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The Final AHP Rules Take a Hard Hit

By: Erin M. Hussey, Esq.

 

A federal court has ordered certain provisions of President Trump’s Association Health Plan (“AHP”) Final Rule to be vacated. The court has remanded the AHP Final Rule to the Department of Labor (“DOL”) for consideration on how the severability provision will affect the remaining portions of the Final Rule. The court detailed that “if a provision is found entirely invalid then ‘the provision shall be severable from [the Final Rule] and shall not affect the remainder thereof.’ 29 C.F.R. § 2510.3-5(g).”

 

The court ordered the following provisions, codified as 29 C.F.R. §§ 2510.3-5(b), (c), and (e), to be vacated:

 

(1) allowing coverage to be offered to working owners; and

(2) the bona fide provisions (including the provisions about a substantial business purpose, control, and the expanded commonality of interest requirements).

 

The court concluded that the provisions relating to working owners is not within the scope of ERISA because coverage is not being offered to an actual “employer”, and ERISA defines an employer as having at least two or more employees. In addition, Congress intended that only benefit plans that arise from employment relationships fall within ERISA’s scope, and when it comes to a working owner there is no employer-employee relationship. The court noted, “There is no indication that Congress crafted the statute with the intent of sweeping working owners without employees—who employ no one—within ERISA’s scope through the statutory definition of ‘employer.’” The court provided an example to detail the “absurdity of [the] DOL’s interpretation.” The example was of an association forming an AHP that consists of fifty-one working owners without employees. The court concluded that the “number of employees employed by fifty-one working owners without employees. . . reaches a sum of zero.”

 

Furthermore, allowing working owners to purchase coverage through and AHP would be an “end-run” around the Affordable Care Act (“ACA”). Using the example above, an association consisting of fifty-one working owners would be considered a large employer and the AHP formed could follow large group market rules. Thus, the Final Rule is avoiding ACA consumer protections within the individual market rules (i.e., essential health benefits). The court concluded the following:

 

“The Court cannot believe that Congress crafted the ACA, with its careful statutory scheme distinguishing rules that apply to individuals, small employers, and large employers, with the intent that fifty-one distinct individuals employing no others could exempt themselves from the individual market’s requirements by loosely affiliating through a so-called “bona fide association” without real employment ties.”

 

With regards to the bona fide provisions, the court details that this is not a meaningful limit on associations. The court focuses on the three overall criteria that the DOL previously utilized to determine which associations are “bona fide”: purpose, commonality of interest, and control. The court concludes that the Final Rule “departs significantly from the DOL’s prior sub-regulatory guidance in the way it measures these criteria.”  As for the “substantial business purpose” criterion, the court concludes that it “sets such a low bar that virtually no association could fail to meet it . . . [and] provides no meaningful limit on the associations that would qualify as ‘bona fide’ ERISA ‘employers.’”

 

As for the commonalty of interest criterion, codified at 29 C.F.R. § 2510.3-5(c), the Final Rule provides that an AHP will have commonality of interest if:

 

(i) The employers are in the same trade, industry, line of business or profession; or

(ii) Each employer has a principal place of business in the same region that does not exceed the boundaries of a single State or a metropolitan area (even if the metropolitan area includes more than one State).

 

The plaintiff states “object to the latter, which deems employers to be united in interest solely because of common geographical location.” The court agreed and noted that “[g]eography, similarly, is not a logical proxy for common interest, and substituting shared geography for the statutory requirement of common interest improperly expands ERISA’s scope.” As such, the court concluded that allowing geography to meet the commonality of interest test “creates no meaningful limit on these associations . . . [and] the geography test does no work to focus the Final Rule on the types of associations that Congress intended ERISA to cover.”

 

Lastly, as for the criterion of control, the court concludes that the control test is only meaningful if the “members’ interests are already aligned.” However, the AHPs operating under the Final Rule could consist of employer members with “widely disparate interests” and therefore, the “employers’ interests would not be aligned.”

 

Additionally, the bona fide provisions make it easier for small employers to purchase coverage from an AHP and avoid the small group market rules. Therefore, the court concluded that making it easier to allow small employers, as well as working owners, to purchase coverage through an AHP and avoid individual and small group market rules was an “end-run” around the ACA. The court did note however, that pre-Final Rule, in the “rare instances” an association met the DOL’s prior bona fide association criteria, the association coverage would be considered a single group health plan and the number of total employees of all employer members would be counted to determine whether small or large group market rules applied. 

 

The above-noted provisions, that the court ordered to be vacated, are integral to the Final Rule. Those provisions expand the ability for AHPs to form and allow AHPs to offer coverage to more individuals and groups. The remaining portions of the Final Rule are unlikely to survive, besides what is codified at 29 C.F.R. § 2510.3-5(c)(1)(i), where an association of employers in the same trade, industry, line of business or profession, who form an AHP, can expand across state lines. We will be following the reactions to this ruling and how the DOL responds.