling, the DOL’s plans remain uncertain with one option being to rewrite the rule. The DOL has issued guidance for groups already formed under the Final AHP Rule.
On June 19, 2018, the DOL issued the Final Rule on AHPs—following a prior Executive Order and proposed regulations. Prior to the Final Rule, the DOL and HHS both had multi‐factor tests (including commonality of interest and requirements for the sponsoring association) for a multiple employer welfare arrangement to meet the definition of a bona fide association plan (which we will continue to refer to as bona fide association plans to contrast to the new AHPs).
A bona fide association plan would be deemed to be a single large group plan instead of an amalgamation of separate employer plans. Large group status would allow the bona fideassociation plan to avoid numerous ACA requirements that apply in the small group market.
The Final Rule sets forth rules for the new AHPs. Newly established plans could choose to comply with either existing bona fide association plan guidance, or the Final Rule.
Expanded access. The Final Rule expanded the outreach of AHPs beyond bona fide association plans by expanding two key requirements in the existing DOL and HHS tests:
- Commonality of interest. Employers may band together in an AHP if they are either in the same trade, industry, line of business, or profession; or have a principal place of business within a region that does not exceed the boundaries of a state or metropolitan area, even if the metropolitan area overlaps a state line (such as our home of Kansas City).
- Sponsoring association. The sponsoring association for the AHP need not be a pre‐existing organization, and must have at least one substantial business purpose unrelated to the purpose of providing insurance. However, the principal purpose of forming the sponsoring association may be to provide insurance.
- “Working owners.” In a significant expansion, the Final Rule provided that an AHP may offer coverage to both employees of employer members and “working owners.” The AHP may be comprised of any combination of employees and working owners.
On July 26, 2018, the states of New York, Massachusetts, California, Delaware, Kentucky, Maryland, New Jersey, Oregon, Pennsylvania, Virginia, Washington, and the District of Columbia filed an action challenging the Final Rule in the United States District Court for the District of Columbia; New York v. United States Department of Labor.1
The States asserted that the Final Rule:
- Conflicts with the fundamental protections for individual and small groups under the ACA;
- Conflicts with the ACA, ERISA, and established case law regarding working owners; unlawfully expands ERISA to allow all employers in a State or “metropolitan area” to group together into a profit‐making commercial insurance enterprise;
- Is arbitrary and capricious in overturning 40 years of well settled law; and
- Exceeds DOL’s authority, because DOL’s action is not designed to implement ERISA but instead to circumvent the
1 See New York v. United States Dep’t of Labor, No. CV 18‐1747 (JDB), 2019 WL 1410370 (D.D.C. Mar. 28, 2019) https://benefitslink.com/src/ctop/NY‐v‐DOL_DDC_03282019.pdf, as accessed April 17, 2019.
The States requested that the Court vacate and set aside the Final Rule and enjoin the DOL and all its officers, employees, and agents, and anyone acting in concert with them, from implementing, applying, or taking any action whatsoever under the Final Rule.
On March 28, 2019, Judge John D. Bates of the District of Columbia (appointed by President George W. Bush in December 2001), issued a ruling in the case. In a 42‐page decision, the Court noted that “the Final Rule is clearly an end‐run around the ACA,” and seeks to allow AHPs formed under the new Rule to qualify as single ERISA plans and avoid the individual and small‐ group requirements under the ACA. The Court invalidated the following portions of the Final Rule:
- The provision allowing associations close geographic proximity to meet the commonality of interest test based solely on close physical location;
- The provision allowing for associations to be created for the sole purpose of forming an AHP; and
- The provision allowing working owners with no common law employees eligibility to form an
Court’s decision invalidates the ability to form AHPs for groups with employer‐members in various industries.
Interestingly, the Court preserved the nondiscrimination requirements that apply to the AHPs. The nondiscrimination requirements place restrictions on different premium rates due to health status, so the Court determined that the requirements do not limit which associations qualify as employers and therefore were not central to the ruling in this case.
The Court remanded the Final Rule back to the DOL to consider how the severability provision in the Final Rule affects the remaining portions of the Rule.
Based upon the Court’s decision and remand of the Final Rule, the following actions were likely to occur:
- The DOL could try to revise the Final Rule, e.g., redefine “commonality of interest” to give a wider scope of relation between employers involved in common groups such as a chamber of commerce, and try to preserve portions of the
- The DOL could retain the portions of the Rule that the Court did not invalidate; however, remove the parts of the Rule addressed by the Court, such as was done by the EEOC in response to the adverse decision in AARP v. EEOC. This is unlikely as removal of all of the provisions addressed by the Court would gut the Final Rule and no longer make it logical or necessary.
- The Department of Justice (DOJ) could appeal the Court’s decision.
- Congress could take action and promulgate legislation to amend ERISA to include the provisions in the Final Rule that were invalidated by the Court.
Indeed, the Court’s decision has been appealed and Congress has begun an attempt at legislative action.
As expected, the DOL disagreed with the Court’s decision. On April 26, 2019 the DOJ filed a notice of appeal challenging the ruling. Notably, the DOL did not request that the Court “stay” the ruling as part of the appeal, which would have allowed the ruling to be put on hold awaiting the appeal decision. This means that the Court’s decision is effective and will remain in effect unless and until it is reversed on appeal.
The DOL did not seek a “stay” of the decision, meaning that the Court’s decision is law until the decision is reversed on appeal.
No new AHPs may be formed.
Shortly after the DOJ filed its notice of appeal, the DOL issued an initial Q&A assuring participants currently receiving group health plan coverage through a fully‐insured AHP will not lose coverage, but changes may be made to the coverage in the future. The Q&A explained that an appeal of the Court’s decision had been filed, and that “[t]he Administration will continue to fight for sole proprietors and small businesses so that they can have the freedom to band together to obtain more affordable, quality healthcare coverage.”
On April 29, 2019, the DOL issued informal guidance clarifying that employers participating in fully‐insured AHPs may maintain that coverage through the end of the plan year or, if later, the contract term. However, insurers may only renew these AHP policies for the next plan year or contract term, if the coverage complies with the relevant ACA market requirements for the employer’s size (e.g., for small employers, the essential health benefits requirements and premium rating rules).
An insurer may satisfy guaranteed renewability requirements by continuing coverage for each employer‐member of the association that chooses to continue coverage, either through the master policy for the AHP or through separate contracts applicable to the individual employer‐ members.
The informal guidance announced a non‐enforcement policy by the DOL and the Department of Health and Human Services (HHS) for AHPs under the new Rule. The DOL and HHS will not take enforcement action for violations that occurred before the Court’s decision so long as the entity made those decisions in good faith reliance on the validity of the AHP Rule. The DOL could take enforcement action against violations that occur after the Court’s decision, therefore limiting further creation of AHPs and continued marketing of AHPs already in existence.
On May 13, 2019 the DOL issued its second Q&A in response to the Court’s decision. This Q&A guidance confirmed the following:
- Bona fide association plans that were formed under the DOL’s prior guidance are not affected by the Court’s ruling and may continue to operate without impact.
- The DOL’s prior guidance remains in effect, and entities that meet these criteria can continue to act as an “employer” for purposes of sponsoring an ERISA‐ covered AHP. Associations may, but are not required to, seek an official advisory opinion from the DOL that they qualify as a bona fide association plan.
- AHPs formed in reliance upon the Final Rule cannot market to or enroll new employer members. AHPs that do so could face enforcement action from the DOL.
- The DOL’s non‐enforcement stance applies for the remainder of an AHP’s plan year or contract term, even if the contract term extends longer than one year. HHS plans to adopt the same approach, and the DOL encourages states to consider a similar non‐enforcement policy.
Existing AHPs formed in reliance on the Final Rule may continue at least through the end of the calendar year or policy year.
Insurers are not obligated to continue the policies beyond that timeframe.
Existing AHPs formed before the Court’s decision will not be subject to enforcement action by the DOL or HHS, as long as the AHPs cease marketing and enrollment to new members.
Republicans in both the House and Senate have proposed the Association Health Plans Act of 2019, which seeks to preserve the provisions of the Final Rule. The proposed Act would amend ERISA to establish additional criteria for determining when employers may join together in a group or association of employers that will be treated as an employer for purposes of sponsoring a group health plan, and for other purposes.
Fully‐insured AHPs formed in reliance upon the Final Rule will need to consult with the policy issuer to determine whether or not the policy will continue or be modified in future plan years. Insurers have begun issuing formal statements on their websites regarding interpretation of the Court’s decision and DOL’s subsequent guidance.
By not seeking a stay of the Court’s decision, and issuing limited protective and non‐ enforcement guidance, it appears that the DOL is not confident that the Final Rule will be upheld on appeal.
No new AHPs should be formed in reliance upon the Final Rule until all appeals are final, new guidance is issued by the DOL, or legislation is passed amending ERISA; likewise, existing AHPs should not market or enroll new members.
Other options remain for associations interested in forming bona fide association plans under prior DOL guidance.
Caution to those new to the game!
Haynes Benefits has a long history of working with successful bona fide association groups. We urge all groups considering formation of an AHP, or who may be operating an AHP, to invoke the careful and cautious planning of historically successful bona fide association group plans
Dated: May 23, 2019