On June 21, 2018, the United States Department of Labor (DOL) issued the Final Rule on association health plans (AHPs)1 , following a prior Executive Order, and proposed regulations designed to expand availability of coverage through associations. Specifically, the DOL Rule adopted the definition of “Employer” Under Section 3(5) of the Employee Retirement Income Security Act ("ERISA") --Association Health Plans, 83 Fed. Reg. § 28912 (June 21, 2018) (to be codified at 29 C.F.R. § 2510) (“Final Rule”), which modifies the definition of “employer” under ERISA, Pub. Law 93-406, 88 Stat. 829 (Sept. 2, 1974), regarding entities – such as associations – that could sponsor group health coverage. Under the Final Rule, an association may be formed for the sole purpose of offering an association health plan to its members, provided that the association maintains a commonality of interest. The Final Rule makes it easier for association-sponsored Multiple Employer Welfare Arrangements (“MEWAs”)2 that offer group health coverage to be treated as a single “employer” for purposes of ERISA, permitting such entities to be regulated under federal law as large-group coverage. The Final Rule also establishes criteria for allowing sole proprietors and other business owners who do not have employees to qualify as employers for purposes of participating in an AHP.
Although the Final Rule relaxes the requirements for association groups to establish and operate an AHP, the DOL concedes that the AHP must comply with applicable law, including ERISA, the Internal Revenue Code, the Affordable Care Act (ACA), and state laws. The Final Rule expressly affirms that the state regulatory structures overseeing AHPs would continue. Indeed, shortly after the Final Rule was promulgated, various states made clear their intent to enforce their own laws. Massachusetts’s Attorney General Maura Healy has cautioned against the program, stating that it will invite “fraud, mismanagement and deception.”
Similarly, Pennsylvania Insurance Commissioner Jessica Altman issued a statement decrying the “substandard coverage” which the Final Rule will allow, and expressed concerns about the cost of younger, healthier individuals opting for AHPs and increasing the premium burden on individuals remaining in the individual or small-employer marketplace. She also expressed concern that these plans may offer benefits under the guise of comprehensive coverage, yet only provide a modicum of benefits which leave insureds bearing the cost of treatment themselves. In an August 2, 2018 letter to the DOL (https://www.media.pa.gov/Pages/Insurance-Details.aspx?newsid=331), Altman outlined the Pennsylvania Insurance Department’s position on the implementation of a federal rule aiming to expand association health plans.
“While the new rule creates ambiguity and has the potential to undermine important consumer protections, this letter creates clarity by articulating the Insurance Department’s longstanding regulatory approach for association health plans,” Altman said. “Once again, it falls to the states to provide clarity to the marketplace following ambiguous and potentially harmful administrative actions being taken by the Trump Administration. It’s critical that our department promptly address the federal discrepancies and assert the Insurance Department’s obligation to uphold the law and duty to protect consumers in Pennsylvania.”
The substance of the Insurance Department’s letter aligns with the concerns raised in a lawsuit Pennsylvania’s attorney general recently joined with 11 other attorneys general to block the rule’s September 1 implementation.
In July 2018, Superintendent Vullo of the New York State Department of Financial Services (DFS) issued a lengthy circular letter to all health insurers in New York State, warning that DFS would strictly enforce state laws and notifying them that the Final Rule violates many New York laws, including the mandatory renewal of health insurance at the policyholder’s request, the provision of certain mandated benefits, and the prohibition against limited-duration plans.https://www.dfs.ny.gov/about/press/pr1807271.htm
Vullo stated that the Department of Financial Services has issued guidance reminding insurers, health maintenance organizations, insurance agents and brokers that the recent U.S. Department of Labor final rule, also known as the Association Health Plan (AHP) Rule, expressly does not preempt New York Insurance law, which strictly limits the associations or groups of employers that may sponsor a health insurance plan.
“The Department of Financial Services will continue to protect New Yorkers from federal actions that seek to undermine the Affordable Care Act and New York’s Insurance Law and regulations,” said Superintendent Vullo. “Today we are saying loudly and clearly that the federal AHP Rule does not preempt state law and DFS will take all necessary actions to protect New York’s markets and consumers from any attempts to circumvent New York statutory and regulatory requirements with respect to accident and health insurance coverage, employee welfare benefit plans or association health plans. This includes New York’s stringent requirements regarding the establishment of such groups, the requirement of essential health benefits and other consumer protections, regardless of the federal AHP Rule. The AHP Rule expressly does not impair DFS’s regulatory authority to prevent brokers or insurers from seeking to offer plans impacting New York that have reduced benefit packages or otherwise do not comply with New York law. DFS will continue to enforce New York’s Insurance Law and regulatory protections on Insurance policies offered to New Yorkers.”
On October 29, 2017, the Commissioner of the State of New Jersey, Department of Banking & Insurance, Marlene Caride, issued her own bulletin to address AHP, specifically, MEWAs.https://www.nj.gov/dobi/bulletins/blt18_13.pdf The purpose of Bulletin #18-13 (October 29, 2018) is to advise carriers, brokers, and other interested parties that the recent federal rulemaking related to AHPs does not modify or preempt New Jersey’s existing regulatory authority and oversight regarding MEWAs. Therefore, any AHP (whether a MEWA or not) purporting to operate, expand, or otherwise market in New Jersey pursuant to the DOL Rule changes can do so only if it fully complies with all relevant New Jersey laws when any AHP is fully insured, State laws that regulate specific contribution and reserve levels, and enforcement thereof, may apply, and state insurance laws are generally saved from preemption with respect to health coverage that is purchased by an AHP from a carrier, which will provide benefits. Moreover, Commissioner Caride points out that the DOL Rule acknowledges that when an AHP is not fully insured, any state law regulating insurance may apply to the AHP to the extent that it is not inconsistent with ERISA, similar to any other MEWA. Therefore, based upon this reasoning, the Final Rule does not preempt New Jersey law as it relates to the regulatory oversight of MEWAs, regardless of whether the MEWA is fully insured, partially insured, or self-funded. Caride further asserts that the DOL Rule contemplates that state regulation. The detailed laws regulating MEWAs in the individual, small employer and large group markets are analyzed in NJDOBI Bulletin 18-13. The ultimate conclusion is that an AHP, whether insured, partially insured, or self-funded, whether organized in New Jersey or another jurisdiction, and its agents, may not market, i.e., sell, solicit, or negotiate, its plan in New Jersey unless it complies with all applicable New Jersey laws and regulations.
Based upon state guidance from the insurance regulators in New York, New Jersey and Pennsylvania, it is clear the Final DOL Rule addressing Association coverage will not impede enforcement of state laws protecting residents of these states from the very substantial mandates imposed in the health insurance market place, calling into question whether the DOL Rules and the Presidential Executive Order on which they are premised will have any meaningful impact on Association Health Plan coverage.
1Association health plans are health insurance plans for employees purchased through an association or group of multiple small employers, typically organized around a common professional interest.
2“AHPs are one type of MEWA, and they are single ERISA-covered plans.” 83 Fed. Reg. at 28919, n. 18.