One of the key issues for small businesses is how to pay for health coverage for employees. These employers want to offer coverage to their staff to help keep them healthy as well as to compete in a tight labor market with large companies that almost universally offer health coverage.
Businesses considered too small to participate in the large group market, which is where large companies obtain coverage with lower premiums than those offered to the small group market, pay a higher price for comparable coverage.
Last year, the Department of Labor issued a rule that permitted the creation of Association Health Plans (AHPs). Under the rule, small businesses, including self-employed individuals who have no employees, could band together by geography or industry to obtain health coverage as if the group were a large employer.
The problem
Eleven states (CA, DE, KY, MA, MD, NJ, NY, OR, PA, VA, and WA) and the District of Columbia, led by New York, challenged the DOL’s rule, arguing that it unreasonably expanded the definition of “employer;” it didn’t restrict what could be considered an employer for purposes of AHPs. The attorneys general in these states reasoned that AHPs, which are not required to be compliant with the Affordable Care Act (ACA), would undermine ACA and expose consumers to a risk of fraud and harm (i.e., higher premiums in the non-AHP market).
A federal court held largely sided with the challengers, holding that parts of the DOL rule were impermissible because they were contrary to ERISA and circumvented the Affordable Care Act.
Status of association health plans (AHPs) now
Association health plans in effect prior to the DOL rule are not impacted; these older AHPs were ERISA compliant. But the status of AHPs established in light of the DOL rule is unclear.
The DOL disagrees with the court. At the moment, the status of AHPs are uncertain.
Here’s what could happen:
- New AHPs may still qualify under rules in effect before the DOL’s rule or could qualify by making some changes.
- The federal government could ask the court to stay the decision pending an appeal. AHPs that have been created under the DOL’s rule would continue.
- The DOL could issue an amended rule incorporating the court’s guidance as contained in the decision. (Only parts of the DOL’s rule were invalidated by the court.) The court said that the DOL’s rule failed to put a “meaningful limit on the associations that would qualify as ‘bona fide’ ERISA ‘employers.’” Likely a change to the rule would take some time and would not resolve the limbo status of AHPs.
Update: On April 26, 2019, the DOL filed an appeal to the district court’s decision. And DOL has issued some guidance for employers that have adopted AHPs. The guidance says:
“[T]he Department will work with affected parties [e.g., employers], HHS, and the States to mitigate any disruptions or hardships that result from confusion regarding the status of the AHP rule and legal compliance requirements. The focus of the Department’s efforts will be on ensuring that participants and beneficiaries get their health benefits claims paid as promised, and on reducing the risk of adverse consequences to affected employer associations, and their employer members, that relied in good faith on the rule.
Moreover, for this interim period, the Department will not pursue enforcement actions against parties for potential violations stemming from actions taken before the district court’s decision in good faith reliance on the AHP rule’s validity, as long as parties meet their responsibilities to association members and their participants and beneficiaries to pay health benefit claims as promised. Nor will the Department take action against existing AHPs for continuing to provide benefits to members who enrolled in good faith reliance on the AHP rule’s validity before the district court’s order, through the remainder of the applicable plan year or contract term that was in force at the time of the district court’s decision.”
