DOL Regulations on Association Health Plans: How Will They Affect the Health Insurance Marketplace?Last year, the President issued an Executive Order directing the Secretary of the Department of Labor (DOL) to issue regulations to expand access to association health plans (AHPs). Earlier this year, the DOL issued final regulations and FAQs on AHPs. The regulations broaden the definition of an “employer” under the Employee Retirement Income Security Act (ERISA). The revised definition is intended to assist employers in joining together as a group or association of employers by geography or industry to sponsor a group health plan. This change is significant because a plan treated as being adopted by a large single employer can potentially avoid some Affordable Care Act (ACA) reforms applicable to the individual and small group insurance markets, such as the requirement to provide essential health benefits. More recently, the DOL has issued a Compliance Assistance Publication that provides more informal guidance on the changes.

The key aspects of the guidance are:

  • Commonality of Interest — Employers may band together as a group to offer health coverage if they are either (1) in the same trade, industry, line of business, or profession; or (2) have a principal place of business within a region that does not exceed the boundaries of the same state or the same metropolitan area (even if the metropolitan area includes more than one state). The group or association of employers must have at least one “substantial business purpose” unrelated to offering and providing health coverage or other employee benefits to its employer members and their employees, even if the primary purpose of the group or association is to offer the coverage to its members. The final regulations include a safe harbor under which a substantial business purpose is considered to exist in cases where the group or association would be a viable entity even in the absence of sponsoring an employee benefit plan.
  • Employer Control — The regulations set forth a requirement for employer control. The control test provides that the functions and activities of the group or association must be controlled by its employer members, and the group or association’s employer members that participate in the group health plan must control the plan. Control must be present both in form and in substance; control is determined based on a facts-and-circumstances test. Members are not required to manage the day-to-day affairs of the group, association, or plan. The final regulations include a requirement that a group or association cannot be a health insurance issuer as defined in ERISA or be owned or controlled by such a health insurance issuer, although the prohibition does not apply to entities that participate in the group or association in their capacity as employer members of the group or association.
  • Eligible Participants — The group of eligible participants includes employees of a current employer member of the group or association, former employees of a current employer member of the group or association who became entitled to coverage under the group’s or association’s group health plan when the former employee was an employee of the employer, and beneficiaries of such individuals (e.g., spouses and dependent children). For working-owner coverage (discussed below), a special provision in the regulations provides that, except as may be required for purposes of COBRA continuation coverage, an individual eligible for coverage under the group health plan as a working owner (and the individual’s beneficiaries) cannot continue to be eligible for coverage under the group health plan for any plan year after it is determined that the individual does not meet the conditions for being treated as a working owner under the final regulations.
  • Working Owners — A working owner without common law employees may qualify as an employer and employee for purposes of an AHP. Plan fiduciaries have a duty to reasonably determine that the conditions of the working-owner requirement are satisfied and to monitor continued eligibility for coverage under the AHP. The hours-worked provision for a working owner is an average of 20 hours per week or 80 hours per month.
  • Nondiscrimination — Using existing nondiscrimination requirements under the Health Insurance Portability and Accountability Act (HIPAA), a group or association cannot restrict membership in the association based on any health factor. The HIPAA rules define a health factor as health status, medical condition, claims experience, receipt of healthcare, medical history, genetic information, evidence of insurability, or disability. AHPs cannot treat member employers as distinct groups of similarly situated individuals. However, AHPs are not precluded from making distinctions between employer members in all circumstances. Distinctions based on a factor other than a health factor (such as industry, occupation, or geography) are permitted, and several examples are provided in the regulations.

The regulations became effective on September 1, 2018, for plans that are fully insured and that meet the requirements for being an AHP sponsored by a bona fide group or association of employers. The effective date is January 1, 2019, for any plan that is not fully insured, was in existence on June 21, 2018, meets the requirements that applied before June 21, 2018, and chooses to become an AHP sponsored by a bona fide group or association of employers. On April 1, 2019, the regulations become effective for any other plan established to be, and operated as, an AHP sponsored by a bona fide group or association of employers.

We will continue to monitor developments on the new regulations and what impact they may have on health insurers.

If you have any questions about the regulations, contact David Joffe at djoffe@bradley.com.

The Uncertain Legal Intersection of Genetic Tests and Life InsuranceThe growth of direct-to-consumer DNA kits is a big deal with significant ramifications for the life insurance industry. Direct-to-consumer DNA kits, commonly used to track ancestry roots, increasingly allow individuals to assess their potential health risks by predicting genetic illnesses. Now, Google-backed 23andMe and Ancestry.com offer DNA test kits for $99, which can be ordered online with the click of a button. The DNA reports can recognize genetic variants associated with an increased risk of developing certain health conditions, including Alzheimer’s, Parkinson’s, and the BRCA1/BRCA2 genes, which are linked to increased risk of ovarian and breast cancer.

For life insurers, an industry that relies on its ability to manage risk-taking when it comes to health, this new DNA era could mean an information disadvantage compared to the consumer. Making matters more complicated for insurers, almost half of the states have enacted laws regulating how insurers either request genetic tests or ask for genetic information during the underwriting process. The laws are more expansive than the federal Genetic Information Nondiscrimination Act (GINA) enacted in 2008, which prevents genetic discrimination in the health insurance sector. For example, California state law both (1) regulates how an insurer may use genetic information obtained during the underwriting process (Cal. Ins. Code § 10143) and (2) restricts insurers from requiring applicants to undergo genetic testing (Cal. Ins. Code § 10148). Several other states have passed similar laws. These laws were largely enacted in the 1990s and 2000s, and they were formed on the premise of protecting genetic results as a form of private property.

Most regulation regarding genetic information was enacted long before the widespread dissemination of direct-to-consumer DNA kits, which have exploded in popularity in the last year or so. Given such regulation, most, if not all, life insurers have steered clear of the issue by not asking for genetic information or requesting genetic testing regardless of the jurisdiction. With applicants gaining the upper hand, however, insurers may be prompted to take a different approach by asking for available genetic information during the application process. The challenge will be for insurers to appropriately navigate state laws governing use of genetic information during the underwriting process.

In the meantime, there is an argument that the non-disclosure of unrequested genetic information could constitute fraud, giving rise to rescission of a life insurance policy. Life insurers rely on the honesty of applicants. The validity of a policy depends upon the full disclosure of all material information. It would seem manifestly unfair for an applicant to know that she has the BRCA1 gene, which she recently learned of through a 23andMe test, and then not disclose that information on a life insurance application. Although life insurance applicants generally have no duty to disclose unasked-for information, varying types of questions could conceivably be interpreted as seeking genetic information. For example, general questions such as “Are you in good health?” or “Have you ever received advice?” regarding a disease could arguably trigger an obligation to reveal a genetic predisposition. Similarly, questions about “family history” could arguably require disclosure of genetic information. That said, there is sufficient vagueness and ambiguity in this area that would probably undermine a rescission claim. Specifically, vagueness in an application question and its answer creates a difficult situation requiring the reconciliation of two competing standards: (1) the requirement to interpret questions in a light most favorable to the applicant; and (2) the general rule that individuals with knowledge of an omitted condition are more likely to have committed fraud. Given that rescission in most states hinges on “intent” to deceive the insurer, it is unclear whether the non-disclosure of genetic information to a non-specific application question could actually be used to prove intent to deceive. To date, this legal question is untested in the courts.

As genetic information becomes so easily accessible for individuals, the life insurance industry will need to address what is becoming an uneven playing field. Changing underwriting practices and application questions will be challenging given the patchwork of state laws regulating the use of genetic information. Rescission arguments arising from the non-disclosure of genetic information in life insurance applications will also remain murky until these complex legal questions are resolved in the courts, presumably in the near future.

Alabama’s Act Aimed at Prohibiting Financial Abuse of Elders – Should It Be Expanded to Cover Insurers and Insurance Agents?Alabama’s Elder Abuse Act attempts to protect financial abuse of elders. But by not including insurance companies and insurance agents, does the Act go far enough?

Following up on the blog post from late June concerning the intersection of elder abuse laws and long-term care litigation, this post concerns an Alabama statute aiming to prevent financial abuse of elders in the financial advisory context: “Protection of Vulnerable Adults from Financial Exploitation Act,” Ala. Code § 8-7-170, et seq. (2016) (the “Act”).  Specifically, section § 8-6-172 of the Act requires “qualified individuals” to “promptly notify” the Alabama Department of Human Resources and the Alabama Securities Commission if he or she “reasonably believes that the financial exploitation of a vulnerable adult may have occurred, may have been attempted, or is being attempted . . . .”  The Act’s definition of a “vulnerable adult” includes persons 65 year of age or older, and the Act broadly defines “financial exploitation” to include the “wrongful or unauthorized taking, withholding, appropriation, or use of money, assets, or property of a vulnerable adult.” The definition of “financial exploitation” also includes using a power of attorney or guardianship to take advantage of a vulnerable adult’s property.

Notably, the Act currently only applies to “qualified individuals,” which it defines as any “agent, investment adviser representative, or person who serves in a supervisory, compliance, legal, or associated member capacity of a broker-dealer or investment adviser.” It gives such individuals that make a disclosure “in good faith and exercising reasonable care” immunity from administrative or civil liability as a result of making the disclosure. It also gives such individuals the authorization to delay a disbursement from an account of the vulnerable adult if there is a belief that such a disbursement “may result in financial exploitation of a vulnerable adult” and immunity for such delays, if such a delay is made based on a good faith belief.

Insurance agents and insurance companies are often in similar positions as financial advisors vis-à-vis their insureds, particularly with respect to changing beneficiaries (either at the request of the owner/insured or his or her power of attorney or guardian) and disbursing policy proceeds. So should the Act also cover insurance companies and insurance agents?

An argument can certainly be made that without this addition, the elderly could still fall victim to a whole segment of financial issues. The insurance industry frequently faces the challenges of a change in beneficiary, especially late in life for insureds. Sometimes such a change is unauthorized or results from undue influence on an elderly insured. While there is no one solution to combating such abuses, a long-term agent may have a close enough relationship to the policy owner to question or prevent such a change.

In any event, by expanding the Act in the future to include reporting obligations and accompanying immunity for insurance companies and agents that make such disclosures, the elderly might be better protected and insurance companies would have better direction and protection in these scenarios.