Round One in the Fight over the new AHP Rules [Mostly] goes to the States
Last summer, eleven states and the District of Columbia (the “States”) sued the U.S. Department of Labor (DOL) over its final regulations intended to promote the expansion of AHPs (the “new rules”) on several grounds, including claims that the new rules conflict with both the Affordable Care Act and ERISA. On March 28, 2019, the U.S. District Court for the District of Columbia issued an opinion in favor of the States on certain key points while leaving other portions of the new rules intact.
In 30 Seconds or Less
Four key points from the Court’s ruling are:
- Related trades or businesses may still form AHPs across state lines under the new rules.
- Unrelated trades or businesses may not form AHPs at all.
- Associations cannot be formed for the primary purpose of offering an AHP.
- Self-employed individuals must remain limited in their ability to participate in an AHP, and independent contractors cannot participate.
And in More Detail…
There are two forms of permitted AHPs that we refer to as: (1) the Narrow Standard AHP created by prior guidance; and (2) the Relaxed Standard AHP created by the new rules.
The Final Regulations as Drafted
We provided an overview of the new rules and a side-by-side comparison of the two permitted forms of AHPs in an earlier article.
As Affected by the Court’s Ruling…
The Court’s ruling can be demonstrated by reproducing a portion of the side-by-side comparison from our earlier article in redlined form.
|Narrow Standard AHP||Relaxed Standard AHP|
Member employers must:
Member employers must:
|The Association must already exist for a business purpose before it can provide the AHP to members||
The requirement under the Narrow Standard AHP rule applies, meaning the Association must already exist for a business purpose before it can provide the AHP to members
Self-employed individuals are not eligible if running a business with no common law employees
The requirement under the Narrow Standard AHP rule applies, meaning self-employed individuals are not eligible if running a business with no common law employees
The Court’s opinion is missing an effective date, although this may be cleared up in the order that follows or through subsequent motions. The Court directed the DOL to consider how the new rules might operate with the overturned portions removed. The DOL could attempt to modify its new rules to better fit within the Court’s opinion instead, but this seems unlikely. This case was always headed for appeal, and the only surprise at this point might be which side is ahead after the first round.
The traditional appeal route would next move this case to the Circuit Court of Appeals for D.C. Whatever that outcome, it seems reasonable to believe the Circuit Court’s decision will also be appealed, meaning final resolution may need to come from the Supreme Court, which won’t occur in 2019. Although the Court’s opinion leaves open a path for related trades or business to form Relaxed Standard AHPs across state lines, we would not be surprised if interest cools in the interim.
All parties interested in or pursuing Relaxed Standard AHPs will need to evaluate whether to proceed or make modifications necessary to fit within the Court’s decision. This is a trickier proposition for an already operating Relaxed Standard AHP that is now in conflict with that decision. It may be reasonable for these AHPs to continue operating “as is” while the case is being appealed, but these AHPs should definitely consult with legal counsel first and may wish to suspend enrolling new member employers for the time being.
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