On March 28, 2019, Judge John D. Bates, of the United States District Court for the District of Columbia struck down the Trump Administration’s Association Health Plan (AHP) Final Rule.

The AHP Final Rule had been designed to allow small employers and individuals to join together to purchase health plans that would be less expensive because they would be considered large employers exempt from many of the Affordable Care Act’s (ACA) requirements.  The AHP Rule did this by expanding the definition of an “employer” eligible to establish AHPs under the Employee Retirement Income Security Act (ERISA).  Under the Final Rule, employers in the same trade, industry, or profession, or employers within the same state or metropolitan area were considered to have sufficient “commonality of interest” to establish AHPs.  In addition, under the Final Rule, self-employed individuals could be considered both employers and employees for purposes of purchasing AHPs.  As large employers, AHPs are exempt from some of the consumer protection requirements of the ACA, including the requirement to provide Essential Health Benefits (such as mental health, maternity and prescription drug coverage) and the prohibition on setting higher premiums for higher risk groups.

The AHP Final Rule was challenged by a group of eleven states and the District of Columbia who argued that the Final Rule violated both the AHA and ERISA.  The Court found that the states had standing to challenge the Final Rule because they had shown a “fairly direct link” between the Final Rule and a decrease in tax revenues and an increase in regulatory burden.

In striking down the AHP Final Rule, the Court agreed with the states, finding that:  “The Final Rule was intended and designed to end run the requirements of the ACA, but it does so only by ignoring the language and purpose of both ERISA and the ACA.”  Elsewhere, the Court stated:  “Indeed, as the President directed, and the Secretary of Labor confirmed, the Final Rule was designed to expand access to AHPs in order to avoid the most stringent requirements of ERSIA.”

In reaching its conclusion that the Final Rule was unlawful, the Court analyzed the text and purpose of ERISA and found that “the Final Rule does violence to ERISA” which “governs employee health benefit plans arising from employment relationships.”  In particular, the Court found the Final Rule’s expansion of the “commonality of interest” test to include employers within the same geography even if they had divergent interests and the inclusion of self-employed individuals even if they had no employees to be unlawful.

The Court also analyzed the text and purpose of the ACA and found that the Final Rule creates “absurd results under the ACA” and “undermines the market structure that Congress so carefully created.”

Because the Final Rule contained a severability provision, the Court remanded the Final Rule to the Department of Labor to determine how the severability provision affected the remaining provisions of the Final Rule.

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