For most of 2014, insurance producers and employers puzzled over the inability of the Office of the Insurance Commissioner (OIC) to make decisions about the fate of Washington’s association health plans. Most associations claimed status as “bona-fide” employer associations to obtain treatment as large employer plans under ERISA. That status allows the association to offer small employer members an experienced rated plan not subject to small group reforms. Unfortunately for everyone involved, most of these associations do not meet Department of Labor standards for treatment as large group plans.

Even if an association achieves status as a bona-fide association under ERSIA, OIC’s interpretation of health care reform imposes association plan design and pricing constraints that eliminate many of the advantages of these large group plans. For example, OIC believes that each employer member in a bona-fide association cannot be separately rated for experience or risk. The OIC takes the position that each employer should be treated like an employee being offered benefits by their employer – technically, the association treated as employer. Taking their analogy further, the OIC also requires that association member employers offer employees a choice from among all of the plans offered by the association. Naturally, many folks disagree with these views and some have ignored the OIC by continuing to offer plans designed and priced at the small employer level.

The small employer market has gradually split between gamblers and non-gamblers. Some associations have plowed ahead believing that the association would eventually win and their experience rated health plans could continue. Some wound down after being told by the OIC that they would not be approved for new plans. Other associations concluded that the long-term prospects for the association market were poor and began shifting toward reformed small group plan marketing.

After nearly a year of waiting, the OIC has finally declared its first winners and losers among associations trying to continue traditional association health plans. At the end of October, the OIC approved the United Healthcare plan offered through the Associated General Contractors (AGC) for qualifying member employers in construction trades. At the time, OIC noted that the AGC plan was the first of more than 60 such association plans awaiting approval. Nearing the end of the year, the OIC has finally disapproved several association health plans.

On December 16th, the OIC disapproved a series of health plan filings made by Moda Health Plan on behalf of several associations/trusts seeking status as large group plans offered through “bona-fide” ERISA employer associations. In identically worded letters from the OIC Legal Affairs Division to Moda, the OIC disapproved health plans for:

According to the OIC, none of these organizations qualified for treatment as large group, “bona-fide” employer associations under ERISA. In a letter to each organization, OIC Deputy for Legal Affairs declared:

A “bona fide group or association of employers” may qualify as an employer, grounded on the premise that the association is tied to the participating employers and employees by a genuine organizational relationship unrelated to the provision of benefits.

Based upon the materials submitted, the association does not meet the criteria set forth in federal law to be designated a “bona fide” association, and is not eligible to purchase large group coverage for its employer-members regardless of size. [Letter from AnnLisa Gellermann, Deputy for Legal Affairs, OIC to Moda dated 12/16/2014]

As predicted in earlier articles here, the agency was not impressed by the cookie cutter nature of the association health plans. Using one organization as an example – Alltech Information Technology Group – the OIC rejected proof offered by the organizations of their “bona fide” status. Here was the OIC analysis of the documents presented with the Moda filings:

The materials submitted in support of the Alltech Information Technology Group (The Group) as a bona fide association cite the following:

(1) the Group was established as an association effective January, 2014;

(2) the Health Alliance (Alltech) for Technology Health Trust was also established effective January 1, 2014;

(3) the statement of history indicates that while the Group was not prior formally organized as an association, the Group can trace its origins to the late 1990s, when a group of technology-based employers seeking human resource and employment law assistance specific to their industry began meeting;

(4) the activities of the group include training sessions at least twice a year, participating in annual technology roundtables and sponsoring annual events to recognize outstanding achievements by technology employers;

(5) while the industry classifications of the group support the potential of common economic interests, they are not dispositive of a genuine organizational relationship;

(6) the Groups association by-laws, trust documents, and supporting legal opinion are largely identical to 6 other association flings submitted by Moda Health Plan;

(7) the Groups Trust Administrator (Associated Industries Management Services (AIMS)), and Program Management (Wells Fargo Insurance Services) are identical to 5 other association filings submitted by Moda Health Plan.

Based on the facts currently submitted, the Group does not appear to have the necessary nexus and economic ties between the Group (as the plans association sponsor) and its beneficiaries to act as an employer for purposes of an employer welfare benefit plan, and based on the timing of establishment on the effective date of ACA regulations preempting Washington association regulation, it appears that the Association and Trust were primarily established for the purpose of obtaining large group health benefits.

Prior to a final determination of the Groups eligibility to act as an employer, you have the opportunity to provide additional facts and information clarifying the required genuine organizational relationship and purpose, which should address the following issues:

  • How members are/were solicited, now and prior to January 2014;
  • Who actually participated/s, now and prior to January 2014;
  • The membership and activities of the original group of technology based employers, as compared with the membership and activities of the Group, demonstrating the origins of the Group;
  • Documentation of the described trainings and seminars (now and prior to January 2014) including but not limited to attendance lists, minutes, curriculum, agenda, trainers and sponsors;
  • Detailed explanation and supporting documentation of any organized activities to support the aim of the Group, including event sponsorship, networking, educational, human resource and employment law activities and other support activities;
  • The process by which the Group was formed, including the principal advisors and drafters of the documents;
  • The pre-existing relationships between the employer members, Ken Myer, AIMS, and Wells Fargo Ins. Services; and
  • Identification of Group members who participate/d in the control, direction and selection of the offered health plans, including names, meeting dates and agendas, and specific activities. [Emphasis and punctuation added]

Even if the OIC had accepted arguments for each organization’s “bona fide” status, the OIC rejected the filed rates for these plans.

A review of the correspondence between the insurer and the OIC confirms the OIC view that employer members may not be separately risk rated.  The agency found the rating methodology “inconsistent with the fact that you filed one single large employer group.” [See links above] For example, in a response to the filed health plan for the Pacific Business Resource Industry Group, the OIC found:

Your response to the first objection letter indicated that you have separately rated various “purchasing employers” within Pacific Business Resource Industry Group for purchase of benefits from the Pacific Business Resource Benefits Trust. You also stated that all employees “within a single purchasing employer” will receive the same Risk Level. This means that your rates filed are for various “employers” – contrary to your form filing for one employer only.

…Your response failed to identify how each Risk Level is related to bona fide employment-based classifications.

…Your filings also show rates filed for various “employers” that are unreasonable in relation to the amount charged for the contract for one single employer. Therefore, your rate and form filings are disapproved and closed under the authority of RCW 48.44.020(2) (f) and (3).

As a consequence of these disapprovals, the OIC directed that:

it is necessary for all current enrollees to be transitioned to ACA compliant plans as soon as possible. You must commence discontinuation of the disapproved plans, providing timely discontinuation and replacement notices to all affected enrollees for this transition.”

The agency directed the organizations to contact the OIC to lay out the organization’s strategy for transition of current enrollees to approved plans.

It’s going to be an exciting new year in an industry that craves boring.