Last year, many controversial health reform regulatory issues ricocheted around federal government agencies and mercifully, no one was hit with responsibility. Among the biggest issues was and remains the state of association health plans and their status as grandfathered plans. Questions continue to arrive about the effects of federal health care reform on association health plans in Washington State particularly given the new medical loss ratio rules (Washington treats associations a single, large groups). Nothing has changed since the issue was last stirred up in the Fall of 2010.

For those who have not been following this issue, here below are the contents of the entire request to the U.S. Department of Health and Human Services (HHS) by the Washington Insurance Commissioner. The letter sums up what the Commissioner had been told unofficially and requests that HHS issue an official response and opinion. 

October 11, 2010

Office of Intergovernmental Affairs
U.S. Department of Health and Human Services
Via e‐mail

To whom it may concern:

I would appreciate the U.S. Department of Health and Human Service’s guidance on the following issues: The Washington State Office of the Insurance Commissioner (OIC) recently communicated to its regulated carriers the effects that we believe the Patient Protection and Affordable Care Act (PPACA) will have on their association health plan (AHP) business [1] with respect to grandfathering, financial reporting, and the application of medical loss ratios. It is my understanding – based on our reading of PPACA and our work with HHS [2] and the National Association of Insurance Commissioners (NAIC) – that the Affordable Care Act does not recognize the association structure but rather applies directly to the individual plan, the small group plan, or the large group plan.

Based on our current understanding of the law, grandfathering is governed by the status of the employer or individual’s plan rather than by the “master contract” between the association and the carrier. For example, if an employer joined an AHP, and at least one of its employees was enrolled in a health plan obtained through the AHP on or before March 23, that employer’s group plan is grandfathered, and any employees of that “grandfathered” employer would be eligible for the “grandfathered” benefits, even if they were added to the coverage after March 23, 2010. However, if an employer joins an AHP and begins enrolling its employees in a health plan obtained through an AHP after March 23, 2010, that plan is not grandfathered. The fact that the “master contract” between the

[1] In Washington state, AHPs enter what we term a “master contract” with the carrier, which sets forth the agreement between the association and the carrier and allows the association to offer the carrier’s coverage to their members under certain terms.  Most associations have only employer members, although a few enroll individuals.  The employer members receive certificates of coverage – the actual insurance policies – which they provide to their enrolling employees.  Individual members also receive certificates directly from the association.
[2] Partly, our understanding is based on Kevin Lucia’s remarks from the call with HHS on September 21, 2010, which the NAIC loosely transcribed and distributed as “notes” to the states.

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association and the carrier was in existence on March 23, 2010 and continued thereafter would not affect the grandfathered status of the member’s plan.


The NAIC recently adopted reporting requirements for the requisite carrier financial filings for the 2010 plan year. The first reports will be due in April 2011. Insurance carriers are required to use the NAIC “blanks” form developed this summer for this reporting. The form requires each health carrier to report its health business experience from 2010 separately as individual, small group, or large group. Again, the NAIC “blanks” form does not contemplate any difference in reporting requirements for AHP plans.


The NAIC is in its final stages of adopting its Medical Loss Ratio (MLR) Model “Regulation for Uniform Definitions and Standardized Rebate Calculation Methodology for Plan Years 2011, 2012, 2013 per Section 2718(b) of the Public Health Service Act.” It is our understanding that carriers which insure AHPs will need to report the data required by this model, if adopted by the Secretary of HHS in the manner prescribed by rule, and will need to separate the data between large groups, small groups, and individuals purchasing coverage through the AHP. In other words, the NAIC instructions for reporting the expense experience through the NAIC “blanks” form require that each carrier aggregate and report separately the components of its experience for its individual, small group, and large group plans purchasing through an AHP.

My question is whether HHS interprets the Affordable Care Act as I have outlined above for grandfathering, financial reporting, and MLR reporting purposes.

Because carriers need to know as soon as possible whether they must separate their AHP business into grandfathered/non‐grandfathered plans, even though their master contract with the AHPs has not changed significantly since March 23rd, I would appreciate any guidance you can provide. I recognize the workload you are managing, and I appreciate any time you can spare to provide an answer to this important issue.


Mike Kreidler

Insurance Commissioner

After hearing nothing but “crickets”, followed by an election that gave Republicans control of the U.S. House of Representatives, and an ongoing recession that made the number of uninsured Americans go up and not down, Washington State has maintained the regulatory status quo with respect to regulation of association plans.  

According to the Washington Insurance Commissioner, here is what the status quo looks like:

 Overview of Patient Protection and Affordable Care Act of 2009
Presentation for Rates and Form Filers
Updated with corrected information May 12, 2010
Beth Berendt, Deputy Commissioner for Rates & FormsOffice of the Insurance Commissioner  

Grandfathered Plans: What are they and why do we need to know?

  •   For Group Policies – it is the effective date of the Master Policy issued to the Group or Association and not when the employee or member (or employer) joined the existing group – A new employee may be covered on either a Grandfathered or Non-Grandfathered Plan – depending on when the Master Contract providing the benefits was effective.
  • For Large Group Single Employer Plans & Large Group Association Plans – the OIC considers the “Plan Year” to be the annual renewal date of the large group master contract.

When HHS failed to respond, the Washington Commissioner advised that no change would be made to existing regulation of association health plans and that associations would be given sufficient time to adjust and comply when and if HHS required regulatory changes.

 Despite the constant rumors and opinions legal and otherwise, Washington regulations governing associations and their grandfathered status have not changed…yet.

In the meantime, if you want to see what has happened in the markets toward achieving the goal of insuring Americans so that all Americans have access to care, check out that “un-progress” here