Question of Authority at Heart of Labor Dept. Health Rule Case

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 did nothing wrong when it took steps earlier this year to expand a type of small business health option called an association health plan, observers say in response to a new lawsuit that alleges the DOL overstepped its authority.

“The Supreme Court has said a federal department has the authority to modify its own interpretative rules anytime it wants,” Chris Condeluci told Bloomberg Law. “That’s what the Department of Labor did here,” said Condeluci, an attorney and former tax counsel to the Senate Finance Committee who worked on the Affordable Care Act.

Condeluci’s comments came in response to a lawsuit filed last week by 12 state attorneys general against the DOL and Labor Secretary Alexander Acosta. They say in their lawsuit that the DOL exceeded its authority and undercut existing federal law—like the ACA—when it created a rule to expand small business access to AHPs.

“I can’t see where the claims get much traction,” Alden Bianchi , a lawyer with Mintz, Levin, Cohn, Ferris, Glovsky and Popeo P.C. and chair of its employee benefits and executive compensation practice, told Bloomberg Law.

The DOL followed procedure when they created the rule, Bianchi said. Although he understands the states’ concern over the regulation’s shift of power from them to the federal government, he said the lawsuit will be “an uphill fight.”

At Direction of Executive Order

The complaint by the 12 attorneys general came one month after the agency released its finalized rule for AHPs, which made it through the rulemaking process in short order after President Donald Trump asked it to look into opening the plans in a October 2017 executive order.

The regulation expanded access to AHPs by changing the DOL’s interpretation of the word “employer” so that more employers, such as self-employed individuals and independent contractors, can form associations by industry or geography and purchase health care as a large group.

“The Department of Labor was acting according to an executive order,” Bianchi said. “And to their credit, I think they did it in a measured and restrained way.”

Rewriting Statute

Others cheered the lawsuit, saying the action the DOL took is something reserved only for Congress.

“I’ve said all along that this is going to be controversial,” Stuart Gerson, former Justice Department official in the George H.W. Bush and Clinton administrations and partner at Epstein Becker & Green, told Bloomberg Law. “Proceeding by this regulatory route rather than through statue is going to create disputes on a number of fronts, and this attorneys general lawsuit is an example of that.”

Gerson in April told Bloomberg Law the final rule would likely violate the federal Administrative Procedure Act because it would conflict with the Employee Retirement Income Security Act.

The rule is a mix of good and bad, said Gerson who favors more competition across state lines. The change should have gone through Congress, he said.

“I applaud the attorneys general from the 12 jurisdictions,” Mila Kofman, former state insurance commissioner of Maine and the executive director of DC Health Benefit Exchange Authority, told Bloomberg Law. “I think it’s critical that they took this step to insure private health insurance market stays stable.”

“No agency has the authority to rewrite a law,” Kofman said.

Dismantling the ACA

“The centerpiece of the lawsuit was that in purpose and effect, the rule is designed to dismantle the ACA,” Marc Machiz, former director of the Employee Benefits Security Administration’s regional office in Philadelphia, told Bloomberg Law. The EBSA is part of the Labor Department.

Machiz estimated the attorneys general have about a more than 80 percent chance of prevailing in the district court.

Americans seeking to join AHPs to get relief from the Affordable Care Act may now need to wait on a ruling in this case, Alfredo Ortiz, chief executive officer of Job Creators Network, another supporter of the rule, told Bloomberg Law.

The U.S. District Court for the District of Columbia, where the complaint was filed, could stop the rule from going into effect in September by issuing a nationwide injunction.

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