New York, Massachusetts andVermont have already taken steps to defang the AHP strategy, andother states have indicated their opposition to the GOP strategy.(Image: Shutterstock)

|

Frustrated in their attempts to demolish in one fell swoop the Affordable Care Act, Republicanshave turned to a “one thousand small cuts” strategy to disable the act. Amongthe largest of those small cuts: expansion and promotion ofassociation health plans, or AHPs, via a WhiteHouse written rule. But if several state authorities have theirway, this cut, if not healed, may be wrapped in legal bandages.

|

Compared to the myriad other attacks, the AHP strategy offers morelong-term promise for undermining Obamacare. The TrumpAdministration has marketed the “skinny” plans as a solution for“the little guy”—meaning small business owners—to provide affordableinsurance to employers and small business owners themselves. Thekey to the affordability: Such plans don't have to meet the fullrequirements of the act.

|

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

|

Related: Two opportunities created by association healthplans

|

Fear of AHP failures on a massive scale lies at the heart of theresistance. As many health authorities have noted, the past islittered with the carcasses of failed short-term group healthplans. These failures left a bitter taste in the mouths of theindividuals who got burned when the plans crashed. They also putstate regulators on red alert at the very mention of the short-termplan concept.

|

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

|

The Trump Administration noted when it unveiled its AHPinitiative that states would still have the final say in plandesign and implementation. Vermont is taking that to heart. One ofthe key provisions of the GOP strategy is to convert the short-termplans into longer term ones. Generally, they provide coverage forthree to six months and then the insured must find new coverage orlose it. Under the GOP plan, the covered individual or group canre-up every time the expiration date hits, essentially making themongoing coverage.

|

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

|

As reported by Vermont Public Radio, the state'sDepartment of Financial Regulation is developing regulationsdesigned to protect Vermont residents from past short-term planfailures.

|

“In other states we've seen examples of plans being offered toconsumers that were deceptive — either they were outright frauds orthey were deceptive in terms of the coverages that were providedand what the consumer was actually receiving,” said DFRCommissioner Michael Pieciak. “So we want make sure that there'sclear disclosure, that there's registration with ourdepartment.”

|

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

|

“We want to make sure the plans that are self-funded arewell-capitalized, so that Vermonters are protected and that theirinsurance claims are being paid,” he said.

|

California legislators are weighing a bill that would requireAHPs and other short-term plans to meet Obamacare coveragestandards. The bill passed the Senate and now awaits House action.Its enactment would strengthen the state's already tough AHPrestrictions.

|

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

|

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

|

On June 20, Massachusetts Attorney General Maura Healey and NewYork Attorney General Barbara Underwood announced that both statesintended 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 todramatically expand the footprint of Association Health Plans willinvite fraud, mismanagement, and deception – and, as we've madeclear, will do nothing to help ease the real health care challengesfacing Americans. We believe the rule, as proposed, is unlawful andwould lead to fewer critical consumer health protections. … We willsue to safeguard the protections under the Affordable Care Act andensure that all families and small businesses have access toquality, affordable health care.”

|

The suits have yet to be filed, since the GOP's short-term plansdon't become available until Sept. 1. But the joint announcement bythe two states may simply be the first legal shot at the plans. InMarch, 15 other states joined New York and Massachusetts in signinga letter opposed to the strategy. Should others decide to takesimilar legal action, the GOP may well find itself locked in yetanother drawn out battle to disable Obamacare.

|

And even if the administration does manage to navigate theseobstacles, 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 notedthat, on the surface, such plans offered many positive benefits forsmall groups, including reduced reporting requirements andexemption from key Obamacare requirements.

|

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

|

“The single biggest impediment to forming an AHP may be that thearrangement 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. … Sponsorsof AHPs will need to exercise care to ensure compliance with thosestandards, including those established by the ACA. The drawback ofbeing a MEWA is that under ERISA, states may regulate both fullyinsured and self-funded MEWAs. In some states MEWAs are illegal.For AHPs that operate in a single state, MEWA status may not be asignificant impediment. However, for AHPs that operate in a numberof 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 remainssilent on; and
  • AHPS are subject to ERISA and other laws that apply to grouphealth plans.

The law firm's analysis concludes on an ominous note for thosepromoting AHPs as a way around Obamacare: ”In addition, states thatare opposed to AHPs and MEWAs may pass legislation more heavilyregulating such arrangements. The future of AHPs may rest on howthe various states decide to regulate them.”

Complete your profile to continue reading and get FREE access to BenefitsPRO, part of your ALM digital membership.

  • Critical BenefitsPRO information including cutting edge post-reform success strategies, access to educational webcasts and videos, resources from industry leaders, and informative Newsletters.
  • Exclusive discounts on ALM, BenefitsPRO magazine and BenefitsPRO.com events
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com
Dan Cook

Dan Cook is a journalist and communications consultant based in Portland, OR. During his journalism career he has been a reporter and editor for a variety of media companies, including American Lawyer Media, BusinessWeek, Newhouse Newspapers, Knight-Ridder, Time Inc., and Reuters. He specializes in health care and insurance related coverage for BenefitsPRO.