Six months before the health reform cuckoo clock strikes, the Washington Office of the Insurance Commissioner (OIC) has changed agency policy which required associations to prove its ERISA “bona fide” status and which rejected grandfather status for employers insured through associations. I say to those bitter folks clinging to their guns and their religion, better late than never.
If you have followed the tortuous trail of articles on association plans on this site, you know that OIC has thrashed about for more than two years for an adequate regulatory response to Washington’s association plan market [look at this March article for example]. As far back as 2006, the agency has attempted to find its way around a state statute that exempts small group plans sold through associations from community rating laws. Now that federal health care reform will override state exemptions, the OIC has struggled to find regulatory advice that incorporates actual federal law.
In 2006, a state court ruled against the agency’s “Technical Advisory” declaring the agency’s informal policy-making to be in direct conflict with actual state statutes. At the time, I argued to the agency that the OIC’s interpretation of federal law was wrong and that its justification for the restrictions on small group rates was inherently contradictory.
“In fact, HIPAA explicitly allows health plans to set rates based upon health status of employers including small employer members of associations. The OIC sidesteps this federal standard by declaring that associations are “large groups” and those small employer members are more like “employees” of the “large employer”. In contrast, the Centers for Medicare and Medicaid Services (CMS), the implementing agency for parts of HIPAA, has through recent bulletins made it clear that state law does not determine the group type [large or small] or even whether a group exists for ERISA or HIPAA purposes. CMS has not adopted the OIC “large group” fiction.” [2006 Letter to OIC]
I drag out the old 2006 court opinion not because I have become nostalgic, but because the opinion is suddenly relevant again. The court’s decision and the many letters the agency received in response to its “advisory” belies the argument that the agency needed clear legal direction. What the agency has lacked is a solid statute upon which to base its rules.
On June 6, the OIC held a meeting for insurers and their association plan clients. At the meeting, the agency said that it would no longer be issuing letters to associations declaring the association to be “bona fide” enough. You can find two of the several letters along with agency approved trust agreements and employer classifications purported to satisfy the federal “commonality of interest” standard here and here.
The first letter issued to the Master Builders Trust by the Insurance Commissioner was unveiled as part of a meeting last fall. Newer letters were issued by agency attorneys. In them, the OIC advised associations that the letter should be provided to their insurer as a necessary component of any association rate and form filing with the agency. Here is a boilerplate paragraph from these letters:
“First, I’d like to thank you for your assistance in the effort we’ve made to analyze your association membership in the context of your insurance benefits vehicle to determine whether the membership constitutes an “employer” under 29 USC 1002 (5).
Attached is a copy of the list of occupational categories we have agreed constitute a single industry. Also attached is a copy of the Trust Agreement governing the insurance vehicle which we have agreed provides for the employer members included in the occupational categories list to control the insurance vehicle. These documents should be provided to your carrier, as they will be needed for your plan filings.”
[3/26/2013 letter from Carol Sureau, OIC attorney to Jeff Marcell, President & CEO of Enterprise Seattle, see sample letter links above]
The OIC’s declared reason for ending bona fide letters is that it no longer has time [PowerPoint at 13]. I hope the OIC finds time to communicate with the small group market and insurance producers. I know the OIC will advise producers that the association plan letters have no legal value and should not be used to sell “real” association coverage from “approved” plans rather than “unapproved” plans from “fake” associations.
In addition to ending the pre-approval process for bona fide associations, the agency declared that new advice from DOL/HHS/CMS/CCIIO (dealers choice) had revealed that small groups could in fact claim “grandfathered” status even though the employer purchased coverage through an association. The agency had advised associations in meetings that the agency had concluded small employers could not claim “grandfather” status because associations were really large groups. Now the agency was willing to agree that small employers could be grandfathered – just not those who made the purchase after March 23, 2010 [another mistake we’ll cover later].
The new advice does not need to be summarized as the entire advice from the federal government consists of these two sentences:
“As indicated in the letter [referencing the Commissioner’s 2010 letter to CMS], the grandfathering status of an employer with association coverage is not determined by the timing of the master contract between the issuer and the association but rather is determined by when the employer obtained the coverage with the association. Only if the association health plan is determined to be one ERISA plan (which is infrequent) would the timing of the master contract determine the grandfathering status.” [see email link above]
The information is “new” in the sense that the OIC has a new email. But the advice is old. The OIC position on grandfathered plans has changed a few times because the agency misunderstands federal grandfathering rules [see my articles here and here]. For example, compare these statements from OIC presentations which we rely upon in the absence of actual rules:
- “Employers or individuals joining the AHP on or after March 23, 2010 will be considered non‐grandfathered unless they satisfy the transition rules ‐and will need to be issued “non‐grandfathered” benefits.” [10/13/2011 OIC presentation to Joint Select Committee on Health Reform Implementation]
- However, if an employer joins an AHP and begins enrolling its employees in a health plan obtained through an AHP after March 23, 2010, that plan is not grandfathered.” [Commissioner letter to HHS linked above]
- Grandfathered plan – A benefit plan that had one or more employees or an individual enrolled in the AHP before March 23, 2010 and did not lose its grandfathered status under the federal rules.” [PowerPoint linked above]
Even though the OIC cites the federal grandfathering rules in the same June 6 PowerPoint, the agency does not connect the dots between its declaration that March 2010 is the grandfather cutoff date for associations and its summary of federal grandfather rules:
“May Change Insurance Companies. An employer with a group health plan can switch plan administrators as well as buy insurance from a different insurance company without losing grandfathered status‐‐provided the plan does not make any of the above six changes [referring to grandfather standards] to its cost or benefits structure.” [page 19]
In other words, AN EMPLOYER PURCHASING COVERAGE FROM AN ASSOCIATION AFTER MARCH 23, 2010 MAY BE “GRANDFATHERED” IF THE EMPLOYER’S PRIOR COVERAGE DOES NOT CHANGE IN A MANNER THAT CAUSES THE EMPLOYER TO LOSE ITS “GRANDFATHERED” STATUS. Naturally, my advice depends upon whether you choose to rely upon page 5, 12, or 19 of the OIC PowerPoint.
Sadly, this regulatory bungling has true costs and consequences for small employers. As I write this, many insurance producers relying on the OIC PowerPoint advise employers that they cannot purchase association health plan coverage and retain grandfathered status because they did not buy before March 23, 2010. In addition, associations have been whipsawed by OIC demands for adherence to the agency’s views of bona fide associations and association counsel warnings that the agency’s approval will not protect the association from liability. Compounding the confusion is the fact that a bona fide association may have a plan that satisfies federal grandfather rules yet some of its employer members may not be grandfathered. Viva la reform!
Now back to the past. Here’s why a 2006 Spokane court opinion remains relevant. At its June meeting, the OIC announced plans to adopt emergency rules – they ran out of time for real rule-making with public hearings and such. As described in its presentation, the new emergency rules will again pretend that small employers are like individual employees who cannot be subject to experience rating:
* Although true Employer Health and Welfare Benefit Plans will still be able to file and market as large group if over 50 lives – the rates must be based on the overall experience of the group and health status may not be used to set rates
The OIC understanding of the federal health care reform law looks a lot like the agency’s 2006 view of HIPAA. Although I have asked, the OIC has still failed to identify the federal regulation that prohibits insurers from experience rating an employer who purchases a health plan from a bona fide association – a position which a state court said the agency could not adopt under state law and which federal regulations explicitly permit.
Undeterred by the need of actual statutes upon which to base its rules, the agency also provided the following guidance to health insurers filing plans for associations:
* Carriers and AHPs may not manipulate the master contract or employer plan year to avoid or delay compliance with the ACA
* Non‐employer AHPs – Carriers which choose to maintain grandfathered individual and small employers may do so by filing the grandfathered portion of the AHP group with combined claims experience
* Non‐employer AHPs – Carrier may discontinue all grandfathered plans and replace with non‐grandfathered individual metal level, small group metal level or large group plans
* All participating employers and individuals under “True Employer” must have the same plan renewal date – with any benefit changes or rate changes applied across the entire group at the same time. No rolling plan year at the employer level based on the employer’s anniversary date
If all of this seems too obscure or “such a bother,” I leave you with this intentionally, unattributed advice from the OIC to an association during a meeting in which the association’s trust agreement was reviewed by agency attorneys.
“The association should remove the VEBA language from the trust agreement or we will not issue an approval letter; an association cannot be bona fide and a VEBA. We recommend that you use this approved trust agreement instead.”
There will be no prizes awarded to those who get the joke. Knowledge is its own reward.