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Association Health Plans … Someday … Maybe

The October 12, 2017 “Executive Order Promoting Healthcare Choice and Competition Across the United States” gets things rolling, but this ball will have to roll up hill for months before it can roll downhill.  Here’s why.

The meat of this matter is in § 2 of the Order:

Sec. 2. Expanded Access to Association Health Plans. Within 60 days of the date of this order, the Secretary of Labor shall consider proposing regulations or revising guidance, consistent with law, to expand access to health coverage by allowing more employers to form AHPs. To the extent permitted by law and supported by sound policy, the Secretary should consider expanding the conditions that satisfy the commonality‑of-interest requirements under current Department of Labor advisory opinions interpreting the definition of an “employer” under section 3(5) of the Employee Retirement Income Security Act of 1974. The Secretary of Labor should also consider ways to promote AHP formation on the basis of common geography or industry.

The referenced ERISA provision (29 U.S.C. § 1002(5)) says that “’employer’ means any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan; and includes a group or association of employers acting for an employer in such capacity.”

Historically, DOL has taken the view that a controlled group of corporations may have a group health plan that’s regulated in the same way as a plan sponsored by a single business entity, but that plans sponsored by multiple employers (and self-employed individuals) not commonly controlled must comply with relatively stringent and punitive rules for “multiple employer welfare arrangements.”  So-called “MEWA’s” are subject to both ERISA and to state health care insurance regulations, even if they are self-insured by the sponsoring employer group, unless the participating employers are contributing to the plan under contracts with a labor union.  Union-created multi-employer plans are favored in ERISA and in DOL rules.  See 29 CFR § 2510.3-40 and § 2570.151.

Here is an unofficial DOL summary of the dilemma.

[…]  [T]he Department has taken the position that a bona fide group or association of employers would constitute an “employer” within the meaning of ERISA Section 3(5) for purposes of having established or maintained an employee benefit plan. (See: page 8).

However, unlike the specified treatment of a control group of employers as a single employer, there is no indication in Section 3(40), or the legislative history accompanying the MEWA provisions, that Congress intended that such groups or associations be treated as “single employers” for purposes of determining the status of such arrangements as a MEWA. Moreover, while a bona fide group or association of employers may constitute an “employer” within the meaning of ERISA Section 3(5), the individuals typically covered by the group or association sponsored plan are not “employed” by the group or association and, therefore, are not “employees” of the group or association. Rather, the covered individuals are “employees” of the employer-members of the group or association. Accordingly, to the extent that a plan sponsored by a group or association of employers provides benefits to the employees of two or more employer-members (and such employer-members are not part of a control group of employers), the plan would constitute a MEWA within the meaning of Section 3(40).

Multiple Employer Welfare Arrangements under the Employee Retirement Income Security Act (EISA): A Guide to Federal and State Regulation,” p. 22 (U.S. Department of Labor, Employee Benefits Security Administration, Rev. August 2013).

State-by-state MEWA regulation makes operation across state lines quite difficult.  That’s the main problem that we think the President has told DOL to fix.  Our guess is based partly on statements made by Senator Rand Paul (R-KY), the prime mover in this situation.  His October 12, 2017 article published by Breitbart began: “President Trump will today legalize and allow individuals to form Health Associations and purchase insurance across state lines.”  But “today,” “legalize” and “allow” may be premature.

This disruptive executive action will draw heavy, sustained fire.  Opponents may argue that current DOL opinion is the only reasonable reading of ERISA’s relevant provisions, and that any change requires ERISA amendment by Congress.  They may say that enough of the current policy is found in formal rules so that the problem can be fixed only through formal rule-making, subject to judicial review after completion (in 2019, maybe). They will search for and play-up adverse collateral consequences of the policy change contemplated by the Executive Order.  A wise DOL Secretary won’t rush into this dark alley and it’s not clear who would bear the expense and take the risk of Association Health Plan roll-out before all such legal disputes are resolved.  Penalties for flagrant violations of MEWA rules can include jail time.

We’ll be watching this, but we won’t be holding our breath.