By Pension and Benefits Editorial Staff
The Department of Labor has issued a policy statement on association health plans (AHPs) in light of a federal district court in the District of Columbia’s partial invalidation of the Trump Administration’s association health plan final rule. The DOL noted its disagreement with the court’s ruling in State of New York v. United States Department of Labor, and that the Department of Justice filed an appeal on April 26, 2019.
Rule invalidated. Concluding that the DOL’s 2018 AHP final rule “is clearly an end-run around the ACA” and, moreover, that it “does violence to ERISA,” the court on March 28 invalidated two key provisions broadening the meaning of “employer associations” to include small businesses (with or without employees) and self-employed individuals so as to avoid the ACA’s health care market requirements.
“[T]he Final Rule’s provisions defining ‘employer’ to include associations of disparate employers and expanding membership in these associations to include working owners without employees are unlawful and must be set aside,” district judge John Bates wrote.
Enforcement curtailed. The DOL said that for an interim period of time, it will not pursue enforcement actions against parties for potential violations stemming from actions taken before the district court's decision in good faith reliance on the AHP rule's validity, as long as parties meet their responsibilities to association members and their participants and beneficiaries to pay health benefit claims as promised.
The DOL also will not take action against existing AHPs for continuing to provide benefits to members who enrolled in good faith reliance on the AHP rule’s validity before the district court's order, through the remainder of the applicable plan year or contract term.
New test on hold. The AHP rule established a new test as an alternative to that described in prior DOL sub-regulatory guidance for determining who can sponsor an ERISA-covered AHP as an “employer,” the DOL noted. The AHP rule was intended to expand access to affordable, high-quality health care options, particularly for employees of small employers.
The DOL said it recognizes that many businesses and employees have obtained health coverage from AHPs in reliance on the final rule before the district court ruling. The department said that many of these businesses and employees have said they are concerned that their health coverage must terminate, which would cause significant disruption. For example, new coverage would impose new deductibles and out-of-pocket maximums without giving credit for prior participant out-of-pocket expenses paid. Switching insurance can also cause gaps in coverage, leaving individuals without much needed benefits for chronic diseases and emergency care until the new insurance becomes effective.
The DOL’s new interim enforcement policy will remain in effect for existing AHPs until their current plan year or contract term expires.
Coverage through end of plan year. The DOL said that it is “committed to taking all appropriate action within its legal authority to minimize undue consequences on employees and their families.” Employers participating in insured AHPs can generally maintain that coverage through the end of the plan year or, if later, the contract term, the DOL said. Consequently, employees generally can keep their coverage in force.
The Department of Health and Human Services (HHS) has advised the DOL that employer members of an insured AHP have an independent right under the guaranteed renewability provision of the Public Health Service Act (PHSA) to continue insurance coverage (including maintaining all out-of-pocket accumulators for employees and their families) through the end of the applicable plan year, unless an exception applies. This means that if an AHP purchased a large group insurance policy, then the insurer must generally continue the coverage in force for each participating employer and its covered employees at that employer's option through the end of the plan year.
Renewal at end of plan year. The DOL explained that at the end of the plan year, the issuer would only be able to renew the coverage for an employer member of an AHP formed pursuant to the Department's final rule if the coverage complies with the relevant market requirements for that employer's size, such as, for insurance sold to small employers, the essential health benefits requirements and premium rating rules. An insurer can satisfy the requirement to continue the coverage in force by continuing coverage for each employer-member of the association that chooses to continue coverage, either through the master policy with the association, or through separate contracts with each employer-member on an outside-the-association basis.
Other compliance problems. Despite the ability to keep insurance policies in force, the DOL said that plans, health insurance issuers, plan fiduciaries, employers, and service providers, as well as participants and beneficiaries, may encounter a wide variety of other compliance-related issues and concerns as a result of the court’s ruling. The DOL pledged to work with affected parties, HHS, and the states “to mitigate any disruptions or hardships that result from confusion regarding the status of the AHP rule and legal compliance requirements.”
The DOL will focus its efforts on ensuring that participants and beneficiaries get their health benefits claims paid as promised, and on reducing the risk of adverse consequences to affected employer associations, and their employer members, that relied in good faith on the rule.
HHS enforcement policy. HHS told the DOL that it will not pursue enforcement against nonfederal governmental plans or health insurance issuers for potential violations of Title XXVII of the PHSA caused by actions taken before the district court's decision in good faith reliance on the rule's validity, through the remainder of the applicable plan year or contract term that was in force at the time of the district court's ruling. HHS also will not consider states to not be substantially enforcing the applicable requirements under Title XXVII in cases where the state adopts a similar approach with respect to health insurance coverage issued within the state.
Proceed with caution. The DOL issued this warning for employers: “It is important for employers to carefully consider their near-term coverage options. If a small employer or sole proprietor voluntarily drops coverage offered by or through the association, the employer or sole proprietor may have to wait to obtain new coverage in the small group or individual market, as applicable, which can create gaps in coverage.”
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