The Regulatory Stew


On Friday afternoon (1/23/2015), federal district court Judge Robert Lasnik denied the Business Health Trust and thirteen other participating trusts a temporary restraining order (TRO) against Insurance Commissioner Mike Kreidler. The Trusts, insured by Premera, sought the TRO to prevent the Commissioner from issuing a letter like the one issued to the Moda insured trusts [see previous article].  The Commissioner found the Moda insured trusts lacked “bona fide” status under ERISA and would not be treated as large group plans. The Premera trusts suing the Commissioner face a similar fate.

On February 6, 2015, the Business Health Trust will argue for its proposed injunction against the Commissioner. Unless this or another court intervenes, most association health plans are facing a quick regulatory death or a slow withering death spiral. Associations will either fail to qualify for treatment as a large group or they will qualify but find themselves pricing coverage in a manner that leads to a slow death. The recent disapprovals of the Regence association plans demonstrate that even bona fide associations face an uphill battle.

On January 15, the Insurance Commissioner (OIC) disapproved most of the Regence association health plan filings. These included plans filed for associations believed to qualify for treatment as large groups under ERISA (“bona fide associations”). The OIC disapproved the 2014 large group plans filed for the Master Builders Association of King and Snohomish Counties, the Building Industry Association, the Washington State Farm Bureau Association, and the Northwest Marine Trade Association.

In each case, the OIC noted that Regence could not set rates at the member employer level. Instead, Regence had to “pretend” the association’s member employers were “employees” entitled to the same rates as other similarly situated “employees.” Regence has filed new large group plans for each of its disapproved association health plans which are pending for OIC review. Here is an excerpt from a communication commonly included with the 2014 Regence disapprovals.

Disposition Date: 01/15/2015
Status: Disapproved
HHS Status: HHS Denied
Comment: Your rate and form filings for Master Builders Association of King and Snohomish Counties are disapproved and closed under the authority of RCW 48.44.020(3).

The rating methodology and rates filed on behalf of Master Builders Association of King and Snohomish Counties and the Master Builders Association of King and Snohomish Counties Employee Benefit Group Insurance Trust are inconsistent with the fact that you filed one single large employer group.

In the rate schedule, there are 4 Rate Categories for each plan design. For example, for the Enhanced E10 Plan, an employee age between 35 to 49 can be charged a monthly rate ranging from $498.42 to $688.50. In our rate objections,
we asked you to explain in detail how you define a Rate Category and the factors used to assign an employee to a Rate Category. We also asked you to provide detailed calculations of the rates assigned to each Rate Category. Your response
to the first objection letter indicated that you have separately rated various “member groups” within Master Builders Association of King and Snohomish Counties. You also stated at the Association renewal, each “custom rated group”
is assigned a unique rate increase that is added to their current rates. This means that your rates filed are for various “employers” – contrary to your form filing for one employer only.

We also asked you to identify the bona fide employment-based classifications upon which the 4 Rate Categories are based (per 26 CFR § 54.9802-1(d).) (Examples for bona fide employment-based classifications include current versus
former employees, and employees located in different geographic areas.) You stated that “each subgroup” may be treated separately as each subgroup is an independent ongoing business. You further stated that each subgroup is
managed separately from other subgroups and “employment” criteria, “employment” needs, benefit mix, may be unique to each subgroup. Your response reiterated that you have separately rated various “member groups.” Your response also failed to identify how each Risk Level is related to bona fide employment-based classifications.

This tells us that your rates, filed for various employers, are unreasonable in relation to the amount charged for the contract for one single employer, Master Builders Association of King and Snohomish Counties. Therefore, your rate and form filings are disapproved and closed under the authority of RCW 48.44.020(3).

As a result of this disapproval, it is necessary for all current enrollees to be transitioned to a compliant plan as soon as possible. Please contact the Deputy Insurance Commissioner for Rates and Forms to discuss your plan to transition
current enrollees to a compliant plan, including the proposed notice and replacement rate schedule. [Emphasis added]

Quite a change in circumstances. Recall that in 2012, the Master Builders Association received a letter from the Insurance Commissioner declaring them a bona fide association. It’s worth noting that the Master Builders association did not bring an action to enjoin the Commissioner from making that bona fide association finding. But the strangest twist is that the Commissioner said yes before he said no to at least two of the associations currently suing him in federal court. The OIC disapprovals raise two important issues:

1) What is the effect of the Commissioner’s disapproval on employers who may have paid too much for coverage or got incomplete benefits? Will employers get refunds? Will employees get refunds?

2) How will any association health plan financially survive if the rates for the association cannot be adjusted at the employer level? Won’t low risk member employers who must now pay the same amount as high risk member employers leave the association the minute the small group community-rated market offers a better price?

Here are the short answers: 1) Who knows? 2) Of course, employers will comparison shop.

Association health plans survived so long in Washington state because the plans were a safe harbor from state community rate mandates. Although I have long argued that association health plans may legally and properly rate at the member employer level; it doesn’t matter. Who cares? An issuer can’t sell and an employer can’t buy a plan that’s been disapproved by the OIC. Here is how the OIC describes the rating process for bona fide associations under the reform regime. This following appears in one of the disposition communications from the OIC to Premera.

Rating Requirements for Large Employers:
Effective January 1, 2014, the state small group community rating requirements under RCW 48.44.023, RCW 48.46.066, and RCW 48.21.045 will apply to grandfathered small group health plans only. For all non-grandfathered individual
and small group health plans effective January 1, 2014, the federal community rating requirements under 45 CFR §147.102 govern the rating.

Prior to 2014 under RCW 48.44.024, RCW 48.46.068, and RCW 48.21.047, employers purchasing health plans through associations were treated as large employers regardless of their number of employees, and the plans were not subject to the state small group community rating requirements. However, the state laws did not define the “association” to be one large employer. The determination of whether the group health plan exists at the association level or at the participating individual employer level under the Affordable Care Act depends on whether the association itself constitutes “an employer” under ERISA. If the association does not qualify as an employer under ERISA, the association is irrelevant for purposes of health plan filings. If the association does meet the ACA and ERISA employer test, the association itself is considered one large employer for health plan filing purposes and the HIPAA nondiscrimination provisions are enforced on the association level.

For all large groups, including associations who qualify under the ERISA 3(5) definition of an employer, the federal Health Insurance Portability and Accountability Act (HIPAA) prohibits discrimination against participants and beneficiaries based on a health status related factors. Specifically, a group health plan, and health insurance issuer offering group health coverage in connection with a group health plan, may not establish rules for eligibility (including continued eligibility) of any individual related to the health-related factors. Federal law prohibits use of the following factors: health status, medical condition (including both physical and mental illnesses), claims experience, receipt of health care, medical history, genetic information, evidence of insurability, and disability. 29 CFR Chapter XXV, Section 2590.702.

As a result, under HIPAA an issuer or association must not use health-status related data or information from a specific participant, a subgroup of participants, or a participating purchasing group within the association to establish rates for the participant or the group purchaser. This includes specific health status, claims experience, participation requirements, etc. As an example, for any two similarly situated individuals (the same age and gender) within the association employer, the association health plan as the group health plan or the carrier as the issuer cannot charge higher rates for one individual simply because the one individual has more medical claim history or existing medical conditions than the other individual.

Issuers are permitted to use non-health status-related rating factors permitted by federal or state law for a particular large group health plan. Permitted factors include demographics, age, area, and gender. [Emphasis added]

The OIC is not going to approve any association health plan that prices coverage in a manner that looks anything like traditional rating in an association. The OIC has declared that since an employer cannot discriminate against employees, associations cannot discriminate against employers (e.g., a “participating purchasing group”) since they are kind of like employees.

Even if by some chance, the Business Trusts convince the federal judge to enjoin the Commissioner from determining the bona fide status of a trust, associations still face a pricing regulation that cripples traditional association health plan underwriting. A lower price for more flexible plan designs drove the majority of small employers into association plans in the first place. Now employers find the coverage they bought last year has been disapproved for failing to meet legal requirements. Small employers will find themselves in a very hard place, particularly if they are insured under a plan containing clauses like those in some Premera plans.

Here are provisions from two filings recently made public in the OIC filing database. One is contained in a contract issued to the Washington State Auto Dealers and the other in a contract issued to the Association of Washington Business each for the 2014 plan year.

PREMERA GROUP CONTRACT for Washington State Auto Dealers Insurance Trust

Compliance Responsibilities
As part of the general obligations stated in “Compliance With Law” in this Contract, the Group must comply with the specific requirements mandated by law described below. For all obligations below that are based on workforce size and
other requirements of individual Association Employers, the Group is responsible to know the requirements, how the applicable law requires size to be measured, and to ensure that Association Employer status is determined in compliance with the applicable requirements. All references to specific laws are deemed to include all current amendments and regulatory requirements for such laws.

• The Group must notify us whether the Group is a “bona fide association” as defined by the Federal Health Insurance Portability and Accountability Act of 1996 (HIPAA). Such notice must be given as part of the initial coverage negotiations between us and the Group. The Group must notify us of any changes to its “bona fide” status no less than 60 days before such changes take effect.

• The Group must notify us whether each Association Employer is subject to regulation under the Federal Employee Retirement Income Security Act of 1974 (ERISA) and the continued coverage requirements under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). For existing Association Employers that are effective on the Group’s original effective date, such notice must be given prior to that effective date. For Association Employers who begin participation in this plan after the Group’s original effective date, such notice must be given prior to the Association Employer’s effective date.

• The Group must notify us no later than January 1 of each year of any changes in Association Employers’ COBRA status for that year.

The Group must notify us at time of initial enrollment if any enrolled Association Employers are “large group health plans” as defined by federal Medicare secondary payer requirements. The Group also agrees to notify us no later than January 1 of each year whether at least one Association Employer that qualifies as a “large group health plan” for that upcoming year is enrolled in the plan.

• The Group must apply to Medicare for small Association Employers to be exempt from the federal Medicare secondary payer requirements that protect the “working aged” as defined by Medicare. The Group is responsible for notifying exempt members of the exemption as required by Medicare. [Emphasis added]

The association and its employers are responsible for legal compliance. Also notice the strange circumstances whereby the OIC declares the association to be like one large employer with “employees” but federal law requires the association to identify member employers as small or large for purposes of deciding whether Medicare or the employer plan pays first on any claim.

Here are the AWB provisions:

PREMERA GROUP CONTRACT for Association of Washington Business

The Group and Participating Employer are responsible for their respective obligations and responsibilities listed below. It is understood that the Group does not certify or warrant that the information that it receives from Participating Employers is accurate and correct or that all Participating Employers are at all times in compliance with this Contract and with state and federal law and regulation as required in “Compliance Responsibilities” below. The Group and Participating Employer have the right to delegate any of the obligations and duties as stated in “Delegation” later in this subsection. It is also understood that most if not all of the administrative and operational functions of the Group and Participating Employer are performed by delegates.

Compliance Responsibilities
Each Participating Employer enrolled in the Group is a separate plan sponsor and plan administrator under the Employee Retirement Income Security Act (ERISA). Therefore, as part of the general obligations stated in “Compliance With Law” in this Contract, the Participating Employer is responsible for complying with the specific requirements mandated by law described below. The Group will provide information and guidance when appropriate (see Employer administration Guide) and make reasonable efforts to monitor compliance by Participating Employers.

The Group and the Participating Employers agree to defend, indemnify, and hold us harmless from all consequences that result from noncompliance by the Participating Employer or its delegates with the COBRA, HIPAA, and Medicare Secondary Payer requirements listed below, except with respect to claims arising out of decisions made by the Group as long as we concurred in the decision. All references in this provision to specific laws are deemed to include all current amendments and regulatory requirements for such laws.

Bona Fide Association Bona Fide Association
The Group must notify us whether the Group is a “bona fide association” as defined by the Federal Health Insurance Portability and Accountability Act of 1996 (HIPAA). Such notice must be given as part of the initial coverage negotiations between us and the Group. The Group must notify us of any changes to its “bona fide” status no less than 60 days before such changes take effect. [Emphasis added]

Clearly the legal battles over association health plans are far from over. Equally clear, some insurers have refiled new plans with the OIC and hope to have them approved. More details can be found in this attachment which contains excerpts from the public filings cited above.

Despite all this drama, associations continue to tell employers not to worry.

  • “The disapproved plans were from last year – that’s so yesterday.”
  • “New plans have been filed for 2015 and we don’t need OIC approval before selling.”
  • “Associations have sued the Commissioner – we’ll stop him.”

But, small employers should worry.

Will the association defend and indemnify the employer for employee claims arising from disapproved plans or from tax penalties for non-compliant employer health plans? No. Quite the opposite. Most association agreements signed by employers require the employer to hold the association harmless. Employers face ERISA and tax liabilities all by themselves. Those risks are “realer” than promises that a plan will be approved by the Commissioner.

Whatever you believe about association plans and whatever legal merit you find in the Commissioner’s unique legal views, those beliefs don’t help small employers caught in the crossfire. Small employers have to ask themselves if the association “discount” is worth the potential risks. Reality bites hard. At some point, the small employer will decide to just buy an ACA compliant plan and tune out the legal soap opera.

Sadly, association health plans could win a few legal battles only to lose the war.

“You are bona fide!”

“You get to charge all your members the same price.”

May you rest in peace.


Here is the first in a series of updates on the litigation between theBusiness Health Trust(BHT) and the Washington Insurance Commissioner (OIC). You can track progress on both the administrative hearing within the OIC and the federal court litigation here and here.

On January 9th, Assistant Attorney General Mart U. Deleon filed an answer on behalf of the OIC to the BHT litigation. OIC makes the following counter arguments to BHT’s request for a temporary restraining order (TRO):

  1. The OIC asks the court to “take a pass” and not decide the case. The OIC raises the “Younger abstention doctrine,” recently refined by the U.S. Supreme Court in Sprint Communications v Jacobs (12/10/2013), to argue that the federal court should “abstain” from hearing the case in deference to state court. In that case, the Supreme Court stressed that “abstention” should be “exceptional” noting that federal courts may abstain from hearing a matter in only three categories of cases – “state criminal proceedings, civil enforcement proceedings, and civil proceedings involving certain orders that are uniquely in furtherance of the state courts’ ability to perform their judicial functions.”
  2. Alternatively, OIC argues the “Pullman abstention doctrine” that permits state court resolution of state law issues that would avoid federal court determinations of constitutional issues.
  3. The OIC argues that BHT has failed to state a controversy with the OIC, that BHT cannot challenge the OIC rate and form review process, and in any case, BHT needs to exhaust administrative remedies.
  4. BHT has no right to sue on behalf of all the associations.
  5. BHT has not right to challenge a rate and form decision concerning Premera.

In support of its action, BHT filed four declarations from Keith Vanderzanden, Maud Doudon, Emmy Jordan and Sarai Childs. These declarations provide interesting insight into the business of association health plans and the rate and form review process in Washington.

According to Mr. Vanderzanden, Senior Vice President at Wells Fargo Insurance Services, which provides plan administration services to the “Trusts,” no one is covered by the 2014 insurance policy that’s subject to the OIC action. He states that the Trusts are selling “2015 coverage” with a rate filing not due from Premera to the OIC until February 12, 2015. He states that if the small groups had to buy ACA plans, rates would increase from 5% to 20% based upon Premera estimates. [Declaration at 2]

Maud Doudin, the Trustee for BHT, the TPA and named fiduciary for 13 “industry-specific Health Benefit Trusts,” states that each of the Industry Groups “have a history of organized activities, including economic activities, to support the mission of the industry group, including providing educational opportunities, industry training, business promotion, networking and business development, and public affairs and business advocacy.” [Declaration at 3]

Sarai Childs and Emmy Jordan also act as BHT administrators and make the same declarations as Ms. Doudin.

According to BHT this is the chronology of events leading to the federal lawsuit:

  •   → March of 2013, the Washington State Office of the Insurance Commissioner indicated that the approach taken by the Health Benefit Plans would be sufficient to constitute an “Employer” within the meaning of ERISA Section 3(5).
  •   → February 2014, Premera Blue Cross submitted rate filing applications to the Washington State Office of the Insurance Commissioner for each of the Health Benefit Trusts for large-group coverage.
  •   → April 2, 2014, the Washington State Office of the Insurance Commissioner sent to each of the Health Benefit Trusts, except the Agriculture Industry Health Trust, an objection letter indicating that it was suspending its review of the Health Benefit Trusts’ rate filing applications pending further documentation establishing that the corresponding Associations qualified as ERISA Section 3(5) Employers.
  •   → May 8, 2014, Premera responded to the OIC.
  •   → September 8, 2014, the Washington State Office of the Insurance Commissioner sent to each of the Health Benefit Trusts an objection letter indicating that additional documentation establishing that the Associations qualified as 29 U.S.C. § 1002(5), ERISA Section 3(5) Employers was required for continued review of the rate filing applications for the Health Benefit Trusts.
  •   → October 7, 2014, BHT sent OIC the requested documentation.
  •   → December 15, 2014, the OIC threatened to deny “a pending application for the Health Benefit Trusts regarding their qualification for large-group coverage under Washington State law on the basis of their failure to qualify as an “Employer” within the meaning of 29 U.S.C. § 1002(5), ERISA Section 3(5).”

According to the OIC, this is what happened:

  •   → OIC denies that the Health Benefit Trusts met with the Insurance Commissioner; but admits having discussions with the Seattle Metropolitan Chamber of Commerce. [Answer at 4]
  •   → OIC admits “a staff member” sent letters to the Aerospace Industry Health Trust and the Agriculture Industry Health Trust stating they “could be considered an ‘employer’ under the definition found in ERISA.” [Answer at 5]
  •   → OIC notes that staff contacted the Chamber of Commerce with “serious concerns about the proliferation of multiple new subtrusts promoted as associations, that seemed to be created solely for the purpose of providing health insurance.” [Answer at 5]
  •   → OIC did not send requests for information to the associations nor did OIC ever receive responses containing the requested information. [Answer at 7]
  •   → OIC denies that it made a decision about the bona fide status of the associations. [Answer at 8]

Here’s the bottom line question – will the court permit Premera’s customers to obtain a TRO that prevents OIC from denying Premera’s rate filing because OIC does not believe Premera can sell BHT small employers a large group plan or use its planned method of establishing member plan prices?


I wince whenever I hear the phrase “small business.” I’m tired of the hackneyed and vapid references to small employers used to extoll half-baked policies or self-serving goals. “We need to focus on small businesses who are our future and the engine of our democracy.” 

Rarely does the phrase get used by folks actually concerned with the well-being of small businesses. I usually check for my wallet whenever someone starts talking to me about the needs of my small business. The conversation seldom leads to an improvement in my life.

As I contemplate the consequences of the regulatory battles over association health plans, I can’t help but wonder what small employers are supposed to believe. Most associations provide health plan benefits primarily to small employers. Until federal health care reform, Washington associations were regulated as large group plans exempt from small group insurance market reforms.

With federal reform, it’s very hard for associations to qualify as “bona fide” under ERISA and continue to provide small group coverage as though the coverage were exempt from small group reforms. When insurance producers market “large group” association plan coverage to small employers, I also wonder whether insurance producers explain the penalties for employers providing the wrong benefits to employees. What happens if the association is wrong about selling large group coverage? Whoops?


26 USC §4980D. Failure to meet certain group health plan requirements

(a) General rule There is hereby imposed a tax on any failure of a group health plan to meet the requirements of chapter 100 (relating to group health plan requirements).

(b) Amount of tax

(1) In general. The amount of the tax imposed by subsection (a) on any failure shall be $100 for each day in the noncompliance period with respect to each individual to whom such failure relates.

(2) Noncompliance period. For purposes of this section, the term “noncompliance period” means, with respect to any failure, the period—

(A) beginning on the date such failure first occurs, and (B) ending on the date such failure is corrected.

The requirements of “chapter 100″ referenced in the tax code include the federal health insurance market reforms referenced in 26 USC §9815.1 among other provisions, such as mothers and newborns, mental health and substance abuse, etc.

Luckily, federal tax law exempts small employers who provide employee benefits by purchasing a plan from an insurance company.

(d) Tax not to apply to certain insured small employer plans 

(1) In general In the case of a group health plan of a small employer which provides health insurance coverage solely through a contract with a health insurance issuer, no tax shall be imposed by this section on the employer on any failure (other than a failure attributable to section 9811) which is solely because of the health insurance coverage offered by such issuer. [Emphasis added]

Question – If a small employer purchases coverage from an association claiming to be a “bona fide” large group that fails to satisfy small group market reforms, will the employer be liable for the excise tax? Would your answer change if I gave you the following additional information from the statute?

(B) Specified multiple employer health plans 

(i) In general In the case of failures with respect to a specified multiple employer health plan [association plan / MEWA], the tax imposed by subsection (a) for failures during the taxable year of the trust forming part of such plan shall not exceed the amount equal to the lesser of—

(I) 10 percent of the amount paid or incurred by such trust during such taxable year to provide medical care (as defined in section 9832 (d)(3)) directly or through insurance, reimbursement, or otherwise, or 

(II) $500,000. 

 For purposes of the preceding sentence, all plans of which the same trust forms a part shall be treated as one plan.

(ii) Special rule for employers required to pay tax If an employer is assessed a tax imposed by subsection (a) by reason of a failure with respect to a specified multiple employer health plan, the limit shall be determined under subparagraph (A) (and not under this subparagraph) and as if such plan were not a specified multiple employer health plan.

Bonus Question – What liabilities does a small employer face when the employer knows the plan purchased from the association fails small group benefit mandates such as out of pocket, annual, or lifetime limits?

Sorry, this is a trick question. The small employer owes nothing if the employer couldn’t know by exercising reasonable diligence.

(c) Limitations on amount of tax 

(1) Tax not to apply where failure not discovered exercising reasonable diligence 

No tax shall be imposed by subsection (a) on any failure during any period for which it is established to the satisfaction of the Secretary that the person otherwise liable for such tax did not know, and exercising reasonable diligence would not have known, that such failure existed.

Trickier Question – What does the small employer know if the Insurance Commissioner declares that an association is not “bona fide” and not entitled to provide large group coverage?

Should the employer seek the addition of an indemnification provision in its agreement with the association for any penalties or costs associated with noncompliance with the Affordable Care Act (ACA)?

Should the employer simply buy an ACA compliant small group plan if the employer is unsure of the bona fide status of the association?

For answers, I typically turn to my insurance broker; he cares a lot about my small business.

Just to be really sure though, small businesses should ask any association claiming bona fide, large group status to provide a legal opinion that insured, small employer members do not face liability under IRS Code 26 USC §4980D.

Might as well check that box off the “to do” list in the new year; right above the “play with fire” box.


Well, things just got more interesting in the Wally World of health care reform.

Unlike Moda whose association health plans were disapproved by the Washington Insurance Commissioner (OIC) last month, a group of associations insured through Premera filed suit against Commissioner Kreidler before he could disapprove their large group plans. I reviewed these Premera filings here in September.

On December 17th, the Davis Wright law firm, representing 13 association health plans, sent a letter to the Commissioner demanding:

“a hearing before an administrative law judge … to challenge the threatened action by the OIC on the grounds set forth below. However, it is also our demand that any such hearing be stayed pending the determination of the federal question – whether each of the Trusts is sponsored by an ERISA Section 3(5) Employer. As this issue is one involving the exclusive jurisdiction of the federal courts pursuant to ERISA Section 502(e)(l), we have, as of this date, filed a lawsuit in federal court (Western District of Washington) to resolve this issue and this issue is now pending before a federal judge. The federal lawsuit also seeks an injunction of all state proceedings and actions by the OIC.” [Letter at 1]

As mentioned in the law firm’s letter to the OIC, the firm simultaneously filed suit in federal court requesting a temporary restraining order and preliminary injunction against the Commissioner to prevent the OIC from disapproving the association health plans. The lawsuit was brought on behalf of the following association health plan trusts:

  1. Wholesaling Industry Health Trust 

  2. Transportation Industry Health Trust

  3. Information Technology Health Trust

  4. Tourism Industry Health Trust

  5. Retail Industry Health Trust

  6. Media Industry Health Trust

  7. Business Services Industry Health Trust

  8. Construction Health Trust

  9. Healthcare Industry Health Trust

  10. Community Service Organization Industry Health Trust

  11. End-Line Manufacturing Industry Health Trust

  12. Agriculture Industry Health Trust

  13. Aerospace Industry Health Trust

Whether the United States Department of Labor (DOL) would find these trusts (all created in January 2014 and largely managed by the same insurance folks) to be “bona fide” associations under ERISA is about as clear as muddy water. But, the associations press the argument explained in prior articles; namely, the OIC does not have the right to determine whether an association is “bona fide” under ERISA. That question is reserved for the DOL even if getting a letter opinion from the DOL takes years.

Compounding the problem for the OIC is the agency’s dismal record in managing the regulation of association health plans following passage of federal health care reform. In fact, I can’t wait to hear the agency’s explanation of the following two statements made in separate communications by the OIC to the associations represented by the Davis Wright law firm.

In a March 26, 2013 letter to the Aerospace Industry Health Trust, Carol Sureau, then  Deputy Commissioner for Legal Affairs for the OIC, wrote:

“First, I’d like to thank you for your assistance in the effort we’ve made to analyze your association membership in the context of your insurance benefits vehicle to determine whether the membership constitutes an “employer’ under 29 USC 1002(5).

Attached is a copy of the list of occupational categories we have agreed constitute a single industry. Also attached is a copy of the Trust Agreement governing the insurance vehicle which we have agreed provides the employer members included in the occupational categories list to control the insurance vehicle. These documents should be provided to your carrier [Premera], as they will be needed for your plan filings.” [Letter from Carol Sureau to Jeff Marcell and Jason Froggatt March 26,2013]

On October 28, 2014 the Insurance Commissioner, Mike Kreidler, wrote to Maud Daudon of the Seattle Metropolitan Chamber of Commerce expressing doubt that the creation of the many new association trusts would satisfy federal ERISA law. He stated:

“Your organization in particular has made substantial structural changes to satisfy the ERISA standards. My office has been working closely with the Chamber since 2012 in issues including industry code groupings and trust documents. However, even then we understood that the central issue was whether the reorganization of the Chamber into several separate industry groups with dedicated trusts would over come the Bend Chamber of Commerce decision. As I shared with you in an email dated July 31, 2012, the U.S. Department of Labor’s Susan Rees shared that she did not believe the Seattle Chamber was capable of satisfying ERISA’s definition of “employer” even with the proposed structural changes.” [Letter from Mike Krediler to Maud Daudon, October 28, 2014] [See page 4 here]

Thus, the OIC has said yes and no to the very same group. In addition, the OIC has allowed some associations to continue selling health plans that escape federal reforms while warning other similar associations not to sell these plans. One fundamental reason for this disparity is that “Blues” health plans operate under a law that lets them file and sell coverage until disapproved while large national insurance companies have to wait to get approval first.

Shortly after the OIC issued its March 2013 letters, the agency stopped issuing approval letters and advised other similarly situated associations that the OIC would not approve their large group filings because the OIC believed the associations were “driven by insurance industry marketers.” In other words, the OIC has careened back and forth favoring some organizations while discouraging others. In the last two years, some associations dismantled their large group association plans while associations like those represented by Davis Wright continued to market the same coverage. The disapproved Moda association plans differ very little from the associations who have filed suit against the OIC. The key difference is that the associations represented by Davis Wright filed a lawsuit before the Commissioner disapproved the plans.

If you want to understand what is at stake in this big fight, here is one of the arguments made by the lawyers about the consequences of an OIC disapproval of their association health plans:

“If the OIC takes its threatened course of action, the rights of the Sponsor’s employees to current coverage under the policies issued by Premera are adversely affected. Premera will not renew any insurance contract issued to the Health Benefit Trusts, sponsored by the Association, at the conclusion of the current policy term. Thus, the insurance coverage of employees and families of the Trusts’ employer-members will be disrupted. The Trusts’ member employers face increased cost as a result of the OIC’s threatened action because any new coverage that may be obtained by the employers for their employees, or coverage issued under small group or individual policies, will likely come at increased cost to the employers or their employees.” [Letter from Davis Wright to OIC at 2]

Translated, if the OIC is successful in preventing the associations from selling large group coverage to small employer members of the association, the small employer would have to buy the same federal reform coverage as other small employers at the mandated community rate without experience rating and subject to the same mandatory benefit coverage. Precisely! That’s why the small group market is in turmoil. Those who play by the new rules of the OIC wind up losing business to those who have the means to fight the rules. Meanwhile, the DOL periodically wakes up and asserts its jurisdiction about as effectively as my dad – “Don’t make me come out there!”

We’ll see if the injunctions are issued and these associations are allowed to continue to sell non-reformed coverage. Insurance producers for these associations will have to dig deep to convince small employers to buy a health plan that a federal judge may decide violates federal and state law particularly when the Insurance Commissioner has already decided these plans violate state law.

However much lawyers for these associations complain of the cost of a OIC disapproval, employees paying more than they would with a reformed plan may find their own grievances to litigate. This is a lose/lose mess that only a federal judge can sort out.

How did we get here? Silly question.

Happens all the time when regulators don’t do their job and leave others to improvise. The DOL should have provided guidance a long time ago and the OIC should have settled on a sane course, consistently followed, equally applied, and transparent to all. The work should have been completed in 2013.

But, I digress. Time to make some popcorn and head to Seattle federal court.


Ahhh…the marketplace…pushing, shoving, spinning, clarifying, puffery and many other special words come tumbling out with bad news. For those who want to paint a happy face on the recent Washington Insurance Commissioner (OIC) disapproval of large group health plans for several associations/trusts insured through Moda, let’s sort through the options in the “No Spin Zone.”

  1. Moda can demand a hearing contesting the disapproval of its filings as noted by the OIC Deputy Commissioner for Legal Affairs.
  2. Moda can sue the Insurance Commissioner contesting the agency’s interpretation of law.
  3. Moda can offer association member employers any OIC approved ACA metal plan, e.g., silver community rated small group plan.
  4. Moda can start over and file new plans for associations and try to reconfigure associations to satisfy OIC criteria for treatment as a large group, bona fide association plan.
  5. Moda can request a letter from the Department of Labor that the Commissioner is wrong and the associations really are bona fide.

Here’s what won’t happen until Moda successfully sues the Insurance Commissioner:

  1. Moda cannot sell disapproved health plans.
  2. Moda cannot advise association members that the association is bona fide without also advising that the OIC has disagreed with this classification – the pesky truth in advertising thing.
  3. Moda cannot underwrite association member small employers in a manner that differs from the ACA community rating standards.
  4. Moda must transition association member employers to ACA compliant plans as directed by the OIC unless the OIC is overruled by a higher power.

What does this mean for competing health plans that have been approved by the OIC? Easy.

Insurance producers will offer small employers losing their large group association plan coverage an alternative that does not depend upon successful litigation.

Since this is NFL playoff season, I’ll reduce this article to a football analogy – none of my employer clients want to buy a health plan dependent on a “future draft pick.” They want a winning team now.

For those who want to pore over the meaning of the OIC action and the minutiae of the disapprovals, here’s the list of plans filed by Moda since February 2014 on behalf of associations/trusts. I have highlighted the date of filing, the association and the disapproval action.

Happy reading and go Seahawks.