If you thought buying and selling association health plans constituted risky business, consider how risky Moda viewed the business. Last October, Moda Health told the attorney for various associations insured by Moda that the insurer would continue to provide large group coverage to the associations only if the Department of Labor or a court found the associations to be ERISA bona fide associations. So the Washington associations went to court – in Oregon.

Many association health plans once provided coverage to a Noah’s Ark of small businesses. These associations were “deconstructed” (broken into industry-specific health “trusts”) in an attempt to qualify as bona fide employer associations under ERISA. Only these bona fide associations qualify for treatment as a single, large employer for purposes of health plan regulation.

When an association health plan is filed in Washington, the OIC requires the insurer to submit either a Department of Labor (DOL) opinion that the association is bona fide or a letter from competent legal counsel that the association qualifies as bona fide under ERISA. Moda chose not to gamble on a mere letter from association counsel.

In January, I wrote an article here outlining the OIC rejection of health plans for association health plans (AHPs) insured by Moda. In part, the OIC rejected the “bona fide” association status for:

  1. Alltech Information Technology Group
  2. Columbia Retail Industry Group
  3. Greater Northwest Health Industry Group
  4. Greater Columbia Manufacturing Trust
  5. Pacific Business Resource Group

The trip to Oregon did not go any better for the associations.

Oregon federal district court Judge Ann Aiken didn’t think these associations belonged in an Oregon court. She suggested that the associations join the federal lawsuit filed by association counsel in Seattle. The judge ordered association counsel to “show cause” why the Oregon case should not be transferred to Seattle:

The court has received notice that a case involving the precise issue raised in this case is pending in the Western District of Washington, and the State of Washington Insurance Commissioner is the named defendant in that action. Notably, venue in this case is proper in the Western District of Washington, as Moda may be “found” there.  29 U.S.C. § 1132 (e) (2) (venue is appropriate in a district where a defendant may be found); see https:llwww.modahealth.com/about (Moda has an office located in Bothell, Washington).

Given the potential for inconsistent court rulings, as well as the significance of the issues to the State of Washington, it appears that the Western District of Washington is the more appropriate venue for this case.

Association counsel disagreed noting that both “the DOL and the Washington OIC have been given the opportunity to timely participate in this proceeding, but they simply chose not to do so. Their behavior should not be rewarded by transferring this case to Washington State as a transfer would cause irreparable damage to the Plaintiffs.”

Association counsel argued that the OIC had permitted the ongoing marketing of these of plans despite disapprovals last year but that time was running out.

While Plaintiffs’ rate filing applications for the 2014 contract were disapproved, the Washington OIC has permitted Plaintiffs to continue to market insurance in Washington, pending a decision on their 2015 insurance applications. For reasons relating to renewal and transfer to other products, if the Plaintiffs’ ERISA Section 3(5) status is not determined by the fourth quarter of this year, Plaintiffs’ insureds will likely need to transition to other insurance products for 2016. Declaration of Keith VanderZanden (“VanderZanden Decl.”), ¶ 3. Once the insureds transfer to new policies, it is unlikely that they will transfer back to the Plaintiffs’ product during the same year. Id. Therefore, any delay in deciding this issue will irreparably harm the Plaintiffs, as they will essentially be forced out of business, even though Associated Industries Management Services (“AIMS”) has been in business and providing insurance since 1952.

It is virtually impossible that any transferred case to the Eastern or Western Districts of Washington would be decided prior to the fourth quarter of 2015. While there is a current case pending in Washington, Business Health Trust, et. al. v. Kreidler, 2:14-cv-01918-RSL (W.D. Wash. 2014), the Washington OIC has taken every step possible to ensure that such case is not heard in a timely manner in federal court. [Emphasis added. Response to Show Cause at 3].

The court ultimately agreed to keep the case; but, I’m guessing that association counsel wishes they had lost the argument.

Late last month, the judge in the Oregon case ruled against the associations request for summary judgment finding that the associations had not proven their bona fide status. Along the way, the judge made it clear how she felt about the whole jurisdiction thing too.

I remain unconvinced that this District is the most appropriate forum; plaintiffs’ underlying purpose in this case is to obtain an order rendering the Industry Groups eligible for large group insurance contracts in the State of Washington. However, given plaintiffs’ choice of forum and the narrow federal question presented, I do not find sufficient justification to transfer this case sua sponte. [Court Opinion and Order at 4]

The judge wasn’t any happier with the information presented for her consideration. The depth of her disappointment became painfully clear with each page of the opinion.

Notably, the court is at a disadvantage in determining whether the Industry Groups qualify as “employers,” as Moda presents no argument or evidence in opposition to plaintiffs’ motion to allow the court to make a fully-informed decision based on the pertinent facts. Nonetheless, after review of the limited information provided by plaintiffs, I find that issues of material fact remain as to whether the Industry Groups constitute employers within the meaning of ERISA. [Opinion at 7]

The judge was unimpressed with the declarations filed with the court explaining how “bona fide” each association had been (here’s an example from DeWalt).

…plaintiffs present insufficient information to establish that Associated Industries’ employer members have a “history of organized cooperation on employment-related matters and a genuine organizational relationship through their membership” in Associated Industries. [at 9]

…plaintiffs do not clarify whether and to what degree Associated Industries’ employer members participate in these activities, and plaintiffs provide no documentation of these events or activities. [at 9]

…plaintiffs provide limited information regarding the Associated Industries’ employer members who participate in the Health Benefit Trust, and whether those members, in form and in substance, actually control the relevant Health Benefit Trust. Therefore, I find that questions of fact preclude summary judgment. [at 10]

You begin to understand why Moda demanded an opinion letter from DOL or a favorable court ruling by the time you get to page 12 of the judge’s opinion. You also sense that the judge wasn’t thrilled being forced to decide the motion based upon the declarations.

I do not find that these supporting declarations sufficiently establish a common economic or representative interest among each Industry Group’s members, unrelated to the health plans. While the supporting declarations assert that the Industry Groups had access to, engaged in, participated in or sponsored certain educational and training programs, plaintiffs provide no documentation to establish who actually planned, attended or participated in the events. Further, the supporting declarations do not describe how employer members are solicited, who participates in each Industry Group, or how often the group meets or for what purpose.

Likewise, plaintiffs present no evidence regarding the processes by which the Industry Groups were formed, and plaintiffs give scant information regarding the powers, privileges and rights of employer-members, aside from the right to participate in the sponsored health plan. Finally, as with Associated Industries, plaintiffs do not provide adequate evidence to show that the members of the Industry Groups control the Health Benefit Trusts, in form and in substance. [at 12]

If the judge weighed information provided by association counsel concerning the Oregon Insurance Commissioner’s approval of the Bend Chamber plans or the Washington Insurance Commissioner’s loss in an administrative appeal of AHP rates, the actions of the insurance departments did not seem to matter to the opinion.

I wonder how the Seattle federal judge will view his pending case given nearly the same facts, circumstances and record. I’m sure it will be resolved by the time I get back from vacation. Right?