Federal District Court Rejects Trump Administration’s Proposal for Association Health Plans
On Friday, March 28, 2019, U.S. District Judge John D. Bates rejected the Trump Administration’s proposal for association health plans (AHP). The decision came in a lawsuit, New York v. United States Department of Labor, filed by New York and 10 other states as well as the District of Columbia, and alleged that the Trump administration’s final rule (Final Rule) improperly stretched the statutory definition of “employer” beyond the intent of the Employee Retirement Income Security Act of 1974 (ERISA).
Final Rule on Association Health Plans
The Final Rule was designed to allow small businesses and sole proprietors to combine their forces to offer health plans outside the Affordable Care Act (ACA) that would be less expensive, but provide fewer health protections. The full text of the Final Rule is available here.The plans would also be offered across state lines. The Trump administration promulgated the Final Rule in June 2018.
Under the Final Rule, AHPs were exempt from many consumer-protection mandates of the ACA. AHPs were not always required to provide “essential health benefits” like mental health care, drug abuse treatment, emergency services, and prescription drugs. AHPs could also use demographic factors such as age, gender, and occupation to set premiums.
District Court’s Reasoning
Judge Bates voided major provisions of the Final Rule and sent it back to the Department of Labor (DOL) to determine if any of the Final Rule could be salvaged. The court held that the Final Rule was inconsistent with established definitions of what constitutes an employer under ERISA, the federal law that governs workplace health and pension benefits in the United States and that provides the framework for employer-sponsored health plans.
The Final Rule, according to Judge Bates, unlawfully “expands the definition of ‘employers’ to include groups without any real commonality of interest and to bring working owners without employees within ERISA’s scope.” Thus, the Final Rule was struck down as a violation of the Administrative Procedure Act, which sets the standards for federal rule-making. The District Court’s 43-page ruling is provided here.
Department of Labor’s Response
The DOL published a Questions and Answers (Q&As) in response to the District Court’s decision. The Q&As is provided on the DOLs website here. In the Q&As, the DOL expressed disagreement with the District Court’s decision. While the DOL has not reached a decision on how to proceed, the DOL and Department of Justice are considering all available options, including the prospect of appealing the decision and requesting that the District Court stay its decision pending an appeal. Pending definitive action by the courts, AHPs that were formed under the Final Rule face an uncertain future and the risk of further federal and state regulatory action, as well as lawsuits, in the current highly charged atmosphere surrounding healthcare policy.
If you have questions or would like more information, please contact any member of our Employee Benefits group.