A federal judge in Washington, D.C., ruled last Thursday that the current administration’s attempt to broaden the types of health plans that can avoid the coverage rules under Title I of ERISA generally, and specifically for purposes of the Affordable Care Act (“ACA”) was “clearly an end-run” around the statutes. The court struck down and remanded the implementing regulations to the Department of Labor (“DOL”) for reconsideration.
In 2017, President Trump issued an Executive Order directing the Department to expand access to Association Health Plans (“AHPs”). Under ERISA section 3(5), an AHP is a single plan sponsored by a bona fide employer group or association, a type of Multiple Employer Welfare Arrangement (“MEWA”) that can be treated as a single plan for ERISA coverage purposes. For ACA purposes, it was most often treated as a series of single plans being administered together, with the ACA requirements being determined on an employer-by-employer basis, with small employers in the association being given the small group protections.
The DOL issued final regulations expanding access to AHPs on June 21, 2018, with an effective date of August 20, 2018 (“Final Regulations”). Among other things, the Final Regulations redefined the term “Employer” in ERISA section 3(5) and expanded the rules as to who can participate in a group or association acting as a “single employer” sponsor of an AHP. This change permitted single association plan to include, for the first time, self-employed individuals, and permitted an AHP to be rated as one single large group for ACA purposes.
Under both current law and the Final Regulations, AHPs are both subject to ERISA and governed as MEWAs by State law. Almost immediately after the Final Regulations were issued, the Attorneys General of 11 states and D.C. filed a law suit challenging the legality of the Final Regulations.
In response, the federal judge’s decision concluded that the Final Rules are unreasonable interpretations of ERISA, exceeding the Department’s statutory authority by broadening the definition of a bona fide association to include self-employed “working owners,” and for ACA purposes, by expanding the definition of large group, eliminating the protections for small employers and self-employed individuals.
To be reasonable under ERISA’s current statutory provisions, a bona fide association must be acting in the interest of their employer members. The three criteria set forth in the Final Rules for a bona fide association (purpose, commonality of interest and control) are the same as ERISA’s current statutory criteria, but the Final Rules differ from prior regulatory guidance regarding the measurement of those criteria. The court found that the purpose test fails to set meaningful limits on the character and activities of the association, and, most importantly, the court found that a commonality of interest cannot be ensured by the Final Rule requirement of a common geographic location absent other shared interests.
In addition, the court concluded that the Final Rules dismantle ERISA’s governance of employer-sponsored benefit plans by making the definition of employer so broad it is illogical. As written, the Final Rule would treat self-employed individuals who are working business owners as both employer and employee. Thus, the Final Rule would allow an association of these working owners with no employees to have a single ERISA-covered group health plan – a relationship that previously would have fallen outside the definition of an ERISA-covered plan.
Consequently, those existing AHPs that were attempting to take advantage of the Final Rule and those new AHPs being formed for working owners and previously unrelated employers should take heed and possibly slow the organization process in anticipation of the legal challenges ahead for the Final Rules.