In response to the Department of Labor’s final rule on association health plans (the “final rule”), twelve states - New York, Massachusetts, California, Delaware, Kentucky, Maryland, New Jersey, Oregon, Pennsylvania, Virginia, Washington - and the District of Columbia (collectively, the “Plaintiff States”) jointly filed suit.
In The State of New York v. United States Department of Labor, the Plaintiff States contend that the final rule’s purpose and intended effect are simple: allowing small employers and individuals to shift from the small and individual markets – markets which have more robust core consumer protections and benefits – to the large group market which provides fewer protections and mandated benefits for the purposes of undermining the Affordable Care Act (ACA).
The Plaintiff States make several claims in their complaint.
- While the final rules enable association health plan (AHP) members to participate in the “large group market” for consumer protections and benefits, they are not considered “large employers” under the ACA’s Employer Shared Responsibility mandate. This enables AHP members to offer less comprehensive coverage without paying a penalty that traditional ACA “applicable large employers” would face under the same circumstances.
- The Plaintiff States claim the final rule conflicts with Congressional intent, the ACA, and long-standing case law under the Employment Retirement Income Security Act (ERISA). The Plaintiff States claim that by expanding the definition of “employer” and “employee” to include self-employed individuals, those individuals and other consumers’ health and financial security are at risk because they will be allowed to create large-market AHPs without the consumer protections of the small and individual markets. Additionally, the expanded definition of “employer” enables marketing of insurance plans by unlicensed, entrepreneurial “associations.
- The Plaintiff States claim the final rule is arbitrary, capricious, and exceeds the DOL’s authority by disregarding the past fraud and abuse by AHPs that destabilized individual and small group markets. Both the timing and eventual outcome for this case are uncertain.
Other states’ responses to the final rule vary. Some states are enacting legislation consistent with the final rule, while others are legislating for consumer protections similar to those in the small group and individual markets, requesting respective Insurance Commissioners to provide guidance, or looking to prohibit the final rule’s expansion of AHPs altogether. All of this serves as food for thought for organizations considering forming AHPs under the final rules.
Our earlier article discussing the DOL’s Association Health Plan rules is available here.