The Magic Bullet?

Since at least the second Bush administration, association health plans (AHPs) have been touted as a magic bullet to combat rising healthcare costs and dwindling coverage options in individual and small-group markets. 

AHPs allow individuals and smaller groups to pool themselves into larger groups to take advantage of the laws of large numbers that tend to drive premiums—and premium volatility—down.

Affordable Care Act passage exacerbated the divide between the individual/small-group markets and the larger-group markets. This was because ACA essential benefit plan mandates and community rating directives do not apply to the larger-group market. Indeed, a significant component of the Trump administration’s executive order to deconstruct the ACA directed the Department of Labor to expand the use of AHPs. It also encourages the sale of health insurance across state lines.

The Labor Department has now issued a proposed rule designed to expand the use of AHPs. This begs the question: mission accomplished?

The DOL Rule

The proposed rule would expand the types of AHPs that qualify under ERISA rules in two fundamental respects. It would eliminate the prior requirement that an association must be created for a purpose other than to offer/maintain an AHP. The proposed rule, however, would still require the AHP to be organized around some “commonality of interest.” Labor provides examples of what would satisfy the more lenient “commonality of interest” test. Employers in the same trade, industry, line of business or profession would qualify, as would employers with principal places of businesses within the same state or metropolitan area (including metropolitan areas like New York and D.C. that cross state lines).

Second—and potentially of more importance—the proposed rule would redefine the relevant terms to allow individuals to participate directly in an AHP without an employer plan sponsor. In both scenarios—AHPs with employer members and those with individual members—the rule would require underwriting at the AHP level. This would allow an AHP comprised of individuals or small businesses to be treated as a “large group” and so the AHP is not itself treated as an insurer.

The proposed rule also would require AHPs to comply with existing Health Insurance Portability and Accountability Act nondiscrimination provisions. It would do this by:

• Requiring AHPs to comply with HIPAA’s nondiscrimination rules governing eligibility for benefits and coverage premiums. This is the mechanism for requiring underwriting at the AHP level. It also bars discriminatory treatment of individual plan participants. It effectively puts AHPs in a position equivalent to other large-group plans, which are also subject to these requirements.
• Barring AHPs from restricting membership based on any health factor (i.e., health status, medical condition, claims experience, medical history, disability, etc.).

MEWA Conundrum

The Labor Department says all AHPs created under this new expanded ERISA AHP authority would likely be subject to the rules governing (the dreaded) Multiple Employer Welfare Arrangements (MEWAs). MEWAs are defined under ERISA to include employee welfare benefit plans or “any other arrangements” that are established for the purpose of providing benefits to the employees or beneficiaries of two or more employers.

Until Congress amended ERISA in 1983, MEWAs enjoyed broad ERISA preemption status. But states clamored for greater oversight when many MEWAs failed to pay claims. They had managed to avoid state reserve and contribution requirements, which apply to insurers. Today, states can regulate MEWAs. Under a fully insured MEWA, all benefits must be guaranteed by an insurance contract with a qualified insurer.

State authority over MEWAs undercuts the potential for AHPs to serve as vehicles for insurance sales across state lines. States already are blocking such moves by, among other approaches, making it impossible for self-insured MEWAs to get licensed in the state, imposing physical presence requirements on MEWAs and putting heightened reserve requirements on MEWAs.

Labor’s proposal may make it marginally easier for some AHPs to be considered a single, large ERISA-covered group plan. But ultimately, because of the statutory structure for MEWAs, it is not clear how, without concerted voluntary action or inaction by the states, the Labor Department can meaningfully ease AHP administrative burdens and regulatory variation across state lines.

It is also unclear how, without wholesale statutory changes, AHPs can be the magic reform bullet the administration and others continue to hope they will be.