Labor Dept. Health Rule Faces Legal Challenge From 12 States (1)

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

The Labor Department violated federal rulemaking procedures when it expanded small business access to group health insurance, 12 state attorneys general allege in a challenge to the agency’s regulation.

New York Attorney General Barbara D. Underwood and Massachusetts Attorney General Maura Healey, who lead the coalition of attorneys general, filed the complaint July 26 in U.S. District Court for the District of Columbia. The final rule also violates the Affordable Care Act and federal employee benefits law, they allege.

They say it is an attempt by the Trump administration to dismantle the ACA.

The lawsuit comes a month after the DOL published its final regulation for association health plans. The regulation changed the definition of “employer” to allow more small employers, including self-employed individuals and independent contractors, to band together in associations by industry or geography and create large group health plans.

The rule sped through the rulemaking process after President Donald Trump requested the agency explore opening access to the plans in an October 2017 executive order.

The Labor Department, Labor Secretary Alexander Acosta, and the U.S. are all named defendants.

A DOL spokesman referred a request for comment to the Justice Department.

Conflicting Federal Law

Expanding the definition of employer is inconsistent with the ACA and federal benefits law, which violates the federal rulemaking law, the Administrative Procedures Act, the lawsuit alleges.

The rule “conflicts with the clear statutory structure that Congress adopted in the ACA” by pulling those currently protected by the ACA’s minimum health benefit requirements in the small and individual health insurance marketplaces into the large group market, which doesn’t have the same protections, the attorneys general wrote.

The DOL’s new definition is in conflict with the Employee Retirement Income Security Act, which governs employee benefits law because it diverges from the standing interpretation of employer in federal courts, the lawsuit alleges.

The definition of employer for decades has required employers to have a “true commonality of interest, or close nexus, with one another,” the lawsuit said, citing the U.S. Code. Mandating that employers have a reason to band together in an association besides to create insurance is a “core purpose of ERISA.”

“DOL cannot, through a radical and unprecedented new definition, upend what Congress built,” the attorneys general wrote.

The lawsuit also alleges the Labor Department exceeded its regulatory authority because the definition change wasn’t “designed to implement ERISA but instead circumvent the ACA.”

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