AG coalition opposes DOL’s AHP expansion proposal, but would it increase health care access?

A coalition of 17 Attorneys General have registered their opposition to the Department of Labor’s proposed rule that would expand the criteria for forming association health plans (AHPs), in what they see as a move to evade the consumer protections enshrined in the Patient Protection and Affordable Care Act (ACA) and sabotage the health care reform law. AHPs have a long history of fraud, mismanagement, and abuse, with millions in unpaid claims for policyholders and providers, often leading to consumer bankruptcies, AG coalition leaders New York Attorney General Eric T. Schneiderman and Massachusetts Attorney General Maura Healey observed in a press release. The AGs echoed these and other concerns in comments they submitted about the proposed rule.

But not everyone sees the potential expansion of AHPs as a bad idea. These plans could provide better access to health care for small businesses, the self-employed, and gig workers, who often find themselves priced out of good options, according to proponents. AHPs could also provide nationwide industry-driven health insurance plans that may be more attractive than current options.

The DOL’s Employee Benefits Security Association said that the goal of the proposed rule is to expand access to affordable health coverage, particularly among small employers and self-employed persons, by “removing undue restrictions on the establishment and maintenance of association health plans under ERISA.” The proposal would impact association health plans, health coverage under these health plans, groups and associations of employers sponsoring such plans, participants and beneficiaries with health coverage under these plans, health insurance issuers, and also purchasers of health insurance not purchased through association health plans.

Associations as employer sponsors.

The proposed rule would broaden the criteria under ERISA Section 3(5) for determining when employers are permitted to join together in an employer group or association that is treated as the “employer” sponsor of a single multiple-employer “employee welfare benefit plan” and “group health plan” as defined in Title I of ERISA. By treating the association itself as the employer sponsor of a single plan, the proposed rule is expected to facilitate the adoption and administration of such arrangements.

Definition of ’employer’ modified.

The proposal would also modify the definition of “employer,” in part, by creating what EBSA said is a more flexible “commonality of interest” test for the employer members than the DOL has adopted in subregulatory interpretive rulings under ERISA section 3(5). The proposed rule would continue to distinguish employment-based plans-the focal point of Title I of ERISA-from mere commercial insurance programs and administrative service arrangements marketed to employers.

Working owners as employers and employees.

In addition, under the proposal, the working owners of an incorporated or unincorporated trade or business, including partners in a partnership, would be able to elect to act as employers for purposes of participating in an employer group or association sponsoring a health plan, and also to be treated as employees with respect to a trade, business, or partnership for purposes of being covered by the employer group’s or association’s health plan.

Should the proposal be withdrawn?

The DOL’s proposal would reverse decades of agency and judicial interpretation of ERISA’s key terms, with the primary purpose of undermining the ACA, according to the AGs. Because the DOL’s proposed changes would increase the risk of fraud and harm to consumers, undermine the current small-group and individual health insurance markets, and are also inconsistent with the text of ERISA and the ACA, the AGs say the proposed rule should be withdrawn.

ACA sabotage.

According to the AGs, the motivation for the proposed rule is to undermine the ACA. President Trump himself cited the sabotage of the ACA as the clear purpose of the proposal, stating while signing the order that he was “taking crucial steps towards saving the American people from the nightmare of Obamacare,” and tweeting the following day that “ObamaCare is a broken mess. Piece by piece we will now begin the process of giving America the great HealthCare it deserves!”

Critical protections undone.

Over the last few decades, Congress has legislated, including via the ACA, to protect health care consumers from AHPs’ fraudulent conduct, the AGs asserted in their comments. The proposed rule would undo critical consumer protections and unduly expand access to AHPs without sufficient justification or consideration of the consequences.

Projections forecast that the proposal, if finalized, would lead to several million enrollees shifting out of the ACA’s individual and small group markets into AHPs with far fewer health benefits, the AGs cautioned. Similar predictions indicate that proposed rule would increase premiums for those remaining in the individual ACA market.

Fraudulent and deceptive practices.

State Attorneys General have extensive experience protecting individuals and small employers from predatory entities that seek to defraud or deceive customers through the use of AHPs. They contend that the proposed rule is unlawful and would invite fraud and wrongdoing in the health insurance market that will threaten the health and financial security of consumers nationwide. And the AGs backed up their concerns with a series of examples:

  • In 2007, the operators of an association that deceptively marketed its discount health plan products to Massachusetts residents as “Affordable Healthcare Plans” and “Top Rated Insurance” were ordered to pay restitution to the defrauded consumers, a substantial civil penalty and attorney’s fees, and were permanently enjoined from engaging in various conduct in Massachusetts.
  • In 2009, pursuant to a consent judgment following Massachusetts’ consumer protection lawsuit, HealthMarkets, Inc., and its subsidiaries were ordered to pay $17 million resulting from unfair and deceptive practices through the sale of insurance products packaged with memberships in three different associations.
  • In 2011, the United States Life Insurance Company in the City of New York agreed to pay full restitution to consumers whom it required to join associations and to whom it misrepresented the terms, benefits, and (very limited) coverage provided by its plans, as well as the fact that the policies had not been approved for sale in Massachusetts.
  • In 2015, Unified Life Insurance Co. agreed to pay $2.8 million in restitution and civil penalties as a result of its deceptive and unlawful selling of short-term health insurance that was not authorized for sale in Massachusetts, but which it deceptively marketed through a third-party association.
  • In 2001, the Maryland Insurance Administration fined and revoked the registration of a MEWA administrator that engaged in “illegal and dishonest practices” such as failing to register as an insurer as required by state law, failing to pay premiums for stop-loss insurance contrary to representations made to employer members (and thereby exposing these employers to unexpected losses), and failing to pay claims for insured employees. Md. Ins. Admin. v. SAI Med Health Plan, LLC, No. MIA-6-1/01 (Md. Ins. Admin. Jan. 16, 2001.)
  • In 2005, the Maryland Insurance Administration fined and revoked the licenses of a MEWA’s administrator for failing to register with the state as required by law and making material misrepresentations regarding the relationship of the MEWA to the insured employees and, overall, engaging in conduct that was “dishonest and lacked … trustworthiness and competence.” Md. Ins. Admin. v. Dennis Kelly, et al., No. MIA-2005-07-004 (Md. Ins. Admin. Mar. 30, 2007).
  • From the 1980s through the early 2000s in California, AHP failures hurt employees across many different industries. For example, thousands of California farmworkers suffered when a plan created by Sunkist Growers collapsed, leaving nearly 5,000 medical providers with an estimated $10 million in unpaid claims. Similarly, when Rubell-Helms Insurance Services went out of business, it reportedly left $10 million in legitimate medical claims unpaid.

“The Trump administration’s rule is nothing more than an unlawful end run around the consumer protections enshrined in the Affordable Care Act, part of President Trump’s continued efforts to sabotage the ACA,” said Attorney General Schneiderman. “These so-called association health plans have a long history of fraud and abuse-leaving consumers holding the bag when an unforeseen medical issue arises.”

The comments on the proposed rule were submitted by the Attorneys General of New York, Massachusetts, California, Connecticut, Delaware, District of Columbia, Hawaii, Iowa, Illinois, Maryland, Maine, New Jersey, New Mexico, Oregon, Pennsylvania, Virginia, and Vermont.

Don’t we need more access?

Not everyone is focused on the potential downside of the proposed rule, looking instead at the additional access to health care that, if finalized, the proposal is said to provide. Senate Health, Education, Labor, and Pensions Committee Chairman Lamar Alexander (R-Tenn.) has said that the proposal “could lower the cost of health insurance premiums and finally make affordable health insurance available to the 11 million American small business men and women and their employees or those who work for themselves-like farmers, or songwriters-who today are priced out of our health insurance system.”

Lowering costs.

Alexander contends that the proposed rule, by taking down barriers to allow more self-employed Americans and small businesses to band together in an AHP, would permit employers to reduce the cost of providing health insurance to their employees by “spreading the administrative costs, bargaining for better deals from insurers, and creating a way to bring in more healthy people, which brings down costs for everyone.”

“This proposed rule would mean access to lower-cost health insurance opportunities for small businesses,” according Alexander. He cited the example of small local restaurants or retailers in a rural area participating in a single AHP to be able to offer insurance to their employees.

“For the first time, self-employed Americans would have the ability to band together and obtain health insurance on similar terms to large businesses,” Alexander said. “That presents a new opportunity for hardworking farmers, gig economy workers like Uber and Lyft drivers, songwriters, and artisans who today are priced out of our health insurance system.”

Nationwide industry plans.

Alexander also pointed out the proposed rule would permit the formation of a new nationwide plan for all workers in an industry. He suggested that all of the local bakery owners from Nashville to Phoenix would be able to band together and offer health insurance coverage to their bakery employees

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