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.