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Association Health Plan Regulations Invalidated

The U.S. District Court for the District of Columbia has set aside the most significant portions of the U.S. Department of Labor's (DOL) regulations on Association Health Plans (AHPs). The court's ruling invalidates regulatory provisions that sought to broaden the groups of employers that could be treated as if they were a single employer, allowing them to establish health plans that did not need to meet certain Affordable Care Act (ACA) requirements. The ruling will very likely be appealed, but may—at least temporarily—dampen interest in AHPs, particularly among groups of employers that are loosely affiliated.

Although the court characterized the regulations as an "end-run around the ACA," the decision is grounded mostly in the Employee Retirement Income Security Act (ERISA). The regulations themselves sought to expand the scope of AHPs by amending ERISA's definition of "employer." That definition includes an association of employers acting in the interest of those employers in relation to an employee benefit plan. While giving deference to the DOL's authority to interpret ERISA, the court found the new regulations to be unreasonable in view of ERISA's focus on benefit arrangements that arise in the context of an employment relationship.

The court found that the new regulations did not adequately distinguish AHPs from commercial insurance arrangements. Specifically, it ruled that:
 

  • Although the regulations formally required associations to have a substantial purpose beyond the establishment of a health plan, the regulations recognized purposes with little substance, such as the issuance of a newsletter.

  • The regulatory provisions inappropriately recognized employers in the same state or metropolitan area as having a commonality of interest, when such geographic connections often do not create much of a connection among employers.

  • Sole proprietors, which are not considered to be employers under ERISA on their own, do not become employers simply by associating with other sole proprietors or organizations that employ individuals.

The ACA remains a battleground with various states filing lawsuits to stop Trump administration efforts to cut back ACA programs and their effect, while other states seek to overturn the ACA completely. Last week saw two other developments as the Trump administration fully aligned its position with those states that claim that the ACA should be overturned in its entirety as unconstitutional, and the D.C. District Court found that the state of Arkansas could not require individuals to meet a work requirement to qualify for Medicaid—which the state had previously elected to expand under the ACA.

Copyright © by Ballard Spahr LLP

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About this Author

Edward I. Leeds, Philadelphia attorney, Ballard Spahr Law firm, Employee Benefits and Executive Compensationattorney
Counsel

Edward I. Leeds concentrates on issues relating to the design, administration, and taxation of health and other welfare benefit plans. His practice has evolved with the laws and market forces that shape those plans. Mr. Leeds advises clients about compliance with the Affordable Care Act, HIPAA, HITECH, COBRA, cafeteria plan rules, and other legal requirements. He prepares clients for audits of their privacy and security measures under HIPAA and advises them about the rules governing wellness initiatives.

Mr. Leeds represents employers in the negotiation and drafting of contracts...

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