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Update on Association Health Plans Recent Court Ruling

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Posted: May 9, 2019 by Paul Roberts

Below are updates at the federal and state level concerning the recent court ruling on Association Health Plans (AHPs).

Federal Update

In June 2018, the Department of Labor (DOL) issued new rules expanding the availability of Association Health Plans (AHPs) due to a broadened definition of those eligible to participate in employer-sponsored AHPs.

Eleven states and the District of Columbia (D.C.) sued the DOL in an effort to put a stop to AHP expansion out of concern AHPs would draw younger and healthier individuals away from the state and federal exchanges/marketplaces, resulting in higher premiums.

On March 28, 2019, U.S. District Judge John Bates decided in favor of the 11 states and D.C. He ruled large portions of the AHP rules expanded in June 2018 are invalid, stating they amount to an “end-run around the Affordable Care Act.” On the same date, the U.S. Department of Justice filed a notice of appeal. Here’s an overview:

  • Issued in response to this court decision, the U.S. Department of Labor Statement stipulates the policy reflected in the statement will remain in effect for existing AHPs until the end of the AHP’s current plan year or, if later, the contract term.
  • The DOL indicates it will work with affected parties (that proceeded in good faith in accordance with the expanded AHP regulations issued in June 2018), the Department of Health & Human Services (HHS), and the states “…to mitigate any disruptions or hardships that result from confusion regarding the AHP rule and legal compliance requirements.”
  • During this interim period (while the legal action on the appeal takes its course), the DOL will not pursue enforcement action stemming from the recent court decision as long as the parties involved in the AHP meet their responsibilities to the AHP members and pay health benefit claims.
  • HHS has advised the DOL it “…will not pursue enforcement against nonfederal governmental plans or health insurers for potential violations of Title XXVII of the Public Health & Safety (PHS) Act caused by actions taken before the district court’s decision in good faith reliance on the rule’s validity, through the remainder of the applicable plan year or contract term that was in force at the time of the district court’s decision.”
  • HHS also advised the DOL it will not consider states that adopt a similar approach as not enforcing Title XXVII of the PHS.

California Update

California was one of the 11 states that sued the DOL over the expanded AHP regulations.

On 9/22/2018, SB 1375 became California state law. SB 1375 addresses a key objection by the 11 states and D.C. suing to block the expanded AHP definition of “employers.” SB 1375 prohibits sole proprietors and their spouses or partners of a partnership and their spouses from participation in AHPs. Consequently, even if the federal government appeals the recent court decision and receives a judgment in its favor, state law will not change.

  • California law requires fully insured AHPs be subject to state-mandated benefit laws and fiscal standards.
  • Current California law prohibits creation of new self-funded Multiple Employer Welfare Arrangements (MEWAs), a term under ERISA, and an AHP is a MEWA.
  • California law sets certain criteria for associations that must be met before a group health policy can be issued to an association. Please reference CA Insurance Code 742.20 – 742.43 for more information on criteria set by California law.
  • According to the California Department of Insurance website, there are only five MEWAs in California that have been assigned California company codes.

Nevada Update

Nevada was not one of the 11 states suing the DOL over the expanded AHP regulations. 

Nevada has been the state with the most favorable position on AHPs. 

The Nevada Division of Insurance website lists 10 AHPs effective in 2018 and, to date, three new AHPs are listed as effective in 2019.  (The new plans include Carson Valley Chamber of Commerce – eff 5/1/2019, Carson City Chamber of Commerce – effective 5/1/2019, and KG Enterprise, Inc. dba BNI Northern Nevada Health Plan – eff 4/1/2019.) 

Because Nevada has 13 new AHPs since the expanded AHP regulations were issued in June 2018, the recent
DOL Statement indicating the following is of great significance:

  • The policy reflected in this Statement will remain in effect for existing AHPs until the end of the current plan year or, if later, the contract term.
  • Depending on the outcome of the federal appeal, AHPs formed under the new expanded rules in June 2018 may need to make changes in the next plan year. 

We will continue to monitor this closely and provide timely updates.

Questions?

As always, if you have any questions, do not hesitate to contact your Word & Brown representative or the Compliance team.


More about the author:

Paul Roberts is our Compliance Manager, leading the General Agency’s dual-state Compliance team. Paul is a tenured veteran in our industry, carrying a long history of health insurance experience with an education in business management. He has worked nearly every operational role at the Word & Brown General Agency and plays a key role in keeping our brokers in-line with health insurance compliance. Paul can frequently be found at industry events across California and Nevada delivering CE courses, staying educated, and working directly with brokers. This gives him the best ability to innovate and improve Compliance resources to support the businesses and abilities of our brokers. Paul is passionately dedicated to education, diversity, and helping others. He is grateful for his opportunity to support brokers and employers and is committed to your success. Please connect with Paul on Linkedin!

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