Expanding Association Health Plans—Which Agencies Need to do What
On October 13th, President Trump signed an Executive Order directing various federal agencies to consider how to achieve three administration health reform objectives: (1) expand access to Association Health Plans (AHPs); (2) increase the current limits on short-term health insurance; and (3) allow wider use of employer health reimbursement arrangements so employees can buy coverage on their own in the individual market. This post considers what regulatory actions are necessary to accomplish the first objective—expanded access to AHPs.
Background
In a recent post (entitled, Association Health Plans—Can The Trump Administration Expand Access Without Congress?) we considered the legal status of AHPs under current law. We noted that fully insured AHPs are generally subject to state solvency and other requirements, and that the underlying insurance products are generally subject to state small group rules. We also pointed out that, under the ACA, small groups (but not large groups) must cover 10 essential health benefits, provide coverage at designated metallic tiers, and adhere to modified community rating standards (that prevent plans from excluding or charging more to people with preexisting conditions).
In contrast, large group plans have significantly more leeway in plan design because they are not subject to the ACA’s benefit mandates. Being large also means they can spread risk over bigger pools of workers and can underwrite risk based on the group’s experience. This allows large groups to obtain better terms on health insurance and achieve significant cost savings. The Executive Order aims to level the playing field for small employers by allowing them to band together in AHPs and be treated as large groups. That way, they can enjoy the same benefits flexibility and lower costs as their large company counterparts.
The Executive Order
On its own, the Executive Order does nothing to expanded AHP access. Rather, it provides general direction for the U.S. Department of Labor to “consider” how to implement the administration’s objectives regarding AHPs through rulemaking or other guidance” without congressional action. The Centers for Medicare & Medicaid Services (CMS), has also issued guidance on the status of AHPs.
- Centers for Medicare & Medicaid Services (CMS)
We previously described a September 2011 CMS bulletin opining that most AHPs consisted of a collection of small groups. In CMS’s view, only a few AHPs qualified as a “bona fide association,” that could operate as, and apply the rules governing large groups. To determine which AHPs qualified as bona fide associations, CMS looked to Department of Labor standards allowing plans maintained by more than one unrelated employer to be treated as a “single plan” under ERISA. Since the CMS bulletin defers to the Labor Department, it would appear that no further action is required on the part of CMS.
- U.S Department of Labor (DOL)
AHPs are generally regulated under ERISA as multiple employer welfare arrangements (or “MEWAs). A MEWA can be either a collection of its member plans or a single plan that covers all members of the association—i.e., a bona fide group or association over which the members exercise the requisite control. The Department of Labor determines the existence of a bona fide group or association of employers based on a series of criteria:
Whether there is a bona fide employer group or association with respect to a benefit program depends on all of the facts and circumstances involved. Among the factors considered are the following: how members are solicited; who is entitled to participate and who actually participates in the group; the process by which the group was formed, the purposes for which it was formed, and what, if any, were the preexisting relationships of its members; the powers, rights, and privileges of employer members that exist by reason of their status as employers; and, who actually controls and directs the activities and operations of the benefit program. The employers that participate in a benefit program must, either directly or indirectly, exercise control over the program, both in form and substance, in order to act as a bona fide employer group with respect to the program. [Department of Labor Advisory Opinion. 2005-20A (Aug. 31, 2005)]
Elsewhere, the Department of Labor has clarified that the person or group that maintains the plan must be “tied to the employers and employees that participate in the plan by some common economic or representation interest or genuine organizational relationship unrelated to the provision of benefits.” (emphasis added) See, e.g., Advisory Opinion 94-07A; Advisory Opinion 2001-04A. The degree of required “commonality of interest” will depend on the facts. An association consisting of employers in unrelated industries, (e.g., broad-based business associations like chambers of commerce) likely would not qualify under the current criteria.
Under current law, if a trade association adopts a fully-insured group health plan open to all the association’s members, and if the plan’s operation is overseen by an administrative committee elected by the members, e.g., at the association’s annual meeting, then the plan may qualify as a single ERISA plan provided the other above criteria are satisfied. If this same plan was self-funded, it would be subject to licensing laws that apply to insurance carriers domiciled or doing business in the state or to state-mandated insurance licensing laws specific to associations. If an independent commercial entity (e.g., a carrier or benefits consultant) adopts and maintains the plan for the benefit of an association’s members, the arrangement would be likely be treated as series of plans maintained at the member level.
The Department of Labor has issued advisory opinions over the years that provide guidance on determining whether an AHP is a single ERISA-covered plan or a series of individual plans. While generally considered authoritative, advisory opinions are not subject to notice and comment under the Administrative Procedure Act. Thus, they lack the force of law accorded to a final regulation. Nevertheless, the Department could fairly quickly expand access to “single plan” AHPs through informal interpretations of ERISA, such as advisory memoranda, interpretive bulletins, or opinion letters, without going through a lengthy rulemaking process. The courts may, however, show less deference to the Department’s informal interpretations than would be accorded a formally promulgated rule.
Under current law or any expanded AHP rule, fully insured AHPs that qualify as single ERISA plans would not be subject to state small group rules.
It would be another matter entirely should the Department of Labor seek to expand AHPs to cover collections of self-employed individuals with no common law employees. This would require a change to an existing final regulation (i.e., 29 C.F.R. 2510.3-3), which provides:
[T]he term “employee benefit plan” does not include a plan the only participants of which are [a]n individual and his or her spouse...with respect to a trade or business, whether incorporated or unincorporated, which is wholly owned by the individual or by the individual and his or her spouse or [a] partner in a partnership and his or her spouse.
Of course, if a plan that covers self-employed individuals also covers one or more common law employees, the plan constitute an ERISA-covered employee benefit plan. But any attempt to enable groups of unrelated self-employed individuals with no common law employees to participate in an AHP would require publication of a proposed rule with a notice period and opportunity for public comment.
Enabling access to self-funded AHPs presents a similarly daunting challenge. While ERISA broadly preempts state law, states are free under current law to regulate self-funded MEWAs with impunity. To change this result would require the Secretary of Labor to exercise existing but currently untapped authority to permit self-funded plans to be regulated in the same manner as their fully-insured counterparts. That is, states would be limited to prescribing “standards, requiring the maintenance of specified levels of reserves and specified levels of contributions,” and “provisions to enforce such standards.” We would expect state regulators and certain carriers that operate in the small group market to vigorously challenge such an exemption.