States Want to Keep Control Over Association Health Plans

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By Kristen Ricaurte Knebel

Twenty-three states and the District of Columbia weighed in on the Labor Department proposed rule on association health plans and one theme is clear: The states don’t want their toes stepped on.

Alaska, Iowa, Massachusetts, Montana, and other states have worked to regulate association health plans and multiple employer welfare arrangements over the years to curb fraud and mismanagement. A number of the states commenting on the rule either endorsed it, or expressed optimism about the prospect of broadening access to health coverage, while some just asked the DOL to pull the rule. Regardless of where they stand on the rule, states are concerned the DOL proposal doesn’t explicitly say they’ll retain regulatory authority over certain types of associations.

The DOL and the states discovered 144 unauthorized entities marketing insurance products in all 50 states from 2000 through 2002, according to the latest national data available. The insurance was sold to at least 15,000 employers and covered more than 200,000 people, according to the 2004 Government Accountability Office report. All told, these entities failed to pay $252 million in medical claims over those two years and state insurance regulators were only able to recover some of the money. Some of the entities operated in more than one state and some operated under different names.

The DOL’s proposed rule on association health plans would make it easier for individuals and employers in the same industry or geography to band together to form their own health plan. The DOL proposed the rule after President Donald Trump asked it to consider revising the rules for association health plans in an October 2017 executive order. Supporters tout the rule as a way to give small businesses and individuals access to affordable health care. Skeptics think it could bring back fraudulent health arrangements.

“I think the feeling is that the states do a better job of regulating them than the feds do,” J.P. Wieske, deputy commissioner of insurance in Wisconsin, told Bloomberg Law. For one thing, states can strike a balance between offering broader coverage and the appropriate level of regulation, he said.

History of Fraud

The federal government and the states have long been concerned about fraud and abuse by multiple employer welfare arrangements, which are employee welfare benefit plans or arrangements that provide benefits to employees of two or more employers. These plans are similar in structure to association health plans. Congress gave states authority over MEWAs in the 1980s when it amended the nation’s prevailing benefits law to say they were subject to state insurance laws, regardless of their classification under the Employee Retirement Income Security Act.

States have tried different tactics to address fraud with MEWAs. Approximately 30 states require self-funded MEWAs to be licensed health insurers to operate. Iowa is one of several states that require MEWAs to receive certification from the state and demonstrate solvency. Iowa also requires authorized insurers or third-party administrators to run self-funded MEWAs, which minimizes the “risk of fraudulent or ‘bad actors,’” the state said in its comments. Pennsylvania established a MEWA task force in the 1990s to rein in “sham” MEWAs and prohibits most self-funded MEWAs because of solvency issues and the potential harm to consumers.

Nebraska requires that an association be formed for a “good faith purpose” other than purchasing insurance, but it allows associations to charge lower premiums to employers with healthier populations, Laura Arp, health policy counsel with the Nebraska Department of Insurance, told Bloomberg Law. That’s at odds with the nondiscrimination provisions in the DOL proposal and a perk Nebraska would like to retain for plans already in existence.

The nondiscrimination provisions say an association wouldn’t be able to restrict or deny membership based on health status. Critics of the proposal worry the protections don’t go far enough and will lead to associations “cherry-picking” health members out of the individual or small group market, throwing those markets into crisis.

On-the-Ground Regulation

MEWAs often have solvency issues, something that states can be in a better position to address given their regulatory authority over the plans. Several states questioned whether the DOL would have the capacity to regulate all associations and penalize any bad actors.

Wisconsin’s Wieske said states governing these plans know the warning signs that could signal that a MEWA is having money problems, and the DOL may not recognize that as quickly.

MEWAs are often associated with being on the wrong side of the law, but even well-intentioned MEWAs that think they can cover benefits run into funding problems, Jessica K. Altman, acting commissioner for the Pennsylvania Department of Insurance, told Bloomberg Law. Some of these plans ran out of money because they didn’t want to raise prices on people, she said.

States have the experience regulating these plans and it’s important the DOL make it “clear that we have all of the authority to do the job we do every day,” she said.

The proposed rule has garnered 720 unique letters and two petitions. The DOL hasn’t scheduled hearings on the rule, but it often does in situations where a proposal attracts many comments.

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