States draw sharp limits on association health plans

State insurance regulators have expressed confusion and worry over the Trump administration's new rule expanding association health plans, with some issuing emergency rules and guidances limiting the operation of such plans.

They also are upset that the U.S. Labor Department abruptly discontinued its weekly conference calls with them to discuss how to harmonize the federal AHP rule with state laws after 12 Democratic attorneys general sued the federal government on July 26 to block the rule.

At the National Association of Insurance Commissioners conference in Boston last weekend, a Labor Department representative declined to answer specific questions about states' regulatory authority over AHPs, saying his legal counsel was not present, according to Washington state Insurance Commissioner Mike Kreidler.

On Aug. 2, Pennsylvania Insurance Commissioner Jessica Altman sent a letter to Labor Department Secretary Alex Acosta and HHS Secretary Alex Azar stating that, contrary to the federal rule finalized in June, associations cannot form for the primary purpose of selling health insurance. That favors well-established business associations and is considered an important protection against fraudulent or inexperienced plan sponsors.

The letter, citing existing Pennsylvania law, also stated that association plans must comply with state laws and Affordable Care Act provisions governing individual and small group plans. It also said self-employed individuals must receive all ACA benefits and protections if they join association plans. Both those provisions conflict with key parts of the federal rule, which is intended to make cheaper, leaner, non-ACA compliant coverage available to small employers and self-employed people, similar to coverage available to large employers.

Altman and other state regulators warn that expanding access to association health plans poses a greater threat to the stability of their markets than expanding the availability of short-term plans, another recent Trump administration move. That's because they believe AHPs have the potential to draw far more people out of the Affordable Care Act-regulated market. They also point to the danger of fraud and insolvencies tied to lightly regulated association plans.

Some states have taken action or are considering action to limit or bar short-term plans.

To guard against the risks of association plans, state regulators say AHP sponsors and carriers will have to comply with state and federal requirements on essential benefits, protections for people with pre-existing conditions, out-of-pocket limits, medical loss ratios and other rules. Such requirements would make it difficult or impossible for AHPs to offer premiums lower than ACA plans. Many of the states taking this position are plaintiffs in the lawsuit seeking to block the AHP rule.

But business groups seeking to launch AHPs are threatening to legally challenge state moves to restrict AHPs.

On Aug. 1, Michael Pieciak, commissioner of the Vermont Department of Financial Regulation, issued an emergency rule stating that the federal rule does not pre-empt his state's ability to regulate its insurance market and protect consumers against poorly run or fraudulent association plans. The rule said association plans must offer the ACA's essential health benefits and other consumer protections and cannot discriminate against any applicants based on pre-existing medical conditions.

Insurance regulators in California, Massachusetts and New York have also issued bulletins announcing that AHPs will have to comply with existing state and ACA rules.

In the AHP final rule, which President Donald Trump last fall ordered agencies to draft, the Labor Department said that state authority to regulate AHPs is not modified or limited by the rule. It takes effect this year for new fully insured AHPs and in 2019 for new self-insured association plans.

But given the looming sales of AHPs, state regulators want to know as soon as possible what restrictions they can place on the plans. They fear the Trump administration may argue that state regulation is pre-empted by the federal Employee Retirement Income Security Act, which governs self-insured employer health plans.

"I wrote the letter because the new rule has created more questions than answers and there's not currently a venue for regulators to get answers from the Labor Department," Pennsylvania's Altman said in an interview. "I said this is what we're going to do, tell me if we're off-base. Depending on what they say, we'll decide whether to go forward."

Vermont's Pieciak said he issued the emergency rule because he wants to protect the stability of his state's individual and small-group markets. Blue Cross and Blue Shield of Vermont asked for an additional 2.9% premium increase due to the likelihood that association plans will siphon healthier individuals and groups out of the ACA-regulated market.

"We're saying AHPs have to compete on the same level playing field as ACA plans," Pieciak said. "There's the possibility for AHPs to disrupt our ACA market, and we want to mitigate that."

California will not allow any new association plans to form, though the five existing multiple-employer welfare arrangements can sell plans to new employers in the same line of business, according to Janice Rocco, deputy commissioner of the California Department of Insurance.

The Massachusetts Division of Insurance likely will require any association plans to offer all essential benefits required under state law, which are similar to ACA essential benefits. Consumers buying plans without essential benefits would be subject to a tax penalty under the state's requirement that everyone have insurance.

A Labor Department spokeswoman said her agency "has an open line of communication with stakeholders, including state officials, regarding implementation of the rule next month." She said that includes several conference calls with state officials and that those calls would resume with one this week.

But Christopher Condeluci, a Republican healthcare lobbyist who is working with business groups to launch AHPs, said his clients will lobby state insurance departments and state lawmakers in Pennsylvania and elsewhere to allow association plans to move forward. Those business groups include the National Restaurant Association and the National Association of Realtors.

If state regulators stand by rules making it difficult or impossible for AHPs to operate, he warned that his clients will sue, alleging the such rules violate ERISA. Such lawsuits likely would come after resolution of the federal lawsuit filed in Washington by Democratic attorneys general.

"The position those states are taking is ripe for an ERISA pre-emption challenge by private parties," Condeluci said.

The states that so far have issued new rules or policy statements limiting AHPs are Democratic-led states. But insurance regulators in both red and blue states are nervous about an expansion of AHPs given the long history of fraud and insolvencies involving these types of plans.

Mississippi Insurance Commissioner Mike Chaney, a Republican, said he's seeking clarification from the Labor Department about the rules governing AHPs, and that he'll require such plans to receive state licensing.

The Trump administration, however, wants associations to be able to readily sell health plans across state lines to small employers that are in the same general line of business. That prospect particularly alarms state regulators.

The U.S. Government Accountability Office identified 144 "unauthorized or bogus" plans from 2000 to 2002, covering at least 15,000 employers and more than 200,000 policyholders, leaving $252 million in unpaid medical claims. Some were run as pyramid schemes, while others charged too little for premiums and became insolvent.

Citing ERISA, abusive AHP operators often have taken advantage of unclear lines of regulatory authority between the states and the federal government. Patients have had to file for bankruptcy to escape providers' claims for large unpaid bills.

Experts warn that under the new federal rule, small employers and self-employed individuals desperate to find cheaper premiums as ACA marketplace rates rise will be particularly vulnerable to plan operators promising rates that are too good to be true. In addition, the new rule will allow groups to form that lack the close professional bonds of true industry associations.

"The long history of corruption and ineptness has left a strong odor among many regulators who are concerned whether they'll be returning to more of the same" under the new rule," said Jim Quiggle, spokesman for the Coalition Against Insurance Fraud, which includes the Blue Cross and Blue Shield Association, the National Association of Insurance Commissioners and Families USA.

The Washington state insurance commissioner, a Democrat, wants the Labor Department to clarify whether and how he can regulate association plans sold by out-of-state insurance carriers. Kreidler said that in his state association plans are already hurting the individual and small-group markets by using medical underwriting to raise premiums for firms with sicker workers, forcing them to switch to ACA plans and driving up overall rates.

But he doesn't expect the Trump administration to clarify the scope of state regulatory authority until after the November elections.

"I'm not opposed to AHPs," Kreidler said. "I just want them to play by the rules."