A federal court struck down key portions of the new association health plan (AHP) regulations last week, just days before the fledgling rules for self-insured medical plans were slated to go into effect regarding newly-created AHPs. 

The regulations were intended to promote the use of AHPs, which are a means for small employers to band together and obtain coverage in the large group insurance market, which generally imposes fewer coverage requirements.  For example, unlike the small group insurance market, policies issued in the large group insurance market are not required to cover “essential health benefits.”  Littler’s analysis of the 2018 regulations is available here. 

The U.S. District Court for the District of Columbia ruled that the Department of Labor’s final AHP regulations are based on an “unreasonable interpretation” of ERISA and that the DOL ignored the “language and purpose” of both ERISA and the Affordable Care Act (ACA).  The Court vacated the regulations’ definition of bona fide employer associations, the new “commonality of interest” standard, and the language equating working owners with employees.  See New York v. United States Dep't of Labor, No. CV 18-1747 (JDB), 2019 WL 1410370 (D.D.C. Mar. 28, 2019). The regulations have been remanded to the DOL so that the Department can determine which remaining portions of the AHP regulations (if any) will remain in effect. 

The closely-watched lawsuit was filed by eleven states and the District of Columbia last year.  After finding that the plaintiffs had jurisdiction to proceed with the challenge, the Court eviscerated two core elements of the DOL’s final regulations. 

The AHP regulations are the latest in a string of administrative regulations that have been struck down by courts, including the DOL’s fiduciary rules and the EEOC’s incentive caps for voluntary wellness plans.

Bona Fide Associations

First and foremost, the Court attacked the DOL’s expanded rules for determining which unrelated employers could be considered a “bona fide association.” 

Calling elements of the new definition “flimsy,” the Court concluded that “nearly every employer association that exists today already satisfies the Final Rule’s substantial business purpose requirement.”  It held that the regulations offer “no meaningful limit on the associations that would qualify as ‘bona fide’ ERISA ‘employers.’”

Working Owner Rules

The Court was equally concerned with the regulations’ approach for allowing working owners to be considered “employees” for purposes of an AHP. 

A working owner without employees is plainly beyond ERISA’s scope when he establishes a benefit plan for himself. The Court concludes that a working owner’s membership in an association does not bring him within ERISA. And the contention that two working owners without employees, neither of whom is within ERISA’s scope alone, could associate with one another and thereby come within the statute’s reach is absurd. Congress did not intend for working owners without employees to be included within ERISA — either as individuals or when joined in an employer association.

Questions and Answers from the Department of Labor

In response to the Court’s decision, the DOL released Questions and Answers (Q&As) to address questions that may arise following the decision – particularly from those individuals currently covered by AHPs.  With respect to participants who are currently enrolled in an AHP, the Q&As inform such participants that while the AHP may change its structure or operations going forward, existing health care claims must continue to be paid “in accordance with the policies” that govern the plan.  

Lastly, the Q&As also make clear that the DOL disagrees with the Court’s ruling and that the DOL “is considering all options . . . including the possibility of appealing the District Court’s decision and the possibility of requesting that the District Court stay its decision pending an appeal.”

Next Steps

As noted, the DOL is considering appealing the ruling.  In the meantime, and unless the DOL requests that the Court stay its decision pending an appeal, employers hoping to avail themselves of expanded AHP opportunities should expect that they will still be considered “small employers” for all purposes – including the ACA’s requirements for plans in the small employer market.