The Department of Labor has released its much anticipated final rule, Definition of "Employer" under Section 3(5) of ERISA—Association Health Plans, which follows considerable controversy over whether the rule would expand desirable health care coverage to small businesses and their employees, or actually put comprehensive and affordable health care coverage for this sector at risk. The final rule is effective 60 days following its publication in the Federal Register on June 21, 2018.
Among the concerns expressed by various opponents to the proposed rule is that it would permit association health plans (AHPs) to deny coverage for pre-existing conditions, not require AHPs to include essential health benefits (EHBs) such as prescription drugs, mental health services, and maternity, and would permit caps for lifetime limits.
Announcing the release of the final rule, the Labor Department said that many small businesses and their employees have struggled with government restrictions that limit access to quality, affordable health coverage. The AHP reform made by the rule will address many of the inequities between small and large businesses in access to that coverage, the DOL contends.
Millions to switch to AHPs. The DOL also noted that Congressional Budget Office (CBO) has estimated that millions of people will switch their coverage to more affordable and more flexible AHP plans and save thousands of dollars in premiums. The CBO also estimates that 400,000 previously uninsured people will gain coverage under AHPs.
Reform under final rule. The reform accomplished by the final rule permits small employers, many of whom are facing much higher premiums and fewer coverage options as a result of "Obamacare," a greater ability to join together and gain many of the regulatory advantages enjoyed by large employers, according to the DOL.
Under the final rule, AHPs will be able to serve employers in a city, county, state, or a multi-state metropolitan area, or a particular industry nationwide. Sole proprietors as well as their families will be permitted to join such plans. In addition to providing more choice, the new rule makes insurance more affordable for small businesses, the DOL contends. Just like plans for large employers, these plans will be customizable to tailor benefit design to small businesses' needs. These plans will also be able to reduce administrative costs and strengthen negotiating power with providers from larger risk pools and greater economies of scale.
Safeguards. The DOL pointed out that consumer protections and healthcare antidiscrimination protections that apply to large businesses will also apply to AHPs organized under the final rule. As it has for large company plans since 1974, the DOL’s Employee Benefits Security Administration will monitor the new plans to ensure legal compliance and to protect consumers. Additionally, states will continue to share enforcement authority with the federal government.
Less stable risk pools. The DOL acknowledged concerns that the final rule could lead to less stable risk pools in the individual and small group markets, rising premiums, and cascading effects that could leave certain markets without any active health insurance issuers. Commenters also expressed concern that AHPs offering comprehensive benefits may also be disadvantaged, as healthy members could leave to join lower-cost AHPs (and return when their medical needs increase).
EHB, "minimum value" nixed despite concerns. According to commenters, certain populations with specific needs, such as those with disabilities, could be disproportionately affected if their coverage does not include a robust level of benefits. Some of these commenters suggested that in order to mitigate these effects, the DOL should require AHPs to provide EHBs or some other minimum level of benefits, or require them to provide "minimum value" within the meaning of Internal Revenue Code Section 36B(c)(2)(C)(ii) and 26 CFR 1.36B-6.
Proponents of the rule, however, while acknowledging concerns that AHPs may provide inadequate benefits, did not believe that "legitimate" membership organizations would risk their goodwill and reputation by offering such health plans. Instead, they argued that economies of scale would enable AHPs to offer more comprehensive coverage to their members than they would be able to purchase on their own. One commenter noted that even though self-insured plans and large group market policies are not required to provide EHBs, most do, in fact, provide comprehensive coverage.
The DOL decided not to make the provision of EHBs in an AHP a condition for a group or association to qualify as bona fide. Such a mandate would run contrary to the goal of leveling the playing field between small employers in AHPs, on the one hand, and large employers, on the other, who generally are not subject to the EHB requirements, according to the DOL. Moreover, such a mandate could reduce AHPs’ flexibility to tailor coverage to the particular needs of the members of the group or association offering the benefits, and thereby reduce access to AHPs by making them less attractive options. Thus, the DOL also decided that the final rule would not require the provision of "minimum value" coverage as a condition for a group or association to qualify as bona fide.
The ability to design AHP benefit packages and set cost-sharing requirements without the burden of certain federal restrictions is critical to enabling AHPs to provide an additional, more affordable coverage option to small businesses and working owners who may otherwise have been unable or unwilling to obtain higher-priced coverage, the DOL said. The department also believes that concerns about adverse selection as result of AHPs not providing comprehensive coverage are "overstated." The DOL sided with those commenters who asserted that AHPs are not likely to offer relatively low levels and scope of benefits, which could jeopardize their relationship with their members.
Other protections that would apply. The DOL also said that other federal and state coverage requirements may apply to AHPs, say for example, that AHPs must provide coverage for certain recommended preventive services without the imposition of cost-sharing (Public Health Service Act Section 2713, incorporated in ERISA Section 715 and Code Section 9815). These services include:
- Evidence-based items or services that have in effect a rating of A or B in the current recommendations of the United States Preventive Services Task Force (Task Force) with respect to the individual involved;
- Immunizations for routine use in children, adolescents, and adults that have in effect a recommendation from the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention (Advisory Committee) with respect to the individual involved. A recommendation of the Advisory Committee is considered to be "in effect" after it has been adopted by the Director of the Centers for Disease Control and Prevention. A recommendation is considered to be for routine use if it appears on the Immunization Schedules of the Centers for Disease Control and Prevention;
- With respect to infants, children, and adolescents, evidence-informed preventive care and screenings provided for in the comprehensive guidelines supported by the Health Resources and Services Administration (HRSA); and
- With respect to women, evidence-informed preventive care and screening provided for in comprehensive guidelines supported by HRSA (not otherwise addressed by the recommendations of the Task Force).
The DOL also pointed out that Title VII, as amended by the Pregnancy Discrimination Act, generally provides that pregnancy-related expenses for employees and their spouses must be reimbursed in the same manner as those incurred for other medical conditions.
FAQs. In conjunction with its release of the final rule, the DOL has posted a series of "Frequently Asked Questions" about the final rule. Among other things, the FAQs state that AHPs:
- will not be able to charge different premiums to employees based on their health status;
- will not be able to charge employers different rates based on the health status of their employees;
- may not charge higher premiums or deny coverage to people because of pre-existing conditions, or cancel coverage because an employee becomes ill; and
- cannot cherry-pick or discriminate based on health or prior conditions.
Applicability. The new rule does not affect previously existing AHPs permitted under prior guidance. Such plans can continue to operate as before, or elect to follow the new requirements if they want to expand within a geographic area, regardless of industry, or to cover the self-employed. New plans can also form and elect to follow either the old guidance or the new rules.
Senate HELP Committee leaders weigh in. "To the plumber in Memphis, the songwriter in Nashville, or the bakery owner in Chattanooga, who have been paying through the nose since Obamacare took effect, who might be making $60,000 per year and paying $20,000 for health insurance and who is very likely not receiving any subsidy, the Trump Administration appears to have found a potential solution within existing law for affordable insurance," said Senator Lamar Alexander (R-Tenn.), Chairman of the Senate Health, Education, Labor, and Pensions Committee said, applauding the new rule. "Nearly 180 million Americans get their insurance on the job, and generally they are happy with it because favorable tax code treatment saves them several thousands of dollars a year, and their policies include patient protections such as coverage of pre-existing conditions. The administration’s plan would offer this same sort of lower-cost health insurance to self-employed Americans and to more employees of small businesses."
But Alexander’s Senate counterpart, HELP Committee Ranking Member Patty Murray (D-Wash.), saw it quite differently: "In pursuing these damaging policies, President Trump is ignoring people from across the country and across the political spectrum—patients, doctors, insurance commissioners, and medical experts—who all agree this latest act of sabotage will make health care in our country worse by undermining access to care for people with pre-existing conditions, destabilizing markets, and driving up costs," she said in a statement.
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