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Court Severely Limits Association Health Plans

Says Trump Administration went too far in departing from Obamacare law.

Announced with great fanfare in 2017, the Trump Administration’s rules change allowing small employers and the self-employed to provide their employees with health insurance through Association Health Plans (AHPs) has been struck down by a federal district court judge.

In October 2017, President Trump signed an executive order directing the Department of Labor (DOL) to develop rules governing the formation and management of AHPs. Adopted in final form last year, the rules allowed small businesses and self-employed professionals and partnerships to join together and, if they were bound by geography or type of industry, to create health plans to function much like those used by single large employers.

In addition, the new AHPs were not subjected to Obamacare’s requirement that they provide a full complement of a long list of health benefits, ranging from mental health and substance abuse treatment, to maternity care and ambulance rides. This represented a body blow to the Affordable Care Act (ACA) and was viewed as another avenue for the Administration to undermine Obamacare, which it had failed to repeal in Congress.

As soon as the AHPs final rules were issued in June of last year, Democrat attorneys general of 11 states filed suit to overturn them, accusing the Administration of overreaching its authority. On March 28, a judge in the U.S. District Court for the District of Columbia agreed with them and struck down those portions of the rules that he found had violated the ACA.

That doesn’t mean new rules allowing AHPs are completely dead—just those portions that would have made them most attractive to small employers. Long before Trump’s election, federal law had allowed AHPs to exist in much more limited forms, and they are allowed under the Employee Retirement Income Security Act of 1974 (ERISA).

In striking down the new rules, Judge John Bates held that DOL had unreasonably interpreted ERISA and moved beyond its focus on employer benefit plans, stretching it instead to cover commercial insurance transactions between unrelated parties. He minced no words in describing the rules as “clearly an end-run around” the Obamacare law by the Administration.

He also found that DOL’s interpretations ERISA were contrary to the law’s text and purpose. The rules provided no meaningful limit on what associations needed to demonstrate to qualify as “employers” under ERISA, Bates pointed out. They also failed to show why geographic proximity was connected to common employer interest essential for coverage under ERISA, he added.

Coverage Called Absurd

In addition, the rules did not require members of associations to be sufficiently aligned, and allowed owners without any employees to “absurdly” count themselves as both employers and employees in order to suggest an employment relationship justifying coverage under ERISA, Bates declared.

He also remanded the rules to DOL to determine whether they can be saved after the invalidated provisions are excised. It also is quite possible that the Trump Administration will choose to appeal the judge’s decision. The day after the decision, a Justice Department spokeswoman emphasized that the Administration disagrees with the ruling and is “considering all available options.”

She added, “The Administration will continue to fight for sole proprietors and small businesses so that they can have the freedom to band together to obtain more affordable, quality healthcare coverage. The AHP rule opened healthcare options for dozens of associations representing thousands of small businesses and sole proprietors and provided them with access to the same type of affordable healthcare options offered by other employers.”

Reacting to the victory, New York Attorney General Letitia James said, “We are pleased that the District Court saw past the Trump administration’s transparent effort to sabotage our healthcare system and gut these critical consumer protections in the service of its partisan agenda.”

In a victory Tweet, California Attorney General Xavier Becerra wrote, “The rule of law prevailed yet again against the Trump Administration—today in the name of preventing employers from getting a free pass to offer barebones #healthcare coverage. Proud to stand with the states that fought for this.”

To the extent that Judge Bates’ decision is not reversed on appeal, it will replace the current restrictions on establishing AHPs under ERISA with new ones, explain Joy Sellstrom, Sam Schwartz-Fenwick and Thomas Horan, attorneys with law firm Seyfarth Shaw.

It is expected to impact only a small segment of employers because there was relatively little growth in AHPs following DOL’s final rules. It appears that only some insurers were interested in providing products to support the plans, which in many cases also were subject to burdensome state regulations. According to one report, most health insurers instead have been focusing on expanding their Medicare supplemental coverage.

“Nonetheless, this decision is significant as it reflects that nearly a decade after the passage of the ACA, the battle over what—if any—provisions of the law are lawful continues unabated,” observe the Seyfarth Shaw attorneys.

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