This is the third article in our series on Association Health Plans (AHP). This week’s discussion focuses on the mixed reaction to the recent Department of Labor (DOL) AHP.

In the health benefits market, some state-based associations, such as Wisconsin’s largest business association, have announced their intent to create an AHP. On the other hand, the National Federation of Independent Business (NFIB), a long-time advocate of AHPs, is declining to establish an AHP because the rule falls short of what the NFIB felt was needed to establish an AHP, according to reports.  

Then there are the state insurance regulators, some of whom have a history of concern about consumer protections for AHPs. More pointedly, some state regulators say they are uncertain about where their responsibilities begin and end with respect to AHPs.

Finally, there is the pending action in the courts. Attorneys general from 11 states and the District of Columbia filed a lawsuit against the DOL and Secretary Alexander Acosta, claiming the rule is unlawful and places consumers at risk of fraud and harm. The AGs assert the DOL rule conflicts with provisions of the Affordable Care Act (ACA) and Congress’ historical treatment of small employers and health insurance.  All 12 attorneys general bringing the action are Democrats.

Nevertheless, the mixed business reaction, uncertainty over state regulation and the pending legal action has hardly dampened the enthusiasm for AHPs.

The new AHP rule was directed at small businesses, as well as self-employed individuals, whose access to health care coverage is generally limited by more extensive health insurance regulation than large group coverage. DOL issued the rule to provide greater flexibility for more small employers to band together to obtain health benefits and gain economic and regulatory advantages enjoyed by large employers—namely, financial leverage in negotiating with providers, and freedom from coverage requirements such as providing essential health benefits.

While supporters call the DOL rule “an important new tool” for containing health care costs, the 12 attorneys general argue, among other things, that the final rule could leave small employers and individuals more vulnerable to fraud and abuse.

Recognizing the potential risk to employers and consumers who would participate in AHPs, several states’ insurance regulators recently issued insurer bulletins to affirm existing state regulations and ACA requirements, such as providing essential health benefits.  The DOL rule does not change the applicability of state law with respect to regulation of multiple employer welfare arrangements.

Thus, some states are looking to use their existing regulatory frameworks, or are taking new action, to restrict new AHP activity and avoid disruption in the market.

For example, Pennsylvania’s Insurance Department explained in an August 2, 2018 letter to Trump Administration officials the conditions under which an association may provide health coverage for its members. Among the requirements: the association must have existed for at least two years and for purposes other than obtaining health insurance. Further, the coverage offered by the association must be fully insured by a licensed entity with a certificate of authority to engage in the business of health insurance in Pennsylvania. Pennsylvania is one of the 12 states suing the Trump Administration over AHPs. Other states, like Nebraska and North Dakota, are welcoming AHPs.

Whether new AHPs become a significant part of the health benefits landscape will ultimately be determined by the marketplace, and by the small employer market’s appetite for this kind of a product.

Interestingly, because of the increased attention to AHPs, some AHPs are forming under the old AHP rules. Although the new DOL rule makes it easier for small employers to band together, there are drawbacks (see our prior articles). It is more difficult to create an AHP under the old rules. However, if one can be created, there are less onerous requirements. This had led to some AHPs to reassess whether they would be eligible under the old rules.

Husch Blackwell attorneys have already been advising employers, associations, health insurance brokers/consultants, and insurance companies with respect to the new rule. In particular, we have been analyzing association governance structure, the health plan documentation required under ERISA, nondiscrimination issues, insurance policies and existing association structures to determine whether it is advantageous to be subject to the old or new rules.