When I jokingly posted my “Ground Hog’s Day” video” here two years ago, I had no idea how depressingly accurate that joke would become. Our experience with federal health care reform has mirrored past attempts at reform through regulation. As I noted here when the Affordable Care Act was signed, it’s not the absence of regulation that creates dysfunction in health insurance markets. It’s whether the rules adopted are the right rules, clearly explained and properly enforced.

For Washington’s association health plans, we’ve had the wrong rules, poorly explained and unevenly enforced. Now we’ll repeat the same chaotic scramble from the nineties. No one knows what will become of the small group health insurance market. We only know what has changed and we don’t know how long the change will last.

Five years ago, I posed the question of whether federal health care reform would eliminate Washington State’s substantial and competitive association health plan market [article here]. The association plan market had largely supplanted the traditional small group market.

Given the views of federal agencies responsible for implementing earlier HIPAA insurance reforms, everyone expected reform to preempt Washington’s broad exemption of associations from small group insurance rules. We knew that Washington associations needed to adapt to federal standards.

For the purpose of determining whether any particular insurance coverage is group rather than individual coverage within the meaning of title XXVII, it is irrelevant whether there is an association involved, and it is also irrelevant whether state law classifies association coverage as “group” coverage for purposes of state insurance laws…

Health insurance is considered to be offered in connection with a group health plan either because a group health plan exists at the association level, or, more commonly, because an employer-member or employee-organization member of the association maintains a group health plan…

To the extent an association has any members that are small employers (which are defined generally as employers with two to 50 employees), the issuer is subject to the requirements that apply to small group coverage, such as those related to disclosure, with respect to any small employer in the association. [Edited. Program Memorandum CMS August 2002]

The Washington Insurance Commissioner (OIC), bolstered by these federal views and by an antipathy toward association health plans, stubbornly pursued regulatory policies intended to force employers out of associations and into a reformed, community-rated, small group market. But, his vision required an “aggressive” interpretation of law. After failing to impose that vision, the small group market has become even more volatile.

The Commissioner’s pursuit of heavily disputed theories of law and his disregard for the practical consequences of these pursuits, have left a bitter disrespect of the agency. The business and financial consequences of the agency’s decisions cannot be reversed. Men and women suffered business losses not because they performed poorly; but rather because they chose to go along with the agency rather than risk regulatory penalties. They wish they had ignored the agency.

The agency did not just unintentionally stumble in governing. Many attorneys warned the OIC of the potential harm, including me.

Fundamentally, I do not believe that the agency has the authority to decide which association of employers meets the federal definition of “employer” under ERISA. My review of case law leads me to conclude that the matter rests exclusively with the Department of Labor (DOL) and that ERISA preempts such agency determinations. The OIC letter to the Master Builders recognizes the rather weak value of the OIC’s opinion as to the Trust satisfaction of federal bona fide association standards developed by DOL over the last few decades.

In addition to the jurisdictional issues, I disagree with the agency’s narrow view of the “commonality of interest” test for “bona fide” associations under ERISA. The agency remains focused upon standard industrial classification (SIC) codes “negotiating” acceptable code groups. While I found several DOL opinions favorable to associations comprised of similar businesses, I could find no opinion or case that suggested that commonality of interest could only be found in a parsing of industry codes. To the contrary, I found opinions that focus on broader, flexible standards. The OIC focus on SIC codes has led to grim private meetings where Trustees decide which employers will be forced out of longstanding, successful group health programs.

My greatest concern arises from the consequences of OIC determinations of an association’s status under ERISA. An OIC determination will do nothing to alter employer liability under ERISA. Worse, an OIC view stricter than would be applied by DOL will result in the dismantling of an association plan. These agency decisions cannot be reversed once acted upon.

I believe that OIC should pursue a policy common to any other health insurance transaction. The applicant faces the consequences of material mistakes. Neither the insurer nor the regulator investigates the veracity of an application in advance of coverage. In short, employers remain liable under ERISA and OIC can neither increase nor decrease this risk. [Letter to OIC Counsel, 11/27/2012]

We are where we began.

Most market reforms were already in place. Association health plans dominated the small group market. In Washington, government programs provided or subsidized health coverage for those in poor health or just plain poor. We had and still have a long list of mandated benefits, provider and network regulations, and consumer rights.

Instead of collaborative transition, the Commissioner has pursued regulation as disruptive technology – the government version – much change to little effect. It’s the same old tune.