On Thursday February 28, while the state Senate was hearing legislation to require the Insurance Commissioner (OIC) to defer to the federal government on matters relating to treatment of associations as large group plans under ERISA, the Commissioner was unveiling his new rate and form filing instructions. Parenthetically, these instructions are not rules subject to the Administrative Procedures Act, these are “requirements” for insurers wishing to obtain regulatory approval of their health plans.

Here is the red-lined text from the filing instructions unveiled on Thursday. Do you wonder why associations are seeking legislative intervention?

“Washington State SERFF Health and Disability Form Filing General Instructions
Page 5 of 19

“J.Association or Trust Association, Trust, or Employer Group domiciled in Washington State
1. Must file for approval the policy, association and trust certificates [in single case format [does
not apply to Employer Groups].], applications, riders, or endorsements on the Form Schedule
a. If previously approved applications, riders, or endorsements are to be used with the new
policy or certificate, they must be attached to the supporting documents tab and be
described in the filing description or cover letter.
b. Single case format means group specific language with no bracketing or variability [does
not apply to Employer Groups].
2. Must file copies of the original trust documents or articles of incorporation and include revised,
amended or restated documents on the Supporting Documentation tab [does not apply to
Employer Groups].
a. Major medical lines of business must include a copy of the bona fide association bylaws on the Supporting documentation tab.
i. Must include a copy of the Industry Classifications comprising the eligible groups in the association. Or;
ii. An advisory opinion from the Federal Department of Labor demonstrating the group is qualified to purchase association coverage.

These new “requirements” dramatically change current state law and conflicts with federal law as I have noted in previous articles.

The OIC is neither qualified nor authorized under federal law to make determinations as to whether an association plan meets federal ERISA standards for treatment as a single employer plan (the so-called bona-fide association standard).

The OIC filing requirements would retain an informal process OIC used with the Washington Master Builders Association (MBA) whereby OIC reviewed the association’s employer member SIC codes and negotiated with the MBA until the agency felt comfortable with the similarity of member employers. The OIC approach is a crude substitute for the federal test of “commonality of interest” which is both more nuanced and broader than comparing SIC codes to decide if the member employers are sufficiently the same.

As an alternative to the OIC review of SIC codes, the agency would require the association to obtain an advisory opinion from the U.S. Dept. of Labor (DOL) that the “group is qualified to purchase association coverage.”

First, the OIC instruction makes no sense – what does the OIC mean when it states “the group is qualified to purchase association coverage?” Any and every group is “qualified” to purchase association coverage. The legal issue concerns treatment of the association as a single, large employer under ERISA. The statement demonstrates the OIC lack of understanding of the legal issues involved and the danger when an agency sidesteps the rule making process by instead issuing “instructions.”

Even allowing for the probability that the OIC simply made a mistake in writing these standards, an advisory opinion from the DOL takes years to submit and receive. Moreover, federal law does not require an opinion letter as a condition to operating a bona-fide association or any other association. Groups seek DOL opinions to resolve uncertainties about potential liability under federal law. Why would an association rely on the OIC for a legal opinion as to association liability under ERISA? Why resolve uncertainties between state and federal law through a filing instruction?

Because it’s easier for the OIC. The Legislature has never shown a willingness to repeal the association health plan rating law and the federal standards do not provide the kind of “bright line” the Commissioner wants to shut down most association plans. The OIC standard effectively ensures that only the OIC will be able to judge the association. No association plan can survive until either the DOL issues an opinion or the OIC satisfies itself that if it were the federal government, it would find an association to be bona-fide. Remember that the “instructions” tell insurers that the OIC will not allow the insurer to sell a plan unless the insurer satisfies the “instructions.”

These OIC instructions demonstrate the purpose of SSB 5605 which the Senate was hearing on the same day the OIC was explaining. The legislation would go in the opposite direction from the OIC – an association plan could continue until the federal government says no. The OIC wants to say no until the federal government says yes. Which is fairer to the thousands of small businesses currently insured through associations?

This flurry of activity leads me to a simple question – exactly who is in charge of what?

The Legislature exempted associations from state small group rating laws in 1995 and association health plans now dominate the small group market. Since then, the federal government has applied federal health plan rating standards to small groups purchased through associations unless the association could be treated as a bona-fide association under ERISA.

The Insurance Commissioner interprets these state and federal laws as authorizing the agency to issue new “filing instructions” that apply federal small group rating laws to associations unless the Commissioner decides the association employer members are acceptably similar.

I should have paid more attention in law school. I don’t remember this lesson on constitutional law.

Here’s the analysis of ERISA and the role of the Insurance Commissioner I remember, as described in a letter from the DOL to the Washington State Legislature about Insurance Commissioner authority over employer health plans. Even dusty old letters can be “instructive.”