When I was a boy, I would sometimes seek permission from my father to do something that I was fairly sure (if not entirely certain) my mother would disapprove of. Dad would inevitably say, “OK by me, but ask your mother.”
Dad’s reluctance to be the decider was frustrating because the “but clause,” as I came to call it, was always the death of the idea. Mom was never going to go for it, and without her permission my plans, whether poorly conceived or (in my view) the stuff of genius, were going nowhere.
The Department of Labor’s (DOL) recently final association health plan rules are like that. The rules grant permission for something many of our association, franchisor, chamber of commerce and other clients would love to do: provide health insurance to their small-group employer members or franchisees, sometimes nationwide, under a single large-group insurance contract issued to the association, franchisor or chamber, a contract unfettered by costly mandates imposed upon small-group insurance contracts.
Lockton comment: State small-group insurance markets tend to encompass employers with 50 or fewer employees, although some states extend their small-group market rules to employers with 100 or fewer employees. Employers with employee counts in excess of these thresholds are considered large-group employers. Typically, the employee counts are determined on a controlled-group basis, aggregating employee counts of employers under at least 80 percent common control.
But the DOL’s rules reserve the last word for someone else. In this case, the foil is played by the states. The DOL’s rules are clear that they don’t supplant state authority to regulate insurance within the states’ borders. And you don’t need to listen very hard to hear the association health plan doors, kicked open by the recently final regulations, beginning to slam shut, particularly in the blue states.
Lockton comment: The new DOL rules open a second path by which associations and other employer groups can, in theory, provide health insurance to small-group members under a large-group insurance contract. Older DOL rules established a still-available path by which insurers could cover small-group employers under a large-group contract issued to an association. But these old rules are available, as a practical matter, only to groups of employers in the same industry, trade or profession. States retain the right to regulate and limit, or even extinguish, association health plans whether formed under the old or the new rules.
States can slam shut these doors because association health plans are multiple employer welfare arrangements, or MEWAs. MEWAs don’t enjoy the same level of protection against state intrusion enjoyed by health plans maintained by single or related employers (i.e., employers under common control).
ERISA, the federal law governing plans sponsored by most nongovernmental employers, prevents states from regulating private employers as though they were insurance companies. But ERISA allows states to regulate insurance companies, and to regulate MEWAs, at least with respect to reserve and contribution requirements.
Blue states, particularly, were never much in favor of the new association health plan rules (or the old rules, for that matter). In comments to federal authorities in response to the DOL’s issuance of the new rules in proposed form last January, many state insurance officials warned the rules could jeopardize their individual and small-group insurance markets by allowing associations to pull some of the better risks from those markets.
The proposed rules were finalized without substantial changes, to the chagrin of these state insurance officials. In response, many have issued bulletins warning insurers, associations and other groups of employers that in their states an insurer cannot cover a small-group employer under a large-group contract, even if the contract is issued to an association or similar organization of which the small-group employer is a member.
Lockton comment: Some of these bulletins foreclose such insurance arrangements even if the association’s health plans could qualify under the old DOL rules.
So where does that leave a group of employers looking to seize significant healthcare savings by obtaining a large-group insurance contract to cover its employer members?
- An association or other group that wants to offer health insurance to large-group employer members remains free to do that, provided it can find an insurer to underwrite the program. The program could even be nationwide if the employers are in the same industry, trade or profession.
- An association or other group that wants to offer health insurance to small-group employer members under a large-group contract can do so but only in states that allow it. A multistate program, insuring employers just in permissive states, would work for employers in the same industry, trade or profession; otherwise, the arrangement would be confined to the borders of a single state.
- Most (but not all) states continue to make it problematic to self-insure health coverage under a MEWA. A self-funded program could work in select states, but only for employer members in those states. A national self-funded program, where a single plan provides coverage to multiple employers, is beyond the pale. There are other strategies that may facilitate self-funding, however, for groups willing to be a little creative.
Thus, opportunities are still out there, but they’re not as elegant and streamlined as the Trump administration had envisioned. Kicking – and holding – open the door to more national association health plan activity would likely require Congressional action barring states from throwing asunder what federal rules would permit. The likelihood of such action seems remote.