Brief Summary: This case challenges the U.S. Department of Labor’s regulation that allows communities of interest to count as an employer as it is defined and governed by the Employer Retirement Income Security Act (ERISA). As an employer governed by ERISA, businesses may offer a single health plan, known as an association health plan, and are exempt from state health insurance regulation.
Overview: On June 21, 2018, the U.S. Department of Labor (DOL) released a final rule (Final Rule) that expanded the definition of “employer” to include working owners (i.e., sole proprietors and other self-employed individuals) and bona fide groups or associations of employers with a flexible “commonality of interest” – including simply sharing a single geographic location. The rule expanded the class of large employers under the Patient Protection and Affordable Care Act (ACA) to include a broad range of associations and individuals, which may be formed for the primary purpose of selling health insurance. Allowing these entities to be defined as a bona fide group or association of employers allows them to offer a single group health plan to their members, known as an “association health plan,” (AHP) which is regulated by ERISA. ERISA prevents these AHPs from being regulated by state insurance laws and regulations and from being subject to many of the ACA’s consumer protections.
A coalition of state attorneys general challenged the final rule for violating the APA, arguing that the DOL’s interpretation of “employer” is inconsistent with the text and purpose of ERISA. They alleged that the rule’s purpose is “to shift, through manipulation of [ERISA], a large number of small employers and individuals into the large group market because the ACA’s core protections do not apply to that market.” The plaintiffs predicted that the effects of the rule would include adults and children with less coverage and fewer benefits than Congress intended in all three markets (i.e., individual, small group, and large group), and destabilization of individual and small group markets with premiums that may be unaffordable for people with pre-existing conditions.
Court Updates: U.S. District Court for the District of Columbia – Opinion, March 28, 2019
The court concluded that “the Final Rule’s provisions defining ‘employer’ to include associations of disparate employers and expanding members in these associations to include working owners without employees are unlawful.” The court stated that the “Final Rule is clearly an end-run around the ACA.” It noted that, for decades, the DOL has interpreted employer associations narrowly so as to allow only so-called “bona fide associations” with close economic and representational ties to their employer members to qualify as “employers” under ERISA rather than any “association of disparate employers connected by geographic proximity.” It went on to say that the Final Rule “scraps ERISA’s careful statutory scheme and its focus on employee benefit plans arising from employment relationships. It purports to extend ERISA to cover what are essentially commercial insurance transactions between unrelated parties. In short, the Final Rule exceeds the statutory authority delegated by Congress in ERISA.”
Current Status: This case is being appealed in the U.S. Court of Appeals for the D.C. Circuit. Oral arguments were heard on November 14, 2019. It may be several months before the court decides the case.
Impact: The lower court’s ruling prevents AHPs from being formed under the Final Rule’s expanded interpretation of “employer.” AHPs that were already formed under that definition are no longer regulated by ERISA. As such, AHPs must comply with the ACA and state insurance regulations for the time being. However, the DOL has chosen to appeal the lower court’s ruling, which could result in a higher court reaching a different conclusion about the validity of the agency’s interpretation of the law.