Association Health Plans: Recent Developments, Key Issues, and...

Association Health Plans: Recent Developments, Key Issues, and Best Practices for ERISA CounselERISA and ACA Contradictions, State Law Challenges, Small vs. Large Group Requirements and Exemptions

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Timothy S. Klimpl, Attorney, Norris McLaughlin, New York

Ryan C. Temme, Attorney, Groom Law Group, Washington, D.C.

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T U E S D A Y , S E P T E M B E R 2 4 , 2 0 1 9

Association Health Plans: Recent Developments, Key Issues, and Best

Practices for ERISA Counsel

Ryan C. Temme Timothy S. Klimpl

Groom Law GroupWashington, DC

[email protected]

Norris McLaughlin, P.A.New York

[email protected]

mailto:[email protected]

mailto:[email protected]

Outline

I. Overview of final DOL rules regarding AHPs

II. Meeting federal requirements

A. Commonality of interest

B. Substantial business purpose

C. ACA mandates and exemptions

III. State of New York, et al. v. DOL

I. DOL Policy Statement following District Court decision

IV. MEWA regulations and other state challenges

V. Best practices for AHPs to ensure compliance with federal and state law

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I. Overview of final DOL rules regarding AHPs

Legal Background

Pre-AHP Rule Associations

Changes Made by the AHP Rule

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Background

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⚫ ERISA applies to “employee benefit plans”

⚫ To have an “employee benefit plan,” you need an “employer” sponsor

⚫ An “employer” is defined in ERISA section 3(5) as “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.”

Background Rules

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Single Employer Plan

Plan MEWA

Other MEWAs

Background Rules

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Plan MEWAs can take several forms. The most common type of “Plan MEWA” is where the plan is sponsored by a bona fide employer association


Plan MEWA

Other MEWAs

Background Rules

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Plan MEWA

Other MEWAs

Whether large group treatment applies depends on whether a “Plan MEWA” and whether sponsored by an association per 2011 CMS guidance

Background Rules

12


Plan MEWA

Other MEWAs

AHPs are MEWAs. Unless the AHP constitutes a bona fide employer association for purposes of ERISA, the carrier must look through for federal law purposes and apply the market reform requirements to the participating entity

2011 CMS Guidance

Implications of Pre-AHP Rule Law

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If eligible for large group plan treatment, then excepted from ACA’s small group market reform requirements, including:

Community rating

Premium rating restrictions of 3:1

Requirement to provide full suite of essential health benefits (“EHBs”)

Implications of Pre-AHP Rule Law

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If subject to look-through treatment, then must apply ACA’s individual or small group market reform rules to each participant based on the participant’s own status as an individual (e.g., in case of sole proprietor with no common law employee) or small group (e.g., in the case of a participating small employer)

Implications of Current Law

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Small Employer Choices

Self-funding with stop-

loss

Off-Exchange

Small Group Insured

Coverage

SHOP Insured

Coverage

Large Group Plan MEWA

(e.g., BFEA) If State Law Permits

Traditional “Look Through” AHP Coverage

President’s Executive Order

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On October 12th, 2017, President Trump issued an executive order, entitled “Promoting Healthcare Choice and Competition Across the United States” (the “Executive Order”).

The Executive Order directed the DOL, within 60 days, to consider proposing rules or revising guidance to permit more employers, including small businesses, to participate in AHPs.

Specifically, the Executive Order directed the Secretary to “consider expanding the conditions that satisfy the commonality-of-interest requirements under current Department of Labor advisory opinions. . . .” It also noted that the DOL should consider ways to promote AHP formation on the basis of common geography or industry.

AHP Rule

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Issued on June 19, 2018

Creates class of AHPs that are entitled to large group plan status at the federal level

Does so by reinterpreting the ERISA section 3(5) definition of “employer” to include a qualifying group or association of employers

Compared to past guidance on what constitutes a “bona fide employer association,” materially RELAXES the rules for purposes of when an association can sponsor the new qualifying AHP and obtain large group treatment

The Final Rule

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Plan MEWA

Other MEWAs

AHP Rule

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Qualifying AHPs

• CAN be offered (i) to employers within a geographically limited area across industries, or (ii) to employers in the same industry without geographic restrictions

• CAN include small or large employers

• CAN include (or even be limited to) sole proprietors, including those without any common law employees. (The Final Rule refers to these individuals as “working owners”)

• CAN be self-funded or fully insured

AHP Rule

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• MUST be sponsored by a qualifying group of employers or associations

• MUST meet organizational requirements

• MUST meet control requirements

• MUST comply with certain nondiscrimination requirements

Qualifying AHPs

AHP Rule

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Qualifying AHPs

If the AHP meets all ofthe rules...

Qualifying AHPs

Implications of AHP Rule

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Qualifying AHPs

If the AHP meets all of the rules... Then it is treated as a large group plan at the federal level

Qualifying AHPs

II. Meeting federal requirements

A. Commonality of interest

B. Substantial business purpose

C. ACA mandates and exemptions

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AHP Rule – The Association

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Q: To whom can an AHP be offered?

A: An AHP can be offered either to –

Employers (including working employers) across industries so long as the AHP is geographically limited (no larger than a state, except for multi-state metropolitan areas)

Employers (including working employers) within a specific industry without geographic limitation

OR


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Q: What type of associations can sponsor a qualifying AHP?

A: The association must be an employer association rather than merely a membership organization (such as a Costco or AARP).

NOTE: The AHP Rule left in place the old DOL guidance on commonality of interest, so there is a separate regulatory track (at the federal level) for bona fide associations.


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Q: What organizational and control requirements apply?

A: The AHP must a formal organizational structure and must be controlled by the association’s or group’s employer members


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Q: What size employers can participate?

A: There is no limit on the size of employers that can participate (large and small employers, and working owners).


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Q: What sole proprietors can participate?

A: Even sole proprietors who lack a common law employee can participate; however to be eligible to participate, the “working owner” must:

Have an ownership right of any nature in the trade or business;

Earning wages or self-employment income from the trade or business; AND

Work at least 20 hours per or at least 80 per month providing personal services to the trade or business.


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Q: What other purpose must the Association have?

A: In the Proposed Rule, DOL had proposed that the offer of health coverage could be the sole purpose of the association. The AHP Rule, as finalized, continues to provide that the primary purpose may be the offer of health coverage, but it does require at least one “substantial business purpose” unrelated to offering and providing health coverage.

Safe Harbor: A “substantial business purpose” is considered to exist if the group or association would be a viable entity in the absence of sponsoring an AHP, including the promotion of common business interests.

AHP Rule – The Coverage

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Q: What nondiscrimination requirements apply?

A: The AHP Rule applies the HIPAA/ACA health nondiscrimination rules at the AHP-level. Specifically:

Membership in the group or association cannot be based on any health factor

The group or association cannot establish eligibility rules that discriminate on the basis of a health factor

The group or association cannot discriminate with regard to premiums based on health factors

Prohibits eligibility distinctions and premium differences between individual employers based on health status (including claims experience, for example)

However, associations can set rates based on bona fide employment-based classifications (such as part-time or full-time), or based on geography or industry type.

Non-Health Factors include age and gender.

HIPAA/ACA Nondiscrimination Rules

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Health factors include health status, medical condition, claims experience, receipt of health care, medical history, genetic information, evidence of insurability, or disability

Prohibits discrimination in rules for eligibility, including rules for enrollment, effective dates, waiting periods, late and special enrollment, eligibility for benefit packages, benefits, continued eligibility and terminating coverage

Prohibits discrimination in premiums or contributions

Permits treating participants as two or more distinct groups of similarly situated individuals if distinction is based on a bona fide employment-based classification consistent with employer's usual business practice Based on facts and circumstances, including whether employer uses

classification for purposes independent of qualification for health coverage (e.g., determining eligibility for other employee benefits or other terms of employment)


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Example of permissible pricing variance:

Example 5. Association J sponsors a group health plan that is available to all members. According to the bylaws, membership is open to any entity whose principal place of business is in State K, which has one metropolitan area, the capitol of State K. Members whose principal place of business is in the capitol city of State K are charged more for their premiums.


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Example of prohibited discrimination:

Example 4. Association G sponsors a group health plan, available to all employers doing business in Town H. Association G charges Business X more for premiums than it charges other businesses because Business X employs several individuals with chronic illnesses.


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AHPs are subject to the following provisions of ERISA: Disclosure: SPD, SMM, and SBC requirements

Reporting: Form M-1 and Form 5500 filing

Claims procedure requirements

Consumer health protections, like MHPAEA, HIPAA, GINA, the ACA, Newborns’ and Mothers’ Health Protection Act, and the Women’s Health and Cancer Rights Act.

Fiduciary Duties, including the prohibition on self-dealing.

DOL did not specify whether COBRA applies at the association or employer level, Future guidance on this point is likely

ACA Rules include: Pre-existing conditions limitations and Maximum Out of Pocket payments.

III. MEWA regulations and other state challenges

State law and the Final Rule

ERISA preemption and state regulation of AHPs/MEWAs

State laws on AHPs/MEWAs

State health coverage mandates

State legal challenge to DOL/Administration

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State regulation: AHP Final Rule

Position of the original executive order re states AHPs can allow employers to form groups across state lines

“lines around the states”

Interstate insurance market

Allow small employers to access large group market

Avoid some rules increasing costs, such as Essential Health Benefits

State policymakers influence the EHBs in their states

Limits discrimination

EO included AHPs alongside STLDI and HRA expansion

Executive Order 13813, October 12, 2017: “Promoting Healthcare Choice and Competition Across the United

States”

36

State regulation: AHP Final Rule

Final Rule targets state regulations

AHPs intended to allow sidestepping of some state regulations

Promote interstate competition

Facilitate purchase of insurance across state lines

Also targets ACA

Limits ACA market reforms by giving access to large group market

Presented with STLDI and HRAs as an answer to ACA

Released in October as repeal-and-replace efforts fizzled

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State regulation: Preemption

State regulation of MEWAs and Preemption:

Fully insured MEWAs are subject to only financial regulation

States regulate MEWAs on reserves, contribution and funding levels by licensing, registration, certification, reporting, examination, audit, etc.

States also regulate the insurers selling policies to MEWAs

Self-insured MEWAs may be regulated by state laws that are not inconsistent with ERISA – broader regulation than fully insured

Preemption works the same before and after the Final Rule

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DOL Final Rule does not modify ERISA §514 preemption

Many commenters wanted preemption to smooth the way for multistate AHPs

Cumbersome, inconsistent, or contradictory state laws

Commenters suggested DOL exemption, coupled with consumer protections

DOL repeatedly says preemption changes are beyond the scope of the Final Rule; Final Rule leaves ERISA §514 unchanged for AHPs

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DOL: states may “go too far” regulating self-insured AHPs If excessive state regulation interferes with policy goals of Final Rule

DOL suggests existing ERISA §514 might then permit preemption

ERISA §514(b)(6)(B) exemption Allows DOL to issue exemptions from state insurance regulation

May be class exemption or individual exemption

Cannot exempt from laws applied to fully insured MEWAs & AHPs

i.e. reserve and contribution requirements, and enforcement of same

Some tension from DOL, but preemption currently left as is

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Fully insured AHPs & MEWAs State regulation limited to

funding, contribution, and reserve requirements

Less direct regulation by states

Policies from insurers still governed by state law

States can dictate coverage rules through insurers

Self-insured AHPs &

MEWAs More direct state regulation

Except if inconsistent with ERISA

States can directly dictate coverage rules

States can require self-funded AHP to register as insurer

Regulate contribution/reserves

States can entirely prohibit AHP from self-insuring

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Fully insured status

Other than reserve and contribution requirements, and enforcement of same, fully insured AHPs avoid much state regulation

Underlying insurance products regulated by state law

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Fully insured

ERISA §514(b)(6)(D) – DOL must determine that all of the benefits are to be paid under contract or policy with insurer

AHP without such a determination is not a ‘fully insured’ MEWA

Process

There is no formal determination process; prior plans sought DOL advisory opinions to make the determination

Previously little interest in formal determination

Now more important; demand for determinations may rise

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State regulation: State laws

Predating the proposed and final rules on AHPs, states have long regulated MEWAs differently

Some states substantially restrict MEWAs, some encourage

AHP efforts could run into state law stumbling blocks

Laws in some states may change to accept MEWAs

Laws in some states already changed to push MEWAs away from reducing coverage, and more may soon follow

44


Specific state restrictions

State-specific definition of ‘bona fide association’

Requirement that AHP or MEWA be limited to employers of the same industry, trade, or profession; i.e. not just same geographic area

Maximum/minimum level of employees for employers to participate

Minimum time since association was founded

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State prohibitions

Prohibit AHP/MEWA from self-funding coverage

Prohibit AHP/MEWA if sole purpose is health coverage

Prohibit self-employed individuals from AHP/MEWA coverage

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DOL Final Rule on state laws Fully insured AHPs

‘DOL interpretations and federal court rulings generally have upheld such state laws when they have been challenged as preempted’

Final Rule declined to entertain new exemptions from state laws

State laws restricting or prohibiting MEWAs and AHPs are often not preempted under existing precedent; Final Rule does not change that

Final Rule not intended to modify preemption and ERISA §514

DOL willing to consider new exemption if states “go too far”

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Different state approaches

Restrictive states versus non-restrictive states

Law changing over time

Unpredictability of state legislative direction

Without preemption, AHPs vulnerable to law changes

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Administrative/procedural

Current law generally requires filing in each states separately

Discretionary filings may extend time for approval

No existing process to streamline filing requirement

State law in this area likely to change among AHP-friendly states

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State regulation: State Coverage Mandates

Some states pursuing individual mandates

Massachusetts – predates ACA

New Jersey (2019) – specifically contemplates AHP coverage

DC (2019) –specifically contemplates AHP coverage

Vermont (2020)

Others pending or proposed (e.g. CT, MD)

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State regulation: State Coverage Mandates

Defining MEC to exclude certain AHPs/MEWAs

NJ: MEWA coverage without NJ coverage requirements is not MEC

DC: MEWA must have existed before 12/15/2017 or must comply with federal regulations applicable to MEWAs before 12/15/2017

State legislators and authorities trying to restrain AHPs from providing narrower coverage

Essential health benefits

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State regulation: State of New York, et al. v. U.S. DOL

AHP Final Rule invalidated on March 28, 2019 by the U.S. District Court for the District of Columbia

U.S. DOL was sued by – 11 states and DC:

NY, MA, CA, DE, KY, MD, NJ, OR, PA, VA, WA, & DC

States sought rule to be vacated or held inapplicable re ACA market-size

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State regulation: State of New York, et al. v. DOL

March 28, 2019: U.S. District Court concluded that the AHP Final Rule’s bona fide association and working owner provisions are “unreasonable interpretations” of ERISA

Court determined that the Final Rule “was intended and designed to end run the requirements of the ACA, but it does so only by ignoring the language and purpose of both ERISA and the ACA”

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DOL failed to reasonably interpret ERISA

Final Rule’s “bona fide association” standard fails to establish “meaningful limits” on the types of associations that may qualify to sponsor an ERISA plan

“Working owner” provision similarly seeks to extend ERISA’s coverage to plans arising outside of any employment relationship

ERISA contemplates a focus on employment-based arrangements, rather than merely commercial insurance-type arrangements that lack the requisite connection to the employment relationship

State regulation: New York, et al. v. DOL55

Due to severability provision in the AHP Final Rule (by contrast with the ACA), the U.S. District Court remanded the Final Rule to DOL for consideration of how the severability provisions affects the remaining portions of the Final Rule

On April 26, 2019, the U.S. DOJ filed an appeal to the U.S. Court of Appeals for the District of Columbia

Oral argument at the D.C. Court of Appeals is scheduled on November 14, 2019


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April 29, 2019 Policy Statement from DOL in Response to the District Court’s decision

Set forth DOL’s policy towards existing AHPs until their current plan year or contract term expires

DOL will not pursue enforcement actions relating to actions taken in good faith reliance on the Final Rule before District Court’s decision

AHPs must pay health benefit claims as previously promised

No action against existing AHPs that continue to provide benefits to members who enrolled in good faith before the District Court’s order, but only through the remainder of the applicable plan year or contract term

State regulation: New York, et al. v. DOL

Arguments:

Final rule seeks to override ACA market structure

Final rule unlawfully expands definition of employer in ACA & ERISA

Final rule is arbitrary and capricious

State goal is to preserve state authority over insurance market

Arbitrary & capricious (Chevron deference)

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State strategy focuses on ACA, ERISA and administrative law

States: DOL exceeds statutory authority

ERISA & ACA: definition of “employer” to include working owner

ERISA: definition of “bona fide association”

ACA: definition of “employer”

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States argue DOL Final Rule override ACA market structure

States: ACA requires market size counted at individual employer level

States: DOL not authorized to redefine “Large Employer” in ACA

States: Congress did not authorize DOL to weaken market reforms

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States: DOL Final Rule arbitrary & capricious

Substantial departure from precedent; rule is counter to the evidence; relied on factors Congress did not intend; rule relies on inconsistent interpretations

Arguments arguing against Chevron deference

Arguing DOL lacked the authority to interpret

Arguing there was no ambiguity to interpret

And arguing DOL was arbitrary & capricious in the interpretation

60


Employer size

States want employer size to be determined at individual employer level, not association level

Want small employers in the small market; more regulatory power

States argue there is no DOL authority to:

define “large employer” this way

make these changes to insurance market

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States argue that under ACA & ERISA working owners with no other employees are not employers

States argue the Final Rule definition of bona fide association is in violation of ERISA

Rule would allow all employers in 1 state to join the same AHP

States argue Congress intended to incorporate the prior DOL definition of association into ACA

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IV. Best practices for AHPs to ensure compliance with federal and state law

AHP fiduciaries & Title I

DOL investigation

Fully insured MEWA determination

ERISA formalities and procedures

ERISA Part 7

State mandates

State law uncertainty

Cost containment & nondiscrimination

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Best practices

Fiduciary rules apply

ERISA Title I applies

MEWA/AHP funds are plan assets managed by fiduciary

Assets must be placed in a trust; trust is reported on M-1

Name specific fiduciaries with control over plan assets

Trust will need to meet state law requirements

Historical abuses of similar plans may attract financial scrutiny

Both self-insured and fully insured AHPs subject to state regulatory control over reserves, contribution and funding levels

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Best practices

DOL investigation DOL continues to share joint investigative authority with states

Since 1985, there have been 968 DOL civil enforcement MEWA cases: 338 with alleged fiduciary violations; 215 with alleged prohibited

transactions 301 yielded monetary restitution totaling $235M in civil penalties

317 criminal MEWA cases 118 convictions/guilty pleas and a total of $173M in court-ordered

restitution

Typical issues: Failure to follow plan terms; reporting and disclosure failures; failure to provide benefits; financial conflicts of interest (prohibited transactions)

Final Rule identifies need to ramp up DOL enforcement efforts

TIP: Prepare AHP to withstand DOL investigation TIP: Review financial arrangements for conflicts of interest (&

PTs)

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Best practices

Fully insured MEWA determination DOL has no formal determination letter process for fully

insured AHPs

Secretary’s determination necessary to be fully insured MEWA/AHP

Old system was to issue advisory opinions as requested

New systems have been discussed, none yet implemented

Many observers expect looming backlog of advisory opinion requests

Through 2016: Nearly 3/4 of reporting MEWAs fully insured

TIP: Get moving fast on opinion request for fully insured AHP

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Best practices

ERISA applies typical plan rules Plan document

SPDs, SBCs, Notices

Form M-1 reporting – MEWAs, including AHPs (administrator files)

Form 5500 reporting – all M-1 filers must file 5500

Claims, appeals, procedures

Each employer member needs to adopt its own IRC §125 cafeteria plan for employees to purchase AHP coverage on pre-tax basis

TIP: Remember ERISA plan formalities, procedures, reporting

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Best practices

Other coverage and design rules apply through ERISA Part 7

COBRA, MHPAEA, Newborns, WHCRA, etc.

ACA – preexisting, dollar limits (EHBs), age 26, rescission

Coverage requirements

Notice requirements

HIPAA – No discrimination based on health factors

Wellness programs provisions of HIPAA apply

HIPAA privacy & security

TIP: Design cautiously around discrimination issues

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Best practices

Individual and employer health coverage mandates

State individual mandates and ACA employer mandate

AHPs may not satisfy coverage mandates

Either AHPs specifically excluded or coverage must match ACA small market

To satisfy these mandates, may have to offer coverage substantially similar to the pre-Final Rule coverage (e.g. same as if small market)

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Best practices

State law uncertainty

State laws still in flux

Likely to change as a result of the Final Rule

Some states moving to adopt AHPs

Other states moving to restrict AHPs

Court challenge still up in the air

50-state self-insured plans may be difficult at this stage

Procedural hurdles right now in state insurance filings

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Best practices

State coverage requirements Fully insured AHPs indirectly and self-insured AHPs directly

AHP Final Rule allows coverage beyond ACA small market strictures

But state law can replicate those same requirements

State mandates

Mandated treatments, mandatory disease coverage

State individual health coverage mandates

AHP coverage may be insufficient in coverage or specifically targeted in mandate

Crossing state lines

i.e. laws of one state apply to AHP coverage offered into others

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Best practices

Association structure and design Sufficient to qualify under the new Final Rule?

Or preemptively designed to satisfy more restrictive regimes?

Which states?

Regulatory concerns – both burden and predictability of regulations

What employers?

Employer size, industry, location

Effect on plan costs?

Control, governing body, by-laws – control in substance and in form

TIP: Find the non-EBEC purposes of the association and let those purposes influence the design of AHP governance

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Best practices

Cost containment HIPAA nondiscrimination – may not discriminate on health factors

May discriminate on other factors, such as:

Industry; Occupation; Location; Job classification; Full-time/part-time

HIPAA rules on bona fide classification: used for other purposes? other plans?

May be bona fide: full-time versus part-time; geographic location; union; hire date; length of service; current employee versus former employee; occupation

Gender discrimination allowed (ACA prohibited); Age discrimination allowed

Beneficiary discrimination allowed: relationship, marital status, age, student

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Best practices

Cost containment

Discrimination broadly allowable except for health status

Subterfuge disallowed – distinctions nominally based on permissible factors but in substance target health status are disallowed

May not discriminate between employers

Too similar to private insurance marketing to wider public

TIP: No need to discriminate against employers if you can treat job classifications, industry subsectors, and geographic locations as independent groups

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Best practices

Observe current DOL Policy Statement, which applies through the end of current plan year or contract term

Monitor U.S. Court of Appeals action on appeal of U.S. District Court’s decision

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Association Health Plans: Recent Developments, Key Issues, and...

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