New association health plans form in Vermont

February 17, 2019

According to a new report, Vermont — a state known for pursuing liberal-leaning health policies — is the first state among the CSG/ERC states to host an association health plan (AHP) formed under a newly-revised rule by the U.S. Department of Labor. CSG/ERC previewed this regulation last year when the Labor Department initially proposed it, and the rule was finalized on June 19, 2018, with its implementation staggered through 2019.

Proponents of AHPs argue that small businesses and sole proprietors ought to be able to band together to offer health benefits similar to what large employers do. For instance, the Affordable Care Act imposes different requirements on insurance sold to individuals or for small groups than it does for insurance sold to larger groups. Opponents argue that a very similar policy—multi-employer welfare arrangements (MEWAs) — was attempted after the federal Employee Retirement Income Security Act (ERISA) was passed in 1974, and Congress clarified that states could regulate MEWAs after several of them became insolvent—sometimes due to fraud — and could not pay for employees’ healthcare benefits.

Among other things, the Labor Department’s new regulation changes the definition of an employer to allow an association to be considered a large group for purposes of providing health benefits. Of course, small businesses and sole proprietors come together to form entities such as chambers of commerce, agricultural cooperatives, or professional associations, and often these associations offer discounted services and products including health insurance to their members. Prior to the Labor Department’s change, insurance regulators would “look through” an association to see who it was selling insurance to; after “looking through” the association to see its members, the regulator would only allow the association to sell individual policies or small group policies if its members were sole proprietors or small businesses. But under the new definition of an employer, an association can create an AHP to pool its members together as if the association were the “employer” for purposes of creating one large group. This change means that such AHPs do not have to comply with the ACA’s consumer protections for individual and small-group insurance policies. Critics argue this will disrupt state insurance markets by allowing AHPs to issue less comprehensive plans than insurers that sell individual and small-group policies.

The Labor Department, however, has recognized that states can regulate AHPs as a type of MEWA and thus set their own requirements; in other words, the federal regulation sets a federal floor for AHPs in absence of state law. Several states, including CSG/ERC states, have responded by issuing regulatory guidance or passing legislation either to support AHPs or to curb their growth. For instance, New Hampshire’s insurance department issued clarifying guidance for potential AHP sponsors and convened stakeholders on possible legislation; following the 2018 elections, the legislature is debating AHP legislation. Connecticut, Maryland, New York, and Pennsylvania have opted to revert back to the prior “look through” policy, likely limiting AHP growth in those states.

Vermont also passed legislation in 2018, and the new law requires the state insurance commissioner to “regulat[e] association health plans in order to protect Vermont consumers and promote the stability of Vermont’s health insurance markets, to the extent permitted under federal law, including rules regarding licensure, solvency and reserve requirements, and rating requirements.” After the commissioner issued a new regulation establishing guidelines for AHPs including coverage requirements for essential health benefits, two business associations, Business Resource Services and the Vermont Association of Chamber Executives, announced they would start an AHP. Both the state consumer advocate and an insurance company have criticized the insurance regulator for not adopting stricter rules, and a legislative committee signaled its disapproval, suggesting that the legislature may revisit the issue.

Additionally, 11 states — including CSG/ERC states Delaware, Maryland, Massachusetts, New Jersey, New York, and Pennsylvania—and the District of Columbia — are suing to strike down the AHP regulation by arguing that the Labor Department exceeded its authority and violated the Affordable Care Act’s insurance provisions. Although the case is ongoing, the states’ arguments appeared to have resonated with the federal district court in Washington, D.C., at a January 24, 2019 hearing.

Given the pending litigation and the potential for more regulatory developments, CSG/ERC will continue to monitor whether additional AHPs develop in CSG/ERC states and their potential effects on state insurance markets.

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