Court Blocks AHP Expansion

April 3, 2019

On March 28, U.S. District Judge John Bates of D.C., an appointee of former President George W. Bush, blocked the Trump Administration’s expansion of Association Health Plans (AHPs) which it considers to be a more affordable alternatives to ACA plans sold on HealthCare.gov and state marketplaces.

The administration made a push for these plans after Congress failed to repeal and replace ACA in 2017. Last June, the Department of Labor (DOL) finalized regulations to expand the opportunity to offer employment-based health insurance to small businesses through small business health plans, also known as AHPs, but they don’t have to follow all of the ACA’s coverage requirements for areas such as maternity care and prescription drugs.

According to DOL, the regulations were designed to give small employers a greater ability to join together and gain many of the advantages enjoyed by large employers in the provision of health insurance to employees. However, the new court ruling, responding to lawsuits filed by 11 states-led by New York and Massachusetts and the District of Columbia, has determined that the DOL overstepped its authority in crafting the new regulations. 

The states alleged that the DOL’s interpretation of the definition of “employer” in the AHP regulations stretches the definition of “employer” beyond what the Employee Retirement Income Security Act’s (ERISA)’s text and purpose will bear. And, the U.S. District Court for the District of Columbia has agreed.

Judge Bates notes in his opinion that because the ACA defines terms key to its implementation—including “employer” and “employee”—according to the definition of these terms in ERISA, the DOL’s final rule expands AHPs in a way that allows small businesses and some individuals to avoid the health care market requirements imposed by the ACA. “The final rule is clearly an end-run around the ACA. Indeed, as the President directed, and the Secretary of Labor confirmed, the final rule was designed to expand access to AHPs in order to avoid the most stringent requirements of the ACA,” Bates wrote.

Judge Bates determined that the DOL’s final rule exceeds the statutory authority delegated by Congress in ERISA. He concluded that the final rule’s provisions defining “employer” to include associations of disparate employers and expanding membership in these associations to include working owners without employees are unlawful and must be set aside.

“We disagree with the district court’s ruling and are considering all available options,” said DOJ spokeswoman Kelly Laco. “The Administration will continue to fight for sole proprietors and small businesses so that they can have the freedom to band together to obtain more affordable, quality healthcare coverage.”

During the comment period in March 2018, NSBA submitted comments on the proposed AHP rule. In the comment letter, NSBA emphasizes that the necessary level of cost relief can only be achieved through a broad reform of the current health care system with a goal of reducing the cost of coverage, providing universal access, focusing on individual responsibility and empowerment, creating of the right market-based incentives, and a relentless focus on improving quality while driving out unnecessary, wasteful and harmful costs.

NSBA’s comments had a twin purpose. First, NSBA intended to make suggestions that help to ensure that AHPs can meaningfully live up to their purpose, providing greater choice and access to smaller companies and their employees by driving down costs and creating more competitive choice. Second, NSBA’s comments were directed at ensuring that the millions of smaller companies not purchasing coverage through an AHP do not see their insurance costs further escalate as a result of selection issues that create price disparities based on health status rather the reduction of actual health care costs. This potential for “cherry-picking” has been the central conundrum throughout the long AHP debate, and it is crucial that these rules address this issue as fully as possible.

Further, NSBA believes that proposals to create AHPs should focus on their potential to reduce regulatory burdens and increase choice, but avoid creating scenarios where the AHPs are merely given tools to manage (and reduce) their risk. Shifting risk is a zero-sum game where one company wins because another loses. However, lifting unnecessary and burdensome regulations, inducing competition around real health care costs and creating greater transparency and access through competition can create a virtuous cycle where the entire small employer market can benefit.