Association Health Plans

In my review of the Department of Labor’s (DOL) proposed rules liberalizing association health plan (AHP) standards, I promised future articles exploring legal and other issues related to the rules. But a flood of public comments and analysis from smart people leaves me with a different task – attempting to distill these comments and explain the strange agreement between some traditionally antagonistic groups. Consider this article as my promised Parts 2, 3 and 4 of the DOL proposed AHP rules.

To start things off, here are sentences from two comment letters, one from America’s Health Insurance Plans (AHIP) and one from the Washington Insurance Commissioner (OIC). Who wrote the following, AHIP or OIC?

“While these nondiscrimination provisions are welcomed and an important part of this proposed rule, they neither go far enough to actually prevent discrimination based on health status nor do they protect against a mass exodus of favorable risk from the individual or small group markets.”

“This inexpensive alternative for small employers appeared to come at a cost to the community-rated small group market, which skewed toward markedly older and sicker enrollees, and had more female enrollees. AHPs were able to identify and enroll those small employers with lower health risk, thus making the community-rated small group market more costly, less attractive to issuers, and less stable.”

Here are the comments from AHIP and the OIC.

The official public comment period ended on March 6th. During the 60 day comment period, DOL published 720 comments. Many were individuals simply expressing general approval or disapproval of the agency’s proposal. 52 comments were “anonymous.” The usual insurer groups provided comments as did AHPs, health care reform advocates, disease organizations and health care associations.

Many Government officials commented including individual members of Congress, members as a group (at least 8 separate letters), governors, attorneys general (17 states as a group and Washington separately), and insurance commissioners (at least 8 and the National Association of Insurance Commissioners). Many commentators, particularly those from law firms, provided detailed legal reviews and observed that DOL either lacked authority to make the proposed change or created a direct conflict with another statute that precluded agency action. Apart from comments from individuals (typically, one liners such as “This is long overdue and would be extremely beneficial to small business owners, especially new ones!”), everyone suggested improving or eliminating parts of the proposal.

Some commentators were more apocalyptic than others – “The rule would destabilize and destroy private health insurance markets.” [D.C. Health Benefit Exchange] The majority of commentators expressed a newfound and deep admiration for state regulatory authority or at least for one’s home state – “Single state control and clear preemption will create an effective and predictable regulatory environment similar to one experienced by large employers.” [National Restaurant Association] DOL will eventually summarize and respond to these comments in the next phase of rulemaking assuming DOL moves forward with some version of the proposed rules.

To bring some type of order to this tsunami of views, I have distilled comments into four sections below – categorization of the proposed rules; classification of commentators; generalization of comments from each group; and examination of comments from Washington State.

Categorizing the Rules

  1. Eliminating the commonality of interest rule. Right now, an association health plan will not be treated as a single employer plan unless the association is “bona fide” which requires among other factors that the participating employers share a common bond or interest such as similarity of trade or profession. DOL has already offered the opinion that a chamber of commerce association plan is too “generic” to satisfy the common interest test. The proposed change permits the “commonality of interest” test to be met by simply being an employer in the state.
  2. Eliminating the non-insurance purpose rule. Right now, an association health plan will not be treated as a single employer plan unless the association is “bona fide” which requires among other factors that the association be formed for a purpose other than the purchase of insurance. The proposed change permits an association to be formed solely for the purpose of providing insurance. (Parenthetically, Washington State has long permitted AHPs formed just for insurance.)
  3. Permitting an individual to be a group. Right now, a determination of a person’s status as an employee depends upon common law standards of the employment relationship and an individual cannot be her own employer and employee. A bona fide association health plan cannot insure individuals so DOL defines certain individuals to be employers.
  4. Elimination of risk rating. Right now, a bona fide AHP may set health plan rates for each participating employer based upon a wide range of criteria not permitted under the Affordable Care Act (ACA) for individuals and small employers. Nevertheless, several federal laws apply to bona fide AHP rating including the HIPAA non-discrimination rules. A bona fide AHP plan may charge one employer more than another but cannot charge an unhealthy employee more than a healthy one nor can an AHP exclude high risk member employers. DOL has proposed to apply a type of “community rating” to the association health plan so that each participating employer pays roughly the same amount regardless of the employer’s risk. The DOL rule would pretend that AHP participating employers are like “employees” of a large employer plan.

Classification of Commentators

The following classifications attempt to pigeonhole the many commentators into orderly prejudices. I have excluded individual commentators; although, in some instances either the individual provided an in-depth analysis and is well-known in health policy circles or represents a larger group but is listed on DOL’s website by the name of the comment drafter. For example, Patricia Butler, (J.D., Dr.PH) has written extensively about ERISA, health policy, and AHPs; and William Stroud comments on behalf of Lawyers Insurance. It’s not always apparent from the commentator names who is being represented. “Partner Comments” turns out to represent the Seattle Southside Chamber of Commerce and the Business Health Trust Benefit Platform among others even though, the Business Health Trust comments separately. Lots of realtors were encouraged to write. My classifications may be overly broad or incorrect; nevertheless, I did it anyway. My classifications follow with examples of commentators within each class.

ClassificationName (non-exclusive list)
Association Plan·       Forterra (AWB)

·       BHT

·       BIAW Trust

·       CleanTech Alliance

·       Jim DeWalt (Associated Industries)

·       MBA Trust

·       Vigilant

·       WAIA

·       WAHIT

·       WFB

·       WTIA

Insurer (HMO & Blues)·       Aetna

·       AHIP

·       Anthem

·       BCBSA

·       Centene

·       Cigna

·       HCSC

·       Humana

·       Kaiser

·       (Mary McWilliams) former CEO of Regence for 8 years, executive director of Puget Sound Health Alliance

·       Prudential

·       Regence

·       United Healthcare

Plan Administration·       Amer. Acad. Actuaries

·       Capital Benefit Services

·       IIAA (producers)

·       Mercer

·       One Digital

·       Self-insurance Institute

·       Society of Prof Ben Administrators

Trade / Professional Association·       Master Builders of King County

·       National Restaurant

·       NYC Bar

Health Care Organization·       American Medical

·       American Public Health

·       Providence St. Joseph

Health Condition Association·       Amer. Cancer Society

·       Amer. Heart Assoc.

Health Policy Organization / University / Individual·       Patricia Butler

·       Georgetown

·       Robert Wood Johnson

·       Tim Jost

Business Association (e.g. Chamber of Commerce)·       Maud Daudon (former Seattle Chamber Exec)

·       NFIB

·       US Chamber

Corporation·       Land O’ Lakes

·       UBER

State Government·       17 State Attorneys General

·       California Ins. Comm.

·       DC Exchange (Mila Kofman)

·       NAIC

·       New York Ins. Comm.

·       NGA

·       Oregon Ins. Comm.

·       Wash AG

·       Wash Exchange

·       Wash Ins. Comm.

Federal Government·       Congress – Committee on Education & Workforce (Republicans)

·       Congress – Committee on Education & Workforce (Democrats)

·       Congress Dem Caucus Seniors Task Force

·       Wash Congressional Republicans


Summary of Comments in General


Obviously, groups that favor preservation of the ACA with its community rating, essential benefits, and mandatory programs don’t want or like the DOL proposal. They provide detailed analysis of the effects of the proposed rules upon existing markets, access to care, and fairness. Many of these comments heavily emphasize the “fraud and abuse” history of multiple employer welfare arrangements (MEWAs) which includes AHPs. However, I would emphasize the word “history” given the age of most of the data. State and federal oversight, reporting, and increase in fully insured AHPs have substantially decreased “fraud and abuse.” On the other hand, DOL’s proposed “take their word for it” standard for determining self-employment status doesn’t suggest robust oversight.

Of the various comments in this category, I recommend reading Mila Kofman, Patricia Butler, and Tim Jost as the most experienced and prolific writers among health policy experts. You will find links in the table above.

A significant number of comments focus upon the most serious defects of the DOL proposal – conflicts with existing law and lack of authority. Of the various comments, the most complete analysis and certainly a threat of litigation comes from the seventeen attorneys general writing as a group. In addition to the fraud, abuse and insolvency observations, the AGs make the following points:

  1. The proposed rule’s new “commonality of interest” requirements are contrary to ERISA. The Department may not seek to issue a new regulatory interpretation that is counter to the unambiguous statutory language and the courts that have interpreted the statute.
  2. The DOL does not offer reasoned, evidence-based rationales for reversing its longstanding position. The Proposed Rule would also be arbitrary and capricious because it would reverse several decades of consistent agency interpretation without reasoned support. The Department’s failure to include any quantitative analysis of the costs and benefits of the proposed rule is unjustifiable.
  3. The proposed rule’s dual treatment of sole proprietors as both employers and employees is unlawful.
  4. The proposed rule conflicts with the ACA’s statutory scheme and Congressional intent.


As with the groups opposing the DOL proposal, the usual groups support the expansion of AHPs and removing regulatory constraints. But even among groups strongly supportive of DOL, their comments can be surprisingly cautious and support contingent upon modifications in the proposal.  For example, the United States Chamber of Commerce members (there are many chamber AHPs), “strongly support the stated principal objective of the Proposed Rule to expand employer and employee access to more affordable, high-quality coverage.” [emphasis in the original]

On the other hand, the National Federation of Independent Business (NFIB) not only fully supports the proposed rules but believes the DOL is being too “weak” in retaining existing standards. For example, NFIB notes that DOL “adopted the two presidential suggestions, but did little more to achieve the President’s objective of expanding access to health coverage through AHPs.” In contrast to those supporting DOL but concerned with regulatory or competitive issues, NFIB recommends the complete elimination of both the use and application of the term “bona fide.” Moreover, NFIB believes that DOL’s control requirement for oversight by employers could also be accomplished by having a single person in charge as a CEO of an AHP.

Land O’ Lakes and Uber offer interesting insights into the variety of group plan arrangements and efforts to adapt benefit plans in a health plan environment dominated by employers. Land O’ Lakes supports DOL changes that permit it to expand its cooperative plan nationally for agricultural workers and particularly family farms. They favor a single set of standards rather than multiple jurisdiction rules. They also wish to retain experience rating. Uber wants to facilitate benefits for its drivers but doesn’t want to jeopardize the independent contractor relationship it fosters with drivers.

If Only You Would Change

Nearly everyone expressed the need for changes in the DOL proposal. Sometimes the mixed support was surprising. Some groups within particular industries took opposing views. For example, Anthem suggested DOL limit its rules to small employers and not address large employers and sole proprietors. Aetna wanted the right to refuse sole proprietors. Centene largely opposed the changes. Prudential supported the rules and advised DOL to expand its sole proprietor and working owner provisions to include retirement plans.

People love their “grandfathers” given the high number of comments recommending that existing bona fide AHPs be grandfathered permanently or at least for an extensive period following adoption of any new AHP rules. America’s Health Insurance Plans (AHIP) offers the begrudging version of grandfathering:

“We believe that Association Health Plans (AHPs) as envisioned by the NPRM are the wrong way to achieve these goals due to the risks of fraud and insolvency they pose to consumers… Possible options include a transition period during which existing associations would be subject to existing requirements rather than the new non-discrimination rules or allowing for terms under which an association that exists as of the issue date of the final rule to be treated as grandfathered and exempted from the new requirements indefinitely (or as long as the association remains in force).”

Anthem offers a full-throated recommendation for grandfathering:

“We strongly suggest that the Administration permanently grandfather existing associations to give them the ability to continue to operate under existing federal and state rules and continue to enroll new groups under the existing health benefit plans.”

The four basic set of rules – commonality, purpose, individuals, and risk.

Elimination of the commonality of interest rules through statewide associations of disconnected employers was largely panned by those commenting except those strongly supporting DOL. At a minimum, many commentators recommended that if DOL kept the new standard, that the agency apply it to new AHPs along with stronger oversight and more rules.

The purpose test received mixed results with existing bona fide AHPs expressing the merits of existing association relationships and others focused on ease of creation and entry into AHP business. Insurers either wanted a piece of the action by running the AHP or wanted clarification that their administration of AHP plans would not be implicated by the proposal.

The change in definition of employer to include individuals received some of the strongest support or opposition with the balance of commentators either identifying legal problems with the change or underwriting issues. An indication of where the market would go can be found from comments that DOL explicitly permit AHPs to exclude these new employer individuals.

The risk rating restrictions (non-discrimination) revealed some of the most interesting divergence of views. While existing AHPs and their insurers largely supported retaining existing rating standards or some version of risk rating, some groups went in the opposite direction fearing market impacts expressed by health policy commentators.

The Blue Cross Blue Shield Association (BCBSA) referred to associations formed solely for the purpose of creating a health plan as “illegitimate associations that focus only on attracting health groups…leaving behind only sicker groups in the small group market.” Even further, America’s Health Insurance Plans (AHIP) made the following recommendation:

“The final rule should include explicit prohibitions on discrimination at the level of the employer or association on the basis of age, gender, geography and industry. AHPs should be permitted to differentiate premiums for member employers based on allowable factors for existing markets.”

Contrast this view with comments from Humana requesting explicit permission to do the opposite:

“Non-health factors commonly applied to quantify the actuarial risk for premiums under a large employer group health plan include age, case size, industry, and gender. We request the Department clarify that all actuarially sound factors commonly applied in the large group market, including age, case size, industry and gender, are permissible rating factors for AHPs.”

Summary of Washington State Comments

The following table shows the position taken by various groups from Washington State.





Sole Proprietor


Risk Rating


AWBYesYesYesNo, or grandfather
BHT & ChambersNoNoYes, but we can excludeNo, or grandfather
CleanTechNoNoNoNo, or grandfather
Associated Industriesgrandfathergrandfather?No, or grandfather
MBA TrustNoNo?No, or grandfather
RegenceYesYes?Yes, but grandfather
Wash A.G.NoNoNoYes, but not enough
Wash Congressional RepublicansGrandfather Washington AHPs to continue as they are now.
Wash ExchangeNoNoNoYes, but not enough
Wash OICYes ?
WAHIT?NoShould be able to excludeNo, or grandfather
WTIANoNo?No, grandfather


Variations in Washington Comments


“The Proposed Rule eliminates the requirement that coverage provided through AHPs provide essential benefits. This change is detrimental because it will result in only healthy populations drawing towards AHPs and, combined with expanding coverage to sole proprietors, it will provide unhealthy adverse selection in individual markets.”

MBA Trust:

“We respectfully request that the Secretary include in any final regulation on AHPs an exemption for the State of Washington, and any other state that has an established AHP market and a robust regulatory framework that already regulates that market.

Vigilant and WAIA and WFB: (Each group provided largely the same comments)

“The rules should acknowledge the important statutory and regulatory requirements that are already in place for fully insured AHPs. Except for the definition of employer and requested clarifications concerning preemption addressed below, all other provisions of the rule should be limited to self-funded AHPs.”


“Allow Carriers to Establish Association Health Plans. Carriers can leverage their existing knowledge to reduce the risks of insolvency and fraud as well as improve the affordability of coverage for AHPs. Carriers understand the insurance risks and know how to properly design and price benefits. Even more importantly, carriers can run AHPs efficiently; eliminating layers (e.g. third-party administrators) and reducing fees will allow for more affordable coverage. “


I apologize to those who slogged through this article. This is a complicated subject with a lot of opinions. If you view just a handful of comments, you will learn more than you need to know about ERISA and will come to some basic conclusions that shouldn’t surprise you.

  • The DOL rules need substantial revision. DOL could improve the regulatory environment for AHPs without going crazy.
  • Insurers and existing AHPs want to protect whatever markets they have by grandfathering or otherwise. Depending upon what they do, some insurers and AHPs like the new rules and others, not so much.
  • Supporters of comprehensive health care reform know the DOL rules coupled with the extension of short-term plans are intended to rectify Congressional failure to amend or repeal the ACA. The rules are a meat axe approach with an uncertain future and consequences.
  • Lawyers want the rules followed and don’t buy the notion that an agency woke up one day and decided they had been wrong for the past forty years and the statutes mean something else.
  • The self-employed in a growing “gig economy” feel left out of a system of health care predicated on employer provided benefits. They want what others have and DOL is offering it to them.
  • The rules will be adopted as is only if DOL is forced to adopt them by someone higher up the food chain. If they do adopt the rules without change, they will be sued.

Every day it looks like I made a good choice in going to law school.