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Court Slams the Brakes on Association Health Plans’ Expansion

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March 29, 2019
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A federal court yesterday delivered a blow to efforts by the Trump administration to liberalize the rules governing association health plans. Regulations issued last June by the U.S. Department of Labor were intended to make it easier for small employers, including self-employed business owners having no common law employees, to obtain group health coverage under a single association plan constituting a large group health plan for purposes of ERISA and the Affordable Care Act. However, the U.S. District Court for the District of Columbia held that the regulations contravene federal statutory law and are therefore invalid.

The regulations had been challenged by attorneys general from the District of Columbia and 11 states, including Pennsylvania, in a lawsuit filed last July and decided just days before the regulations were to have become fully operational on April 1.

The court’s ruling invalidates key components of the regulations. The regulations, for the first time, would have authorized sponsorship of a group health plan by an association having as its primary purpose the provision of employee benefits for the employees of the association’s members. Another of the invalidated provisions would have allowed a statewide association of employers having no common interest in terms of the nature of their business activities, such as a state chamber of commerce, to sponsor a single large group health plan for its employer members.

The court also rejected the regulations’ redefinition of the term “employer” under ERISA. The redefined term would permit a business owner with no common law employees to be deemed both an employer and an employee for purposes of participating in an association health plan. The opinion of the court concluded, “Congress did not intend for working owners without employees to be included within ERISA – either as individuals or when joined in an employer association.” The court also found that the regulations constitute an “end-run around the ACA,” in part because they would facilitate avoidance by small employers of the ACA’s otherwise applicable small market insurance reforms, such as requirements for the provision of essential health benefits and certain limitations on insurance underwriting practices.

Thursday’s decision will likely not be the last word on the association heath plan regulations, as an appeal by the U.S. Department of Labor is anticipated. Pennsylvania employers, associations and insurers have for the most part moved cautiously with respect to the opportunities presented by the regulations, not only because of the uncertainties raised by this litigation, but also due to the expressed intent by the Pennsylvania Department of Insurance to resist the implementation of the regulations insofar as the state maintains authority over various aspects of association health plans’ operations. This federal court decision, coupled with the fact that the current Congress is unlikely to provide any statutory lifeline to overcome the regulatory failings described by the court, may give already wary Pennsylvanians additional reason to hit the pause button on investing significant additional time and expense preparing for expanded association health plan opportunities that may not materialize.

If you have questions about these developments or other matters involving employer-provided health coverage, please reach out to me or another member of the firm’s Employee Benefits group.


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