Frustrated in their attempts to demolish in one fell swoop the Affordable Care Act, Republicans have turned to a "one thousand small cuts" strategy to disable the act. Among the largest of those small cuts: expansion and promotion of association health plans, or AHPs, via a White House written rule. But if several state authorities have their way, this cut, if not healed, may be wrapped in legal bandages.

Compared to the myriad other attacks, the AHP strategy offers more long-term promise for undermining Obamacare. The Trump Administration has marketed the "skinny" plans as a solution for "the little guy"—meaning small business owners—to provide affordable insurance to employers and small business owners themselves. The key to the affordability: Such plans don't have to meet the full requirements of the act.

But AHPs can be regulated by states, and several aren't going along with the GOP plan willingly. At present, resistance is strongest in the upper East Coast. New York, Massachusetts and Vermont have already taken steps to defang the AHP strategy. But other states have indicated their opposition to the GOP strategy. And compelling reasons exist to support a states revolt.

Fear of AHP failures on a massive scale lies at the heart of the resistance. As many health authorities have noted, the past is littered with the carcasses of failed short-term group health plans. These failures left a bitter taste in the mouths of the individuals who got burned when the plans crashed. They also put state regulators on red alert at the very mention of the short-term plan concept.

While on a national political level, office holders may be more or less protected from an AHP collapse voter backlash, state politicians are more vulnerable. As are state health officials.

The Trump Administration noted when it unveiled its AHP initiative that states would still have the final say in plan design and implementation. Vermont is taking that to heart. One of the key provisions of the GOP strategy is to convert the short-term plans into longer term ones. Generally, they provide coverage for three to six months and then the insured must find new coverage or lose it. Under the GOP plan, the covered individual or group can re-up every time the expiration date hits, essentially making them ongoing coverage.

Vermont intends to limit such coverage to three months, which would undercut any advantage to a small employer.

As reported by Vermont Public Radio, the state's Department of Financial Regulation is developing regulations designed to protect Vermont residents from past short-term plan failures.

"In other states we've seen examples of plans being offered to consumers that were deceptive — either they were outright frauds or they were deceptive in terms of the coverages that were provided and what the consumer was actually receiving," said DFR Commissioner Michael Pieciak. "So we want make sure that there's clear disclosure, that there's registration with our department."

AHP plan managers will have to meet strict financial standards to be able to sell the coverage at all in Vermont by Sept. 1, when AHP plan sales are scheduled to start across the nation.

"We want to make sure the plans that are self-funded are well-capitalized, so that Vermonters are protected and that their insurance claims are being paid," he said.

California legislators are weighing a bill that would require AHPs and other short-term plans to meet Obamacare coverage standards. The bill passed the Senate and now awaits House action. Its enactment would strengthen the state's already tough AHP restrictions.

But some state officials worry that they may not truly have the ability to block widespread AHP adoption by small businesses. Politico reported that Washington state's financial services commissioner remains skeptical about how far the agency can go to restrict AHP uptake.

That's why other state officials are taking more direct action against AHPs. New York and Massachusetts are suing the administration over AHP plan structure. Their basic argument: Obamacare is still in effect and, as such, requires insurers to meet certain basic criteria when offering group coverage. Because AHP plans by design don't include all the criteria, they are illegal, the states argue.

On June 20, Massachusetts Attorney General Maura Healey and New York Attorney General Barbara Underwood announced that both states intended to sue the administration over the expansion of AHPs.

In a joint statement, the two attorneys general said: "Yesterday's announcement by the Trump Administration to dramatically expand the footprint of Association Health Plans will invite fraud, mismanagement, and deception – and, as we've made clear, will do nothing to help ease the real health care challenges facing Americans. We believe the rule, as proposed, is unlawful and would lead to fewer critical consumer health protections. … We will sue to safeguard the protections under the Affordable Care Act and ensure that all families and small businesses have access to quality, affordable health care."

The suits have yet to be filed, since the GOP's short-term plans don't become available until Sept. 1. But the joint announcement by the two states may simply be the first legal shot at the plans. In March, 15 other states joined New York and Massachusetts in signing a letter opposed to the strategy. Should others decide to take similar legal action, the GOP may well find itself locked in yet another drawn out battle to disable Obamacare.

And even if the administration does manage to navigate these obstacles, it could find itself up against a tougher opponent: small employer dissatisfaction with the plans themselves.

Law firm Snell & Wilmer recently released an analysis of the GOP plan. The review noted that, on the surface, such plans offered many positive benefits for small groups, including reduced reporting requirements and exemption from key Obamacare requirements.

However, it noted, the fine print of such plans can be troubling.

"The single biggest impediment to forming an AHP may be that the arrangement will be a multiple employer welfare arrangement (MEWA)," Snell & Wilmer said. "The preamble [to the AHP rule] highlights the fact that AHPs are MEWAs numerous times. … Sponsors of AHPs will need to exercise care to ensure compliance with those standards, including those established by the ACA. The drawback of being a MEWA is that under ERISA, states may regulate both fully insured and self-funded MEWAs. In some states MEWAs are illegal. For AHPs that operate in a single state, MEWA status may not be a significant impediment. However, for AHPs that operate in a number of states, MEWA status could pose a significant problem."

Other "cons" noted by the firm:

Small employers may become subject to Mental Health Parity, COBRA, and other requirements that apply to large employers;
The rule is silent on several key plan taxation matters;
There are legal and liability issues that the rule remains silent on; and
AHPS are subject to ERISA and other laws that apply to group health plans.

The law firm's analysis concludes on an ominous note for those promoting AHPs as a way around Obamacare: "In addition, states that are opposed to AHPs and MEWAs may pass legislation more heavily regulating such arrangements. The future of AHPs may rest on how the various states decide to regulate them."

Instant Insights /

Trump, states to square off on association health plans

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