The Department of Labor’s proposed rule on association health plans (AHPs), issued in response to an , including from several states and the District of Columbia (see, e.g., comments from Alaska, Iowa, Massachusetts, Montana, Pennsylvania, and Wisconsin). States emphasized the need for clarity in the rule and affirmation of states’ long-standing authority to regulate insurance including both solvency and consumer protection issues. Iowa, for example, attributed the more than 40-year success of a multiple employer welfare arrangement (MEWA) to both the entity’s interests to serve its members and the Iowa Insurance Division’s authority to ensure that MEWAs are “adequately solvent and following fair trade practices” and argued that continued robust state insurance oversight is critical to successful AHPs.
Last week, the Iowa Senate approved two bills which, if passed by the Iowa House of Representatives, would expand the availability in the state of AHPs, a type of MEWA covered by the Employee Retirement Income Security Act of 1974 (ERISA). The legislation would allow for Wellmark Blue Cross Blue Shield to administer an AHP for the Iowa Farm Bureau Federation and could threaten the membership of Medica, the only issuer of coverage through Iowa’s exchange.
This state legislation comes in conjunction with a push by the Trump Administration to expand access to AHPs. In October, the Trump Administration released an Executive Order mandating that the United States Department of Labor consider regulations or guidance that would “expand access to health coverage by allowing more employers to form AHPs.” In accordance with the Executive Order, the Department of Labor proposed a rule on January 4 that would redefine the situations in which employers can join together to offer or enroll in an AHP that is treated as a group health plan under ERISA. Traditionally, AHPs are only available to associations existing for a bona fide purpose apart from offering health coverage. The proposed rule, if enacted, would allow AHPs among employers with a commonality of interest based on similar industry or geography, regardless of whether there was a preexisting organization. The public comment period for the proposed rule has just recently closed, so whether the Department of Labor will be pursuing expanded access to AHPs, and if so, under what conditions, remains to be seen.
SF 2349, passed by the Iowa Senate on March 5, amends current state law and allows for the development of future rules to permit the AHP arrangements that would be authorized under the Department of Labor’s proposed rule. By contrast, SF 2329, passed on March 7, would permit certain agricultural organizations to form AHPs. As reported by Bloomberg BNA, the bill is written to only allow Wellmark Blue Cross Blue Shield and “its partner in the legislation,” the Iowa Farm Bureau Federation, to establish and administer such a self-funded AHP, even though neither is explicitly named in the bill.
Supporters of the legislation commend the additional choice in health plans and see a potential for decreased health coverage costs. Others oppose the expansion of AHPs, because they are not subject to many of the regulations and protections of the Patient Protection and Affordable Care Act (ACA).
An AHP that is comprised of a group of employers is treated as a single ERISA-covered MEWA and thus is regulated as a group health plan under ERISA. ERISA preempts state law and as such may exempt these AHPs from most state regulation. Group health plans would also be exempt from compliance with many of the ACA protections, including those relating to essential health benefits coverage, rating rules compliance, and other benefit standards.
Because AHPs are subject to fewer coverage requirements, AHPs can provide a cheaper coverage alternative for healthy individuals. Conversely, individuals who require more comprehensive coverage, such as individuals with preexisting conditions, may not find AHP coverage sufficient and may need to purchase more expensive coverage on the ACA exchanges or forego health coverage altogether. Avalere Health, in a recent report published in response to the Department of Labor’s proposed rule, estimates that the proposed rule would increase the number of uninsured Americans by 130,000 – 140,000 by 2022. However, the Department of Labor has stated that the proposed changes would expand health coverage by creating more affordable ways for small businesses to offer coverage to employees.
Opponents of the legislation have expressed concern that the migration of healthy individuals from plans offered through the ACA exchanges to AHPs would undermine the stability of the ACA exchanges, which could be left with fewer enrollees and a higher proportion of enrollees with preexisting conditions. While payors could try to increase premiums to account for the imbalance, some may choose to withdraw from the exchanges if they struggle to offer financially viable coverage.
Iowa’s exchange may be particularly at risk of being destabilized. Wellmark Blue Cross Blue Shield and Aetna announced last year that, due to high costs, they would not be offering coverage through the Iowa exchange in 2018, leaving Medica as the only issuer of coverage through the Iowa exchange. Medica has suggested that it may bring a lawsuit against the state if the legislation becomes final.
Iowa may only be the first state to enact legislation in response to the Department of Labor’s proposed rule. Other states are likely to follow its lead, which may increase instability in other ACA exchanges and could affect a larger number of health care payors, some of which may be benefited by a new opportunity to form AHPs, while others currently offering coverage through the ACA exchanges would likely be adversely affected by the change.