In January, the U.S. Department of Labor (DOL) released a proposed rule that would make substantial changes to the regulation of Association Health Plans (AHPs). The proposals are part of the administration’s efforts to carry out President Donald Trump’s Executive Order to expand access to health insurance products exempt from some or all Affordable Care Act (ACA) standards, in this case by increasing opportunities for individuals and small employers to purchase health insurance through professional or trade associations.
To expand access to AHPs, the DOL proposed lowering the threshold for small groups and self-employed individuals to band together and act as a single large employer for the purpose of buying health insurance. These arrangements would qualify as large group coverage, thus exempting them from the ACA’s essential health benefit standard, rating restrictions, and other individual and small-group market requirements. For a more detailed overview of the proposed rule, you can access our issue brief here.
After a 60-day comment period, over 900 individuals, organizations, and officials submitted feedback to the DOL. To understand the potential impact of the proposed rule on consumers, employers, insurers, and states, CHIR reviewed comments from various stakeholder groups. For the first blog in our series, we examined comments submitted by eighteen state attorneys general (AG), officials who, thanks to their consumer protection responsibilities, have unique insights into the potential risks and benefits of AHPs:
All of the AGs who submitted comments asked that the rule be withdrawn, and expressed serious concern with the legality of the proposals and their potentially devastating impact to consumers and individual market stability. Below we’ve outlined a selection of the AGs’ arguments against the DOL’s major proposals.
Increased Opportunity for Fraud and Abuse
In their comments, all of the state AGs agreed that the DOL’s proposal to make it easier for associations to qualify as a large group under ERISA would open the floodgates for fraudulent insurance schemes. Citing the extensive history of deceptive practices by “predatory entities,” the comments warned that allowing groups to band together for the sole purpose of providing health insurance would “encourage more fly-by-night associations to form, engage in misconduct, and disappear with employees’ premiums.” The coalition of state AGs pointed to AHPs’ sordid history of scams and insolvency, and noted that the rule lacks any explanation of how employers can protect their employees from the “adverse interests” of people who will treat AHPs as commercial enterprises. The Washington State AG echoed this concern and noted that, while the state’s insurance commissioner has the authority to take action against fraud and abuse, the proposal could still harm “unsophisticated purchasers” prior to the commissioner’s involvement.
The AGs also saw the proposal to expand eligibility for AHPs to the self-employed (or, in the terms of the rule, “working owners”) as a potential avenue for fraud. The coalition of AGs voiced particular concern with the verification system for establishing a working owner’s eligibility for membership. They asserted that, by allowing anyone to “check a box” to verify their own compliance with the income or service hours requirement, consumers could be lured into coverage arrangements by opportunistic AHP promoters and then have their policy cancelled or rescinded. The Washington State AG noted that this open invitation to gain health coverage by joining associations could incentivize fraud by “skew[ing] the very way associations design and search for carriers to provide plans,” prioritizing cheap coverage rather than providing competitive benefits to employees.
Noncompliance with Federal Law
Large portions of the AGs’ comments focused on the legality of the rule. The coalition of state AGs emphasized that under the federal law known as ERISA, an association must be tied to the genuine economic or representational interest of the participating employer groups to qualify as an employee benefit plan. They noted that, if an AHP is allowed to form for the sole purpose of offering health insurance, it becomes a commercial insurance arrangement rather than an employee-employer relationship as ERISA intended. Both the Washington State AG and the coalition assert that the proposal conflicts with ERISA’s intent and is a marked departure from the DOL’s longstanding interpretation of the law. They further observe that the DOL has failed to provide evidence to support such a substantial policy shift, which is a violation of the Administrative Procedure Act (APA). In addition, the coalition notes that broadening the definition of a large group conflicts with the ACA’s narrow definition of single large employers, and noted that Congress has not given the DOL the authority to so dramatically alter the status quo through rulemaking.
Both comment letters also point out that treatment of individuals as both employees and employers is contrary to ERISA. The coalition of state AGs called it a “dramatic departure” from prior judicial interpretations of ERISA as well as existing regulations. The AGs also cautioned that, under the ACA, sole proprietors without employees must be treated as individuals subject to the consumer protections of the individual market, indicating that the DOL’s proposal violates the federal health care law.
A Threat to the Individual and Small Group Markets
The AGs criticized the rule for its potential to destabilize both the individual and small-group markets. They argued that expanding the large group category to small employers and individuals will likely cause a large number of consumers to exit ACA-compliant markets, and that cheaper plans – designed by rolling back benefits and reducing coverage – will attract young and healthy consumers while excluding the sick, elderly, and those with pre-existing conditions. By segmenting the market and siphoning healthy risk out of states’ individual and small group markets, the AGs argue that premiums for consumers who need more comprehensive coverage will spike.
The AGs also brought up the potential for AHPs to discriminate against certain consumers, increasing the likelihood of risk segmentation. While the DOL proposed prohibiting AHPs from discriminating against members based on health status, their exemption from the ACA’s EHB requirements and rating rules will permit plans to differentiate premiums and benefit design based on non-health factors that include age, gender, industry, and occupation. The Washington AG supported the DOL’s proposal to prohibit AHPs from discriminating based on health status, but “nevertheless” noted that “AHPs may discriminate on the basis of gender and other demographic factors” that are often proxies for health risk. The coalition of state AGs suggested that an AHP could comply with the proposed non-discrimination provision while still discriminating against certain consumers, for instance by excluding coverage of maternity care from the plan’s benefits. Both comments also warned that the proposed rule’s lower standards for operating as a single large group for the sole purpose of providing health insurance could encourage AHP formation in geographic areas that have historically healthier populations (including wealthy communities and non-rural areas), opening up more opportunities for discrimination and market segmentation.
Exemption from State Regulation
In addition to proposing changes to standards for AHP formation and membership, the DOL requested comments on whether certain self-insured AHPs should be exempt from state regulation in order to promote the sale of insurance across state lines. The coalition of state AGs spoke out vehemently against such preemption, and again cited the potential for fraud and abuse that many AGs have experienced in their respective states. The DOL, they argued, does not have “federal financial or other insurance standards” to protect consumers if an AHP becomes financially insolvent. They asserted that states should maintain oversight authority of AHPs, and noted that the health and financial wellbeing of small employers and individuals across the country, many of whom have gained access to comprehensive coverage under the ACA, is on the line.
A Note on our Methodology
This blog is intended to provide a summary of some of the comments submitted by a specific stakeholder group: state attorneys general. This is not intended to be a comprehensive report of all comments from state officials on every proposal in the AHP rule. Future posts in this blog series will summarize comments from consumer groups, insurers, state insurance regulators, and other stakeholders. For more stakeholder comments, visit http://www.dol.gov.
Disclaimer: CHIR is part of a coalition that has submitted a Freedom of Information Act request asking DOL to release critical data and analysis that would support the agency’s capacity to adequately implement its proposed policies and protect consumers.