by Susan Nash, Steve Flores, Amy Gordon, Joanna Kerpen, and Jamie Weyeneth
Winston & Strawn LLP is an IMA member law firm…
In a one-two punch, last week, the Trump administration dealt a crushing blow to the Affordable Care Act (ACA) in the form of an executive order and a decision by the Administration to stop funding costsharing reduction (CSR) payments on the public health care exchanges (Marketplace Exchanges). Together, these two actions, along with other extensive measures targeted at weakening the ACA, make good on a central Trump campaign promise to repeal and replace the ACA. These measures are born out of the Administration’s frustration at Congress’s failure to pass health care reform legislation this year. While the Administration cannot unilaterally change ACA provisions that are written into law, it can take administrative and regulatory action to dismantle the structural underpinnings of the law. These broad and sweeping proposals have the potential to meaningfully change the health care landscape under the ACA. All stakeholders in the business of providing health care will be impacted in some manner by these recent developments. In this briefing, we summarize these developments and offer some insights as to how the health insurance markets and employer-provided coverage may be impacted.
Trump Executive Order
The Presidential Executive Order issued on October 12, 2017, entitled “Promoting Healthcare Choice and Competition Across the United States” (Order), directs regulatory agencies with authority over regulating health plans to make changes to regulatory and sub-regulatory guidance in three areas: (i) association health plans (AHPs); (ii) short-term limited duration insurance (STLDI); and (iii) health reimbursement arrangements (HRAs). The stated policy goals of the reforms are aimed at (1) expanding availability of and access to alternative and less expensive forms of insurance; (2) re-injecting competition into the health care markets by lowering barriers to entry, limiting excessive consolidation and preventing abuse of market power; and (3) improving access to and quality of information that people need to make informed health care decisions.
Association Health Plans
The Order directs the Secretary of the Department of Labor (DOL), within 60 days of the date of the Order, to consider proposing regulations or revising guidance to expand access to health coverage by allowing more employers to form AHPs. This could be done through expanding the commonality of interest requirements under current DOL advisory opinions interpreting the definition of “employer” in Section 3(5) of the Employee Retirement Income Security Act of 1974 (ERISA), or promoting the formation of AHPs on the basis of common geography or industry. The term “association coverage” or “association health plan” is not a distinct category of health insurance under the ACA, ERISA, or the Public Health Security Act (PHSA), nor does the ACA specify whether such plans are to be treated as individual policies, small, or large group health plans for purposes of the insurance market reforms under the ACA. In a guidance issued in 2011 by the Centers for Medicare and Medicaid Services (CMS), which has jurisdiction over enforcement of certain provisions of the ACA as applied to health insurance issuers, CMS referred to “association coverage” as health insurance coverage that is offered to a collection of individuals and/or employers through entities that may be called associations, trusts, multiple employer welfare arrangements, purchasing alliances, or purchasing cooperatives. CMS also took the position in this guidance that only in rare instances would an association of employers be treated as the employer, itself, and considered a single group health plan. ERISA’s definition of “employer” and, by extension, the criteria to constitute a “bona fide” association under ERISA is critical to determining how the insurance market requirements apply to association coverage. ERISA defines an “employer” to mean any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan; and includes a group or association of employers acting for an employer in such capacity. Most association health plans today are treated as small or individual groups for purposes of insurance underwriting and may also be subject to special reserve, registration, and licensing requirements under federal and state law applicable to multiple employer welfare arrangements (MEWAs). If an AHP is treated as a large group health plan sponsored by a single employer, it is exempt from these onerous MEWA rules and is also exempt from many of the insurance reform requirements applicable to individuals and small groups under the ACA, such as the prohibition on setting premiums based on health status, community rating, age-banded rating, and the requirement to cover ten essential health benefits. For a group or association of employers to qualify as a single employer under ERISA, the group of employers must be: (1) a “bona fide” association of employers tied by a common economic or representation interest, unrelated to the provision of benefits (commonality of interest test); and (2) the employer members of the organization that sponsor the plan must exercise control, either directly or indirectly, both in form and in substance over the plan (control test). Among the factors considered by the DOL in determining whether an association is a bona fide association under the ERISA standard are: how members are solicited; who is entitled to participate and who actually participates in the association; the process by which the association was formed, the purposes for which it was formed, and what, if any, were the preexisting relationships of its members; the powers, rights, and privileges of employer members that exist by reason of their status as employers; and who actually controls and directs the activities and operations of the benefit program. Further, to be a bona fide association, the employers that participate in the program must, either directly or indirectly, exercise control over the program, both in form and in substance. In addition, association membership is limited to employers tied by a common economic interest unrelated to providing benefits and control of the plan. Conversely, where several unrelated employers merely execute participation agreements (such as through a commercial promoter) or similar documents as a means to fund benefits, in the absence of any genuine organizational relationship between the employers, no employer group or association is recognized under current DOL rules. In interpreting the definition of “employer” for purposes of ERISA, the DOL has expressed the view in various opinion letters that where several unrelated employers merely execute identically worded trust agreements or similar documents as a means to fund or provide benefits, in the absence of any genuine organizational relationship between the employers, no employer group or association exists for purposes of ERISA. Similarly, where membership in a group or association is open to anyone engaged in a particular trade or profession regardless of their status as employers (i.e., the group or association members include persons who are not employers) or where control of the group or association is not vested solely in employer members, the group or association is not a bona fide group or association of employers for purposes of ERISA. It is possible that CMS, taking direction from the Order, could reverse or revise its sub-regulatory guidance applicable to associations, thereby making it easier for AHPs to be treated as large employers for ACA purposes. It is also possible that the DOL, acting on the Order, could make changes to the MEWA rules by loosening restrictions on the requirements to be a bona fide association, such that small employers in different geographic areas or associations of individuals in the same trade or profession or in the same line of business could be recognized as one “employer” and underwritten as a large group for insurance purposes, or even band together to self-insure the risk and avoid state mandated benefit requirements. These changes would permit groups of small employers, or perhaps even individuals, to band together for purposes of providing insurance to its members on a large group fully-insured or self-insured basis exempting the arrangement from many of the more restrictive ACA requirements. Given that many states have their own MEWA laws and regulations, the application of state laws to such arrangements would still have to be analyzed, and it is possible that states may take legal action in response to the loosening of restrictions at the federal level.
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