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Court Unravels New Association Health Plan Rules


It’s been just over a year since the new Association Health Plan (AHP) rules were released to the thrill and equal dismay of many. At least thirty-four business groups across the nation have formed AHPs under the new rules, according to administration officials, covering individuals in 13 states. Balanced against that embrace of the new AHP rules, eleven state attorneys general and the District of Columbia challenged the validity of the new rules under the Employee Retirement Income Security Act (ERISA) in July 2018 and on March 28, 2019 the court delivered a victory to them and a set-back to the Trump administration and its attempts to weaken the Affordable Care Act (ACA).

AHP Rule “Does Violence To ERISA…”

As noted in our prior alert, by modifying the term “employer” in ERISA, the new AHP rules allowed small businesses and working owners without employees to band together based on geography or industry to buy health insurance in the large group market and effectively avoid the ACA requirements that apply to the small group market. The U.S. District Court for the District of Columbia rejected this approach. In fact, the Court spent a good deal of its opinion describing how the new AHP rule “does violence to ERISA,” “scraps ERISA’s careful statutory scheme,” and “creates absurd results under the ACA.” It found that the Department of Labor (DOL) had unreasonably expanded the definition of “employer” under ERISA beyond any meaningful limit by including working owners and groups without a true commonality of interest in order to “end run the requirements of the ACA”. The Court found that the new rules allowed business owners without employees to “absurdly” view themselves as both an employer and employee in order to create an employment relationship sufficient to satisfy ERISA. The court also determined that the AHP rule permitting employers within a common geography to form an AHP failed to show the necessary commonality of interest to form a bona fide association. As Judge Bates noted, “ERISA imposes a common interest requirement, not merely a something-in-common requirement”. The Court addressed these matters by striking down pivotal portions of the AHP rules, which may effectively spell their doom.

So…What now?

For those who championed and relied upon the new rules, hope remains. Referring to the severability provision of the AHP rules, the Court remanded the matter back to the DOL to determine whether the rules can survive absent the provisions invalidated by the Court. The DOL could rescind the entire rule or revise the commonality of interest standard and provisions concerning working owners. It seems more likely that the Court’s ruling will be appealed to the D.C. Court of Appeals. In the meantime, the immediate impact will be on the creation of new self-insured AHPs, which were permitted to commence under the AHP rules on April 1, 2019. The more difficult question concerns existing AHPs. Since critical portions of the AHP rule were vacated, it remains to be seen whether existing AHPs that relied on the new rules can continue to operate.

For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.

David McFarlane
Partner – Los Angeles
Phone: +1 213.443.5573