Association Health Plans

President Trump sure has a knack for causing panic. His executive order to loosen standards for association health plans surely has brought about the “end of days.” After watching television coverage and reading interviews with health care experts, the end times can’t come soon enough. I need relief.

Nearly 75% of the reporting to some degree is misleading or just plain wrong, 10% is fairly close to accurate, and the remaining 15% makes no sense at all. Maybe other states suffer far worse fates than Washington State, like a zombie apocalypse that hasn’t reached our border. In the hopes of preventing panic attacks, heart attacks, and strokes, let me sift verifiable facts concerning association health plans – but just in Washington, because I haven’t ventured out enough to determine whether federal law still applies in other states.

Association health plans (AHPs) have been thriving in Washington State since at least 1995 when the state legislature carved out associations from the small group reforms of the 1990s. Despite Obamacare and the Insurance Commissioner’s failed war on AHPs, they are still thriving in Washington State. No one has died, the rate of uninsured has gone down, and insurers still compete.

Federal health care reform had one significant impact on Washington’s AHP market. If an association couldn’t shed employers that didn’t satisfy a “commonality of interest” test as periodically described by Department of Labor (DOL), the AHP wasn’t bona fide. Without bona fide status, the association couldn’t design and price a plan to suit its own membership. It could only sell the products readily available from any insurance producer in the open market, priced in accordance with a statewide community rate. These AHPs were essentially forced to close because they had nothing distinct to offer.

The surviving bona fide associations lost diversity of employers and had to determine if the “leftover” employer members sharing a “common interest”  were sufficient in number and demographically diverse enough to be actuarially sound. Some associations developed “workarounds” that remain legally untested like vaguely broad definitions of “commonality of interest.” Under the Executive Order, the DOL will be required to revisit and adopt regulations addressing these issues. Good, bad or indifferent, actual rules would be an improvement over the seance held to discern association status.

What follows are a series of statements to filter the flood of reactions to the Executive Order and to identify actual health policy issues. Presumably, the reader knows the difference between a statute and regulation and who gets to change each.

The modified Hagens principle of health policy – “Health care equals money. When the public gets tired of stepping over dead bodies, lawmakers will find a way to provide health care to sick people before they die. Every health policy comes down to a decision about who’s going to pay for the care.”

  1. Health Policy Choice – Sick people cost more than healthy people. Make healthy people subsidize sick people by making them contribute to a common fund. The effort to prevent small employers from purchasing health plans from associations and avoid small group reforms is intended to preserve the pooling of health care risks across all small employers – the small group community rate. Keep the money in one pot to smooth the highs and lows of pricing with higher prices for good risks and lower prices for high risks.
  2. AHPs Pre-Obamacare – Washington regulated health plans sold to associations as though they were large employer group plans without regard to how the association was formed or controlled. The federal status of an AHP as a single employer plan under ERISA (a so-called “bona fide” association), was irrelevant for insurer group rate and form filings with the OIC.
  3. AHPs Post-Obamacare – Health plans sold to associations were regulated as though they were large group only if the association could demonstrate satisfaction of the DOL views on what constitutes a “bona fide association.” The OIC tried and failed to impose its own interpretation of federal law in an effort to prevent small employers from leaving the community rated public market.
  4. Who’s Bona Fide – The federal bona fide association test consists of a regulatory “judgment” based upon uncodified factors to decide whether the association meets the ERISA definition of “employer” as part of a larger determination of whether a health plan is a single “employer welfare benefit plan” –

     “any person acting … indirectly in the interest of an employer, in relation to an employee benefit plan; and includes a group or association of employers acting for an employer in such capacity.” [29 USC §1002(5), emphasis added]

    Bona Fide Factors: We don’t know yet how these current DOL factors will apply going forward:

    • How members are solicited;
    • Who is entitled to participate and who actually participates in the association;
    • The process by which the association was formed,
    • The purposes for which it was formed, and what, if any, were the preexisting relationships of its members;
    • The powers, rights, and privileges of employer members that exist by reason of their status as employers; and
    • Who actually controls and directs the activities and operations of the benefit program.
    • “The employers that participate in a benefit program must, either directly or indirectly, exercise control over the program, both in form and in substance, in order to act as a bona fide employer group or association with respect to the program.” [see older post with more detail here]
  5. Associations Yes, but not MEWAs – Every AHP is a multiple employer welfare arrangement (MEWA) whether or not the AHP is offered by a bona fide association. [29 USC §1002(40)] If someone talks about AHPs as distinct from a MEWA, they don’t know what they are talking about. Last time I checked, no one was afraid of the Washington Education Association – MEWA.
  6. Yes, We Do Know Where that MEWA Lives – Federal STATUTES require every MEWA to file an annual report with DOL (e.g., M-1) used to determine MEWA compliance with ERISA and other federal benefit laws including federal STATUTORY Group Health Plan Mandates.
  7. No, a MEWA Cannot Do Whatever it Wants – That’s right, even an association plan must meet minimum benefit standards even if they aren’t offering “essential benefits.” These include:
    • HIPAA portability
    • HIPAA non-discrimination in employee eligibility, premium, and benefits
    • Special enrollment rights
    • Prohibitions on preexisting condition limits
    • Limits on exclusions and restrictive clauses such as “actively at work”
    • Wellness program compliance
    • Guaranteed renewability of employer members of the association
    • Compliance with the Mental Health Parity Act
    • Compliance with the Addiction Equity Act
    • Compliance with Women’s Health and Cancer Rights Act
    • Compliance with Newborns’ and Mothers’ Health Protection Act
    • Disclosure of criteria for medical necessity determinations related to mental health or substance use disorder benefits
    • Disclosure of reason for denial of claim for mental health or substance use disorder benefits
    • Notices regarding disclosures of genetic information under the Genetic Information Nondiscrimination Act (GINA)
    • Disclosure of method used for calculating amount paid for out-of- network emergency services
    • Notice of patient protections such as provider of
    • Expanded claims appeals procedures
    • Limits on rescission of coverage
    • Continuation of coverage rights
    • Blah, blah, blah.
  8. Yes, States Can and Do Regulate Association Health Plans – How many times must I hear about the study done decades ago about that self-funded association plan insurance broker who pocketed employer money leaving employees uninsured? Once upon a time people died in car crashes because there were no seat-belts too. Federal STATUTES permit states to apply and enforce their insurance laws on MEWAs as permitted under an exception to federal preemption of state laws. These laws have only grown stronger. In general, ERISA’s broad preemption of state law permits the application and enforcement of state insurance laws with respect to any employee welfare benefit plan that is a MEWA.

(A) in the case of an employee welfare benefit plan which is a multiple employer welfare arrangement and is fully insured (or which is a multiple employer welfare arrangement subject to an exemption under subparagraph (B)), any law of any which regulates insurance may apply to such arrangement to the extent that such law provides—

(I) standards, requiring the maintenance of specified levels of reserves and specified levels of contributions, which any such , or any trust established under such a must meet in order to be considered under such law able to pay benefits in full when due, and

(II) provisions to enforce such standards, and

(ii) in the case of any other employee welfare benefit plan which is a multiple employer welfare arrangement, in addition to this subchapter, any law of any which regulates insurance may apply to the extent not inconsistent with the preceding sections of this subchapter. [29 USC § 1144(b)(6)]
  1. Washington State Bans Self-Funded MEWAs – Now that you know states can regulate MEWAs, consider that Washington State “regulates” self-funded MEWAs by banning them. (I don’t think this would survive a serious legal challenge.) So when you hear about MEWAs that failed to pay benefits and absconded with employer money, ask yourself whether the MEWA was fully insured or self-funded and then ask whether it happened in this century:
“An arrangement established, operated, providing benefits, or maintained in this state prior to December 31, 2003, has until April 1, 2005, to file a substantially complete application for a certificate of authority. An arrangement that files a substantially complete application for a certificate of authority by that date is allowed to continue to operate without a certificate of authority until the commissioner approves or denies the arrangement’s application for a certificate of authority.” [RCW 48.125.020, emphasis added]
  1. Some Employers Want Multi-State Health Plans – I keep hearing that insurers either do or don’t want interstate plans subject to only one set of rules as though that’s the opinion that counts most. Nope, it’s employers with employees in more than one state and particularly, in border states that want interstate health plans. If you are an employer in Oregon with employees in Vancouver, Washington, there’s no such thing as a single plan for sale covering everybody that doesn’t include every tweak to satisfy local rules. The OIC will enforce Washington mandates on an out of state health plan if just one employee lives here – that can’t be hard. Jurisdictional demands by 50 different state regulators and federal agencies pretend that businesses live in little, local boxes and that the internet hasn’t happened yet.

Bottom Line – Don’t make health policy decisions based upon hackneyed slogans. Yes, a change in association plan rules will affect health care markets. Yes, reducing the subsidy by low risk individuals for high risk individuals will both help and hurt. And yes, these are policy choices that must be weighed against other choices. Yes, health care costs money; but, we must find both a better way to spend it and a way to take care of our neighbors. No, that doesn’t mean we have only one option.

Finally, can we please give employers credit for having more than a pea brain.

Can we at least admit that most employers want to do right by their employees and will make good, informed decisions if given the right information?

Like any other purchase – some things are cheap and suck; other things cost more and don’t suck. The same holds true for association plans.