Well, things just got more interesting in the Wally World of health care reform.

Unlike Moda whose association health plans were disapproved by the Washington Insurance Commissioner (OIC) last month, a group of associations insured through Premera filed suit against Commissioner Kreidler before he could disapprove their large group plans. I reviewed these Premera filings here in September.

On December 17th, the Davis Wright law firm, representing 13 association health plans, sent a letter to the Commissioner demanding:

“a hearing before an administrative law judge … to challenge the threatened action by the OIC on the grounds set forth below. However, it is also our demand that any such hearing be stayed pending the determination of the federal question – whether each of the Trusts is sponsored by an ERISA Section 3(5) Employer. As this issue is one involving the exclusive jurisdiction of the federal courts pursuant to ERISA Section 502(e)(l), we have, as of this date, filed a lawsuit in federal court (Western District of Washington) to resolve this issue and this issue is now pending before a federal judge. The federal lawsuit also seeks an injunction of all state proceedings and actions by the OIC.” [Letter at 1]

As mentioned in the law firm’s letter to the OIC, the firm simultaneously filed suit in federal court requesting a temporary restraining order and preliminary injunction against the Commissioner to prevent the OIC from disapproving the association health plans. The lawsuit was brought on behalf of the following association health plan trusts:

  1. Wholesaling Industry Health Trust 

  2. Transportation Industry Health Trust

  3. Information Technology Health Trust

  4. Tourism Industry Health Trust

  5. Retail Industry Health Trust

  6. Media Industry Health Trust

  7. Business Services Industry Health Trust

  8. Construction Health Trust

  9. Healthcare Industry Health Trust

  10. Community Service Organization Industry Health Trust

  11. End-Line Manufacturing Industry Health Trust

  12. Agriculture Industry Health Trust

  13. Aerospace Industry Health Trust

Whether the United States Department of Labor (DOL) would find these trusts (all created in January 2014 and largely managed by the same insurance folks) to be “bona fide” associations under ERISA is about as clear as muddy water. But, the associations press the argument explained in prior articles; namely, the OIC does not have the right to determine whether an association is “bona fide” under ERISA. That question is reserved for the DOL even if getting a letter opinion from the DOL takes years.

Compounding the problem for the OIC is the agency’s dismal record in managing the regulation of association health plans following passage of federal health care reform. In fact, I can’t wait to hear the agency’s explanation of the following two statements made in separate communications by the OIC to the associations represented by the Davis Wright law firm.

In a March 26, 2013 letter to the Aerospace Industry Health Trust, Carol Sureau, then  Deputy Commissioner for Legal Affairs for the OIC, wrote:

“First, I’d like to thank you for your assistance in the effort we’ve made to analyze your association membership in the context of your insurance benefits vehicle to determine whether the membership constitutes an “employer’ under 29 USC 1002(5).

Attached is a copy of the list of occupational categories we have agreed constitute a single industry. Also attached is a copy of the Trust Agreement governing the insurance vehicle which we have agreed provides the employer members included in the occupational categories list to control the insurance vehicle. These documents should be provided to your carrier [Premera], as they will be needed for your plan filings.” [Letter from Carol Sureau to Jeff Marcell and Jason Froggatt March 26,2013]

On October 28, 2014 the Insurance Commissioner, Mike Kreidler, wrote to Maud Daudon of the Seattle Metropolitan Chamber of Commerce expressing doubt that the creation of the many new association trusts would satisfy federal ERISA law. He stated:

“Your organization in particular has made substantial structural changes to satisfy the ERISA standards. My office has been working closely with the Chamber since 2012 in issues including industry code groupings and trust documents. However, even then we understood that the central issue was whether the reorganization of the Chamber into several separate industry groups with dedicated trusts would over come the Bend Chamber of Commerce decision. As I shared with you in an email dated July 31, 2012, the U.S. Department of Labor’s Susan Rees shared that she did not believe the Seattle Chamber was capable of satisfying ERISA’s definition of “employer” even with the proposed structural changes.” [Letter from Mike Krediler to Maud Daudon, October 28, 2014] [See page 4 here]

Thus, the OIC has said yes and no to the very same group. In addition, the OIC has allowed some associations to continue selling health plans that escape federal reforms while warning other similar associations not to sell these plans. One fundamental reason for this disparity is that “Blues” health plans operate under a law that lets them file and sell coverage until disapproved while large national insurance companies have to wait to get approval first.

Shortly after the OIC issued its March 2013 letters, the agency stopped issuing approval letters and advised other similarly situated associations that the OIC would not approve their large group filings because the OIC believed the associations were “driven by insurance industry marketers.” In other words, the OIC has careened back and forth favoring some organizations while discouraging others. In the last two years, some associations dismantled their large group association plans while associations like those represented by Davis Wright continued to market the same coverage. The disapproved Moda association plans differ very little from the associations who have filed suit against the OIC. The key difference is that the associations represented by Davis Wright filed a lawsuit before the Commissioner disapproved the plans.

If you want to understand what is at stake in this big fight, here is one of the arguments made by the lawyers about the consequences of an OIC disapproval of their association health plans:

“If the OIC takes its threatened course of action, the rights of the Sponsor’s employees to current coverage under the policies issued by Premera are adversely affected. Premera will not renew any insurance contract issued to the Health Benefit Trusts, sponsored by the Association, at the conclusion of the current policy term. Thus, the insurance coverage of employees and families of the Trusts’ employer-members will be disrupted. The Trusts’ member employers face increased cost as a result of the OIC’s threatened action because any new coverage that may be obtained by the employers for their employees, or coverage issued under small group or individual policies, will likely come at increased cost to the employers or their employees.” [Letter from Davis Wright to OIC at 2]

Translated, if the OIC is successful in preventing the associations from selling large group coverage to small employer members of the association, the small employer would have to buy the same federal reform coverage as other small employers at the mandated community rate without experience rating and subject to the same mandatory benefit coverage. Precisely! That’s why the small group market is in turmoil. Those who play by the new rules of the OIC wind up losing business to those who have the means to fight the rules. Meanwhile, the DOL periodically wakes up and asserts its jurisdiction about as effectively as my dad – “Don’t make me come out there!”

We’ll see if the injunctions are issued and these associations are allowed to continue to sell non-reformed coverage. Insurance producers for these associations will have to dig deep to convince small employers to buy a health plan that a federal judge may decide violates federal and state law particularly when the Insurance Commissioner has already decided these plans violate state law.

However much lawyers for these associations complain of the cost of a OIC disapproval, employees paying more than they would with a reformed plan may find their own grievances to litigate. This is a lose/lose mess that only a federal judge can sort out.

How did we get here? Silly question.

Happens all the time when regulators don’t do their job and leave others to improvise. The DOL should have provided guidance a long time ago and the OIC should have settled on a sane course, consistently followed, equally applied, and transparent to all. The work should have been completed in 2013.

But, I digress. Time to make some popcorn and head to Seattle federal court.