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.

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.

CNA Long-Term Care Class Action — Could It Have Long-Term Consequences?A long-term care insurance class action filed in May 2018 highlights the importance of clearly defined policy language. At dispute in the lawsuit pending in the United States District Court for the Northern District of Illinois is the definition of “premium class.” The phrase is not defined in the Continental Casualty Company (CNA) policy, which was issued through CNA’s Federal Judiciary Group Program. The plaintiff, who was a resident of the state of Washington at the time the policy was purchased, alleges that the term “premium class” refers to the “nationwide pool of insureds under the group insurance plan within a given age category.”  According to CNA, the plaintiff’s interpretation of “premium class” would render each state’s individual authority to approve premium rate increases a nullity, effectively “negat[ing] [state] insurance laws that are incorporated into the Policy as a matter of law.”

The policy states:

We cannot change the Insured’s premiums because of age or health.  We can, however, change the Insured’s premium based on his or her premium class, but only if  We change the premiums for all other Insureds in the same premium class.

CNA applied for premium rate increases for Washington participants in its group programs to the Washington State Office of the Insurance Commissioner (OIC) in 2015. The OIC approved certain rate changes. In 2017, CNA advised the plaintiff that his premium would increase by 25 percent in the first year, with a 25 percent premium increase each of the following two years. The CNA letter also indicated that the premium increase was not uniform across the premium class as laws and approval requirements varied by state, and the requested premiums might not be approved by all states. Plaintiff argues that the premium increase violates the terms of the policy because it is not uniform nationwide.

Plaintiff Took Issue with 2017 Rate Increases

Plaintiff Carlton Gunn, individually and on behalf of all others similarly situated, alleges that CNA breached the terms of the policy, breached the implied covenant of good faith and fair dealing, violated consumer protection laws, and engaged in fraudulent concealment relating to the premium increases. Plaintiff claims that both the marketing materials used in soliciting purchasers and the policy itself state that premiums would not be increased unless they were increased uniformly for everyone in the same age group. The plaintiff alleges that CNA improperly “imposed rate increases at different times and in different amounts from one state to the next.”

CNA filed a motion to dismiss arguing the complaint is not viable as a matter of law.  CNA argues that plaintiff’s interpretation of “premium class” is not reasonable and therefore cannot support the plaintiff’s claims. CNA also argues plaintiff’s interpretation would negate state authority to approve premium rate increases, which states are permitted to do with federal deference to state jurisdiction under the McCarran-Ferguson Act.

Alternatively, CNA seeks a stay of the proceedings, asserting that there is a threat of inconsistent judgments if the Washington State Office of the Insurance Commissioner is not allowed to first address plaintiff’s “challenge to [the OIC’s] authority and how the rate decision was made” since the challenged rate increase “applie[s] to policies that fall outside plaintiff’s current proposed class definition.”

Stay tuned. If the court adopts plaintiff’s interpretation, the ruling could change how and when insurers increase long-term care premium rates.