The battle over health benefits rages on. In the latest salvo, a group of states scored a major court victory against the Trump administration’s new “Association Health Plan” Final Rule, which was finalized in 2018. While this decision will have major ramifications, it is important to remember that association health plans may still be established under old rules that existed long before the final rule.
The case is styled New York v. United States Dep’t of Labor, No. CV 18-1747 (JDB), 2019 WL 1410370 (D.D.C. Mar. 28, 2019).
The final rule expanded existing guidance from the Department of Labor (DOL). The old guidance allowed only a “bona fide” association of employers in a particular industry to provide health benefits, in order for those benefits to be treated as a single plan (as opposed to separate plans established by each individual employer). The new guidance allowed employers who are in completely unrelated industries to form a single plan, so long as they were all in the same state or metropolitan area, and it allowed sole proprietors without any common law employees to join, too.
The final rule caused a ruckus, since these association health plans could avoid many requirements under the Patient Protection and Affordable Care Act (ACA) and significantly cut back benefits. Importantly, however, states retained tremendous freedom to regulate association health plans. States could potentially mandate their own essential health benefits or ban association health plans altogether.
The final rule acknowledged the view of several commenters that the new rules were an invalid attempt to create a loophole through the ACA’s strict requirements for individual and small group health plans. The DOL went ahead despite those comments and was promptly sued by 11 states and the District of Columbia.
On March 28, 2019, the U.S. District for the District of Columbia ruled in favor of the states, vacating three critical subsections of the new regulation created by the final rule — specifically, subsections (b), (c), and (e) of 29 C.F.R. § 2510.3-5. The court held that:
- Allowing employers linked only by geography to constitute a single employer is inconsistent with ERISA, since such groups more “closely resemble entrepreneurial, profit-driven commercial insurance,” as opposed to an association acting as an “employer”;
- Counting sole proprietors as both employers and employees is inconsistent with the text and purpose of ERISA; and
- The final rule leads to absurd results under the ACA.
The court used colorful language in the opinion, stating that the “Final Rule is clearly an end-run around the ACA,” that it relies on a “tortured reading” of the ACA, and that the DOL’s legal reasoning is “pure legerdemain” (i.e., sleight of hand).
Technically, the case has been remanded to the DOL to determine what, if anything, survives the court’s ruling, and the decision is sure to be appealed. But, practically speaking, the final rule is dead for now. No associations or employers should rely on the final rule to form an association health plan.
Association health plans under old rules still valid
In the meantime, it is important to remember that the opinion did nothing to upset the DOL’s sub-regulatory guidance issued prior to the now-vacated final rule. These old rules are still in effect and can still be relied upon to form a “bona fide” employer association and provide a single health plan under ERISA. However, certain limitations will exist. For example:
- Sole proprietors will not be able to join the association;
- The association cannot be created for the purpose of providing health benefits; and
- All of the association’s members must have a “commonality of interest” — employers linked by nothing but geography cannot form a single association health plan.
Depending on what a group wants to do, the decision in New York v. United States Dep’t of Labor may or may not have a large impact.