On March 28, 2019, in New York v. DOL, the U.S. District Court for the District of Columbia invalidated the DOL’s rules relating to association health plans (AHPs). As background, prior to 2018, AHPs (which are considered multiple employer welfare arrangements, or MEWAs, under ERISA) could only be sponsored by employer groups or associations whose members shared a “commonality of interest” that was unrelated to benefits. That meant employers within the association had to be in the same trade, industry, or profession and could not just be in the same geographic location. The DOL’s rules also prohibited AHPs from forming solely for the purpose of providing benefits; AHPs had to show that their association was primarily for business purposes, with benefits being an afterthought.
In 2018, pursuant to a White House executive order, the DOL published new rules (in proposed form in January 2018 and in finalized form in June 2018) that allow AHPs to include employers without a commonality of interest if they are located in the same state or metropolitan area (for example, DC/MD/VA or NY/NJ/CT). Further, AHPs can now form for the primary purpose of providing benefits (something that was prohibited before 2018), as long as they can show a “substantial business purpose,” which includes fairly minimal proof — anything from setting business standards and practices to publishing a newsletter. Importantly, the 2018 rules also allow an AHP to cover non-employees (sole proprietors, independent contractors, partners, and other businesses without any employees). The 2018 rules have staggered applicability dates — they applied to fully insured AHPs on September 1, 2018, existing self-insured AHPs on January 1, 2019, and newly-formed self-insured AHPs on April 1, 2019. Finally, the 2018 rules did not address state enforcement of MEWAs; ERISA generally allows (and the 2018 rules explicitly allow) states to enforce their own rules with regard to MEWAs. Many states have a particular interest in regulating self-insured MEWAs as a way to protect against consumer fraud and misrepresentation regarding the MEWAs’ ability to pay benefits.
Following the finalization of the 2018 rules, a coalition of state attorneys general (AGs) — led by New York and Massachusetts — filed a lawsuit challenging the 2018 rules, stating that the DOL violated the Administrative Procedure Act by overreaching on its regulatory authority. The other states involved include California, Delaware, District of Columbia, Kentucky, Maryland, Massachusetts, New Jersey, New York, Oregon, Pennsylvania, Virginia, and Washington. The AGs’ lawsuit claimed that the DOL’s new interpretation of “employer” was inconsistent with the purpose and language of ERISA, and that the 2018 rules allowed businesses (some without employees) to form AHPs and avoid the ACA’s consumer protections (those that apply to individual and small group plans). Self-insured AHPs could also avoid certain state insurance laws, including benefit and other mandates meant to protect the residents of that particular state. Finally, the AGs’ lawsuit claimed that the 2018 rules increased the risk for consumer fraud and harm and jeopardized states’ ability to add stronger consumer protections and protect against consumer fraud and harm.
The court agreed with the state AGs. After concluding that the states had standing, the court concluded that the DOL did not reasonably interpret ERISA and that the primary provisions of the 2018 rules must be invalidated. Those primary provisions are the expanded definition of “commonality of interest” and the inclusion of working owners. Specifically, the court stated that the commonality of interest expansion in the 2018 rules failed to meaningfully limit the types of associations that could qualify as sponsors of an ERISA plan. The judge concluded that the 2018 rules establish “such a low bar that virtually no association could fail to meet it.” In addition, because ERISA is meant to regulate benefit plans that arise from employment relationships, the inclusion of working owners impermissibly expanded ERISA’s regulation to plans outside of such employment relationships. The judge concluded that the outcome would be “absurd,” since it ignores ERISA’s definitions and structure, case law, and ERISA’s 40-year history of excluding employers without employees.
In the opinion, the court invalidated the major provisions of the AHP rule and remanded the rule back to the DOL to determine if any remaining portions of the rules (relating to nondiscrimination and organizational structure) are severable. On that, the court noted its opinion that the remaining portions, were “collateral” to the more major portions which it held invalid. Additionally, in his order, the judge did not issue a stay. That leaves the DOL with a few options. First, the DOL could seek a stay (meaning the decision would not go into effect) and appeal the decision, sending the case to the Court of Appeals for the D.C. Circuit. Second, the DOL could try and find a way to re-craft the rule in a way that meets the district court ruling. Third, the DOL could rescind the rule altogether.
The ruling leaves associations and AHPs in a difficult spot. The ruling prevents the formation of self-insured AHPs under the 2018 rules – those rules would’ve gone into effect on April 1, 2019 – that effective date is clearly after the decision, and prevents the formation of other AHPs that rely on the 2018 rules. The ruling’s impact is much trickier to discern for those AHPs that have already formed pursuant to the new rule. The status of the AHP as an ERISA plan could be in jeopardy, meaning the AHP would have to comply with the ACA’s individual and small group protections, and any working owners (sole proprietors, etc.) would have to exit the AHP (they could potentially qualify for a special enrollment in the exchange). Some of that impact, however, depends on the next steps in the lawsuit. Since the decision could potentially be placed on hold pending an appeal, AHPs that have formed under the 2018 rules could wait and see what happens before making any decisions on the future. However, they should likely consult with legal counsel to determine their next steps.
One thing is for certain, though: AHPs formed under the old AHP rules (those that have a commonality of interest, exclude sole proprietors, and exercise control over the AHP) are not impacted by the 2018 DOL rules or by the court’s ruling here. So, if an AHP formed under that older ERISA definition, they can continue to operate as they have been. On April 2, 2019, the DOL published an FAQ document in response to the court ruling, wherein the DOL stated that “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.” The DOL also reiterated that its considering its options for appealing the decision, with more to come on that.
NFP Benefits Compliance will continue to monitor the lawsuit and any related developments.
Source: NFP BenefitsPartners