Deep Legal Basis Used To Knock Out AHP Rule – Unraveling the Ruling

Deep Legal Basis Used To Knock Out AHP Rule – Unraveling the Ruling

By Alicia J. Haff
Partner, ETC Companies
Alicia@ETCtracking.com

“In enacting the Affordable Care Act, Congress targeted the individual and small group markets to ensure that individuals with pre-existing conditions like cancer or diabetes could purchase or maintain comprehensive coverage.   In those markets, the ACA curtailed discrimination in premiums based on nearly all factors, including health, gender, age (limited to a certain narrow band), region, and occupation.  The ACA requires that individual and small group plans cover an ‘essential health benefits package’ that includes ten essential benefits, and so guarantees comprehensive coverage.”[i]

This statement out of the Complaint filed by a group of states and ruled on recently may speak volumes as to why the Court recently struck down the AHP Final Rule which had been released by the U.S. Dept. of Labor on June 21, 2018.[ii]  The Complaint alleges that “[i]n short, a chief ACA purpose was to bar cherry-picking in pricing or benefits in the individual and small group markets.”[iii]


Federal Ruling on AHPs March 28 2019

Q&As from DOL on Federal Ruling


The Court acknowledged that the 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.”[iv] The Court also stated that “[t]he 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.”[v]    In short, the Court stated “[u]nder the Final Rule, AHPs avoid both ACA requirements for essential health benefits as described in the PHS Act (Public Health Services Act) and the employer shared responsibility payment under portions of the ACA codified in the Internal Revenue Code.”[vi]

From the AHP Final Rule released by DOL on June 21, 2018, small employers and individual owners were able to band together and obtain health coverage using the large group rules.[vii]  According to DOL “[t]he AHP rule expanded access to affordable health coverage, especially for employees of small employers and certain self-employed individuals.  The AHP rule has already opened health care options for dozens of associations representing many small businesses and sole proprietors and provided them with access to the same type of affordable health care options offered by large employers.”[viii]

The Complainants disagreed and stated “[t]he rule challenged in this lawsuit is part of this Administration’s broad effort to undermine the ACA.”  Put bluntly, “[t]he Final Rule’s purpose and effect are simple:  to shift, through manipulation of the Employment Retirement Income Security Act (ERISA), a large number or small employers and individuals into the large group market because the ACA’s core protections to not apply to the market…..The results will be adults and children with less coverage and fewer benefits than Congress intended in all three markets (individual, small group, and large group), and destabilized individual and mall group markets with premiums that may be unaffordable for people with pre-existing conditions who need the ACA’s core protections.”[ix]

The Court agreed with the Complainants and struck down the Final Rule, at least in part.  In doing so, the Court stated

“Final Rule does violence to ERISA.  The Final Rule scraps ERISA’s careful statutory scheme and its focus on employee benefit plans arising from employment relationships.  It purports to extend ERISA to cover what are essentially commercial insurance transactions between unrelated parties.  In short, the Final Rule exceeds the statutory authority delegated by Congress in ERISA….[T]he 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.”[x]

Specifically, the Court vacated three critical subsections of the new regulation created by the final rule —subsections (b), (c), and (e) of 29 C.F.R. § 2510.3-5. The court held that:

  • Allowing employers linked only by geography to constitute a single employer is inconsistent with ERISA, since such groups more “closely resemble entrepreneurial, profit-driven commercial insurance,” as opposed to an association acting as an “employer”;
  • Counting sole proprietors as both employers and employees is inconsistent with the text and purpose of ERISA; and
  • The final rule leads to absurd results under the ACA.[xi]

Technically, the case has been remanded to the DOL to determine what, if anything, survives the court’s ruling.  That decision will most likely be appealed. But, practically speaking, the final rule is dead for now. No associations or employers should rely on the Final Rule to form an association health plan.

Coincidentally, on the same day this decision was issued, the DOL published Q&As in which it repeated its position that the AHP Final Rule actually expands access to affordable health coverage, especially for employees of small employers and certain self-employed individuals.  The  Department said that it will continue to fight for sole proprietors and small business to have the freedom to band together to obtain more affordable quality health care coverage.[xii]  However, its plan of action with respect to appealing this decision or otherwise is up in the air for now.

If a person or small employer is currently in such an arrangement currently, the DOL’s position is:

“I get my benefits through an AHP. Does the court decision mean that my health care claims will not be paid? Participants in AHPs affected by the District Court’s decision have a right to benefits as provided by the plan or policy. Plans and health insurance issuers must keep their promises in accordance with the policies and pay valid claims. Your AHP may change its structure or operations going forward. Your AHP’s plan administrator is the best resource for information about changes that the AHP may make in the future. Please contact the plan administrator of your AHP to determine if your plan is affected. The Department will be making additional information available to plan administrators as developments arise and as we continue our consultations with the Department of Justice.”[xiii]

 


[i] Page 3, AHP Complaint

[ii]  83 Fed. Reg. 28, 912 (to be codified at 29 C.F.R. pt. 2510)

[iii] Page 4, AHP Complaint

[iv] 2019 U.S. Dist. Lexis 52725, *6

[v] 2019 U.S. Dist. Lexis 52725, *6

[vi] 2019 U.S. Dist. Lexis 52725, *16

[vii] 83 Fed. Reg. 28, 912 (to be codified at 29 C.F.R. pt. 2510)

[viii] https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/ahp-q-and-a-court-ruling.pdf

[ix] Page 5, AHP Complaint

[x] 2019 U.S. Dist. Lexis 52725, *6-7

[xi] 2019 U.S. Dist. Lexis 52725

[xii] https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/ahp-q-and-a-court-ruling.pdf

[xiii] https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/ahp-q-and-a-court-ruling.pdf

 



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