An Opportunity to Protect Consumers and Ensure a Level Playing Field: Reversing Trump-era Rules on Association Health Plans

By Sabrina Corlette and Kevin Lucia

President Biden has issued an executive order requiring his agencies to revisit federal rules that may “undermine the health insurance Marketplace or the individual, small group, or large group markets for health insurance.” One of the federal rules most likely in the crosshairs of this order is the Department of Labor’s (DOL) 2018 regulation enabling association health plans (AHPs) to escape Affordable Care Act (ACA) market rules. If allowed to go into effect, this rule would have authorized more discrimination against people with preexisting conditions, increased the risk of insurance fraud and insolvency, and potentially destabilized the individual and small-group insurance markets.

The clock is ticking for DOL to act on President Biden’s order, as litigation pending before the U.S. Court of Appeals for the District of Columbia Circuit could soon open the floodgates to the marketing of AHPs that skirt federal and state ACA standards. Due to the change in administrations, the court has granted a delay in that case, but the U.S. Justice Department must provide the court with a status update by April 9, 2021. Before that time, the DOL can initiate a rulemaking process to reverse or revise the AHP rule, which would likely moot the litigation.

What is the AHP Rule and Why Would it Undermine Markets for Health Insurance?

AHPs are not new and have marketed themselves to small employers and the self-employed as a way to gain economies of scale and purchasing power with insurance companies. However, their primary advantage has been that, prior to the ACA, many states exempted AHPs from rules and standards that applied to commercial insurers, such as filing requirements, underwriting restrictions, benefit mandates, and solvency standards. This enabled them to offer a cheaper price to healthy groups and individuals, but the looser rules also led to significant problems with fraud and insolvency. The cherry picking also increased premiums and reduced the number of insurers willing to compete in the more heavily regulated individual and small-group markets.

The risks associated with state-level exemptions for AHPs were further elevated after passage of the ACA, which significantly raised standards for individual and small-group market plans. As a result, in 2011, the Obama administration required health insurance policies sold through an association to individuals must comply with the ACA’s individual market reforms, while association coverage marketed to small employers must be regulated as small-group coverage. This is sometimes referred to as the “look through” policy because the size of each individual employer determines whether the AHP is subject to individual, small-group, or large-group market rules under federal law.

The 2018 DOL rule effectively gutted the look through policy by loosening the conditions under which a group of employers – or the self-employed – can join together in an AHP and be considered a “single employer” under the Employee Retirement Income Security Act (ERISA). Such AHPs would be regulated under federal law as large-group coverage, making them exempt from ACA and other federal and state requirements that apply only to the individual and small-group insurance markets.

Specifically, the Trump-era rules created a new “flexible” pathway for AHPs to be regulated as a single large employer. Under prior law, it was rare for AHPs to gain that status, because the AHP had to show that its employer members were bound together by a “commonality of interest” that did not include the provision of health insurance, and that it effectively operated as one employer. Under longstanding interpretation of ERISA, AHPs that enrolled self-employed individuals would not qualify. Under the new, flexible pathway, AHPs could become a single large group so long as its members, among other minimal requirements, were either (1) in the same trade, industry, line of business, or profession, or (2) located within the same geographic region. In the latter instance, no “commonality of interest” would be required. Furthermore, the AHP could have as its primary purpose the provision of insurance benefits, or enroll self-employed individuals, and still meet the test.

Shortly after it was finalized, 12 attorneys general (AGs) sued to enjoin the 2018 rule. The Federal District Court for D.C. agreed with the plaintiff AGs and invalidated the rule. In particular, the court objected to provisions allowing AHPs to be formed solely on the basis of geographic proximity or for the purpose of selling insurance. Further, the Court concluded that Congress did not intend for self-employed individuals with no employees to be considered “employers” under ERISA. The Trump administration appealed that ruling, and the case has been pending for over a year.

The Biden Administration can Foster Stability for the Small-group Market

To protect consumers, small businesses, and providers (who often face significant financial losses when an AHP goes insolvent), and to maintain a level playing field for health plans, the Biden administration should reverse the 2018 rule. At a minimum, federal policy should return to the 2011 look through policy, but the Biden administration has an opportunity to go further by providing greater enforcement over the claims of some AHPs that they qualify as a “single” large employer under ERISA. For example, there is evidence that, even prior to the 2018 rules, some AHPs were simply declaring themselves to be a single employer group, with little or no evidence to support the claim. In many cases, neither state nor federal regulators questioned these self-attestations.

Such federal regulatory actions would by no means limit small employers’ ability to join associations to help them gain economies of scale and greater purchasing leverage in the market. They would simply help ensure that all insurers marketing health coverage to small businesses and individuals are operating under the same set of rules – and do not gain an unfair advantage by skirting important consumer protections.

Small Employers Need Relief from High Health Insurance Costs

Many small employers view health insurance as a critical benefit to offer employees, but rising costs have made it more challenging to do so. Small employers need relief from the expense of providing health insurance coverage, but permitting discrimination based on employees’ health status, age, or gender and increasing the risk of insurance fraud and insolvency is not the way to provide it.

Ultimately, to help all employers, large and small, policymakers need to address the root causes of our high health system costs (primarily the prices that U.S. commercial insurers pay for health care services). In the meantime, it is worth considering state-level efforts that support affordable small business coverage, such as Colorado’s proposal to allow small employers to purchase a public option plan, Maryland’s all-payer approach to hospital payment, Rhode Island’s affordability standards for premium rate review, or Massachusetts’ success reducing premiums for employers who purchase through the SHOP Marketplace. These and other initiatives can help make coverage more affordable for small business owners and their employees, while continuing to maintain important consumer protections.

The authors thank Marc Machiz and Justin Giovannelli for their input on this blog post.

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