What are association health plans?
Association health plans (AHP) are group health insurance plans sold through a business or trade association to its employer members. These plans have been in the news recently because, at the direction of the Trump administration, the Department of Labor (DOL) issued a rule that made these types of plans more accessible. The new DOL rule allows greater access to these plans by lowering the threshold for classification as an “employer” under the federal Employee Retirement Income Security Act (ERISA), which regulates employer benefit plans.
The rule would allow small businesses and sole proprietors in the same industry or geographic area to purchase health insurance in the large group market instead of separately in the small group and individual markets. The latter can be much more expensive for small businesses. Granting access to large group plans for small businesses and sole proprietors offers benefits to enrollees because they can use their size to negotiate more affordable premiums and reduce administrative costs for plans that better fit their needs.
Judge Bates’ ruling
After the finalization of the new rule, 11 states and the District of Columbia challenged the legality of the plans. In State of New York v. United States Department of Labor, D.C. District Court Judge ruled the DOL finalized an unlawful interpretation of ERISA language which allowed expanded access to AHPs:
The rule’s interpretation of “employer” to include working owners and groups without a true commonality of interest was unreasonable and, as Judge Bates put it, “clearly an end-run around the [Affordable Care Act].” The court set aside these parts of the regulation and remanded the rule to the DOL to determine how the rule’s severability provision affects the remaining provisions. From here, the DOL could opt to rescind the rule altogether, try to revise it in a way that comports with Judge Bates’ decision or appeal the decision to the Court of Appeals for the D.C. Circuit.
State’s path forward
While the future of AHPs under the new Department of Labor rule is unclear following Judge Bates’ ruling, the DOL issued a statement notifying Americans they will not stop the fight to offer more choices for small businesses and sole proprietors to purchase affordable health coverage. Department officials wrote,
We disagree with the District Court’s ruling and are considering all available options in consultation with the Department of Justice. The Administration will continue to fight for sole proprietors and small businesses so that they can have the freedom to band together to obtain more affordable, quality healthcare coverage.
The ruling comes after many states have amended insurance laws to more closely mirror the federal language. Some states have already begun to market and enroll individuals in these plans.
On behalf of DOL, the Department of Justice recently filed an appeal of Judge Bates’ ruling in the case. The DOL issued a new statement notifying interested parties who currently use an AHP under the final rule or enrollees of the plans, that the DOL will not enforce any action against parties for potential violations and will assist anyone using plans as the case makes its way through appeal.
Given the benefits these plans offer, and the untimely court ruling, Congress has initiated the process of codifying these plans into federal law. On the Senate side, Senator Enzi (R-WY), along with 24 co-sponsors, recently introduced the Association Health Plans Act of 2019 (S. 1170). On the House side, an identical bill (H.R. 2294) was also recently introduced by Rep. Walberg (R-MI) with two other sponsors including North Carolina’s Virginia Foxx. These bills advance association health plans legislatively, instead of by executive order, and would codify the new and updated rules in ERISA that were directed by the Trump Administration.
The North Carolina General Assembly has recognized the relief that AHPs could offer small businesses and sole proprietors in North Carolina that either do not have health insurance or struggle to afford the coverage they have currently. Both the House and the Senate have a version of a bill that would expand access to AHPs. As of this writing, the Senate has passed Senate Bill 86 and the House version, House Bill 464 is making its ways through committee. Although both bills seek to open up access to AHPs based on the DOL’s final rule, they differ on the restrictions on who may offer plans.
The Senate bill would allow businesses with fewer than 51 employees, including self-employed owners and sole proprietors, to join AHPs. Businesses from different industries and the tri-state area could band together to form an AHP. The bill would require associations who want to sell health insurance to be in existence for at least two years. The House bill is similar in many regards but is slightly more restrictive than the Senate version. Among other requirements, it would not allow sales outside of state boundaries, and the sponsoring association would have to be in existence for at least five years. Both bills have anti-discrimination provisions for those with pre-existing conditions as well as other consumer protections.
Indeed, there is quite a bit of legal and political uncertainty that may concern lawmakers. On one front, the appeals process is playing out in the federal courts. On another front, there is Congressional action seeking to codify the expanded use of association health plans into law. However, North Carolina lawmakers should continue their efforts to reform the insurance codes to allow for greater access to association health plans.
Legal roadblocks should not slow down North Carolina’s effort to debate options that would provide employers with additional choices to purchase health insurance for their employees. Given such gridlock at the federal level, states need to take advantage of every opportunity to increase freedom through access to affordable health insurance products that better represent their health needs.