Association Health Plan Update
Association Health Plan Update
by Christoper E. Condeluci, Principal and sole shareholder of CC Law & Policy PLLC in Washington, D.C.
- Last week, I told you that – in my opinion – any legal challenge(s) brought against the proposed AHP regs would lose (see last week’s update attached). I still stand by that statement because – as stated – I believe the DOL has the authority to change its own interpretation of the law. And, in the case of the proposed AHP regulations, the DOL is NOT changing rules that are codified in statute. Rather, the rules relating to AHPs – including the rules relating to self-employed individuals with no employees – were developed through Interpretive Guidance, which can always be changed by a Federal Department.
- Analysis: BUT, where I do see legal challenges popping up is in the area of “ERISA preemption.” And, I could see a scenario where these legal challenges might indeed be successful in the fully-insured AHP context. My apologies in advance for getting all legalese on you, but here is what I am talking about:
- If a health plan is considered an ERISA-covered plan, State laws that have a direct impact on “the plan” will be preempted by ERISA (meaning, the State law would NOT apply). One exception to this preemption rule is if the State law is an “insurance law” that has a direct impact on the underlying “insurance contract.” In other words, if a State law directly impacts the “insurance contract,” then us legal geeks will tell you that this law is “saved” from ERISA preemption (i.e., the law is NOT preempted). The best example of a State insurance law that directly impacts the “insurance contract” is a State’s benefit mandate law, which requires the insurance contract to cover a specified medical service or benefit. In this case, the State’s benefit mandate law would NOT be preempted, and the fully-insured health plan providing coverage to employees MUST cover these mandated services or benefits (even an ERISA-covered fully-insured plan). BUT, when it comes to a State law that attempts to “re-characterize” – or “deem” – the ERISA-covered plan as an “insurance contract” in the State’s attempt to regulate “the plan,” a court of law may find that this law is NOT “saved” from ERISA preemption, but instead, the law IS indeed preempted (because ERISA says that a State cannot back-door its way into regulating “the plan” by calling “the plan” an “insurance contract” and then arguing that the State law is an “insurance law” that is “saved” from ERISA preemption). One example of a State law that may be found to have a direct impact on “the plan” is a law that re-characterizes a “large group” fully-insured AHP as a “small group” plan. Here, the State will surely argue that this law is an “insurance law” that has a direct impact on the “insurance contract” (and therefore, this law is NOT preempted by ERISA). BUT, an argument can be made that what the State is trying to do is to “re-characterize” – or “deem” – the fully-insured AHP as an “insurance contract” and back-door its way into regulating “the plan.” Under ERISA, this is a NO-NO, and a court of law may find that this law is NOT “saved” from ERISA preemption, but instead, the law IS indeed preempted (and therefore is null-and-void, thus preserving “large group” status for a fully-insured AHP). There is another legal argument that could lead a court to rule that any law that attempts to re-characterize a “large group” fully-insured AHP as a “small group” plan does NOT apply. And that argument goes like this: The statute of ERISA itself states that a fully-insured multiple employer welfare arrangement (MEWA) – which is synonymous with a fully-insured AHP – may be subject to any State insurance law “to the extent that such law…requires the maintenance of specified levels of reserve and specified levels of contributions.” I highlight the above language because a legal argument can be made that a State law that re-characterizes the “large group” fully-insured AHP as a “small group” plan is NOT a law that “requires the maintenance of specified levels of reserve and specified levels of contributions.”
Why is all of this legal mumbo-jumbo important? Because a number of States are interested in thwarting the Administration’s attempt to expand AHPs. And, the way States are considering pushing back is by enacting a State law that re-characterizes a “large group” fully-insured AHP as a “small group” plan. Actually, some States already have a law like this on the books. Soooo, I expect to see ERISA preemption challenges if and when States start enacting laws to re-characterize a “large group” fully-insured AHP as a “small group” plan. And, we could see ERISA preemption challenges in those States with existing laws like this. At this point, it is unclear whether the DOL will try to resolve this potential legal issue in subregulatory guidance or the final AHP regulations. But, the DOL is already getting questions on this, and we are only 1 week into the 60-day public comment period. Last comment: This same ERISA preemption question relating to fully-insured AHPs will NOT come up in the self-insured AHP context. Why? Because ERISA gives States the authority to impose ANY insurance law on self-insured AHPs through a State’s MEWA law. In my opinion, there is NO getting around State MEWA laws (unless and until the DOL decides to develop a “class exemption” – or “individual” exemptions – for self-insured MEWAs from the non-solvency requirements of State MEWA laws…but that hasn’t happened yet).
Health Policy Change Update
- Last week, I talked about how and why I do NOT believe the “cost-sharing” subsidies will be funded in the upcoming January 19th and February spending bills (see the attached update). In the end, I could be wrong, but things seem to be trending in this direction. I am now at 70% NOT happening. I also told you that I could very well see Republicans and Democrats agreeing to provide Federal funds for States to set up a reinsurance program or an “invisible high-risk pool.” It appears that House Republicans are open to negotiating with the Senate on the issue of Federal reinsurance/high risk pool funds in an effort to make good on the “promise” made to Sen. Collins (R-ME). I am 60% on an agreement for Federal reinsurance/high risk pool funds.
- Analysis: As stated, most observers believe that the January 19th spending bill will simply be a short-term extension to keep the government funded. However, CHIP Reauthorization may be included in the January 19th bill. But, I do not foresee any other health-related policy changes to make it in that bill. The big fight remains over the immigration issue, meaning most health care policy changes are second-fiddle at this stage. Assuming for a moment that there is some type of break-through on the immigration issue, then the government will remain open for a period of time, setting up another fight over spending…likely in February. Importantly, most observers believe that this February bill will not only include spending provisions, but the bill will also include non-spending provisions, possibly provisions impacting some of the ACA’s taxes. The reason I tell you all of this again is to reiterate that we very well could see things like a moratorium on the excise tax on insurance carriers (i.e., the HIT tax) and delay of the medical device tax make it into the February omnibus bill. When it comes to delay of the Cadillac Tax, I am actually somewhat bullish on a 1- or 2-year delay also making it into the February bill. After all, Chairman of the Ways and Means Committee, Rep. Brady (R-TX), recently told reporters that he – and his Republican colleagues – would like to see something on the Cadillac Tax in the upcoming spending bills. It would appear that these comments represent a “trial balloon” of sorts, signaling that Republicans are willing to negotiate on the issue. I read this as another indication that Republicans are viewing Cadillac Tax delay as a “Democratic ask.” And, while Republicans are open to Cadillac Tax delay, Republicans are positioning themselves to “get something” for agreeing to, for example, a 2-year delay of the Tax. As I speculated last week, Republicans may try to get in return something that is health care-related, like retroactive relief from the employer mandate penalties or something else ACA-related. BUT, it is not out of the question that Republicans may be using Cadillac Tax delay to “sweeten the pot” to get Democrats to agree to non-health care-related issues like immigration, or spending levels for defense, or other spending caps on domestic programs. Either way, the employer and labor communities will be pleased if they can get a 2-year delay of the Cadillac Tax in 2018, as opposed to waiting until some time in 2019 (because employers plan at least 2 years in advance when it comes to their benefit offerings, and collective bargaining agreements are typically multiple year agreements where some type of certainty on the Cadillac Tax’s effective date is extremely important).