Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...
States have less than a month to figure out how they’ll regulate a new version of small-business health plans--called association health plans--formed under a new Labor Department regulation. Some states are ahead of the curve.
State insurance market regulators in Vermont and Pennsylvania recently released stringent regulations for the new groups, rolling back some of the provisions of the DOL rule. Others likely will follow their lead before the first roll-out date Sept. 1, as the final rule made them the primary enforcement mechanism of the plans.
Delaware’s insurance regulator “anticipates issuing regulations that address the oversight of AHPs,” Frank Pyle, director of consumer services for the Delaware Department of Insurance, told Bloomberg Law in an email.
The DOL regulation, which came at the request of President Donald Trump, expanded access to association health plans by changing the definition of “employer” to include more small businesses, like self-employed individuals and gig workers. Those employers can now band together by geography or industry and purchase health insurance as a large group.
The plans will provide coverage to 4 million small-business workers in the next five years, the Congressional Budget Office estimated.
The final rule included a built-in window for states to develop laws and regulations before the plans began to form. Many states already have laws on the books for similar group health plans that were popular before the Affordable Care Act changed the health insurance marketplace.
Those similar plans had a history of misuse many states haven’t yet forgotten.
“Fraud and insolvency loom large in the minds of state regulators,” Jim Quiggle, director of communications for the National Coalition Against Insurance Fraud, told Bloomberg Law. “Regulators want to make sure that history doesn’t repeat itself.”
The plans left 200,000 people without coverage between 2000 and 2002, and racked up $252 million in unpaid bills, according to a 2004 Government Accountability Office report—the last time the federal government has released data about these plans.
Critics also are concerned about the impact the plans will have on the ACA marketplace, saying the low-cost, low-coverage plans will lure healthy people away from the small and individual marketplace leaving a sicker population behind.
Supporters, on the other hand, argue the plans afford small businesses the same bargaining power as large companies, and that employers would look out for their members’ needs when it comes to coverage.
“I think state action can be effective in mitigating the worst effects of this rule on market stability,” Mark A. Hall, a professor and director of the health law and policy program at the Wake Forest University School of Law, told Bloomberg Law in an email.
Under the regulation, states can “reimpose at a state level the rules that governed AHPs prior to the new federal rule,” he said.
State regulations dusting off some of those old standards applied to previous association health plans and is giving them new legs.
Pennsylvania’s insurance commissioner, for example, told DOL it requires an association to be established “for purposes other than that of obtaining insurance, and has been in active existence for at least two years.” That limits an association’s ability under the federal rule to allow groups to form for the sole purpose of obtaining insurance.
Vermont’s emergency rule, released last week, requires plans to cover the essential health benefit of the ACA.
Other states are looking for more information before they take action.
Maryland’s insurance regulator plans to “put out a bulletin in the next week or two” but wants clarification from DOL on what will be consistent with the final rule, Robert Morrow, associate commissioner for life and health at the Maryland Insurance Administration, told Bloomberg Law.
Washington state also is looking to DOL for clarity on authorizing an out-of-state insurer to be authorized in the state, Stephanie Marquis, a spokeswoman for Washington State Office of the Insurance Commissioner, told Bloomberg Law.
“The Department of Labor has an open line of communication with stakeholders, including state officials, regarding implementation of the rule next month,” a DOL spokesman told Bloomberg Law in an email. “That includes several conference calls hosted by the Department for state officials, which continue to move forward.”
Whatever action states take comes at the same time 12 jurisdictions filed a lawsuit against the Labor Department, Secretary of Labor Alexander Acosta, and the U.S. alleging the agency overstepped its authority by issuing a regulation in conflict with existing federal law.
The officials, led by Massachusetts and New York, argue the rule’s disruption of the ACA and conflict with federal employee benefits law violates the Administrative Procedures Act, which governs federal rulemaking.
The lawsuit introduces the potential that a judge for the U.S. District Court for the District of Columbia could decide to issue a nationwide injunction, preventing the rule from taking effect in a few weeks.
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