As someone who has long opposed the Washington Insurance Commissioner’s regulatory approach to killing association health plans, I understand the anger and frustration of small employers and associations forced to abandon perfectly legal plans for the health care reform tango. BUT, it’s important to remember there’s a huge difference between opposing bad law and policy and obeying actual laws.

Lately, insurance producers have been caught up in the health plan market turmoil that’s left many small employers scratching their heads. One day an association health plan is legal, the next day not. One producer says an association is bona fide and another says it’s not. So here’s the basic choice – you can either obey a rule or defy a rule. If you defy the rule, pile up some cash, hire some good lawyers, and settle in for the long haul. Until or unless a rule changes, it’s still a rule. While large corporations may decide to go to regulatory war, producers should stay out of the crossfire.

Most association health plans fail to satisfy the rules adopted by the Insurance Commissioner which took effect January 14, 2014. The state rules present major problems for associations because the rules create new investigatory and reporting burdens for grandfathered plans and for plans that claim to be offered in the “large group” market. The new rules have provoked opposition; nevertheless, until or unless the rules change, producers should act in accordance with these new standards. The agency’s interpretation of their own rules haven’t tamped down the controversy.

Several producers sent me some of the small group plans being marketed by “associations.” After reviewing the various insurance plans and the accompanying marketing material, over half of these plans fail to satisfy either the newest Washington insurance regulations or other longstanding insurance rules governing association health plan marketing. Insurance producers should exercise caution in recommending association health plan coverage without checking them out. Some associations have and will qualify as large group plans exempt from many of the health care reforms. Other associations will never qualify as large group and some associations have decided to continue business as usual and wait to see what happens.

Despite the many and various legal opinions as to the jurisdiction of the Insurance Commissioner over association health plans and their status as “bona fide” under federal law, the Commissioner’s rules nevertheless impose standards on classification, design, pricing, and marketing of bona fide association plans. Whether a particular association is indeed “bona fide” presents substantial risks to both producers and their employer clients; since, a finding by the Commissioner that an association is not “bona fide” (large group) means that a plan sold to a small employer does not meet small group market reforms. Thus, an employer might find themselves offering a plan to employees that failed to meet federal benefit standards.

Among the standards imposed by the Commissioner are the following:

• An issuer must not offer or issue a plan to individuals or small groups through an association or member-governed group as a large group plan unless the association or member-governed group to whom the plan is issued constitutes an employer under ERISA. [WAC 284-170-958(1)]

• If the association is a large group as defined (above 958(1)], the same renewal date must apply to all participating employers and individuals, and the replacement coverage must take effect on the same date for each participant. The purchaser’s anniversary date must not be used in lieu of this uniform renewal date for purposes of discontinuation and replacement of noncompliant coverage. [955(3)]

• An issuer must not adjust the master contract renewal or anniversary date to delay or prevent application of any federal or state health plan market requirement. [955(8)]

• An issuer must maintain the documentation supporting the determination and provide it to the commissioner upon request. An issuer may reasonably rely upon an opinion from the U.S. Department of Labor as reasonable proof that the requirements of 29 U.S.C. 1002(5) are met by the association or member-governed group. [958(2)]

Every large group association health plan must be filed with the Insurance Commissioner and include the following (from the SERFF Health and Disability Form Filing General Instructions):

• The wording “Association or member-governed true employer group under 29 U.S.C. Section 1002(5) of ERISA– Name of the Association” in the Product Name field on the General Information Tab.

• A certification under the Supporting Documentation Tab of the form filing from an officer of the company certifying that the group health insurance coverage in connection with this large group health plan meets the requirements of Health Insurance Portability and Accountability Act (HIPPA) (29 CFR Chapter XXV, Section 2590.702) which prohibits discrimination against participants and beneficiaries based on a health status-related factor. The certification must include statements that the rules for the eligibility (including continued eligibility) of any individual to enroll under the terms of the Washington State SERFF Health and Disability Form Filing General Instructions large group health plan are not based on any of the following health status-related factors (prescribed in HIPPA) in relation to the individual or a dependent of the individual:

1. Health status.

2. Medical condition (including both physical and mental illnesses).

3. Claims experience.

4. Receipt of health care.

5. Medical history.

6. Genetic information.

7. Evidence of insurability (including conditions arising out of acts of domestic violence).

8. Disability.

• One pdf document titled “Evidence as an Employer” and file it under the Supporting Documentation Tab. The document must include, at a minimum, the following information:

i. A copy of the association bylaws on the Supporting documentation tab;

ii. A copy of the trust agreement or other organizational document which shows the purpose of the association and who governs the association;

iii. A statement of the association’s history;

iv. A copy of the occupational categories/ industry classifications comprising the employers in the association;

v. An advisory opinion from the Federal Department of Labor demonstrating the group is qualified to purchase association coverage.

vi. In absence of a Federal Department of Labor opinion, an opinion from an attorney explaining how and why the association qualifies as a true employer under 29 U.S.C. § 1002(5) of the Employee Retirement Income Security Act (ERISA) of 1974. [Emphasis added]

Although insurers remain primarily responsible for compliance with insurance regulations governing the design and price of a health plan, insurance producers may be found liable for violation of state statutes and regulations relating to the sale of non-compliant health plans. At a minimum, where a regulatory standard directly affects the marketing of a health plan, the producer should minimally satisfy herself that the standard has been met.

For example, insurers must file either an attorney’s opinion as to the status of an association as bona fide under ERISA or a Department of Labor opinion to the same effect. Absent such an opinion, a producer should conclude either that the association health plan does not satisfy large group market requirements or that the insurer has failed to satisfy state plan filing requirements. In either case, given the minimal effort involved, a producer should verify the plan’s status as due diligence. Failure to make such determinations prior to sale, places the producer at risk of regulatory penalty or worse.

The new rules should prompt insurance producers to develop a system for verification of health plan compliance in the association market. The system does not need to be either elaborate or expensive; but, producers should minimally request from the insurer proof of the status of an association as “bona fide” and if applicable, compliance with state grandfather plan rules. Documentation should be easy to acquire since the documents must be provided to the Commissioner when the plan is filed for regulatory review.

Producers who incorrectly advise clients that a plan satisfies the employer’s obligations under federal health care reform create liabilities for both the producer and the employer where the producer fails to perform these basic inquiries.

Bottom line, don’t assume that representations made in the current chaotic association plan market are true. Trust but verify.