Association Health Plans

They said they would and they did. Twelve states filed a lawsuit against the Department of Labor (DOL) challenging DOL regulations liberalizing standards for creation and operation of Association Health Plans (AHPs). The complaint mirrors objections and comments submitted to DOL by a group of seventeen state attorneys general before the final rules were adopted.

Litigation as a method of health policy development is sub-optimal. Without question, the DOL rules liberalizing bona fide AHP standards constitute major health policy changes. The rules significantly complicate the effectiveness and enforcement of the Affordable Care Act (ACA). Here’s the short version outline of the legal complaint with comments.

I. Background
  • Congress enacted ERISA to protect employees.
  • Only associations that are not formed to provide insurance, that are controlled by employer members, and that are “bona fide” can be “employers” under ERISA.
Yep, except DOL now says insurance can be a primary purpose but still not the only purpose.
  • Under ERISA, “employer” does not include a “working owner” with no other employees.
Yep, except DOL now says that a bona fide association will still be bona fide even if it includes sole proprietors.
  • Congress understood that multiple employer welfare arrangements (MEWAs) historically have defrauded consumers and made clear that MEWAs generally are not ERISA plans.
  • Congress enacted ACA market protections targeted to the individual and small group markets.
Yep, and Congress also included:

  • protections for the large group market,
  • reporting requirements for MEWAs, and
  • enforcement tools for DOL oversight of MEWAs.
II. Congress repeatedly rejected legislation to expand association health plans.So what. Executive branch agencies routinely head in a different direction than the legislative branch. An agency either has the power or not.
III. President Trump’s executive order on association health plans and the final rule plainly attempt to gut the ACA through executive action.Sure. The President is not a friend of the ACA. That being said, with everyone rowing in different directions, it’s hard to predict where we’ll wind up.
IV. The final [AHP] rule harms the states.Yep, in the same way that states have been complaining about ERISA since it was first adopted preempting state laws.
V. Causes of action
  • Administrative Procedure Act – Contrary to Law – Market Structure
Maybe.  Essentially, AGs argue that AHP expansion swallows up ACA individual and small group reforms making the rule illegal. But, small groups bought coverage from bona fide AHPs before and after ACA. The argument has more resonance in the individual market.
  • Administrative Procedure Act – Contrary to Law – “Working Owners”
Probably. This is the strongest argument. DOL will argue that it is just saying who can buy from AHPs; but, DOL has done a “Cirque du Soleil” in naming individuals as employers of themselves.
  • Administrative Procedure Act – Contrary to Law – Bona Fide Association
Maybe. Courts have found that ERISA requires a “nexus between the plan’s sponsor and all of its beneficiaries.” However, DOL has been responsible for defining the acceptable “nexus.” We don’t know how far the courts will allow DOL to go in changing its “mind.”
  • Administrative Procedure Act – In Excess of Statutory Authority
Depends. The strongest argument is against including sole proprietors as employers; but, the substance of bona fide association standards has been DOL interpretation of ERISA.
  • Administrative Procedure Act – Arbitrary and Capricious
Doubtful. DOL went to great lengths to inoculate itself against this type of argument in the preamble to the final rule.

The tug of war over the ACA has moved to federal agencies following the failure of Congress to resolve outstanding policy issues. DOL has followed the President’s order to expand access to AHPs as an alternative to ACA plans and regulation. Depending upon the outcome of litigation, DOL may have gone too far or not.

The answer depends upon traditional standards of legal review – whether the regulation is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” The states pepper their legal arguments with commentary about the awfulness of AHPs, the sanctity of Congressional intent, and the shocking motives of elected and appointed officials. These and other tired clichés like “rampant fraud and abuse” by AHPs don’t move the conversation forward.

As a side note, liars and cheats circulate in every kind of business; but, the tools to catch and prosecute illegal MEWA operations are fairly robust. I worry more about insurer insolvency than I do about insurance producers hyping an illegal health plan that state regulators haven’t caught yet.

Sadly, courts will continue to referee conflicting health policy objectives dressed as legal disputes. It’s a terrible way to govern. It’s government through bob and weave, bait and switch, nod and wink, and good old-fashioned sabotage. It’s impermanent, unpredictable, and exhausting.

Nevertheless, until a court tells DOL to cease or desist, the AHP rules take effect September 1st. My best advice is the same advice – until the rule changes, obey the rule.