After years of confusion and drift, the Insurance Commissioner’s Office (OIC) has begun a more transparent process of sorting out the winners and losers in the Washington association health plan market. Change has come quickly in the past week beginning March 5th with the Association of Washington Business withdraw of their demand for hearing challenging the OIC threatened disapproval of AWB plans.

On Monday, the Seattle Times ran an article summarizing the problems for small employers purchasing association health plans that have been analyzed here for the past two years. Many small employers have discovered that their 2014 health plans were disapproved and that 2015 coverage may be disapproved. Part of the problem has been the long delays between the time an insurer like Premera files an association health plan for review and the time it takes for the agency to disapprove the plan.

Under Washington law, insurers classified as “health care service contractors” like the Blues plans are permitted to sell a plan after it has been filed. Other insurers must wait to receive approval. [Legislation pending before the legislature may resolve this imbalance.]

As a consequence, all of the association plans for 2015 await agency action. Associations face the prospect of filing an IRS Form 8928 self-reporting a non-compliant employee benefit plan and paying an excise tax.

Who Must File
Form 8928 must be filed by:

Any employer or group health plan liable for the tax under section 4980D for failure to meet portability, access, renewability, and market reform requirements for group health plans under sections 9801, 9802, 9803, 9811, 9812, 9813, and 9815.

Yesterday, the OIC published a new web page which addresses association health plans including the list of approved plans. The list of disapproved 2014 plans can be found here and the list of 2015 plans can be found here. The 2015 list will be periodically updated by the OIC. Here are the agency’s instructions:

  • If the plan you sell has been disapproved, the health insurer will notify you about the process for moving your clients to new coverage. Once a plan is disapproved, the insurer has 90 days to appeal our decision.
  • If the health insurer disagrees with our decision they may request a hearing. However, unless they are granted a stay by either our administrative hearings officer or federal court, you cannot sell a disapproved plan.
  • You may sell approved plans and any plan that is ‘under review.’ We will update the status of our reviews frequently to ensure we have the most current information available.

Given the OIC’s rules on rating association plan member employers as if they were employees, what should an employer do when a plan is disapproved because the rates have been declared discriminatory? Federal rules prohibit certain types of discrimination in rates raising the likelihood that the plan violates §9802 above [26 CFR § 54.9802-1 Prohibiting discrimination against participants and beneficiaries based on a health factor].

Given that so many association health plans “under review” for 2014 were subsequently disapproved, can an association rely upon the “under review” status to avoid IRS Form 8928 filing requirements and avoid the excise tax?

“(B) Specified multiple employer health plans
(i) In general In the case of failures with respect to a specified multiple employer health plan, 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.

…(f) Definitions

(2) Specified multiple employer health plan
The term “specified multiple employer health plan” means a group health plan which is—
(A) any multiemployer plan, or
(B) any multiple employer welfare arrangement (as defined in section 3(40) of the Employee Retirement Income Security Act of 1974, as in effect on the date of the enactment of this section).”

Even if an association can successfully argue the failure to comply was “due to reasonable cause and not willful neglect,” what actions on the part of the association would meet the other part of the regulatory standard? The one requiring the problem to be “fixed.”

“(2) Tax not to apply to failures corrected within certain periods
No tax shall be imposed by subsection (a) on any failure if—

(A) such failure was due to reasonable cause and not to willful neglect, and

(B)(i) in the case of a plan other than a church plan (as defined in section 414 (e)), such failure is corrected during the 30-day period beginning on the first date the person otherwise liable for such tax knew, or exercising reasonable diligence would have known, that such failure existed.”

Well, as my father always said, progress on the regulatory front is “better than a poke in the eye with a sharp stick.”