State AGs File Suit over AHPs

August 8, 2018

A dozen state attorneys general are suing the Department of Labor (DOL) over the expansion of association health plan (AHPs). In the suit, which was filed in the DC District Court of Appeals, the officials argue that broad availability of AHPs violates the consumer and state protections included in the Affordable Care Act (ACA).

On June 19, the DOL published a final rule that many believe will make it easier for small businesses to band together to buy health insurance without some of the regulatory requirements that individual states and the ACA impose on smaller employers.

The DOL said the final rule, titled Definition of “Employer” under Section 3(5) of ERISA–Association Health Plans, will help small businesses afford better coverage for their employees. Essentially, the final rule modifies the definition of “employer” under the Employee Retirement Income Security Act (ERISA) regarding entities—such as associations—that could sponsor group health coverage. An association can be formed for the sole purpose of offering an AHP to its members.

The broader interpretation of ERISA will let employers anywhere in the country that can pass a “commonality of interest” test join together to offer health care coverage to their employees. Sole proprietors will be able to join small business health plans to provide coverage for themselves as well as their spouses and children. An association could show a commonality of interest among its members on the basis of geography or industry, if the members are either:

  • In the same trade, industry or profession throughout the U.S.
  • In the same principal place of business within the same state or a common metropolitan area, even if the metro area extends across state lines.

According to the suit, the ACA enforces the coverage of essential health benefits, a single risk pool, and anti-discrimination protections for members with pre-existing conditions. The AG’s argue that AHPs are not required to provide these protections and can discriminate against certain high-risk enrollees. Further, they claim the ACA also provides protections to help individuals and small businesses provide competitive health plan options. Yet, AHPs could use discriminatory practices against small businesses and individuals to contain costs and spending, the AGs argued.

“Congress also enacted additional reforms specific to the individual and small group market, based on the fact that health insurance markets for individuals and small businesses were much more prone to abuse, including discrimination in pricing and benefits,” the AGs explained. “Because of those abuses, prior to the ACA’s enactment, far fewer small employers offered health insurance to their employees, and individuals faced substantial discrimination in (or were effectively priced out of) the insurance market.”

The attorneys general also argue that President Donald Trump’s executive order to expand AHP sales and the DOL’s final rule are politically motivated attempts to dismantle the ACA. The AGs said that neither the President nor the DOL provided enough detail about how AHPs would be regulated or monitored. The lack of oversight indicates that AHP expansion is part of a larger effort to weaken current ACA provisions and consumer protections, the AGs argued. The attorneys general cited public stakeholder comments that warned about the consumer implications of both policies.

The final rule could also impact how states regulate their insurance markets, and possibly increase some states’ premiums, the AGs warned. AHPs could create revenue losses for states that rely on taxes and administrative fees for individual and small group ACA health plans. Many state and local health plans also rely on premium subsidies to help offset beneficiary costs. The AGs argue that if more individuals move to an AHP, then ACA health plans will earn less premium assistance.

The AGs believe that many sick and vulnerable beneficiaries that are barred from AHP enrollment will be unable to afford more expensive health plan options. “An employee with a chronic condition, or high health needs, not covered by his/her AHP would now have no reasonable way to access the coverage they need,” the AGs said.

“The employee’s options would be: purchase a plan in the marketplace without financial assistance, an unaffordable option if the employee had income low enough to qualify for a tax credit in the first place; enroll in the AHP even if the AHP does not cover services she relies on, such as maternity care, mental health care, or prescription drugs, or remain uninsured.”

The AGs are seeking a court ruling declaring the DOL’s final rule to be arbitrary and contrary to current federal laws. The AGs are hoping that the federal court strikes down the rule before it goes into effect this month.