The Regulatory Stew


As someone who has long opposed the Washington Insurance Commissioner’s regulatory approach to killing association health plans, I understand the anger and frustration of small employers and associations forced to abandon perfectly legal plans for the health care reform tango. BUT, it’s important to remember there’s a huge difference between opposing bad law and policy and obeying actual laws.

Lately, insurance producers have been caught up in the health plan market turmoil that’s left many small employers scratching their heads. One day an association health plan is legal, the next day not. One producer says an association is bona fide and another says it’s not. So here’s the basic choice – you can either obey a rule or defy a rule. If you defy the rule, pile up some cash, hire some good lawyers, and settle in for the long haul. Until or unless a rule changes, it’s still a rule. While large corporations may decide to go to regulatory war, producers should stay out of the crossfire.

Most association health plans fail to satisfy the rules adopted by the Insurance Commissioner which took effect January 14, 2014. The state rules present major problems for associations because the rules create new investigatory and reporting burdens for grandfathered plans and for plans that claim to be offered in the “large group” market. The new rules have provoked opposition; nevertheless, until or unless the rules change, producers should act in accordance with these new standards. The agency’s interpretation of their own rules haven’t tamped down the controversy.

Several producers sent me some of the small group plans being marketed by “associations.” After reviewing the various insurance plans and the accompanying marketing material, over half of these plans fail to satisfy either the newest Washington insurance regulations or other longstanding insurance rules governing association health plan marketing. Insurance producers should exercise caution in recommending association health plan coverage without checking them out. Some associations have and will qualify as large group plans exempt from many of the health care reforms. Other associations will never qualify as large group and some associations have decided to continue business as usual and wait to see what happens.

Despite the many and various legal opinions as to the jurisdiction of the Insurance Commissioner over association health plans and their status as “bona fide” under federal law, the Commissioner’s rules nevertheless impose standards on classification, design, pricing, and marketing of bona fide association plans. Whether a particular association is indeed “bona fide” presents substantial risks to both producers and their employer clients; since, a finding by the Commissioner that an association is not “bona fide” (large group) means that a plan sold to a small employer does not meet small group market reforms. Thus, an employer might find themselves offering a plan to employees that failed to meet federal benefit standards.

Among the standards imposed by the Commissioner are the following:

• An issuer must not offer or issue a plan to individuals or small groups through an association or member-governed group as a large group plan unless the association or member-governed group to whom the plan is issued constitutes an employer under ERISA. [WAC 284-170-958(1)]

• If the association is a large group as defined (above 958(1)], the same renewal date must apply to all participating employers and individuals, and the replacement coverage must take effect on the same date for each participant. The purchaser’s anniversary date must not be used in lieu of this uniform renewal date for purposes of discontinuation and replacement of noncompliant coverage. [955(3)]

• An issuer must not adjust the master contract renewal or anniversary date to delay or prevent application of any federal or state health plan market requirement. [955(8)]

• An issuer must maintain the documentation supporting the determination and provide it to the commissioner upon request. An issuer may reasonably rely upon an opinion from the U.S. Department of Labor as reasonable proof that the requirements of 29 U.S.C. 1002(5) are met by the association or member-governed group. [958(2)]

Every large group association health plan must be filed with the Insurance Commissioner and include the following (from the SERFF Health and Disability Form Filing General Instructions):

• The wording “Association or member-governed true employer group under 29 U.S.C. Section 1002(5) of ERISA– Name of the Association” in the Product Name field on the General Information Tab.

• A certification under the Supporting Documentation Tab of the form filing from an officer of the company certifying that the group health insurance coverage in connection with this large group health plan meets the requirements of Health Insurance Portability and Accountability Act (HIPPA) (29 CFR Chapter XXV, Section 2590.702) which prohibits discrimination against participants and beneficiaries based on a health status-related factor. The certification must include statements that the rules for the eligibility (including continued eligibility) of any individual to enroll under the terms of the Washington State SERFF Health and Disability Form Filing General Instructions large group health plan are not based on any of the following health status-related factors (prescribed in HIPPA) in relation to the individual or a dependent of the individual:

1. Health status.

2. Medical condition (including both physical and mental illnesses).

3. Claims experience.

4. Receipt of health care.

5. Medical history.

6. Genetic information.

7. Evidence of insurability (including conditions arising out of acts of domestic violence).

8. Disability.

• One pdf document titled “Evidence as an Employer” and file it under the Supporting Documentation Tab. The document must include, at a minimum, the following information:

i. A copy of the association bylaws on the Supporting documentation tab;

ii. A copy of the trust agreement or other organizational document which shows the purpose of the association and who governs the association;

iii. A statement of the association’s history;

iv. A copy of the occupational categories/ industry classifications comprising the employers in the association;

v. An advisory opinion from the Federal Department of Labor demonstrating the group is qualified to purchase association coverage.

vi. In absence of a Federal Department of Labor opinion, an opinion from an attorney explaining how and why the association qualifies as a true employer under 29 U.S.C. § 1002(5) of the Employee Retirement Income Security Act (ERISA) of 1974. [Emphasis added]

Although insurers remain primarily responsible for compliance with insurance regulations governing the design and price of a health plan, insurance producers may be found liable for violation of state statutes and regulations relating to the sale of non-compliant health plans. At a minimum, where a regulatory standard directly affects the marketing of a health plan, the producer should minimally satisfy herself that the standard has been met.

For example, insurers must file either an attorney’s opinion as to the status of an association as bona fide under ERISA or a Department of Labor opinion to the same effect. Absent such an opinion, a producer should conclude either that the association health plan does not satisfy large group market requirements or that the insurer has failed to satisfy state plan filing requirements. In either case, given the minimal effort involved, a producer should verify the plan’s status as due diligence. Failure to make such determinations prior to sale, places the producer at risk of regulatory penalty or worse.

The new rules should prompt insurance producers to develop a system for verification of health plan compliance in the association market. The system does not need to be either elaborate or expensive; but, producers should minimally request from the insurer proof of the status of an association as “bona fide” and if applicable, compliance with state grandfather plan rules. Documentation should be easy to acquire since the documents must be provided to the Commissioner when the plan is filed for regulatory review.

Producers who incorrectly advise clients that a plan satisfies the employer’s obligations under federal health care reform create liabilities for both the producer and the employer where the producer fails to perform these basic inquiries.

Bottom line, don’t assume that representations made in the current chaotic association plan market are true. Trust but verify.


The Insurance Commissioner’s newly revised rules governing association health plans once again alter the landscape for small employers. Hopefully, the rules last long enough for small employers to make a firm decision when renewing coverage in 2014.

Health plan markets have returned to the Wild, Wild West and the regulatory sheriff hasn’t stepped into the street to confront deceptive sales. If you’re a small employer and you receive an offer from an association or similar member organization claiming that your small group health plan will be treated as a large group plan, ask some questions now to avoid liabilities later.

Small group health plans must meet standards different from large group plans. State and federal law require health plans to include the benefits and pricing for the market segment to which the employer belongs. Employees not provided the right benefits at the right price can cause problems for employers, especially when employees contribute to plan premiums.

Some associations claiming to offer large group plans to small employers do not satisfy legal requirements for large groups. A few associations can and have met these requirements. Employers need to sort out the legal ones from the false ones. Under the new rules, insurers must conduct a review of an association before offering to sell them a large group plan.

• An insurer cannot offer a large group plan to an association unless the association satisfies federal ERISA standards for treatment as a single, large employer plan.

• An insurer must make a “good faith” effort to verify the association’s compliance with federal law before filing large group health plan rates and forms with the Insurance Commissioner for review.

• An insurer must keep a record of the documents it relied upon in verifying the association’s compliance with federal law.

After review, the insurer must include the following documents in its health plan filing with the Insurance Commissioner:

• A copy of the association bylaws,

• A copy of the trust agreement or other organizational document which shows the purpose of the association and who governs the association,

• A statement of the association’s history,

• A copy of the occupational categories/ industry classifications comprising the employers in the association, and

• An advisory opinion from the Federal Department of Labor demonstrating the group is qualified to purchase association coverage or in absence of a Federal Department of Labor opinion,

An opinion from an attorney explaining how and why the association qualifies as a true employer under 29 U.S.C. § 1002(5) of the Employee Retirement Income Security Act (ERISA) of 1974.

Employers should review these association documents. Even if an employer believes the association plan is a legitimate large group plan, the employer should review the documents because the employer must agree to the terms and conditions contained in these documents.

Make sure you know who you are doing business with and make sure the offer is legal.



Just a week before Christmas, those warm and giving folks at the IRS delivered a present to Washington State small employers without access to SHOP coverage. Washington’s SHOP Exchange only provides coverage in Clark and Cowlitz counties. Now the tax credits once available only through the Exchange can be obtained outside the Exchange. Nothing in health care reform is immutable. Every answer starts with “it depends” and ends with a question – “has it changed today?”

The IRS published notice 2014-6 allowing small employers in Washington State counties not served by the Washington Exchange to claim the tax credit once limited to SHOP plans. An employer with 25 or fewer employees with its principal business address in one of the following counties can qualify for “transitional relief”:

Adams, Asotin, Benton, Chelan, Clallam, Columbia, Douglas, Ferry, Franklin, Garfield, Grant, Grays Harbor, Island, Jefferson, King, Kitsap, Kittitas, Klickitat, Lewis, Lincoln, Mason, Okanogan, Pacific, Pend Oreille, Pierce, San Juan, Skagit, Skamania, Snohomish, Spokane, Stevens, Thurston, Wahkiakum, Walla Walla, Whatcom, Whitman, and Yakima counties.

Employers will need to consult the IRS rules to determine eligibility. You can find a credit calculator here.  The credit is limited to employers who:

  1. paid premiums for employee health insurance coverage under a qualifying arrangement
  2. had fewer than 25 full-time equivalent employees (FTEs) for the tax year; and
  3. paid average annual wages for the tax year of less than $50,000 per FTE.

Each regulatory term has its own meaning like “full time employee” (FTE) which requires some math skills and IRS logic to determine (hint: employers don’t need to use the same method of calculation for every employee). Here’s a sample from today’s notice:

“If the eligible small employer claims the section 45R credit for the 2014 taxable year, the credit will be calculated at the 50 percent rate (35 percent rate for tax-exempt eligible small employers) for the entire 2014 taxable year, and the 2014 taxable year will be the first year of the two consecutive taxable year credit period. In addition, if the eligible small employer claims the section 45R credit for the portion of the 2014 health plan year that continues into 2015, the tax credit will be calculated at the 50 percent rate (35 percent rate for tax-exempt eligible small employers) for the corresponding portion of the 2015 taxable year.”

You may pick up your pencils and begin now.


After a year of PowerPoint presentations and various emergency rules explaining when and how a small employer could keep existing coverage (they can’t), the Insurance Commissioner (OIC) began adopting rules explaining how insurers should develop and file association health plan rates. It’s all very exciting. Small employers still don’t know how things are going to turn out.

They were told Washington would have a SHOP with tax credits but we don’t. Well, we have a SHOP but it’s only for southwest Washington employers. They were told their coverage would not be renewed then maybe it would – wait, no it won’t. They were told they were grandfathered until they weren’t, well maybe…no…oh hell…everyone’s canceled…get out of here! (See e.g., OIC emergency rules – 4/2/2013, 6/28/2013, 7/31/2013, 8/21/2013).

Welcome to health care reform, Washington style.

In the regulatory basement where arcane rules are created governing health plan pricing, the small group market looks like a science experiment gone bad. Association health plans comprising most of the small employer market have as many legal opinions about coverage as there are associations. On October 23, the OIC adopted emergency rules governing association health plan rates which took effect three days later. The rules bumped the proposed rules and the other emergency rules. These new rules said that association health plan rates could not rely upon some important information about member employers:

WAC 284-170-958 Transition of plans purchased by association members.

…4) An issuer must rate a large group plan issued through an association that meets the definition of subsection (1) of this section based on the overall experience of the entire association, and apply rating factors uniformly to each purchasing entity in the association.

  (a) An issuer must not use data or information from a specific group purchaser of the association’s health benefit plan to establish rates for that group purchaser. “Data or information” specifically includes specific employer information such as group size, health status, claims experience, participation requirements, and number of employees under COBRA status. Composite rating may not be used to set rates for a large group as described under this subsection unless the composite rates are applied uniformly across the entire large group. For purposes of this section, “composite rating” means the averaged rate issued to a group using the group’s demographically specific rating factors.

  (b) For a health benefit plan issued to an association, if the association meets the definition of a large group association in subsection (1) of this section, and the issuer filed the rates for the association as a single case large group, an issuer must submit with its rate filing evidence or documentation of the association’s status as an “employer” under 29 U.S.C.S. 1002(5). The commissioner will accept a letter from the U.S. Department of Labor certifying this status as sufficient documentation.

On December 11, the OIC repealed this association rating standard and enacted new small group rules that take effect January 11, 2014. The new rules repealed the rule quoted above. The notice explained that rule was “not substantially different from that published” on October 2nd, which contained exactly the same words. So I guess the emergency is over and the provision is gone; but, of course, it’s not. Why? The Commissioner explained that the rules were not substantially different even though they used the same words because “the federal standard still applies.” What?

Imagine you are trying to determine new rates for an association health plan. You go to a lot of meetings and rules are proposed, then different ones are adopted as emergency rules effective three days after publication. Later, you get an email announcing repeal of the emergency rating standard. Then you’re advised that the rule isn’t necessary because it’s already the federal standard. You most certainly would seek a chiropractic adjustment.

Would you ask “what federal standard?” Would you search for the federal regulation that banned consideration of association member group size in rating? Would you start looking for the federal composite rating rules?

Would you still wonder why small employers start boiling tar when you say health plan? Would you be surprised to learn that I have absolutely no idea what kind of small group plan can still be sold in Washington? Somebody call me a doctor!

(I don’t have any in my network.)


Washingtonians can feel all “mavericky” compared to other states where Insurance Commissioners have honored the President’s attempt to meet his original commitment to policyholders (remember “grandfathered plans?”).

["Mavericky" - "An adjective used to describe an action that may not make any sense, but is definitely different." (from the Urban Dictionary)].

The California Insurance Commissioner’s positive response to President Obama was covered in the last post. Here’s the response from Washington’s “conservative” neighbor – Oregon.

“(Salem) — Oregon’s insurance commissioner announced Friday she is giving insurance companies the option to extend health plans in the individual and small group markets for up to another year, through Dec. 31, 2014.

The decision affects plans in place as of Oct. 1, 2013, that would otherwise be canceled because they do not meet minimum coverage requirements and financial protections under the Affordable Care Act.

“If an insurer chooses to offer extensions, it will need to notify the Oregon Insurance Division and contact customers directly about their options,” Insurance Commissioner Laura Cali said. Cali expects the division will provide insurers with more detailed guidance next week.

Cali made her decision in response to President Obama’s announcement Thursday that federal regulators would allow states to decide whether insurers can extend plans that were in effect on Oct. 1.

Cali said staying in the same plan may not be the best option for many Oregonians.

“The new plans offered in 2014 offer more benefits and financial protections, and many Oregonians will qualify for premium help through Cover Oregon,” she said. “I strongly urge consumers to shop around and find the plan that works best for them and their families.”

Federal subsidies to lower insurance costs are available only to people who buy new plans with essential benefits through Cover Oregon, the state’s health insurance marketplace. People should apply as soon as possible to take advantage of federal tax credits that start Jan. 1, 2014. Contact Cover Oregon at

About 5 percent of all Oregonians buy individual health plans because they are self-employed, unemployed, or their employer doesn’t offer coverage. About 145,000 of these Oregonians will need to shop for new coverage. Most are in plans currently scheduled to end Dec. 31, 2013. Another 193,000 Oregonians are covered by small employer plans that are currently scheduled to end on their renewal date, which may be as early as Dec. 31, 2013.”

Still no word on how the Washington Insurance Commissioner plans on sustaining emergency rules ending many small group plans now that grounds for the rules have evaporated.

Few commercial insurers have received regulatory approval for ANY renewal plans for Washington’s small business community which are expiring in January, 2014 – apparently, insurers have forgotten how to design and price health plans for Washington’s market.