On April 29th, the Washington Insurance Commissioner (OIC) responded to the Washington Counties Insurance Fund (WCIF) challenge of the OIC’s disapproval of the WCIF 2014 health plans. Although WCIF qualifies as a bona fide association (so says the Commissioner), the rates filed with the agency violated the law as the OIC understands it by establishing a rate for each participating employer rather than treating each participating employer as if it were an “employee.” The OIC also argued that WCIF lacks standing to challenge the disapproval of rates.

While I agree that WCIF lacks standing to challenge the disapproval of its insurer’s health plan, the Commissioner’s arguments in support of his rate standard badly miss the mark. I believe the law favors the OIC on the “standing” issue and as a former Deputy Insurance Commissioner, I think allowing customers to challenge any disapproval of an insurance premium or policy is just plain dumb. That right belongs to the carriers whose rates were disapproved.

On the other hand, the arguments made by the OIC in support of its disapproval of WCIF rates is equally dumb. While the Commissioner may have valid policy reasons for opposing association plans or for trying to prevent associations from siphoning off good risk from the commercial group health plan market, he simply doesn’t have the law on his side. The OIC supporting declarations and pleadings by OIC counsel use the very laws demonstrating the right of carriers to charge different rates for different employers to argue precisely the opposite.

I have written numerous times on this subject here and I am now boring myself. Keep in mind that at any time in the past several years, the Legislature could have repealed the small employer exceptions to its own state community rating law and could have chosen to exercise more jurisdiction over Multiple Employer Welfare Arrangements (MEWAs). That hasn’t happened.

I bring up MEWAs because that is what we are discussing. No matter the label, unrelated employers providing employee benefits is a MEWA. So, let’s start by setting out the three basic federal definitions governing this circus [ERISA 29 USC § 1002 Definitions]:

(5) The term “employer” means any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan; and includes a group or association of employers acting for an employer in such capacity.

(6) The term “employee” means any individual employed by an employer.

(40)(A) The term “multiple employer welfare arrangement” means an employee welfare benefit plan, or any other arrangement (other than an employee welfare benefit plan), which is established or maintained for the purpose of offering or providing any benefit described in paragraph (1) to the employees of two or more employers (including one or more self-employed individuals), or to their beneficiaries, except that such term does not include any such plan or other arrangement which is established or maintained—

(i) under or pursuant to one or more agreements which the Secretary finds to be collective bargaining agreements,
(ii) by a rural electric cooperative, or
(iii) by a rural telephone cooperative association.

What’s the take away here? That an “association of employers” (as that phrase has been interpreted by the Department of Labor) constitutes an “employer” for ERISA purposes; that an “employee” is someone employed by an employer; and that an association of employers is a MEWA whether “bona fide” or not.

With these definitions laid out, what grabs you first in looking at the legal battle between the associations and the agency? The most striking fact that pops up out of the recitation of facts between WCIF and the OIC is the chronology of events:

♥  February 18, 2014 WCIF plan rate filing with OIC

♥  April 23, 2014 OIC sends objection letters to carriers

  • ♥  May 30, 2014 carriers respond to objections
  • ♥  October 16, 2014 CMS/Center for Consumer Information and Insurance Oversight (CCIIO) sends Email telling OIC:
    • “we agree that it would appear to be inappropriate for a bona fide association to differentiate rating or premiums based on the underlying employers, but rather they should/could use general employee cl.assifications to differentiate, which are allowed by an employer group under ERISA. Likewise, it would seem inappropriate to differentiate by member employer length in the association, as again, the association is supposed to be acting as a single employee benefits provider to multiple employers in a bona fide association and not as a sales/marketing channel to disparate employer purchasers and therefore it should act like a bona fide association.”
  • ♥  October 29, 2014 OIC sends new objection letters to carriers
  • ♥  November 5, 2014 carriers respond to OIC
  • ♥  January 15, 2015 OIC disapproves the rates

It took the agency nearly a year to review and then disapprove the rates. In all of that time, the OIC was not so much trying to understand the rate filing as it was trying to find support for its decision from the beginning to disapprove the rates. How in the world is this type of process good for small employers, large employers, insurers, and all of the others depending upon a fair regulatory review?

Of all the help that could have been provided by federal agencies supposedly supportive of health care reform, the best they could muster in support of the OIC was: “it would appear to be appropriate.” Of course, CCIIO couldn’t help itself by going on to scold what it presumed to be the case with Washington’s sales/marketing channels that won’t act as bona fide associations should act.

I want to underscore my own certainty that the agency has a twisted view of ERISA law. Here is a quote from the OIC responsive pleading to the WCIF demand for summary judgment:

“Contrary to WCIF’s legal theory, the law has indeed changed with the advent of the ACA. Specifically, for association health plans that qualify to sell large group insurance to all its members regardless of size, it has changed which entity is the employer. It is no longer the small member employer within the association – rather, for a bona fide association like WCIF that meets the ERISA “employer” definition, the association itself is now the employer. The health plan a true or bona fide employer association offers to the employees of its purchasing members exists only at the association level, not at the association member or small employer level.” [Emphasis added, OIC response at 15]

The following is found on the Department of Labor’s Employee Benefits Security Administration website explaining regulation of MEWAs:

“While a bona fide group or association of employers may constitute an “employer” within the meaning of ERISA Section 3(5), the individuals typically covered by the group or association-sponsored plan are not “employed” by the group or association and, therefore, are not “employees” of the group or association. Rather, the covered individuals are “employees” of the employer-members of the group or association. Accordingly, to the extent that a plan sponsored by a group or association of employers provides benefits to the employees of two or more employer-members (and such employer-members are not part of a control group of employers), the plan would constitute a MEWA within the meaning of Section 3(40).

The term “employer” is defined to encompass not only persons with respect to which there exists an employer-employee relationship between the employer and individuals covered by the plan (i.e., persons acting directly as an employer), but also certain persons, groups and associations, which, while acting indirectly in the interest of or for an employer in relation to an employee benefit plan, have no direct employer-employee relationship with the individuals covered under an employee benefit plan. Therefore, merely establishing that a plan is maintained by a person, group or association constituting an “employer” within the meaning of ERISA Section 3(5) is not in and of itself determinative that the plan is a single-employer plan, rather than a plan that provides benefits to the employees of two or more employers (i.e., a MEWA). A determination must be made as to the party or parties with whom the individuals covered by the plan maintain an employer-employee relationship.

In general, whether an employer-employee relationship exists is a question that must be determined on the basis of the facts and circumstances involved. It is the position of the Department that, for purposes of Section 3(6), such determinations must be made by applying common law of agency principles…”(See: Advisory Opinion No. 92-05, Appendix A.)

In case you missed an important but subtle point to the DOL’s explanation, this has been the law for decades and it has not changed. DOL cites to its own advisory opinions and in particular, one from 1992.

“the term “employer”, for purposes of title I of ERISA, encompasses not only persons with respect to whom there exists an employer-employee relationship between the employer and individuals covered by the plan (i.e., persons acting directly as an employer), but also certain persons, groups and associations, which, while acting indirectly in the interest of or for an employer in relation to an employee benefit plan, have no direct employer-employee relationship with the individuals covered under an employee benefit plan. Therefore, merely because a person, group or association may be determined to be an “employer” within the meaning of ERISA section 3(5) does not mean that the individuals covered by the plan with respect to which the person, group or association is an “employer” are “employees” of that employer.”

Well you say, the OIC is talking about HIPAA and the non-discrimination rules, not just ERISA. Here is the OIC argument:

“This new legal reality is confirmed by a September I, 2011 bulletin promulgated by the Centers for Medicare & Medicaid Services, attached hereto as Addendum “A.” On page 3 of this bulletin, the federal position on association plans is summarized as follows:

CMS believes that, in most situations involving employment-based association coverage, the group health plan exists at the individual employer level and not at the association-of-employers level. In these situations the size of each individual employer participating in the association determines whether that employer’s coverage is subject to the small group market or the large group market rules.

In the rare instances where the association of employers is, in fact, sponsoring the group health plan and the association itself is deemed the “employer,” the association coverage is considered a single group health plan. In that case, the number of employees employed by all of the employers participating in the association determines whether the coverage is subject to the small group market or the large group market rules. (Emphasis added.)” [Addendum A of the OIC response]

I don’t know how that quote determining which rules govern a plan helps the OIC; but, here’s a fun fact – the same bulletin quoted by the OIC includes these comments by CMS referencing a bulletin from 2002:

“Although the Affordable Care Act revised and added to Title XXVII of the PHS Act, it did not modify the underlying PHS Act framework for determining whether health insurance coverage issued through associations was individual or group health insurance coverage. The analysis set forth in CMS Insurance Standards Bulletin Transmittal No. 02-02 (August 2002), summarized below, remains authoritative for determining when association coverage is considered individual or group coverage under Title XXVII of the PHS Act.” [Emphasis added]

Let’s move on to the key OIC argument that WCIF rules violate HIPAA non-discrimination standards because the association sets a rate for each member employer. Here is the HIPAA statute the OIC relies upon:

“(b) In premium contributions

(1) In general

A group health plan, and a health insurance issuer offering health insurance coverage in connection with a group health plan, may not require any individual (as a condition of enrollment or continued enrollment under the plan) to pay a premium or contribution which is greater than such premium or contribution for a similarly situated individual enrolled in the plan on the basis of any health status-related factor in relation to the individual or to an individual enrolled under the plan as a dependent of the individual.

(2) Construction

Nothing in paragraph (1) shall be construed— (A) to restrict the amount that an employer may be charged for coverage under a group health plan except as provided in paragraph (3); or (B) to prevent a group health plan, and a health insurance issuer offering group health insurance coverage, from establishing premium discounts or rebates or modifying otherwise applicable copayments or deductibles in return for adherence to programs of health promotion and disease prevention.” [Emphasis added. 29 USC § 1182 (b)]

Let’s sum up so far. ERISA standards for MEWAs and bona fide associations have been around for decades. CMS views about determining whether an association is selling individual, small group, or large group hasn’t changed for over thirteen years. The HIPAA non-discrimination statute expressly permits insurers to charge employers different rates from other employers. The DOL and IRS have decades old rules for determining who is or is not an employee or an employer. DOL expressly notes that just because an association is “bona fide” does not mean that individuals covered by the association are “employees.” The ACA does not impose community rating restrictions upon plans sold in the large group market. Sounds like a winning argument for the OIC so far.

The OIC goes on to cite a 2011 Ninth Circuit Court opinion (governing legal precedent for Washington State) to support the OIC view that the association cannot charge member employers different rates. The Ninth Circuit held that federal ERISA law preempted the HIPAA claims and that Blue Cross had not violated  HIPAA’s non-discrimination provisions in charging different employers a different rate in a non-bona fide association. Instead, the OIC wants to reach down to the lower court’s reasoning in the case; but, here’s the point of this entire article made by the Ninth Circuit Court of Appeals:

“But neither the Fossens nor the amici have offered a plausible explanation for how Montana HIPAA’s use of “group health plan” can be interpreted differently from ERISA’s use of that term.” [at 19063]

“Whether or not the state HIPAA statute is exempt from [ERISA] § 514 and § 731 express preemption, it may still be conflict preempted under § 502(a)—and we hold that it is.” [Emphasis added. at 19066]

“We express no opinion about whether our holding would apply to a state HIPAA statute that provided additional protections beyond federal HIPAA.” [Emphasis added. at 19067]

Unfortunately for the Insurance Commissioner, there is no state HIPAA law with protections beyond those offered by federal law. To the contrary, we have a state law that exempts associations from state community rating laws.

Instead of citing state or federal laws that direct the type of rate regulation imposed on bona fide associations, the Commissioner has gathered up like minded expressions of opinion that association health plans are bad and that his rate rulings are a good. He includes in his defense a study conducted when non-bona fide associations were both permitted and were the largest share of the market to demonstrate that his policies are wise.

We need more fidelity to law and less freelance paternalism.