On March 28, 2019, Judge John D. Bates of the Federal District Court for the District of Columbia issued a ruling invalidating major provisions of last summer’s final rule on Association Health Plans (AHPs). The regulations—which were released by the U.S. Department of Labor (DOL) on June 19, 2018—established additional and more flexible criteria under which an association of small employers may be treated as a single employer for the purposes of offering group health insurance plans (known as AHPs). The goal of the new rule was to allow more self-employed individuals and small businesses to purchase these large group plans, which are not subject to the same requirements as the individual market and small group plans that those individuals and businesses would typically purchase. These requirements include many protections under the Affordable Care Act (ACA).
Shortly following the release of the final rule, Attorneys General in 11 states and the District of Colombia filed suit challenging the validity of the new rule. Specifically, they claimed that the expansion of AHPs (as outlined below) was inconsistent with the Employee Retirement Income Security Act (ERISA) and longstanding interpretations of that underlying statute. They also held that the new rule undermined the ACA, increasing the risk of health insurance fraud and putting consumers and states at risk. Judge Bates agreed with the states, thus overturning key changes set forth in the new regulations.
In particular, Judge Bates held that the expansion of AHPs to include working owners was not based on a reasonable interpretation of ERISA or Congressional intent—and that it, therefore, exceeded the statutory authority delegated under ERISA. He also found that the inclusion of working owners undermined the ACA. Additionally, the judge took issue with the expansion of the commonality of interest test (which is part of the determination of whether an association is “bona fide” and therefore qualifies to purchase an AHP) to include employers whose only commonality of interest is geography, as well as the final rule’s loosening of requirements relative to the purpose of a bona fide association.
In issuing his ruling—which came down days before the final of the staggered implementation dates for the rule—Judge Bates vacated the provisions of the final rule relative to bona fide associations and working owners, which constitute a significant portion of the changes under the new rule. He sent the remainder of the rule to back the DOL to determine whether it can stand under the severability clause included in the new rule.
All eyes are now on the DOL to see if it will appeal the decision, revise the rule to align with the judge’s ruling or rescind the new rule altogether.
