The Future of the Affordable Care Act under President Trump: Stakeholders Respond to the Proposed Association Health Plan Rule. Part V: Departments of Insurance

In March, over 900 stakeholders submitted comments on the Department of Labor’s (DOL) proposed rule, which strives to expand Association Health Plans (AHPs). The proposal would loosen existing AHP requirements to allow self-employed individuals and small employers to join together to qualify as a single, large group under the Employee Retirement Income Security Act (ERISA). In qualifying as large-group coverage, members would then be exempt from many of the Affordable Care Act’s (ACA) requirements, including premium rating restrictions and essential health benefits. To learn more about the proposed rule, you can access our brief here.

To understand the potential impact of the proposed rule, CHIR reviewed and summarized a sample of comments from state attorneys general, consumer advocates, insurers, and business representatives. In this fifth and final blog, we summarize comments from the National Association of Insurance Commissioners (NAIC) and nine state departments of insurance (DOI), including:

Every DOI Raised Concerns About “Jurisdictional Confusion” and State Authority

Every DOI raised concerns about how the proposed rule impacts state authority, creates areas of ambiguity between federal and state laws, or raises issues of preemption. The proposed rule states that it “would not change AHPs’ status as large group plans and MEWAs [Multiple Employer Welfare Arrangements], under ERISA, the ACA, and State law,” nor would it “alter existing ERISA statutory provisions governing MEWAs.” Most DOIs interpreted the proposal to mean that MEWAs will continue to be regulated by states and nothing in the proposed rule changes existing state authority (NAIC, California, Massachusetts, New Mexico, Pennsylvania). However, the majority of DOIs still felt that the proposed rule created areas of ambiguity regarding states’ ability to regulate.

For example, Alaska explained that while it has state laws regulating AHPs and MEWAs, some of its provisions conflict with the proposed federal regulation, which could open the door for AHP and MEWA-operators to make federal preemption arguments. Without further clarification, Alaska expressed concern that bad actors might take advantage of “jurisdictional confusion” regarding federal and state authority. Similarly, Colorado explained that states have had broad regulatory authority over AHPs and MEWAs, in part, because of the history of fraud and financial instability associated with the arrangements. Iowa and others commented that state regulation is essential to ensuring that consumers in these arrangements are protected; Massachusetts further noted that that DOIs are often best-positioned to limit the risks and market segmentation associated with AHP growth.

For these reasons, many DOIs, such as California’s and North Dakota’s, asked that the final rule “unequivocally” state that the rule does not preempt state law or oversight authority regarding MEWAs.

States Expressed Mixed Reactions to Relaxing the Definition of “Employers”

Under the proposed rule, DOL would relax the definition of “employers” to include “working owners” (those who are self-employed) who have no employees. These “sole proprietors” would then be eligible to join an AHP after satisfying certain minimum requirements. Some states, like Montana and Alaska, agreed with allowing sole proprietors to participate as employees in AHPs. Alaska argued that because many of these individuals do not qualify for subsidies in the individual market, they should have access to alternatives and determining membership qualifications should be left to the states.

Other DOIs called for limits on the definition and requested clarification. For example, the NAIC suggested that the ability to enroll as a working owner should be limited to only members that can substantiate their income and working hours through tax filings to ensure they are truly engaged in an employment relationship. Similarly, Pennsylvania asked that the DOL specifically outline the documents necessary to substantiate such claims, while Colorado sought clarification on what it means to be “self-employed.” Colorado noted that its state laws do not currently recognize sole proprietors as valid employers and recommended that DOL establish requirements for maintaining enrollee records, attestations of compliance, and even audit provisions to ensure that only valid working owners are participating.

A handful of DOIs strongly rejected the proposal to expand the term. For instance, California argued that changing the definition would create a “destabilizing force in the market.” The DOI worries that healthier employers, not currently included in the definition, will seek “flimsier” AHP coverage, while less healthy sole proprietors will continue to seek comprehensive coverage in the individual market. The state warned that such an approach would transform the markets into high-risk pools, leading to rate spikes and health insurer withdrawals. Massachusetts also cautioned that changes to the definition would weaken consumer protections, deteriorate the state’s merged market, and increase premiums, fraud, and insolvency.

States Cited a Range of Issues With Extending the Commonality of Interest Test

Half of the DOIs commented on DOL’s proposal to expand the “commonality of interest” test. The current test requires associations to be formed for some purpose other than the offering of health benefits, in order to distinguish them from traditional commercial insurance. Under the proposed rule, the test would be expanded to allow AHP formation for the sole purpose of offering health coverage, so long as members share commonalities in profession or geography, even if the geographic area spans more than one state.

Of the states that commented on the test, only Montana supported the criteria (i.e., same industry, same metropolitan area) for satisfying the commonality requirement, stating that the options would promote the formation of new associations. In contrast, California, Colorado, Iowa, Pennsylvania, New Mexico and the NAIC all raised concerns about modifying the test. California argued that geography alone is an insufficient barrier to deterring fraud and that allowing geographic carve-outs within a state could lead to discriminatory practices. The state reasoned that discrimination could include setting eligibility criteria and plan designs that disadvantage lower-income areas or areas where workers experience a higher incidence of disease. Likewise, Iowa found the lack of definition for geographic “region” to be “troubling,” as it would allow AHPs to operate wherever they see fit, even if that means excluding certain consumers. Iowa wrote that when members feel less tied to a specific AHP, they are more likely to jump around until they find an acceptable price point; the state cautioned that such movement can threatened a group’s stability.

New Mexico was “profoundly confused” by the proposal’s relaxation of the boundary between “employer” and “insurer.” The DOI took issue with DOL eliminating the requirement that AHPs exist for a reason other than offering insurance. By eliminating this element, New Mexico argued that the distinction between a state-regulated insurance plan and an employer’s relationship to an AHP becomes “negligible.” Pennsylvania expressed similar sentiments, saying that AHPs formed for the sole purpose of offering coverage would exist only to collect money and pay claims, and could therefore walk away more easily when financial difficulties arose. Unlike large employers who are subject to “countervailing pressures,” like the need to satisfy shareholders, maintain a workforce, and protect one’s reputation—these new associations would not have to answer to such forces.

States Questioned Whether the Nondiscrimination Requirements Are Sufficient

The proposed rule would prohibit AHPs from using health status to determine membership, rates, and benefits. DOIs largely expressed strong support for this provision. For example, North Dakota commented that the prohibition would help to prevent adverse selection and promote a healthy market. However, many also felt that the proposed rule did not go far enough and, in fact, introduced areas for discriminatory practices. Colorado predicted that AHPs might try to circumvent state-level anti-discrimination requirements, using the example that under the proposal, it is unclear whether AHPs could increase premiums for women, simply because they are women. While Colorado state law has addressed this, the state again requested clarification regarding its ability to regulate AHPs. New Mexico stated that the rule “does nothing” to address key flaws of AHPs, which include increased potential for discriminatory benefit designs. Massachusetts even signaled that AHPs could interpret the proposal “inappropriately” to allow unrestricted age, industry, or geography rating, or gender rating in contrast to civil rights laws.

Take-Away: While the DOIs expressed some areas of support for the proposed rule, their comments were largely negative, with most expressing deep concerns about the rule’s ambiguity towards state authority to regulate AHPs. New Mexico was “deeply troubled,” while Pennsylvania asserted the proposal “will create more problems than it will solve.” California was the harshest critic, calling the rule “a perfect storm of bad ideas.”

A Note on our Methodology

This blog is intended to provide a summary of some of the comments submitted by a specific stakeholder group: Departments of Insurance. This is not intended to be a comprehensive report of all comments from Departments of Insurance on every proposal in the AHP rule. For more stakeholder comments, visit

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.


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