On August 23, 2018, the attorney generals from eleven states and the District of Columbia filed a motion for summary judgment in their lawsuit against the Department of Labor, seeking to stop the implementation of its Final Rules governing Association Health Plans (AHPs), which they argue were adopted “for the express purpose of overriding the Patient Protection and Affordable Care Act (ACA), and exempting a significant portion of the health insurance market from the ACA’s core protections.

     The Final Rules were adopted on June 19, 2018 in order to implement an Executive Order, whose goal was “to expand access to affordable health coverage, especially among small employers and self-employed individuals.”  The Final Rules did this by creating a more flexible definition of “commonality of interest” under §3(5) of ERISA, thereby broadening the definition of who is considered an “employer” eligible to sponsor an “employee welfare benefit plan” or “group health plan.”  In short, the Final Rules allow employers to band together to form associations for the express purpose of offering health coverage if they either are (1) in the same trade, industry, line of business, or profession, or (2) have a principal place of business within a state or a metropolitan area, even if the metropolitan area includes more than one state.  The intent of the Final Rules was to expand access to affordable health coverage by allowing employers, including sole proprietorships, to form associations to offer health insurance, without the burdens of the ACA’s regulatory requirements.

     The lawsuit and motion argue that the Final Rules violate both the ACA and ERISA. The motion argues that the Final Rules violate the ACA by seeking to overturn Congressional intent to ensure that individuals and employees of small business could purchase comprehensive health insurance coverage.  Under the Final Rules, AHPs are considered large employers.  As such, they will not be required to provide the ACA’s Essential Health Benefits (such as mental health, maternity, prescription drugs, and hospitalization) and they will not be required to follow the ACA’s federal pricing rules, allowing them to set lower premiums for lower risk groups (such as the young) and higher premiums for higher risk groups (such as the elderly or those in high risk industries).

     The motion argues that Congress required small employers’ insurance plans to cover the Essential Health Benefits and to follow the pricing rules because it recognized that “these markets have historically had worse coverage and were more volatile than the large group market.”  Therefore, “Congress made a legislative judgment that the individuals and employees of small employers require more robust consumer protections than employees of large employers.”  In short, the motion argues that the Final Rules violate the ACA because their “stated intent” is “to undo the legislative judgment based on Defendants’ belief that Congress made the wrong policy choice.”   

     The motion also argues that the Final Rules violate ERISA by deeming sole proprietors to be eligible to form associations and by allowing unrelated employees in a state or metropolitan areas to form associations for the sole purpose of selling health plans for profit.  Consequently, the motion argues that the Rules overturn over 40 years of ERISA precedent.  In the Final Rules, the Department of Labor recognized that it had historically taken a different view.  However, the Department justified this departure on the grounds that no previous Department advisory or court decision forecloses the Department from adopting a more flexible commonality of interest test.  Moreover, the Rules state that the Department should be guided by ERISA’s purposes, which include the need to expand access to healthcare.  The Government will likely make these same arguments in opposition to the motion. 

     The Final Rules were issued on June 19, 2018 and became effective on August 20, 2018.  They allow associations to offer fully insured AHPs beginning January 1, 2019 and self-insured AHPs on April 1, 2019.  Although the states are not currently seeking injunctive relief, the motion notes that they are closely monitoring the situation and may later seek an injunction to stop the issuance of any AHPs.

     The lawsuit is State of New York et al. v. U.S. Department of Labor et al., case number 1:18-cv-01747, pending in the United States District Court for the District of Columbia.  For Whatley Kallas’ earlier article on the Final Rules, click here.