On Monday (5/18), the OIC added new documents to defend its disapproval of the Washington Counties Insurance Fund (WCIF) health plan rates. In a declaration from staff counsel, the OIC supplied two letters – one from the state Attorney General’s office and one from Teresa Miller from HHS overseeing health plan market reforms. Both documents undercut rather than support the OIC position and reveal the confusion that has reigned over association health plan regulation in Washington State.

The letter written from the Attorney General’s (AG) office to state Representative Joe Schmick is useless because the letter fails to accurately analyze the law applicable to multiple employer welfare arrangements (MEWAs). While the letter generally describes the OIC role in reviewing insurance company rates and correctly advises that the Commissioner may judge whether an insurer has properly classified rates as large group, the letter does not support the OIC rate review criteria or haphazard approach to judging bona fide status.

The AG letter mistates the federal law governing bona fide associations and MEWAs. The letter describes the distinction between the two as follows:

“If an association is a “multiple employer welfare arrangement” for purposes of the definition of employer found in ERISA, then its insurance carrier does not have to pool the members of the arrangement in the community rating pools otherwise required for individual and small group purchasers of health insurance. Instead, all members of the multiple employer welfare arrangement could be pooled and rated together as a large group. Thus, the allowable rating scheme for an insurance plan to be offered to an association of employers in Washington can depend on whether the association is a MEWA as defined by federal law.” [Emphasis added. AG letter at 3]

Every association health plan is a MEWA. Some MEWAs qualify for treatment as a single large employer plan for reporting and compliance purposes under ERISA. Those MEWAs that do not qualify as a bona fide association lose the ability to report and comply at the association level meaning that each participating employer has a separate reporting and compliance obligation. The AG should have said that the allowable rating scheme, “can depend on whether the association is a bona fide association under ERISA.”

Second, the AG letter does not support the rate review criteria used by the OIC. The letter only notes that the OIC can determine whether the association plan may file as a large group and then review the rates accordingly. But WCIF satisfies the bona fide association standard.

The letter written by Teresa Miller opposes legislation introduced in 2013 addressing state authority to regulate association health plan rates. However, the letter contradicts OIC assertions that federal health care reform created a change in law governing the regulation of association health plans.

“Although the Affordable Care Act revised and added to Title XXVIl of the PHS Act, it did not modify the underlying PHS Act framework for determining whether health insurance issued through associations was individual or group health insurance coverage

The size of each individual employer determines whether the employer’s coverage belongs to the small or large group market. in the rare case in whlch the group health plan is sponsored by the association of employers, the number of employees employed by all participating employers determines the market in which the association participates.” [Miller letter 1-2]

Again, the OIC and WCIF both agree that WCIF qualifies as a bona fide association. They disagree over the method the OIC imposes for establishing rates for WCIF member employers.

After years of exploring these issues, let me once more simplify the controversy over association health plan regulation in Washington as expressed in previous articles here.

  1. All association health plans are MEWAs under ERISA.
  2. Only MEWAs that satisfy the Department of Labor “commonality of interest” standards can qualify as a “bona fide” association of employers under ERISA.
  3. A bona fide association of employers qualifies for treatment as a single group health plan existing at the association level rather than at the member employer level for the reporting and compliance requirements of ERISA.
  4. A MEWA that does not qualify as a bona association of employers means that the association is a collection of employer plans each regulated in accordance with the size of each participating employer.
  5. Federal health care reform (ACA) imposes community rating standards upon the individual and small group health insurance markets and preempts conflicting state laws.
  6. The OIC may review and reject filed health plan rates that fail to comply with state and federal laws.
  7. State and federal statutes do not impose the type of rating requirements upon large group health plans as used by the OIC in reviewing bona fide association health plan rates.
  8. While the OIC may determine whether a rate filing has been properly filed as a large or small group market rate, no statute permits the OIC to establish its own standards for determination of an association’s status as bona fide under ERISA.

Over the past three years, the Insurance Commissioner has struggled to create a regulatory framework that would achieve his policy objective of ensuring that all small employers participate in the community rated small group health plan market. That regulatory effort has created delay, uncertainty, and contradictory results in the small group insurance market. In the absence of statutory authority, the Insurance Commissioner has sought to develop regulatory theories that would achieve his reform objectives.

The legal challenges to the Insurance Commissioner do not require debate of his reform objectives; rather, each challenge demands that his objectives match those chosen by the Legislature.