Association health plans spark tussle between state regulators, business groups

Some business associations and insurers are plunging ahead in launching a cheaper type of health plan newly permitted by the Trump administration, while others are holding back due to big regulatory and legal uncertainties about the future of these products.

Since the U.S. Labor Department issued a final rule in June allowing small employers and self-employers to band together across state lines and form association health plans, or AHPs, there have been intensive discussions between business groups, state insurance commissioners and Labor Department officials about how states can regulate these plans.

Pennsylvania Insurance Commissioner Jessica Altman has taken the position that AHPs must comply with state laws and Affordable Care Act provisions governing individual and small group plans. The Labor Department wrote to Altman last month to say the rule "does not modify the states' existing authority to regulate AHPs under state insurance laws."

She and other state insurance regulators fret that the growth of AHPs will destabilize their ACA-regulated individual and small-group markets, leave consumers uncovered for healthcare services they need and lead to a spike in insurance fraud and insolvencies associated with lightly regulated AHPs in the past.

But a coalition of 10 business associations, including the National Federation of Independent Business, argue that federal law does not allow states to bar groups of employers from forming association health plans together.

Association plans are deemed large-group plans exempt from certain types of state regulation under the federal Employee Retirement Income Security Act.

Earlier this month, the Nebraska Farm Bureau and Medica announced they were teaming up to offer a menu of association health plans in 2019 for individual farmers, ranchers and small agriculture-related businesses. The plans will have essentially the same benefits as ACA market plans with premium savings of up to 25%, they say. Rates will vary based on age, geographic location and type of business.

"We hear stories every day about how farmers and ranchers are struggling to provide affordable coverage for their families," said Steve Nelson, president of the Nebraska Farm Bureau. "That's what drove us to put this together."

The Nebraska Department of Insurance said other business groups also have applied to start AHPs.

In August, three chambers of commerce in Nevada announced they would offer an association health plan through UnitedHealth Group that will aggregate small firms into one large-group plan, though they initially aren't making it available to sole proprietor businesses.

But other associations say they're taking a wait-and-see stance, citing resistance to the AHP rule from many state insurance commissioners, combined with a federal lawsuit filed in July by 12 Democratic attorneys general to block the rule.

"We wanted to jump on it fast, and then the states sued," said Chris Paulitz, senior vice president of membership and marketing for the Financial Services Institute, an association representing nearly 30,000 self-employed individual financial advisers. "There's too much up in the air from a legal standpoint."

Since the rule was issued, a number of state insurance departments have issued emergency rules and bulletins limiting AHPs or highlighting existing state laws that prohibit key features of plans allowed under the new federal rule.

Several states, including Connecticut, Massachusetts, New York, Oregon and Pennsylvania, have said they will look at the small employers and individuals signing up for AHPs and apply state and ACA rules for small-group and individual coverage to them, essentially nullifying the AHP structure.

In a Sept. 10 bulletin, the Oregon Division of Financial Regulation said it would follow more demanding federal guidelines issued in 2011 for determining bona fide association plans that qualify for an ERISA exemption from state insurance requirements.

Regulators in Connecticut, Maryland, Massachusetts and New York are taking an even harder line. They say their state laws permit no exception for bona fide association plans, meaning that none qualify for an ERISA exemption.

In contrast, the Nebraska Department of Insurance fully recognizes the Trump administration's new AHP rule, including allowing sole proprietors to join association plans. Its officials say they aren't worried about AHPs drawing younger and healthier people out of the Affordable Care Act market and driving up premiums because the new plans likely will attract mostly consumers who already have dropped out of the ACA market due to high premiums.

Laura Arp, the department's life and health administrator, noted that consumer protection provisions in the Affordable Care Act and state law still apply to AHPs, including rules prohibiting annual and lifetime benefit caps and discrimination against people with pre-existing medical conditions.

"So this isn't the wild, wild West," Arp said. "It's large group coverage that's compliant with ACA coverage provisions for large groups."

Stuart Gerson of Epstein Becker Green, who favors giving employers more flexibility on health plan design, said these regulatory clashes are the inevitable result of the Trump administration implementing a major change in this complex and controversial area through administrative action rather than legislation.

"This is a circus with multiple rings and multiple acts," he said, predicting the issue ultimately would have to be settled by the U.S. Supreme Court. "A lot of this would have been avoidable if it had been done by statute."

For now, business groups have formed the Coalition to Protect and Promote Association Health Plans and are talking to state regulators who have been resistant to AHPs. The coalition members are pressing them to recognize legitimate AHPs as large-group plans under the new rule.

If they don't, the business groups may sue states to allow AHPs on the grounds that ERISA pre-empts state rules.

"We want to work constructively with the states," said Christopher Condeluci, a Republican healthcare lobbyist who helped organize the coalition. "But a final rule is the law. At what point can a state not follow the law?"