Shortly after the President signed health care reform legislation, many of us spent long hours parsing the thick bill to discern a place in a reformed market for association health plans. As I noted in prior articles (e.g., what-is-a-mewa-and-will-they-be-sent-to-the-health-care-reformatory ), for over fifteen years, the Washington small group market has been dominated by member governed associations like long established organizations such as the Washington Farm Bureau who provide health plans to their members or by associations which were created for the sole purpose of providing health insurance tailored to member needs such as the Washington Alliance for Healthcare Insurance Trust.

Given the structure of these organizations and how Washington State has regulated plans sold by associations, federal health care reform was bound to have a dramatic effect on this market. However, in the six months since the federal reforms were adopted and implemented through regulations, the Washington Insurance Commissioner has advised associations that traditional regulatory requirements would remain the same. The association would continue to be treated as a single large group plan subject to all Washington State regulations governing large group plans. Member employers would be treated as “employees” or similar “beneficiaries” under the master policy issued to the association.

As a consequence of this view, application of the federal reforms to these benefit programs followed a logical course, if the single master policy predated the reforms, the benefit plans flowing from the group master were “grandfathered” for all who became beneficiaries under the plan. As recently as September, the Commissioner advised association plans of their obligations to send the federally required notice of “grandfathered status” to association members and their families.

On Wednesday, September 29th, the Commissioner called an emergency meeting to announce that he had been wrong and that unknown officials from the U.S. Department of Health and Human Services required him to treat and consider each member of the association as owning their own separate plan and that therefore, every employer who had purchased coverage from an association after March 23rd, was not entitled to “grandfathered coverage.”

Associations now must work with the Commissioner on a method to develop and manage two sets of health plans – one grandfathered and one not. When asked what associations should do now that they have been sending required “grandfathered notices” to all member employers and beneficiaries, the Commissioner advised that associations should continue to send the incorrect notices until his office could figure out what to do next.

A meeting to discuss possible solutions was held on October 6th, a week later; except, this time attorneys for associations, employers, and health insurers were excluded. Only health insurer personnel responsible for filing rates and forms with the Commissioner office were allowed to attend. The agency advised that other interested parties including attorneys would be told later what had happened at this meeting. Despite objections by me and others, the agency reminded us that they were not subject to the state Open Meetings Act and had no obligation to include us in this meeting.

Think about this for a moment. Does it hurt your head? Do you vaguely remember the political platitudes about transparency in government? Can you craft an argument in favor of a health care reform that leads the many small employers covered through associations into a box canyon and dumps rocks on them? Can you hear the hollow echoes of “keeping the coverage you like”?

Below are the presentation materials provided by the Washington Office of Insurance Commissioner relevant to association plans. I have intentionally omitted the other puzzling legal conclusions unrelated to associations (e.g. essential benefit limits). We can talk about those in a later blog so as not to inflict too much psychic pain at one time.

On September 29th, the Commissioner distributed these health care reform conclusions in a PowerPoint Presentation for industry and employer consideration (unedited quote):

•       It does not appear that Association Health Plans are “Large Group” but rather HHS looks down to the employer or individual member level for establishing the grandfathering status

•       2010 plan year experience reporting will require a Carrier to segregate the experience on the supplemental exhibit – and report by membership category

•       The OIC is evaluating this matter and will schedule a meeting in the next 2 weeks to provide further clarification – however, it appears that for new employers joining the Association after March 23, 2010 – they are not grandfathered and must receive non-grandfathered benefits

On October 6th, the Commissioner distributed this PowerPoint Presentation (unedited quote):

  • It now appears that the relationship between the Carrier and the AHP is changing – to more of an administrative function
  • The benefits and reporting will be down to the participating employer or individual level – and benefits as well as grandfathering status will be determined by the size of the participating employer group, and date the employer joined the benefit plan through the AHP
  • NAIC and HHS have communicated that for purposes of financial reporting, Medical Loss Ratio and determining grandfathering status – carriers must look to the make-up of the association
  • Participating employers with 1‐50 employees will be subject to small group reporting requirements
  • Participating employers with 51+ employees will be considered large group for reporting
  • Individuals that receive benefits through an AHP – and who are not receiving benefits as an employee – will be considered individuals
  • “Participating employers” that enrolled their employees in an AHP on or before March 23, 2010, are considered to be grandfathered employers – unless changes are made that trigger loss of that status under HHS rules
  • Participating employees of those employers are also considered to be grandfathered employees – even if they are added to the plan after March 23, 2010
  • “Participating employers” who first enroll their employees in an AHP – after March 23, 2010, are considered “non‐grandfathered employers,” and their participating employees must receive the benefits mandated for non-grandfathered plans
  • “Participating individuals” that are not receiving AHP benefits through an employer sponsored arrangement – are to receive the benefits mandated for “individual coverage”

Here are the various ideas floated by the agency for the reconfiguration of association health plan administration:

  • Two possible scenarios could be evaluated for bringing AHP products into compliance

o   For plans that track participating employer groups by annual plan years – (i.e. month of joining the AHP) Implement the changes on the participating employers anniversary date

o   New Participating employers joining after March 23 would receive the non‐grandfathered benefits

o   Would require two sets of benefit designs and tracking by employers anniversary date Carriers and Associations should continue their current rating methodology until 2014, when the new community rating requirements for non‐grandfathered plans come into effect

  • For AHPs that have one set plan year based on the annual renewal of the Master Contract – Split the benefits into two types “grandfathered” and “non‐grandfathered”

o   Carriers and AHPs could decide to maintain a Master Effective date to roll in all future changes – this may make more sense for Collectively Bargained benefits such as K‐12 school employees offered through an Association

o   Alternatively, the Carrier and AHP may decide to transition to a rolling plan year scenario based on the anniversary date of the participating employer

  • These scenarios are set forth in an effort to facilitate dialogue – and need to be further evaluated for regulatory/legal as well as administrative obstacles
  • Carriers are strongly encouraged to actively engage with their clients in evaluating and proposing viable transition plans
  • This is uncharted territory and we need to make this work for all

Whenever I consider the actions of agency officials, as a former regulator myself, I know that they work hard and have good intentions. I also know the agency officials tend to be the last to know that a bus is coming down the road and that it’s time to get off the road. Many of us saw this association plan problem long before it arrived.

Health care reform cannot possibly succeed if it continues to result in market chaos and higher administrative costs. Plans use premium payments to train staff; to design, print and mail notices; to reconfigure plan products; and to develop operational and computer systems. None of these expense dollars pay for care. None of the chaos encourages support for reform. None of the secrecy and exclusion encourages trust in government. In this amazing and crazy situation, I strongly urge both the federal and the state government agencies responsible for regulating small employer health plans to do three things NOW:

o Create true transparency and accountability – if HHS decides any issue related to the application of the health care reform law or its implementation in particular circumstances, these decisions should be published on its internet site for all to see. I am uncomfortable relying upon the recollections of government officials about the conversations they have had with other governmental officials as the source for legal compliance advice. In the old days, attorneys read and interpreted statutes and regulations to discern compliance requirements. These days, compliance depends upon the shifting direction of informal advice and regulatory interpretation (e.g. remember the guaranteed issue of coverage to children that never made it into the statute but became law?).

o Grant employers immunity from any liability for violation of federal health care reform laws so long as they make a good faith effort to follow the federal standard. Employers want to devote their time and effort to their core business functions, they don’t want to place bets as to which of two conflicting views of health plan laws might win out. They also don’t want to be put in the middle of an argument between their insurer and two or three regulatory agencies. There must be one voice, one standard for employers to follow.

o If the government wants to kill association health plans, do it now and make it a clean kill.  Associations act to create a single collective voice in determining and delivering health plans for its members. An association is not a clerk recording the random decisions of its members and cannot afford to stagger around the legal landscape trying to please every regulator. If the destruction of this market is the goal of the government, save us all the time and effort and simply say so and we’ll dismantle this viable market and send small employers out into the private market to fend for themselves.

If there is a fantasy island, this will be the new sign greeting visitors as they step onto that dock:



(1) IN GENERAL.—Nothing in this Act (or an amendment

made by this Act) shall be construed to require that an individual

terminate coverage under a group health plan or health

insurance coverage in which such individual was enrolled on

the date of enactment of this Act.

There will be preservation of existing coverage for employers; unless of course, you hold a regulatory gun to their head and tell them to choose something else.


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