March 19, 2018
Lisa Campbell, Tammy Killion, and Lisa Lowenstein (Groom Law Group, Washington, DC)*
This Bulletin is brought to you by AHLA’s Health Care Reform Educational Task Force.*
This year the Departments of Labor (DOL), Treasury, and Health and Human Services, (together, the Departments) released two proposed rules: (1) DOL’s proposed rule expanding the applicability of association health plans (AHPs); and (2) the Departments’ proposed rule creating more options for short-term, limited-duration insurance (STLDI). The Departments released these rules in response to the President’s October 12, 2017, executive order (No. 13813), which directed the Departments to consider issuing guidance or proposing regulations regarding AHPs, STLDI, and health reimbursement arrangements (HRAs). The Treasury has not yet released HRA guidance.
AHP Proposed Rule
On January 4, 2018, DOL released AHP Proposed Rule1 proposing to expand the types of arrangements that can be considered AHPs for purposes of the Employee Retirement Income Security Act (ERISA). The AHP Proposed Rule would broaden the criteria under which associations could be formed to offer health coverage and such coverage would be treated as single plans at the association level.
Under current law, insured AHPs are generally subject to “look through” treatment, meaning if a group health plan exists at the participating employer level, the size of each employer participating in the arrangement determines whether that employer’s coverage is subject to the small group or the large group market rules. Likewise, if individual insurance coverage is issued through an association, but is not in connection with a group health plan, it is considered individual health insurance.2 It is possible for a single group health plan to exist at the association level, but the Centers for Medicare and Medicaid Services has recognized those are “extremely rare instances.”3
Accordingly, if finalized as proposed, the AHP Proposed Rule would make it easier for an AHP to be considered an “employer” sponsoring a single group health plan; therefore, more AHPs would be able to offer large group coverage, which is not subject to certain requirements that apply to the individual and small group markets. Two types of AHPs would likely result: (1) association-based plans that do not meet all of the conditions of the proposal and would still be subject to “look through” treatment; and (2) AHPs that meet all the conditions of the AHP Proposed Rule and would therefore be considered group health plans at the association level.
The AHP Proposed Rule addresses the following key issues:
- Commonality of interest. The rule would expand the DOL’s current “commonality of interest” test to determine whether an association is the employer plan sponsor of a group of employers. Under the proposed rule, the DOL would allow any size employer (including working owners, as discussed below) to join an AHP if the employers (1) are in the same trade, industry, line of business, or profession; or (2) have a principal place of business in a region that does not exceed boundaries of a state or metropolitan area. Notably in a significant break from past guidance, the rule proposes that associations would be able to sponsor plans even if the association exists—or is newly formed—solely for the purpose of offering health coverage to its employer members.
- Working owners, including sole proprietors. Also departing from current law, the proposed rule would allow working owners—including sole proprietors with no common law employees—to be considered both employers and employees for purposes of AHP membership.
- Nondiscrimination requirements. The AHP Proposed Rule would prohibit an AHP from rating employer groups differently based on health status factors. If this provision is finalized, AHPs could treat participants as similarly-situated, distinct groups based on bona fide employment-based classifications (e.g., full-time versus part-time, current employee versus former employee, and geography).
- Preemption. The AHP Proposed Rule does not state that it intends to preempt state laws. Under current law, ERISA does not preempt states from regulating AHPs and other multiple employer welfare arrangements, and the Public Health Service Act (the law regulating fully-insured AHPs) preempts state insurance law only when state insurance law prevents the application of the federal standard. Therefore, it appears as though the AHP Proposed Rule would not preclude states from having more restrictive requirements.
Comments on the AHP Proposed Rule were due March 6, 2018, and as of March 15, DOL has posted 720 comments on the Proposed Rule on its website. The rule does not indicate an effective or applicability date for the finalized provisions, but because this rule is “economically significant,” any final requirements will likely be effective at least 60 days after the final rule is published, absent good cause for accelerating the effective date.
STLDI Proposed Rule
On February 20, 2018, the Departments released the STLDI Proposed Rule.4 While STLDI is not considered an excepted benefit, it is also not considered individual health insurance and is therefore exempt from the market reform requirements under the Affordable Care Act (ACA). Before 2016, the Departments had defined STLDI as health insurance coverage that expired less than 12 months after the original effective date. However, in October 2016, the Departments issued a final rule shortening the permitted duration of STLDI to be less than three months, including any period for which the policy may be renewed.5 As a response to executive order No. 13813, the STLDI Proposed Rule generally proposes to reinstate prior STLDI requirements.
The STLDI Proposed Rule makes the following proposals:
- Extended duration of less than 12 months, as opposed to less than three months. The rule would change the definition of STLDI to allow a maximum coverage period of less than 12 months after the contract’s original effective date. As noted above, prior to 2016, the Departments defined STLDI to be less than 12 months, so this extension would essentially reinstate previous policy.
- Policyholder extensions. While the current requirements do not explicitly allow or prohibit reapplication for STLDI coverage, the STLDI Proposed Rule proposes that the expiration date in the STLDI contract would account for any extensions that may be elected by the policyholder without the issuer’s consent. The Departments seek comments on various aspects of this proposal, including the conditions under which issuers should be able to consent to allow STLDI to continue for 12 months.
- Notice language for STLDI policies. The rule proposes that the STLDI contract and any application materials have notice language in at least 14-point font, stating that the coverage is not required to comply with federal requirements for health insurance, particularly those subject to the ACA. The required notice language for 2018 contracts includes statements that the coverage is not minimum essential coverage, but this language is removed for contract years beginning 2019 and beyond, since, under current law, the individual mandate penalty ends after 2018.
- State law. Under the proposal, states are still able to apply their own laws to this coverage, as long as state law requirements are the same as or more restrictive than the federal standards. For example, a state with a shorter duration of STLDI (e.g., less than three months, as is the current requirement) would be able to retain that requirement, even if the federal rules expand the duration.
Comments on the STLDI Proposed Rule are due April 23, 2018. The rule proposes to make the finalized provisions effective 60 days after the final rule is published.
*This Bulletin was edited by Abigail L. Kaericher (Hall Render Killian Heath & Lyman PC, Washington, DC).
1 Definition of “Employer” Under Section 3(5) Of ERISA-Association Health Plans, 83 Fed. Reg. 614 (Jan. 5, 2018).
2 See Centers for Medicare and Medicaid Services (CMS) Insurance Bulletin (Sept. 1, 2011).
3 See CMS Insurance Bulletin No. 02-03 (Aug. 2002).
4 83 Fed. Reg. 7437 (Feb. 21, 2018).
5 81 Fed. Reg. 75316 (Oct. 31, 2016).