Calif. Takes Another Swipe at Trump Small Business Health Rule

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Madison Alder

California is the first state to legislatively prohibit some of its residents from taking advantage of a Trump administration rule that expanded access to small business health plans.

The state now prohibits sole proprietors from joining what’s known as association health plans. The plans were recently expanded under a Labor Department regulation that allows more small businesses, including self-employed individuals and independent contractors, to band together and purchase health insurance as a large group.

The move by California will mean real estate agents and others who operate as sole proprietors won’t be able to join association health plans. The National Association of REALTORS is a major supporter of the DOL’s expansion of the plans.

The office of State Sen. Dr. Ed Hernandez (D), who sponsored the legislation (SB 1375) that was signed in to law Sept. 22 by Governor Jerry Brown (D), called the DOL’s rule an “assault” on the Affordable Care Act.

“While these finalized federal rules would not preempt California law, this law is necessary to make California law consistent and clear that ACA rules apply even if individuals or small employers join together in an association,” Hernandez said in a statement after Brown’s signing.

California is one of a dozen states that sued the Labor Department over the rule. The case is still pending.

History of Fraud

California’s law comes in response to years of fraud and insolvency it experienced with similar plans known as multiple employer welfare arrangements that were around before enactment of the ACA, Kevin Lucia, a senior research professor and project director at Georgetown University’s Health Policy Institute, told Bloomberg Law.

Between 2000 and 2002, the plans left 200,000 people throughout the U.S. without coverage and racked up $252 million in unpaid bills, according to a 2004 Government Accountability Office report. The 14-year-old report is the last time the GAO has done a study on these types of plans.

Lucia, who is tracking state responses to association health plans, said many states’ laws and regulations in response to the rule have centered on the history of fraud and insolvency and an effort to avoid segmentation of their ACA marketplaces.

“The federal law gives states authority to broadly regulate association health plans, the Department of Labor recognized this and encouraged states to use their authority to regulate in way they thought was best for their markets,” Lucia said. “It’s federalism.”

Critics of the DOL’s new rule say the plans will be ripe for the same fraud and abuse they were subject to in the past and are concerned the new lower cost plans would lure health people from the ACA marketplace, leaving behind a sicker population.

Supporters, on the other hand, say associations offering the plans would take care of their members’ health needs. They say the rule gives small businesses the same opportunities as large ones.

State-By-State

For those trying to form association health plans, the California law comes as a blow.

“Laws like these just add to the complexity that organizations wanting to establish association health plans are already facing,” Chris Condeluci, a health-care lawyer and lobbyist at his firm CC Law and Policy, told Bloomberg Law. Condeluci also leads the Coalition to Protect and Promote AHPs, a group of organizations fighting back against state restrictions on the new rule.

At least six states have “put up barriers” to the new health plans, Condeluci said. Those states are California, Connecticut, Massachusetts, New York, Oregon, and Pennsylvania.

The coalition recently took aim at a regulation in Pennsylvania that would apply an Obama-era policy that applies ACA rules to some association health plans.

But some states have been more favorable to the new plans.

Michigan’s Department of Insurance, for example, released guidance Sept. 24 for new and existing associations wanting to form an association health plan under the new DOL rule. A few states over, the Nebraska Farm Bureau Sept. 19 announced the formation of its association health plan, which will be available to individual farmers and their families.

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