U.S. GOVERNMENT PUBLISHING OFFICE

28–982 PDF WASHINGTON : 2018

EXPANDING AFFORDABLE HEALTH CARE 

OPTIONS: EXAMINING THE DEPARTMENT 

OF LABOR’S PROPOSED RULE ON 

ASSOCIATION HEALTH PLANS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH, 

EMPLOYMENT, LABOR, AND PENSIONS 

COMMITTEE ON EDUCATION 

AND THE WORKFORCE 

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

HEARING HELD IN WASHINGTON, DC, MARCH 20, 2018 

Serial No. 115–40 

Printed for the use of the Committee on Education and the Workforce 

( 

Available via the World Wide Web: 

www.gpo.gov/fdsys/browse/committee.action?chamber=house&committee=education 

or 

Committee address: http://edworkforce.house.gov 

CEWDOCROOM with DISTILLER

(II) 

COMMITTEE ON EDUCATION AND THE WORKFORCE 

VIRGINIA FOXX, North Carolina, Chairwoman 

Joe Wilson, South Carolina 

Duncan Hunter, California 

David P. Roe, Tennessee 

Glenn ‘‘GT’’ Thompson, Pennsylvania 

Tim Walberg, Michigan 

Brett Guthrie, Kentucky 

Todd Rokita, Indiana 

Lou Barletta, Pennsylvania 

Luke Messer, Indiana 

Bradley Byrne, Alabama 

David Brat, Virginia 

Glenn Grothman, Wisconsin 

Elise Stefanik, New York 

Rick W. Allen, Georgia 

Jason Lewis, Minnesota 

Francis Rooney, Florida 

Paul Mitchell, Michigan 

Tom Garrett, Jr., Virginia 

Lloyd K. Smucker, Pennsylvania 

A. Drew Ferguson, IV, Georgia 

Ron Estes, Kansas 

Karen Handel, Georgia 

Robert C. ‘‘Bobby’’ Scott, Virginia 

Ranking Member 

Susan A. Davis, California 

Rau ́l M. Grijalva, Arizona 

Joe Courtney, Connecticut 

Marcia L. Fudge, Ohio 

Jared Polis, Colorado 

Gregorio Kilili Camacho Sablan, 

Northern Mariana Islands 

Frederica S. Wilson, Florida 

Suzanne Bonamici, Oregon 

Mark Takano, California 

Alma S. Adams, North Carolina 

Mark DeSaulnier, California 

Donald Norcross, New Jersey 

Lisa Blunt Rochester, Delaware 

Raja Krishnamoorthi, Illinois 

Carol Shea-Porter, New Hampshire 

Adriano Espaillat, New York 

Brandon Renz, Staff Director 

Denise Forte, Minority Staff Director 

SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR, AND PENSIONS 

TIM WALBERG, Michigan, Chairman 

Joe Wilson, South Carolina 

David P. Roe, Tennessee 

Todd Rokita, Indiana 

Lou Barletta, Pennsylvania 

Rick W. Allen, Georgia 

Jason Lewis, Minnesota 

Francis Rooney, Florida 

Paul Mitchell, Michigan 

Lloyd K. Smucker, Pennsylvania 

A. Drew Ferguson, IV, Georgia 

Ron Estes, Kansas 

Gregorio Kilili Camacho Sablan, 

Northern Mariana Islands 

Ranking Member 

Frederica S. Wilson, Florida 

Donald Norcross, New Jersey 

Lisa Blunt Rochester, Delaware 

Carol Shea-Porter, New Hampshire 

Adriano Espaillat, New York 

Joe Courtney, Connecticut 

Marcia L. Fudge, Ohio 

Suzanne Bonamici, Oregon 

CEWDOCROOM with DISTILLER

(III) 

C O N T E N T S 

Page 

Hearing held on March 20, 2018 ............................................................................ 1 

Statement of Members: 

Blunt Rochester, Hon. Lisa, a Representative in Congress from the State 

of Delaware .................................................................................................... 3 

Prepared statement of ............................................................................... 5 

Walberg, Hon. Tim, Chairman, Subcommittee on Health, Employment, 

Labor, and Pensions ..................................................................................... 1 

Prepared statement of ............................................................................... 3 

Statement of Witnesses: 

Arensmeyer, Mr. John, Founder and CEO, Small Business Majority ......... 42 

Prepared statement of ............................................................................... 44 

Condeluci, Mr. Christopher E., Principal and Sole Shareholder, CC Law 

& Policy, PLLC .............................................................................................. 48 

Prepared statement of ............................................................................... 50 

McGrew, Mr. Michael, CEO, McGrew Real Estate ........................................ 16 

Prepared statement of ............................................................................... 18 

Monson, Ms. Catherine, CEO, Fastsigns International, Inc. ........................ 7 

Prepared statement of ............................................................................... 10 

Additional Submissions: 

Ms. Blunt Rochester: 

Letter dated March 6, 2018, from National Association of Insurance 

Commissioners, and The Center for Insurance Policy and Research 95 

Bonamici, Hon. Suzanne, a Representative in Congress from the State 

of Oregon: 

Letter dated March 6, 2018, from AARP ................................................. 99 

Mr. Condeluci responses to questions submitted for the record 153 

Espaillat, Hon. Adriano, a Representative in Congress from the State 

of New York: 

Letter dated March 6, 2018, from Attorneys General of New York, 

Massachusetts, California, Connecticut, Delaware, District of Columbia, Hawaii, Illinois, Iowa, Maine, Maryland, New Jersey, New 

Mexico, Oregon, Pennsylvania, Vermont, Virginia ............................. 103 

Chairman Walberg: 

Letter dated March 20, 2018, from the National Restaurant Association .......................................................................................................... 125 

Letter dated March 23, 2018, from Members of Congress ..................... 128 

Letter dated April 3, 2018, from the Multi-Association Health Plan 

Coalition ................................................................................................. 130 

Letter dated March 20, 2018, from the National Association of Home 

Builders .................................................................................................. 136 

Questions submitted for the record ......................................................... 151 

Wilson, Hon. Frederica S., a Representative in Congress from the State 

of Florida: 

Letter dated March 6, 2018, from the American Cancer Society Cancer Action Network ................................................................................ 142 

CEWDOCROOM with DISTILLER

CEWDOCROOM with DISTILLER

(1) 

EXPANDING AFFORDABLE HEALTH CARE 

OPTIONS: EXAMINING THE DEPARTMENT 

OF LABOR’S PROPOSED RULE ON 

ASSOCIATION HEALTH PLANS 

Tuesday, March 20, 2018 

House of Representatives 

Committee on Education and the Workforce, 

Subcommittee on Health, Employment, Labor, and Pensions 

Washington, D.C. 

The Subcommittee met, pursuant to call, at 10:03 a.m., in Room 

2175, Rayburn House Office Building. Hon. Tim Walberg [chairman of the Subcommittee] presiding. 

Present: Representatives Walberg, Wilson of South Carolina, 

Roe, Lewis, Mitchell, Smucker, Estes, Wilson of Florida, Norcross, 

Blunt Rochester, Espaillat, Courtney, and Bonamici. 

Also Present: Representatives Foxx and Scott. 

Staff Present: Courtney Butcher, Director of Member Services 

and Coalitions; Michael Comer, Deputy Press Secretary; Rob 

Green, Director of Workforce Policy; Nancy Locke, Chief Clerk; 

John Martin, Workforce Policy Counsel; Kelley McNabb, Communications Director; James Mullen, Director of Information Technology; Alexis Murray, Professional Staff Member; Krisann Pearce, 

General Counsel; Benjamin Ridder, Legislative Assistant; Molly 

McLaughlin Salmi, Deputy Director of Workforce Policy; Olivia 

Voslow, Legislative Assistant; Joseph Wheeler, Professional Staff 

Member; Michael Woeste, Deputy Press Secretary; Tylease Alli, Minority Clerk/Intern and Fellow Coordinator; Mishawn Freeman, 

Minority Staff Assistant; Carolyn Hughes, Minority Director 

Health Policy/Senior Labor Policy Advisor; Richard Miller, Minority 

Labor Policy Director; Udochi Onwubiko, Minority Labor Policy 

Counsel; and Veronique Pluviose, Minority Staff Director; and Kimberly Toots, Minority Labor Policy Fellow. 

Chairman WALBERG. A quorum being present, the Subcommittee 

on Health, Employment, Labor, and Pensions will come to order. 

Good morning, and welcome to today’s Subcommittee hearing. I’d 

like to thank our panel of witnesses and our members for joining 

today’s important discussion on the Department of Labor’s proposed rule on association health plans, or AHPs, and how we can 

make affordable health care options a reality for more working 

Americans. 

CEWDOCROOM with DISTILLER

2 

The timing of this particular hearing is appropriate, as this week 

marks eight years since the passage of the Affordable Care Act. Since ObamaCare became the law of the land, America’s small 

businesses have struggled to dig themselves out from under the 

law’s crushing weight. 

Since 2008, the share of small businesses with fewer than 10 employees offering health coverage has dropped by a shocking 36 percent, leaving working Americans with fewer health care options or 

no coverage at all. It’s estimated that 300,000 small business jobs 

have been eliminated because of the Affordable Care Act, and 

10,000 small businesses nationwide have been forced to close their 

doors. The financial burden this law has placed on Main Street 

businesses has been debilitating, with its costs and mandates 

amounting to an estimated $19 billion in lost wages for small business employees. 

Time and again, those of us on this Committee have heard from 

small business owners that one of their greatest concerns is the 

high cost of health insurance. America’s job creators deserve better 

than the failing status quo of limited coverage options at sky-high 

prices. Instead, small businesses should be empowered to negotiate 

for the very best coverage at the very best prices on behalf of their 

employees, just as big businesses and labor unions do. 

In 2017, this committee favorably reported the House-passed 

H.R. 1101, the Small Business Health Fairness Act, legislation I introduced with our colleague, Representative Sam Johnson from 

Texas, chairman of the Ways and Means Subcommittee on Social 

Security. This legislation would expand health care coverage and 

lower costs for workers by empowering small businesses to band together through association health plans and negotiate for lower 

costs on behalf of their employees. 

By granting small businesses the ability to join together through 

AHPs, small businesses would be able to strengthen their bargaining power in the health insurance market in order to secure 

health coverage options on par with that of larger companies and 

unions. 

In October of last year, President Trump issued an executive 

order directing the Departments of Labor, Health, and Human 

Services and the Treasury to use their regulatory authority to expand access to AHPs. In response to the President’s directive, the 

Department of Labor proposed a rule in January to broaden the 

criteria for determining whether employers may join together in an 

employer group or association in order to form an AHP. 

Given the Committee’s longstanding interest and activities on 

AHPs, this recent action by Department of Labor presents an opportunity to examine the Department’s plan to expand small business access to affordable health care options, and thereby decrease 

the number of uninsured individuals. 

Empowering small businesses to form AHPs is especially near 

and dear to my heart, and I’m pleased to see such strong progress 

on an issue that will directly benefit our nation’s job creators and 

their employees. 

I look forward to hearing from our panel of witnesses and from 

other members of the Subcommittee today as we examine this proposed rule and work to do right by America’s small businesses. 

CEWDOCROOM with DISTILLER

3 

I now yield to our ranking member today, Ms. Blunt Rochester, 

for opening remarks. 

[The statement of Chairman Walberg follows:] 

Prepared Statement of Hon. Tim Walberg, Chairman, Subcommittee on 

Health, Employment, Labor and Pensions 

Good morning, and welcome to today’s subcommittee hearing. I would like to 

thank our panel of witnesses and our members for joining today’s important discussion on the Department of Labor’s proposed rule on association health plans, or 

AHPs, and how we can make affordable health care options a reality for more working Americans. 

The timing of this particular hearing is appropriate as this week marks eight 

years since the passage of Obamacare. Since Obamacare became the law of the land, 

America’s small businesses have struggled to dig themselves out from under the 

law’s crushing weight. 

Since 2008, the share of small businesses with fewer than 10 employees offering 

health coverage has dropped by a shocking 36 percent, leaving working Americans 

with fewer health care options or no coverage at all. It is estimated that 300,000 

small business jobs have been eliminated because of Obamacare, and 10,000 small 

businesses nationwide have been forced to close their doors. The financial burden 

this law has placed on Main Street businesses has been debilitating, with its costs 

and mandates amounting to an estimated $19 billion in lost wages for small business employees. 

Time and again, those of us on this Committee have heard from small business 

owners that one of their greatest concerns is the high cost of health insurance. 

America’s job creators deserve better than the failing status quo of limited coverage 

options at sky-high prices. Instead, small businesses should be empowered to negotiate for the very best coverage at the very best prices on behalf of their employees, 

just as big businesses and labor unions do. 

In 2017, this Committee favorably reported, and the House passed, H.R. 1101, the 

Small Business Health Fairness Act, legislation I introduced with our colleague Rep. 

Sam Johnson (R–TX), chairman of the Ways and Means Subcommittee on Social Security. This legislation would expand health care coverage and lower costs for workers by empowering small businesses to band together through association health 

plans and negotiate for lower costs on behalf of their employees. 

By granting small businesses the ability to join together through AHPs, small 

businesses would be able to strengthen their bargaining power in the health insurance market in order to secure health coverage options on par with that of larger 

companies and unions. 

In October of last year, President Trump issued an executive order directing the 

Departments of Labor, Health and Human Services, and the Treasury to use their 

regulatory authority to expand access to AHPs. In response to the President’s directive, the Department of Labor proposed a rule in January to broaden the criteria 

for determining when employers may join together in an employer group or association in order to form an AHP. 

Given the Committee’s longstanding interest and activity on AHPs, this recent action by DOL presents an opportunity to examine the Department’s plan to expand 

small business access to affordable health care options, and thereby decrease the 

number of uninsured individuals. Empowering small businesses to form AHPs is especially near and dear to my heart, and I am pleased to see such strong progress 

on an issue that will directly benefit our nation’s job creators and their employees. 

I look forward to hearing from our panel of witnesses and from other members 

of the subcommittee today as we examine this proposed rule and work to do right 

by America’s small businesses. 

Ms. BLUNT ROCHESTER. Thank you, Chairman Walberg. 

Today’s hearing comes just days before the eighth anniversary of 

the Affordable Care Act, or the ACA; legislation that has helped 20 

million people gain health coverage, including 38,000 Delawareans, 

and also expanded protections to millions more across the country 

who had preexisting conditions. 

Over the past year, we have seen continual efforts by the administration and congressional Republicans to undermine that 

CEWDOCROOM with DISTILLER

4 

progress, including one of many failed attempts to repeal the law 

this last -- this past year. But with Congress’ inability to pass legislation to repeal and replace the ACA, the administration has been 

unyielding in its attacks, refusing to faithfully implement the law 

of the land. 

The Department of Labor’s proposed rule to expand association 

health plans is another attempt to sabotage Americans’ access to 

comprehensive, affordable health coverage. 

Under current law, health insurance coverage offered through a 

group or association to individuals or small employers is generally 

treated like individual or small group coverage. This means businesses and individuals with health insurance through associations 

have the same protections as people in state-regulated, individual, 

and small group markets. This includes coverage of essential 

health benefits, including maternity care and substance abuse disorder treatment, and prohibitions against being charged more 

based on gender. 

Under current Department of Labor sub-regulatory guidance, 

there are strict criteria under which employer association health 

coverage is treated as a single large group ERISA-covered plan, 

and thus exempt from adhering to these laws, these rules. The use 

of this strict criteria in this way helps protect against cherry picking only healthy consumers for the sole purpose of providing health 

coverage that has nothing to do with the actual employment. 

The Department’s proposed rule would weaken the criteria for 

associations to be able to purchase insurance exempt from certain 

federal consumer protections. Simply put, the rule takes us backwards. 

While the rule’s proponents claim it will help small businesses, 

in fact, this rule could limit access to comprehensive coverage for 

many small businesses and their workers, increase costs, and 

threaten access to those with preexisting conditions. Troublingly, it 

also has the potential to leave small businesses and their workers 

on the hook for millions of unpaid medical bills. 

First, this proposed rule would limit access to comprehensive 

health coverage without guaranteed coverage for essential health 

benefits, such as maternity care, mental health treatment, and substance use treatment. This means people may be left with skimpy 

and inadequate coverage that neither gives them access to the care 

they need, nor offers adequate financial protection against serious 

medical conditions. 

Second, the proposed rule will increase costs and threaten coverage for people with preexisting conditions. As healthier and lower 

cost consumers get cheap plans with skimpy benefits that may not 

meet their health needs, older or sicker consumers would be left behind in the traditional market with skyrocketing costs, making it 

difficult to obtain coverage. 

Third, the proposed rule could potentially leave small businesses 

and their workers on the hook for millions of -- in unpaid medical 

bills. As we have seen through testimony in previous hearings on 

this topic, association health plans have a long history of insolvencies, scams, and fraud. Between 2000 and 2002, scams impacted 

more than 200,000 people and left more than $252 million in unCEWDOCROOM with DISTILLER

5 

paid medical bills. As we all know, those who do not learn from history are doomed to repeat it. 

The Coalition Against Insurance Fraud stated that, under the 

rule, quote, ‘‘Small businesses and their workers will face a huge 

and intolerable risk of fraud,’’ end quote. It seems to me that a 

commonsense approach to supporting small businesses and helping 

them thrive would not and should include needlessly exposing 

them to the insolvencies, scams, and fraud that could force them 

to shudder their doors for good. 

Taken together, this proposed rule would leave some with cheaper coverage that fails to meet their basic health needs and leave 

everyone else with higher costs. While the Department of Labor is 

not represented on this panel today, the gaps in the proposed rules’ 

justification and analysis provided by the Department are very 

troublesome. 

Members of Congress and the general public would benefit from 

an opportunity to hear from the Department. I will note that members of this Committee have requested more information from the 

Department on its analysis to no avail. 

As pointed out in a comment letter submitted by 17 state attorneys general, including Matt Denn, attorney general of my home 

state of Delaware, the rule would reverse critical consumer protections and unduly expand access to AHPs without sufficient justification or consideration of the consequences. 

Rather than continuing to campaign this campaign of interference, I hope the administration and my colleagues will join with 

Democrats to find ways to strengthen the ACA and increase access 

to affordable comprehensive health coverage. 

I thank the witnesses for joining us here today, and I yield back. 

[The statement of Ms. Blunt-Rochester follows:] 

Prepared Statement of Hon. Lisa Blunt-Rochester, a Representative in 

Congress from the State of Delaware 

Today’s hearing comes just days before the eighth anniversary of the Affordable 

Care Act, or the ACA – legislation that has helped 20 million people gain health 

coverage, including 38,000 Delawareans, and also expanded protections to millions 

more across the country who have preexisting conditions. 

Over the past year, we have also seen continual efforts by the administration and 

Congressional Republicans to undermine that progress – including one of many 

failed attempts to repeal the law this time last year. But with Congress’ inability 

to pass legislation to repeal and replace the ACA, the administration has been 

unyielding in its attacks – refusing to faithfully implement the law of the land. 

The Department of Labor’s proposed rule to expand association health plans is yet 

another attempt to sabotage American’s access to comprehensive, affordable health 

coverage. 

Under current law, health insurance coverage offered through a group or association to individuals or small employers is generally treated like individual or small 

group coverage. This means businesses and individuals with health insurance 

through associations have the same protections as people in state-regulated individual and small group markets. This includes coverage of essential health benefits, 

including maternity care and substance abuse disorder treatment, and prohibitions 

against being charged more based on gender. 

Under current Department of Labor sub-regulatory guidance, there are strict criteria under which employer association health coverage is treated as a single, large 

group ERISA-covered plan, and thus exempt from adhering to these rules. The use 

of this strict criteria in this way helps protect against cherry-picking only healthy 

consumers for the sole purpose of providing health coverage that has nothing to do 

with actual employment. 

CEWDOCROOM with DISTILLER

6 

The Department’s proposed rule would weaken the criteria for associations to be 

able to purchase insurance exempt from certain federal consumer protections. Simply put, this rule takes us backwards. 

While the rule’s proponents claim it will help small businesses, in fact, this rule 

could limit access to comprehensive coverage for many small businesses and their 

workers, increase costs, and threaten access for those with pre-existing conditions. 

Troublingly, it also has the potential to leave small businesses and their workers 

on the hook for millions in unpaid medical bills. 

First, this proposed rule would limit access to comprehensive health coverage. 

Without guaranteed coverage for essential health benefits, such as maternity care, 

mental health treatment, and 

substance use treatment. This means people may be left with skimpy and inadequate coverage that neither gives them access to the care they need nor offers adequate financial protection against serious medical conditions. 

Second, the proposed rule will increase costs and threaten coverage for people 

with pre-existing conditions. As healthier and lower cost consumers get cheap plans 

with skimpy benefits that may not meet their health needs, older or sicker consumers would be left behind in the traditional market with skyrocketing costs, making it difficult to obtain coverage. 

Third, the proposed rule could potentially leave small businesses and their workers on the hook for millions in unpaid medical bills. As we have seen through testimony in previous hearings on this topic, association health plans have a long history 

of insolvencies, scams, and fraud. Between 2000 and 2002, scams impacted more 

than 200,000 people and left more than $252 million in unpaid medical bills. As we 

all know, those who do not learn history are doomed to repeat it. The Coalition 

Against Insurance Fraud stated that under the rule ‘‘small businesses and their 

workers will face a large and intolerable risk of fraud.’’1 It seems to me that a common sense approach to supporting small businesses and helping them thrive would 

not and should not include needlessly exposing them to the insolvencies, scams, and 

fraud that could force them to shutter their doors for good. 

Taken together, the Department of Labor’s (DOL) proposed rule will leave some 

with cheaper coverage that fails to meet their basic health needs, and leave everyone else with higher costs. 

The gaps in this rule’s justification and analysis provided by the Department are 

troubling. Members of Congress and the general public would benefit from hearing 

directly from DOL, which is why Members of this Committee have requested more 

information from the Department, to no avail. I hope the Majority will join us in 

having an open and honest discussion about the real effect this proposed rule will 

have on small businesses and their employees. 

As pointed out in a comment letter submitted by 17 state Attorneys General, including Matt Denn, Attorney General of my home state of Delaware, the rule would 

reverse critical consumer protections and ‘‘unduly expand access to AHPs without 

sufficient justification or consideration of the consequences.’’2 

Rather than continuing a campaign of interference, I hope the administration and 

my Republican colleagues will join with Democrats to find ways to strengthen the 

ACA and increase access to affordable, comprehensive health coverage. 

I thank the witnesses for joining us here today. I yield back. 

1 https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210–AB85/00041.pdf 

2 https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210–AB85/00669.pdf 

Chairman WALBERG. I thank the gentlelady. 

Pursuant to Committee rule 7(c), all members will be permitted 

to submit written statements to be included in the permanent 

hearing record. And without objection, the hearing record will remain open for 14 days to allow such statements and other extraneous material referenced during the hearing to be submitted for 

the official hearing record. 

It’s now my pleasure to introduce our distinguished witnesses. 

Ms. Catherine Monson is the CEO and president of FASTSIGNS 

International, Incorporated, in Carrollton, Texas, and is testifying 

on behalf of the International Franchise Association. Mr. Michael 

McGrew is the CEO of McGrew Real Estate in Lawrence, Kansas, 

CEWDOCROOM with DISTILLER

7 

and is testifying on behalf of the National Association of Realtors. 

Mr. John Arensmeyer is founder and CEO of the Small Business 

Majority, here in Washington, D.C. Mr. Christopher Condeluc -- 

Condeluci -- forgive me for that -- is principal and sole shareholder 

of CC Law & Policy PLLC, here in Washington, D.C. 

I welcome each of you. 

I’ll now ask our witnesses to raise your right hand. 

Do you solemnly swear to affirm that the testimony you are 

about to give will be the truth, the whole truth, and nothing but 

the truth? 

Let the record reflect the witnesses answered all in the affirmative. 

Before I recognize you to provide your testimony, let me briefly 

explain the lighting system. It’s just like rules of the road. Green, 

keep on going; when your five minutes hits yellow, you have a 

minute to wrap up; and when it hits red, please wrap up as quickly 

as you can. We will try to do the same as members ask questions 

as well. 

And so now, I welcome Ms. Monson, and recognize you for your 

five minutes of testimony. 

TESTIMONY OF CATHERINE MONSON, CEO, FASTSIGNS INTERNATIONAL, INC., TESTIFYING ON BEHALF OF THE INTERNATIONAL FRANCHISE ASSOCIATION 

Ms. MONSON. Thank you very much. 

Chairwoman Foxx, it’s great to see you again. 

Chairman Walberg, great meeting you. 

Ranking Member Blunt Rochester, thank you so much for your 

kind words last week at the minority and franchising event. And 

I hope you met FASTSIGNS franchisee Howard James at the 

event. He was one of the speakers. 

And members of the Committee, my name is Catherine Monson. 

I’m here on behalf of FASTSIGNS International, our 604 

FASTSIGNS franchisees in the U.S., with others in other countries, 

and another 37 franchisees in the U.S. about to open their businesses. 

I’m here also with the International Franchise Association. I’m 

the second vice-chair of that association, and we represent over 

733,000 franchise businesses employing 7.6 million employees in 

the U.S. today. 

I have made my career in franchising. I love franchising. I’ve 

seen it build wealth for families, create jobs and opportunities. It 

is an amazing ladder of opportunities for women, minorities, and 

immigrants. And our recent IFA minority study shows a 50 percent 

increase in minority ownership of franchises since 2007, up to 30.6 

percent, something we’re very, very proud about. 

For each of you, there are about 2,000 franchise businesses in 

each of your districts, and franchising is perfectly built for association health plans. We use economies of scale to help businesses deliver affordable products and services. 

I guarantee you the Dunkin’ Donuts franchisee in your district 

pays less for flour and eggs and coffee than an independent donut 

business does, and the FASTSIGNS in your district pays less for 

printers and inks and substrates. And we want to bring that same 

CEWDOCROOM with DISTILLER

8 

negotiating power and economies of scale to association health 

plans. 

Small business health plans are great. If I talk about 

FASTSIGNS franchisees, the average has five to seven employees. 

In that very difficult 10 or fewer employees small business health 

care market where they have no negotiating power, they can go to 

Blue Cross Blue Shield and ask for better rates, and at 10 employees or less, they don’t get it. They come back to their employees. 

Their employees can’t afford their part of it. Some employees are 

on their spouses’ or parents’ plan. It’s very, very challenging. 

IFA recently surveyed its franchisee members, and 65 percent do 

not provide health care coverage. 92 percent of that group do not 

provide it because they just can’t handle the cost burden. But, 100 

percent would look for health coverage and provide it if they could 

get it through an association health plan. 

The IFA strongly supports the administration’s rule. We know 

we can pull resources. And here’s the key: It’s getting quality 

health care. It is not about skinny plans. My franchisees and other 

franchisees want to have the best labor available. They want to 

have the best employees. It’s about competing with large companies 

for the best employees. Skinny plans are not going to be considered 

at all. 

Under the proposed rule, businesses can band together either by 

commonality of interest or commonality of region, and the broader 

the definition of commonality of interests, the better -- the larger 

the pool, the lower the prices, the better quality full coverage 

health care. 

Franchises know how to do this. We know how to pull resources. 

We know how to negotiate with vendors bringing across -- if we 

will, think about the International Franchise Association. 7.6 million employees could be covered by quality affordable health care. 

It’s all about a level playing field. We want the same exemptions 

to be able to buy large group health insurance coverage as the 

labor unions have, as large companies have. 

The IFA is urging the Department to look at franchising as a 

commonality of interest too, and the Federal Trade Commission 

definition and state laws provide for great guidelines here. 

We’ve also urged the Department of Labor to include a joint employer safe harbor, and this is really, really critical for franchising 

to get involved and to really get the maximum benefit out of association health plans. We support the adoption of safe harbor in the 

final rule so that we would not be deemed to joint employers just 

because there was an association health plan. 

Without the safe harbor, we feel it’s very unlikely that the benefits of this important health care policy will really take hold. And 

we’re really thankful for the bipartisan coalition of members of 

Congress, including Chairman Walberg, who’ve echoed our request. 

In closing, I want to say thank you very much for having me 

here. The International Franchise Association and FASTSIGNS 

strongly support the administration’s rule and urge swift implementation. Franchising can and will be a willing partner in the effort to expand access to affordable quality health care -- that’s the 

key. It’s not skinny plans -- bringing more options to our very important working families. 

CEWDOCROOM with DISTILLER

9 

Thank you so much. 

[The statement of Ms. Monson follows:] 

CEWDOCROOM with DISTILLER

10 

CEWDOCROOM with DISTILLER


Insert offset folio 1 here 28982.001

FRANCHISE ASSOCIATION 

CATHERINE MONSON 

CEO, FASTSIGNS® INTERNATIONAL, INC. 

TESTIMONY BEFORE THE U.S. HOUSE SUBCOMMITTEE ON HEALTH, 

EMPLOYMENT, LABOR, AND PENSIONS 

HEARING ENTITLED "EXPANDING AFFORDABLE HEALTH CARE 

OPTIONS: EXAMINING THE DEPARTMENT OF LABOR'S PROPOSED 

RULE ON ASSOCIATION HEALTH PLANS" 

MARCH 20,2018 
11 

CEWDOCROOM with DISTILLER


Insert offset folio 2 here 28982.002

Introduction 

Good morning Chairman Walberg, Ranking Member Sablan. and distinguished members of the 

Subcommittee. My name is Catherine Monson, and I'm the Chief Executive Officer of 

FASTS IONS@ International. I am appearing before you today on behalf of both my company, 

our F ASTSIGNS tl·anchisees, the International Franchise Association (!FA) and the over 

733.000 H·anchisecl establishments employing 7.6 million workers in the United States. Thank 

you for the invitation to share our views on Association Health Plans. 

I have been in franchising for over 30 years, working for multiple tl-anchisors, sta11ing with Sir 

Speedy Printing Centers in 1980. I worked tor Copies Now, Team logic IT, PIP Printing & 

Marketing Services and then became CEO ofFASTSIGNS in 2009. FASTSIGNS. tounded in 

1985, is a sign and visual graphics company and is the sign industry's leading franchise system. 

Our network of sign centers includes 604 locations in the United States with another 37 in the 

process of opening, 31 locations in Canada, plus locations in the United Kingdom, Mexico. 

8razil. the Caribbean, Saudi Arabia, UAE and Australia. for a total of 675 locations vvorldwidc. 

I'm passionate about franchising. primarily because over the last 30 years I've seen franchising 

transform lives. I've seen franchising help thousands of Americans achieve their dream of 

business ownership and build wealth for their families and many more find stable jobs in their 

communities. I have seen franchising create economic output and jobs. l have seen franchise 

ownership allovv minorities and immigrants to create wealth and opportunity. That's why for 

more than two decades, I've been an active member of IF A, serving tor ten years on the Board of 

Directors. 

As many of you know, the !FA is the oldest and largest trade association in the world devoted to 

representing the interests of franchising. Its membership includes franchisors, franchisees and 

suppliers. !FA's membership currently spans more than 300 diflercnt business lines, including 

more than II ,000 franchisee, I, I 00 franchisor and 575 supplier members nationwide. In total, 

IF A ·s members form a network of 733.000 small business establishments across the countrythere are IFA members in all of your districts. They support their local economies, give back to 

their communities. and build businesses that provide local jobs. 

Overview of AHP Impact on Franchising 

I am here today to help advocate for making it easier and more affordable for local business 

owners to provide quality. affordable health insurance coverage to their employees. Specifically, 

I'm here to ask that you move tonvard with allowing franchise businesses and associations to 

form Association Health Plans. consistent with the Administration's recently proposed rule. 

Taking this important step will allow trade associations or multiple small employers to come 

together and pool their employees in order to buy quality health insurance, generating similar 

quality and savings as organized labor and large corporations do in the large group insurance 
12 

CEWDOCROOM with DISTILLER


Insert offset folio 3 here 28982.003

market. Allowing small business to band together will help lower costs, create greater 

flexibility, increase access, and reduce administrative expenses. 

As many of you know, small businesses, such as franchises, bear a larger financial and 

administrative burden when providing quality health insurance benefits for their employees. 

Indeed. franchises and small businesses have historically struggled to provide quality health 

insurance benelits to employees given the constraints of the small market rules, as well as 

financial and administrative expense. 

But if we use many of the same principles that have allowed franchising to provide economic 

opportunity to millions of Americans, we can also provide greater opportunities for quality, 

affordable health insurance coverage and health care. 

Franchising is perfectly built for AHPs. Franchising uses economies of scale to help small 

business owners deliver affordable services and products to their customers through etlicient and 

established distribution channels, communication protocols, and common business practices. 

Similarly. AHPs use a larger pool of enrollees to streamline costs and more effectively deliver 

quality. affordable health insurance and health care. 

Based on my 30 pius years in the franchising world, I can say with confidence that the structure 

of the tl·anchisc model makes it uniquely suited to implement and manage quality AHPs. 

Franchises can effectively utilize i\HPs through their intra-brand structures, vertical distribution 

models and regionally among multiple small business brands or they can also take advantage 

of AHPs through the JFA. The end result will be that millions of American franchisees' 

employees. including my own, will gain access to quality health care coverage. 

So, let me explore the problems franchisers arc facing, the specifics of my position in more 

depth, and the support this program has with franchisors and franchisees and their employees in 

your communities across the country. 

The Problem 

As many of you know, while employer-sponsored coverage remains the most common source of 

healthcare coverage in the United States, a smaller proportion of people are covered by 

employers than a decade ago. There's also a bigger gap today between the health insurance large 

firms can access and afford t(Jr their employees and what small firms can provide. That gap 

means that that workers at small firms are more often responsible for paying both a larger share 

of family premiums, as well as higher cost sharing than workers in large firms. In addition, small 

group market rules under the Affordable Care Act (the "ACA") make it more difficult for small 

businesses to provide afTordablc health insurance without the purchasing power of a large group. 

That's mainly because insurance companies charge higher rates for smaller risk pools. 
13 

CEWDOCROOM with DISTILLER


Insert offset folio 4 here 28982.004

The franchise community has been hard hit by this reality. In fact. to measure the impact of the 

expense and administrative challenges faced by franchisee employers in providing health care 

coverage to their employees. the IFA conducted a member survey of both franchisors and 

franchisees to measure the challenge on the ground. The results speak fi.lr themselves. The survey 

f(JUnd that: 

65% of respondents do not provide any health coverage at all for their employees. only 

35% do; 

92% of respondents that do not provide health coverage refrain tl·01n doing so due to the 

cost burden; 

• And. most importantly, I 00% of respondents indicated they would provide health 

coverage to their employees if they could provide coverage through an AHP. 

As an expert in the franchising system. I have seen first-hand how small businesses and 

franchisees are challenged in offering competitive health benefits. The federal Employee 

Retirement Income Security Act, which currently permits large corporations and labor 

organizations to "self: insure"" and offer insurance with certain exemptions from state law, does 

not provide small business with the same advantage. The law must be reformed to empower 

small employers with the ability to obtain and offer quality. competitively priced health 

insurance. 

The Administration has recognized this problem. That's why they directed the Department of 

I ,ahor to propose regulations or revise guidance that will expand access to coverage for more 

Americans by allowing employers to form AI IPs. 

More specifically. the Secretary of Labor has been directed to consider expanding the conditions 

that a group of employers must satisfy to act as an·'cmployer." The !FA believes that the current 

definition and its interpretations unduly limit groups of small employers from forming AHPs. 

preventing them tl·om providing quality. affordable health care benefits to employees. 

Accordingly, we believe that a broad interpretation of the definition should consider the 

franchise business model as a "commonality of interest"". 

We're confident that we're on strong ground to make this suggestion. The franchise business 

model is a federally recognized and defined category of businesses that uniquely contributes to 

the United States economy. Franchise businesses have a strong and sufficient "commonality of 

interest.'. based on the FTC definition and governing state laws. that will give structure to AHPs 

limiting participation to a specific group of employer-members. Broadening the commonality of 

interest rule to include the ti·anchise business model across industry sectors will allow larger risk 

pools. greater negotiation of rates, and administrative efticiencics. It will also exponentially 
14 

CEWDOCROOM with DISTILLER


Insert offset folio 5 here 28982.005

increase the affordability and accessibility of health insurance to working Americans who need it 

most. 

I also strongly support the adoption of a sate-harbor provision in the final rule clarifying that the 

establishment and participation in an AHP does not create or imply joint employer liability. 

Allowing ti·anchises to participate in an AHP, while not simultaneously including a sate harbor 

provision, would undermine the policy goals of expanded health care coverage and lowered 

rates. Without such a sate harbor, the franchise industry would be faced with even greater 

uncertainty about joint employer liability and would therefore be highly unlikely to offer the 

benefits of this important health care policy. We arc thankful that a bipartisan coalition of 

members of Congress, including several committee members, have echoed our request. 

We also suggest that the final rule clarify that AI-!Ps will be considered the "employer" for 

purposes of sponsoring a single large group health plan and will not be considered multiple 

employer welfare arrangements ("MEW As'') subject to state MEW A requirements. For AHPs to 

effectively provide afi(mlable, quality health insurance to the association member employees, 

AHPs that meet the regulations requirement should dlectively be treated as a single 

··association" plan subject to the same State and Federal regulatory structure as other ERISAcovered employee welfare benefit plans. 

If AHPs are considered ME WAs and if they are to effectively provide health insurance coverage 

as intended by the Executive Order and the Proposed Rule, the Department must use its authority 

to provide a uniform. consistent framework fbr AHP operation and pre-emption of state MEWA 

regulations. 

We also recognize and support the need for non-discrimination requirements applicable to AHPs 

to prevent stacking of risk pools which could undermine the affordability and accessibility of 

health coverage for those who need it most and recognizes the need for the Proposed Rule's 

nondiscrimination requirements lor AHPs. 

Finally, the Proposed Rule would not allow associations to treat different employer-members as 

different bona tide employment classifications (i.e. no employer-by-employer risk rating). The 

!FA supports this requirement because it protects against AHPs cherry-picking only healthy 

employee populations thus defeating the purpose to spread risk among larger diverse 

populations. We believe that the Proposed Rule strikes the right balance between risk selection 

issues with the stability of the AHP market. 

AHPs will allow small business employers, including fi·anchise owners like my own 604 (soon to 

be 641) US franchisees, the ability to obtain and offer health insurance benefits through 

membership in a trade association, including a franchise system. With rising medical costs being 
15 

CEWDOCROOM with DISTILLER


Insert offset folio 6 here 28982.006

a top concern of both individuals and employers, the impact of this increased availability of 

quality, affordable health insurance would be significant across all of your districts, 

Conclusion 

Mr. Chairman, thank you again for allowing me to share FASTSIGNS' and !FA's views on the 

Association Health Plan proposed rule, Franchise businesses are hiring and expanding at a rapid 

pace, and in order to continue that growth and ensure that businesses can provide employees with 

quality and affordable health insurance, we strongly support finalization and implementation of 

this rule. FASTSJGNS and IF A looks forward to working with the Department of Labor, your 

Subcommittee, and the Administration on this important new policy. 

l would be happy to answer any questions you may have. 

6 
16 

Chairman WALBERG. Thank you. 

I recognize Mr. McGrew for your five minutes of testimony. 

TESTIMONY OF MICHAEL MCGREW, CEO, MCGREW REAL ESTATE, TESTIFYING ON BEHALF OF THE NATIONAL ASSOCIATION OF REALTORS 

Mr. MCGREW. Good morning, Chairman Walberg, Ranking Member Blunt Rochester, and members of the Subcommittee. Thank 

you for holding this hearing today and the opportunity to testify on 

behalf of the National Association of Realtors’ 1.3 million members. 

My name is Mike McGrew. I’m a third-generation realtor and 

CEO of McGrew Real Estate, an independent real estate brokerage 

with 70 independent realtors and 14 salaried employees in Lawrence, Kansas. 

I’m the immediate past treasurer of the National Association of 

Realtors and a member of the executive committee, which establishes NAR’s governing policies and oversees NAR’s member benefits program. 

As a practicing realtor since 1982, I know firsthand how hard it 

is to find and keep health insurance when you’re a sole proprietor 

and you have no employer coverage. I also know how hard it is to 

find affordable health coverage for your employees when you’re the 

boss. 

The challenges facing the nation’s small business and independent contractor community when searching for affordable 

health insurance continues to grow each year as costs rise and options diminish. 

The Department of Labor’s proposed rulemaking seeks to make 

it possible for the self-employed and small employers to purchase 

health insurance through a trade association. Access to more 

health insurance options is key for realtors, a group that now purchases coverage primarily in the struggling individual markets. 

To understand the insurance challenges we face, it’s important to 

know a bit about the structure of our industry. My company is a 

good example of a typical independent real estate firm. All of our 

agents are independent contractors. They have broad freedom to 

build their business as they choose under our state-mandated legal 

supervision responsibilities, and they value that independence. 

They have no limits on what they can earn, but they have no guaranteed paycheck. They wake up every morning unemployed and 

have to hunt for their next deal. 

While we provide health insurance to our salaried support staff, 

we do not provide health insurance to our independent agents. 

When real estate agents and brokers forego health insurance, the 

primary reason cited is cost, and it’s this experience that has driven NAR to seek additional health insurance options for our membership. 

NAR has long supported legislation that would allow trade associations to create association health plans, including Chairman 

Walberg’s Small Business Health Fairness Act. NAR also supports 

the Department of Labor’s proposal that will provide more small 

businesses, as well as independent contractors, with access to an 

association health plan. 

CEWDOCROOM with DISTILLER

17 

It is essential that any final rule makes self-employed individuals with no employees or working owners eligible to participate in 

an AHP. It is also important to note that, under the rule, association health plans would still be subject to consumer protections 

under the ACA, ERISA, and state benefit mandates. In fact, it 

would not be in NAR’s interest to offer a benefit program that is 

not a quality product because it would fail to attract members, and 

our demographics are much older in NAR. 

Additionally, since our surveys indicate that realtors’ top priorities are affordability and access to preferred doctors, any association plan must achieve those goals as well. 

The Association has questions about the rule, as it remains unclear how state regulation would impact association plans, especially those of national groups, like NAR, whose members can be 

found in all 50 states. 

If an AHP cannot overcome barriers that states might implement 

to prohibit it from being classified as a large group plan, NAR may 

not be able to provide a nationwide plan for its members who are 

asking for more insurance options. 

It is essential that the final rule clarify that while states may 

continue to regulate association health plans as they do now, they 

may not use existing authorities to undermine the final rule. 

NAR also believes that the Department should reconsider eligibility criteria to be considered a working owner, especially the disqualification of those who have an offer of a subsidized coverage 

from a spouse’s employer. 

The rule’s current restrictions could drastically limit the potential pool of members that may be eligible for an NAR health plan. 

More importantly, this restriction could bar these individuals from 

an association plan that could provide better or more affordable 

coverages. 

To close, reducing the cost of health insurance while maintaining 

quality coverage is a top priority for NAR, a priority that is shared 

by the growing number of small businesses and self-employed 

Americans who are part of every sector of our economy. 

NAR is encouraged by the administration’s focus on making improvements in this area and the Committee’s attention to the 

health insurance challenges that face self-employed real estate professionals across the country. 

Thank you again for this opportunity to represent the realtors’ 

health care concerns. 

[The statement of Mr. McGrew follows:] 

CEWDOCROOM with DISTILLER

18 

CEWDOCROOM with DISTILLER


Insert offset folio 7 here 28982.007

I~EALTOR 

NATIONAL 

ASSOCIATION of 

REALTORS• 

HEARING BEFORE THE 

Hoh (;<,ldbng 

Chwfl•:;.,·cunv·{ldlcn 

ADVOCACY GROUP 

\Vrii!Am 1·:. :>.Lt;h.;t,Un 

Lhtd ,\d\'OCJC)' ( lff!cn)Sc!lHH \'1ec P!L~ldcnt 

HOUSE EDUCATION AND THE WORKFORCE- SUBCOMMITTEE 

ON HEALTH, EMPLOYMENT, LABOR AND PENSIONS 

ENTITLED 

"EXPANDING AFFORDABLE HEALTH CARE OPTIONS: 

EXAMINING THE DEPARTMENT OF LABOR'S PROPOSED RULE 

ON ASSOCIATION HEALTH PLANS" 

WRITTEN TESTIMONY OF 

MICHAEL C. MCGREW. 

ON BEHALF OF 

THE NATIONAL ASSOCIATION OF REALTORS® 

MARCH 20, 2018 

[QVA!HCU!'/N{; 

OHO~H,>,.lTY 

Page 1 
19 

CEWDOCROOM with DISTILLER


Insert offset folio 8 here 28982.008

Chairman Walberg, Ranking Member Sablan, and Members of the Subcommittee, thank you for 

giving me the opportunity to talk with you about the challenges that face the nation's small 

business and independent contractor community as they search for accessible and affordable 

health insurance coverage. My name is Michael McGrew. lam the CEO of McGrew Real Estate. 

an independent company located in Lawrence, Kansas. My company has 70 independent 

contractor sales associates affiliated with the firm, as well as 14 salaried employees. 

I am here on behalf of members of the National Association ofREALTORSJJ: (NAR). I am a 

member ofNAR 's Executive Committee and Board of Directors that is responsible for 

governing the Association.' l served as the 2016 Treasurer ofNAR and in addition to my 

national responsibilities, I am also a member of the Kansas Association of REALTORS''' Board 

of Directors and served as the President of the association in 1998. 

As a practicing real estate professional since 1982, I know very well how hard it is to find and 

keep health insurance when you are a sole proprietor with no employer-provided coverage. I also 

know how hard it is to ilnd at1ordahle health coverage for your employees when you're the boss. 

My experience is shared not only by my real estate colleagues but by the growing number of 

small businesses and self-employed Americans who are part of every sector of our economy. The 

real estate sales professionals' search for health coverage is a microcosm of the challenges that 

the self-employed and small business face today. 

Real estate agents are not employees of the realty otlice with which they are affiliated. They are 

independent contractors, a separate legal business entity- the smallest of small firms. More 

REALTORS*' work with an independent company than any other type offinn. Real estate firms, 

the offices with which these independent agents arc affiliated, typically have one office and a 

small number of salaried employees- a receptionist, office assistant, or. perhaps, a transaction 

coordinator- and two independent contractor sales agents. Only a very small percentage of realty 

firms offer coverage to their salaried staffs and none offer coverage to their independent 

contractor agents. 

According to NAR research, the percent ofNAR 's members that are uninsured have ranged as 

high as 33 percent in 2005. When asked why they do not have health insurance coverage, an 

overwhelming majority of our members cite cost as the primary reason. A majority of members 

are paying for their entire premiums without any financial help and cite affordability and access 

to preferred doctors as top priorities when selecting a plan. Consequently, reducing the cost or 

health insurance while maintaining quality is a top priority for the nation's REALTORS'" 

It is this experience that has driven NAR to continually seck health insurance solutions lor its 

membership. To this end, the Association was an early supporter of House bills to allow bona 

tide trade associations to create association health plans (AHPs); these included Representative 

Johnson's (R-TX) 2003 H.R. 660 and 2005 H.R. 525, the Small Business Health Fairness Act. 

On the Senate side, NAR worked with Senators Snowe (R-ME) and Byrd (D-WV) in support of 

their Small Business Health Fairness Act af'2005. This effort was followed by our work with 

Senators Enzi (R-WY) and Nelson (D-FL) in drafting S. 1955, the lfealth fnsurance 

1 ~AR ·s Board of Directors has the authority to :1ppnwc expenditures of the Association: establish gon"-rning 

rolicics of the J\sS\lCiation: develop policy positions as they pertain to the real estate industry: approve 

mcrnbcr programs products. and and approve amendments to the hyluws. 

Page 2 
20 

CEWDOCROOM with DISTILLER


Insert offset folio 9 here 28982.009

I'vfarketplace !Vfodernization and .4/fimlabi/itv Act of2006. and a later eti(Jrt with Senators 

Durbin (D-IL), Snowe (R-ME), and Lincoln (D-NE) to draft the Small Business Health Options 

l'rofir<Jm Act (SHOP) in 2008. Most recently, NAR along with a number of other trade 

associations has indicated its support for Representatives Johnson and Walberg's biii,I-I.R. 1101. 

the 5imall Business Health Fairness Act. 

Along with its long history of support for AHPs or Small Business Health Plans, NAR supports 

the Department of Labor (DOL) notice of proposed rulemaking (NPRM) 2 The Department's 

removal of regulatory barriers that make it possible for self-employed individuals and small 

employers to purchase health insurance through a professional or trade association has the 

potential to expand much needed access to AHPs. Affording more freedom to individuals to 

choose from a variety of insurance providers ortering quality coverage plans should be supported 

across all industries and will be key to cultivating a deep participant pool and strong 

marketplace. 

While REAL TORS"' satistY the DOL's "commonality of interest" requirements when it comes 

to related industry. NAR has never been able to overcome the geographical limitations that 

prohibit the association from being able to offer an affordable i\HP health plan to all members 

nationwide. The prospect of complying with 50 different state insurance laws is a major barrier. 

Also, since the majority of members are sell~employed individuals with no employees. NAR has 

not been traditionally considered a "bona !ide group or association of employers" for purposes of 

sponsoring an AHP. The Department of Labor's rule addresses many of these concerns. which 

NAR supports. 

However, NAR is concerned that the proposed rule purports to limit A l-IP eligibility for many 

real estate professionals and may not adequately protect against state regulation, threatening 

AHP development and stlstainability. As explained in NAR's comment letter, the Department 

must consider the !()]]owing when finalizing the proposed rule: 

Ensuring that self-employed individuals with no employees (referred to as a "working 

owner") can participate in group health plan coverage under an Al-11', which are still 

subject to important consumer protections; 

Removing arbitrary and unnecessary cligibilily criteria for being considered a working 

owner; and, 

ClarifYing that v.hile states may continue to regulate AHPs. states may not use existing 

authorities to undermine the intent of this rule which is expand access to AHPs (e.g., by 

simply re-characterizing large group AHPs as "Small group" health plans). 

While the tina! terms of the proposed rule and the specifics ofNAR's member demographics 

will govern the feasibility of any efforts by NAR to offer an AHP for its members, there arc 

some of the considerations that NAR has raised which are explained in tl1rther detail below. and 

in the attached addendum. 

~Definition 

2018) (to be 

under Section 3(5) ofU~ISA- Association Health Plans. 83 Fed. Reg. 314 (Jan. 5, 

at 25 C.F.R. pt. 2510). 

Page 3 
21 

CEWDOCROOM with DISTILLER


Insert offset folio 10 here 28982.010

I. Working Owners Should Benefit From More Affordable Options In An AHP, Which 

Arc Also Subject To Important Consumer Protections 

1\AR is encouraged by the Department's inclusion of self~employed individuals with no 

employees (i.e ... working owners .. ) as eligible to participate in "group health plan'' coverage 

through an AHP. NAR has long-advocated for policy changes that would provide additional 

health coverage options for working owners like the independent contractor real estate sales 

professionals. Currently. working owners have limited options when it comes to accessing health 

insurance. If a working owner happens to have a spouse who is offered group health plan 

coverage through the spouse's employer. the working owner may be eligible for coverage. 

However. not all employer plan subsidizes coverage for workers· family members, and in some 

cases. this .. family .. coverage may be unaffordable f(lr the working owner, their spouse and 

dependents. 

If a working owner is not married3 or their spouse's employer does not offer group health plan 

coverage the only health care option available to them is coverage in the fully-insured 

individual market. This can dramatically limit a working owner's ability to access affordable 

health coverage. 4 In today·s individual market. finding a health plan that provides an adequate 

level of coverage at an affordable price is diflicult. 5 NAR research indicates that median monthly 

premium cost in the individual market for members is $670. while those members eligible for 

coverage through an employer (spouse's or ti.mner employer for example) is $500. Allowing 

\\Orking owners to access health coverage through an AHP- either a fully-insured large group or 

self~ insured AHP will dramatically improve their ability to lind comprehensive health coverage 

that may be more allordable than their current options. 

AHPs would fall in this large group market that typically enjoys lower costs than the individual 

and small group market. Some critics have asserted that this lower price point is often times the 

product of less comprehensive or .. skinny"- coverage. In fact. large group plans tend to offer 

more comprehensive coverage than small group or individual health insurance plans. Contrary to 

the asse1tions, the lower costs in the fully-insured large group market- relative to the individual 

and small group markets arc driven by administrative efficiencies. In other words. the same 

administrative costs that drive up the cost of individual and small group coverage are not present 

in the fully-insured large group market, such as enrollment volatility. 

l'xplained further, individuals and small employers often times drop in and out of the insurance 

markets and routinely change insurance carriers. sometimes every year. This volatility adds 

significantly to insurers' already very high administrative costs for small-group coverage, 

Page 4 
22 

CEWDOCROOM with DISTILLER


Insert offset folio 11 here 28982.011

especially as greater resources arc devoted to underwriting, and dis-enrolling and re-enrolling 

small groups. In the case of existing fully-insured large group AHPs, the health coverage is 

traditionally superior to coverage a small employer independently might find in the commercial 

insurance market, and as a result, there is limited turn-over among small employer members. 

In addition, prices in the individual and small group markets arc typically higher on account of 

the Affbrdable Care Act's (AC A's) risk adjustment program6 In other words, insurance carriers 

typically price any potential risk adjustment "charges" into their premiums. which arbitrarily 

increases costs. Because the ACA 's risk adjustment program does not apply to the fully-insured 

large group market, these added costs are not present, thus resulting in a lower costing health 

plan relative to individual and small group plans. 

The requirement to cover the ACA 's Essentialllealth Benefits (EI-113s) and the ACA's adjusted 

community rating rules also have cost implications for individual and small group plans, which 

arc also not present in the fully-insured large group market. For example, fully-insured large 

group premiums may be developed based on the "health claims experience" of all of the 

employees employed by a large employer, while this type of under-writing practice is prohibited 

in the individual and small group markets (i.e., premiums in the individual and small group 

market cannot be based on health status). In addition, age rating in the individual and small 

group markets is more limited, while age rating in the fully-insured large group market may 

produce a more ·'actuarially fair" premium rate. 

NAR recognizes that other stakeholders will sound the alarm over the fact that fully-insured 

large group and sell~insured AHPs are not subject to these ACA requirements, however these 

concerns arc misplaced due to existing applicable consumer protections and State regulations. 

There are existing consumer protections under the ACA that require a fully-insured large 

group and self-insured AHP as a group health plan to provide a comprehensive level of 

coverage. For example, according to the ACA, a fully-insured large group or self-insured 

AHP (I) cannot deny an eligible plan participant health coverage if they have a pre-existing 

condition,' (2) cannot refuse to cover certain government-approved preventive services 

(rather, the AHP must provide free coverage for these preventive services),' and (3) cannot 

impose annual and lifetime limits on the "essential health benefits" covered under the plan9 

Other ACA requirements including- (I) covering adult children up to age 26, (2) free access 

to emergency care, and (2) the prohibition against rescinding coverage absent fi·aud 

apply. 10 

Under the Employee Retirement !nco me Security Act (ERISA), there are specific notice and 

disclosure requirements, 11 and also fiduciary responsibilities that apply. requiring the AHP 

(' ,)'ee ;\('t\ section !3<4-3. 7 Public I l~a!th Service i\ct ( .. PHS;\"') section 270-1-. 

~ PllS;\ section 2713. 

'

1 PI !SA s~ction 2711. 1

(

1 P! !SA sections 2714. 2719/\. and 27 I 2. 11 ER!SA. Title L Subtitle B Pan I. 

~ ERISA. Title L Subtitle B Pan 4. 

Page 5 
23 

CEWDOCROOM with DISTILLER


Insert offset folio 12 here 28982.012

and its employer members to act in the best interest of the plan participants. Participants also 

have a private right of action to sue the Alii' if there is wrongdoing, 13 and there are detailed 

procedures for filing health claims, 14 and rigorous internal and external appeals processes. 15 

In addition, continuation of coverage requirements under COBRA apply, 16 and according to 

the Health Insurance Portability and Accountability Act (HIPAA), premiums for an AHP 

plan participant camwt be developed based on the participant's health condition." 

In the case of a fully-insured large group AHP, State benefit mandates also apply, meaning 

specified benefits and services that a particular Stale requires insurance contracts to cover 

must be included in the AHP plan. 18 Many industry experts suggest that most State's benefit 

mandates are as good as the ACA 's Ef!B requirement, even in cases where a State does not 

cover all of the 10 medical services that make up the Federal EHB standard. The drafters of 

the ACA recognized that fully-insured large group plans traditionally offer a comprehensive 

set of benefits similar to the ACA's EHBs. which led Congress to exempt fully-insured large 

group plans from the EHB requirement entirely. AHPs would still be subject to these State 

benefit mandates that would not be preempted by ERISA. 

Finally, NAR exists solely to serve its members. As a member organization led and governed 

by a leadership compose of members since its inception in 1908, it would not be in NAR's 

best interest to offer a member bene tit product that is not a quality product. As mentioned 

previously. REALTORS'" top health coverage priorities are affordability and access to 

preferred doctors, so any AHP must strive to achieve those goals and cultivate a deep 

pa11icipant pool. 

IL DOL Should Remove the Provision That Would Disallow Participation In an AHP If a 

Working Owner Is Eligible for Subsidized Health Coverage Through Their Spouse's 

Employer 

~AR believes that the eligibility criteria for qualifying as a working owner under the 

Department's proposed rule is overly constraining and will limit the number of self-employed 

individuals who may be eligible to participate in an AHP. Such a provision appears directly 

contrary to the Department's policy goal of expanding health coverage to these individuals. 

According to the NPRM. a selt~employed individual with no employees who is eligible for 

subsidized health coverage through their spouse's employer would not be considered a ·'working 

1

' ERISA sc<:tion 502. 11 ERISA section 503. 

'" PI!SA sccti ... m 2710. 11' J:RJSA. rit!c!. Subtitle B Part 7. 17 LRlSi\ section 702. 1

g .\~..·umJ!n~ h1 tlw '\:llilll1cll ConkTt'ih.T p( Swll' trudititill,lll~ State:-, h:.t\C enacted hL'cl!th mandate li:nn 

l1l iih'ltn.k· n.·quirL'd \.'.1\t:g<il"iL''> 1irup tu 70 di->tincl ··health 

Jnd ·T•lT'>\ 111:-> t:m er"'·"r ( '>uch <t<; ndnpLcJ ... :hildrcn. '""'u"""''"u 

lhc;-,c b\\\. tlh.To.' :m.• n.lot·c thdn 1.900 'lil'h '>l:t\ul!.':-. :um,nQ 

idu;d '>Ulu\c pnn ic.i\}ll\. ctd11ptcd 1Hcr mpr~,.· lhdll 30) car;. Si!i! .. St<nc lnsuranct..' 

! ·s:;,_'nli~\1 lkncllt-, Pro\ i<>i\,n.s. ,. '\atinnal ( 'nnil:rcnce of -.;ut~· Lcgisi,lhll'S (Oct. 20 17). 

talli\.'s mnrctlwn 

anJ !ht: AC_·\ 

Page 6 
24 

CEWDOCROOM with DISTILLER


Insert offset folio 13 here 28982.013

owner"' for purposes of participating in an A l-IP. Based on a survey of membership, 32 percent of 

NAR 's members are covered under their spouse's employer plan. 19 It should be noted, however, 

this statistic does not account for those members who may be "eligible'' for subsidized health 

coverage through their spouse's employer, but who have not enrolled. 

If close to half ofNAR 's membership fall in this category and are therefore preemptively 

excluded Jl·mn AHPs, it may be difiicult f(x NAR to attract enough members to offer an 

a!Tordable. better quality plan than the individual market As currently structured, the proposed 

rule could inadvertently prevent NAR from even establishing an AHP, contrary to the intent of 

the rule. 

It appears that this eligibility factor is intended to protect the small group market "'risk pool"' by 

limiting the number of working owners who may seck health coverage under an A l-IP (and 

therefore, exit the small group market and enroll in AHP coverage). However, if a working 

owner has access to subsidized health coverage through their spouse's employer, enrolling in 

such health coverage will in many cases be in the working owner's best economic interest. In 

these instances. working owners should have the choice and decide whether or not to exit the 

small group market. 

There may also be instances where even though the ·'family" coverage is subsidized with 

employer contributions (and tax-free employee contributions), the coverage may still be 

"tmaffordablc" to the working owner and his or her spouse (because, for example, the employer 

subsidy is minimal or the employer imposes a costly "spousal surcharge''), In this case. a 

working owner should not be arbitrarily forced to choose between (I) no health coverage and (2) 

"unaffordable'' health coverage. Instead, this working owner should be given another "choice," 

and the freedom to seek coverage under an AHP. 

There might be instances also where coverage under an AHP would be superior to subsidized 

henlth coverage through the working owner's spouse's employer. One such example would be 

when a family's preferred health providers are participants in the A l-IP plan but not the 

spouse's employer plan. NAR strongly believes that working owners should not be precluded 

fi·om enrolling in the superior All!' coverage that may better meet their families' needs. 

III. State Regulation of AHPs Concerns 

While nothing in the proposal alters a State's ability to regulate insurance, there is concern in the 

association community that States may attempt to enact legislation or promulgate rules torecharacterize a fully-insured large group AHP as a "small group" health plan, thereby subjecting 

the fully-insured A l-IP to the insurance rules applicable in the small group market. Such state 

action could frustrate the intent of the rule, which is to expand access to AHPs in order to oftcr 

more affordable, better quality health plans. 

NARis sensitive to this type of State regulation because of the interest in offering fully-insured 

large group or self-insured AHP coverage on a nationwide basis to all members and the ability of 

;,

1 !\bout 32 percent rccci\e health insurance through a spouse. partner. or family member. NAR 2017 Member 

Pn)!\!c. 

Page 7 
25 

CEWDOCROOM with DISTILLER


Insert offset folio 14 here 28982.014

state associations to otTer coverage on a regional basis. It; however, States set up barriers to the 

fixmation of AHPs, NAR along with other national trade associations- and its members would 

surely be disadvantaged. potentially to the point that it would not be able to offer its 1.3 million 

members with an alternative health insurance option that might better meet their needs. This 

would be an unfortunate outcome, especially in those states where the existing individual market 

has suffered from a declining number of insurers participating in the market and premiums have 

and arc anticipated to continue to surge higher. 

Conclusion 

On behalf ofNAR 's 1.3 million members, I thank the Subcommittee tor holding this hearing and 

looking into this important Department of Labor proposed rule that NAR believes would 

potentially provide the tools necessary to enable REALTORS'" to have more flexibility and 

freedom in choosing a health insurance plan that best fits their needs. 

Page 8 
26 

CEWDOCROOM with DISTILLER


Insert offset folio 15 here 28982.015

APPENDIX 

Page 9 
27 

CEWDOCROOM with DISTILLER


Insert offset folio 16 here 28982.016

NATIONAL 

ASSOCIATION of REALTORS' 

·\D\'OCACl GHOLl' 

\\hlliam E 1\h\k,!>l.m 

Chid ,\,lvocacy ( lfficcr/Scmor V1t1.' Prcs1dcm 

\\\\1\ Ni\RJU_\! l<ll< 

March 6, 2018 

Mr. Alexander Acosta 

Secretary of Labor 

U.S. Department of Labor 

200 Constitution Avenue, NW 

Washington, D.C. 20210 

Re: "Definition of Employer under Section 3(5) of ERISA -Association 

Health Plans"; RIN 1210-AB85 or Docket lD No. 2017-28103 (submitted 

electronically) 

Dear Secretary Acosta: 

On behalf of the 1.3 million members of the National Association of 

REALTORS® (NAR), I write in support of the Department of Labor's Notice 

of Proposed Rulemaking (NPRM) clarifying the definition of"employer" 

under Section 3(5) of the Employee Retirement Income Security Act (ERISA) 

for purposes of establishing an Association Health Plan (AHP). The 

Department of Labor's (the Department's) efforts to expand health insurance 

options for more Americans is greatly welcomed, especially by real estate 

professionals that do not typically have access to employer provided 

coverage. 

For well over a decade, NAR has advocated for reforms to the health 

insurance markets to provide better coverage to the self:cmployed and small 

employers that support the real estate industry- one of the country's biggest 

economic sectors, making up more than 16 percent of the U.S. Gross 

Domestic Product. NAR's 1.3 million members are involved in all aspects of 

real estate, as residential and commercial brokers, salespeople, property 

managers, appraisers, and counselors, all with varying health care concerns. 

The overwhelming majority ofNAR members are not employees ofthe realty 

offices with which they are affiliated; they are independent contractors 

autonomous from the real estate company itself, paying for their business 

expenses and health insurance coverage out of their own pockets. NAR has 

long documented the challenges of finding affordable health insurance 

coverage and historically the rate of uninsured members has ranged between 

20 and 30 percent. It is therefore critical that the Department of Labor support 

the needs of the real estate industry to have affordable health care options so 

that these individuals can continue to focus their role on boosting America's 

economic growth. 

While some real estate professionals are able to obtain health insurance from 

a spouse, former employer, or government program, such as Medicare, many 

arc purchasing health insurance on their own, through an exchange or with 

the help of a broker, in the individual insurance market. Passage of the 

Patient Protection and Affordable Care Act (ACA) resulted in significant 
28 

CEWDOCROOM with DISTILLER


Insert offset folio 17 here 28982.017

regulatory changes to the individual insurance market (and the small group market), some of\vhich have 

benefited REALTORS I( •

1 ~fovvever, such changes have also resulted in significant increases in health care 

costs. 2 

Vihile REALTORS'' understand the importance of having health insurance, am>rdability continues to be a 

primary barrier to obtaining and maintaining coverage3 More than half of REALTORS'' describe their existing 

insurance premiums as too expensive. costing more than $6,000 per year. 4 Numerous reports project rising costs 

for 2018, more so than in previous years. According to the Kasicr Family Foundation. the average increase in 

the lowest-cost premium will range between 17 and 32 percent for 2018 5 For REALTORS", with a nationwide 

median individual gross income of$42,500, such increases could have a significant impact on whether they can 

afford to purchase health insurance. 6 

To promote uninterrupted market participation. there must be enough insurance options available at af((xdable 

prices that provide necessary coverage of care. NAR supports the Department of Labor's ctforts to expand these 

options and help REALTORS" across America struggling to tlnd cost-eflcctive health insurance plans. 

Ensuring the t!·ccdorn to choose fl·om a variety of insurance providers offering quality coverage plans \Vith 

enough premium support is k~y to cultivating a deep participant pool and strong marketplace. 

llowevcr, the proposed rule purports to limit AHP eligibility f(Jr many working owners, including real estate 

professionals, and may not adequately protect against state regulation. threatening AHP development and 

stJstainability. As such, NAR's comments focus on the following aspects of the NPRM that the Department 

must consider when finalizing the proposed rule: 

I. Ensuring that selkmployed individuals with no employees (referred to as a ''working owner") can 

participate in group health plan coverage under an A l-IP: 

2. Removing arbitrary and unnecessary eligibility criteria for being considered a working owner; and, 

·'- Clarifying that while states may continue to regulate AfiPs, states may not use existing authorities to 

undermine the intent of this rule, which is to expand access to AHPs (e.g., by simply re-characterizing 

large group AHPs as ··small group'' health plans). 

NAR has long championed legislative cfl(lfts to promote AHPs or Small Business Health Plans and support the 

Dcpanment's actions toclay. 7 The Department's removal of regulatory barriers that make it possible for selfemployed individuals and small employers to purchase health insurance through a professional or trade 

1 For c;o...ample. with man) real cstatl.! profC:-;sit>nab !~1l!ing in the baby boomer ~~)r pn.>-e-.:istlng 

conditions and en<>uring guarankcd hmc hccn 

"See Ashk;.. Seman~cc et ul.. !!01r 2018. 

when considering insurance options. 

2017), 

KFF 2018 Premiums.J 

even in light of the recent change to the individual mandate 

I kalth lnsur;.mcc Survey. (February 2018). 

1101. ihe Small Bw·iness 

Page 2 
29 

CEWDOCROOM with DISTILLER


Insert offset folio 18 here 28982.018

associations will expand much needed access to Af··IPs. NAR's members and I thank the Department for 

proposing a rule that has the potential to provide REALTORS" across the country with more flexibility and the 

freedom to choose a health insurance plan that best fits their needs. 

I. Finalize the Proposals That Would Allow NAR To Offer AHP Health Coverage To Members 

A. Background on the Current Treatment of AHPs 

I. Currentlr. the Formation ojAHI's Is Limited Due J(J Department of llea/th and Human Services 

Guidance 

Prior to the enactment of the ACA. small employers often times banded together to create a fully-insured or 

self~insured AHP. In the case of a fully-insured AHP. most States treated the AHP as a '"large group·· plan. 

subject to a State's large group market insurance regulations. In other words. small employers that participated 

in the AHP were not subject to the State's ·'small group" market insurance requirements. 

The ACA enacted new coverage requirements applicable to fully-insured plans sold in the "individual.'' small 

group, and large group markets, as well as to seJf .. insured group health plans. Hm-vever, certain insurance 

market relimns that are otherwise applicable to individual and small group plans do not apply to fully-insured 

"large group" and selt~insured plans. These ref(lrms include the ACA's essential health benet1ts (EJIR) 

requirements,~ actuarial value (A V)'1 requirements. the adjusted community premium rating rules, 10 and the 

single risk pool rcquirement. 11 

Shortly alter the enactment of the ACA. State and Federal regulators were concerned that small employers may 

choose to join an existing firlly-insured AHP to avoid the ACA 's small group market reforms. To address this 

concern. in 20 II. the Department of Health and Human Services (HHS) issued guidance that essentially 

prohibited small employers from lirrming a tillly-insured "large group" health plan." This meant that the 

ACA 's small group market insurance reforms would apply to firlly-insured AHP employer members with 50 or 

fC\vcr employees. 

individual and .small group health plans must cover a list of 10 mt•dical ~ervh:es that make ·'Federal 

patient sen ices: emergency services: hospito.Ji;;ation~ maternity and nc\vborn care: health and 

induding behavioral health treatment: drugs; rehabilitative and habilitativc services and 

de\ ices: sen ices: pre\ cntivc and ''ellness services and disease management; and pediatric services. including oral 

anJ \ i:,i,)n l:are. section 1302(b). 

·J A\' is a measure ol"h0\\ much the health must pa). 

is percent {i.e .. the 

70 percent A V, a ··gold" 

scclion 13112(dj( I)IB)·(Il). 

plans based on health status. 

by no more than a 1.5 to 1 ratio). (3 J 

risk pool 

pooled 
30 

CEWDOCROOM with DISTILLER


Insert offset folio 19 here 28982.019

The 20 II guidance dramatically reduced the number of fully-insured A liPs that operate today. but did not apply 

or impact sell~insured AHPs. In addition, fully-insured AHPs sponsored by a .. bona tide group or association of 

employers" as defined under ERISA were not impacted by Hf!S's guidance. In other words. if a group of 

employers sponsoring a fully-insured AHP is considered a "bona tide group or association of employers, .. the 

Jldly-insured AHP would continue to be considered a .. large group .. plan (and thus. small employer members 

participating in the AHP would no/ be subject to the ACA 's small group market relbrms). 

2. ( 'orrenllv, !he Forma/ion ojA!JPs Is Also Limiled Due lo Department of Labor Guidance 

The formation of AHPs is also limited by the Department of Labor's existing guidance on the factors that must 

be satisfied to be considered a ·'bona fide group or association of employers'' for purposes of sponsoring a fullyinsured .. large group" or sell~ insured AHP. Spccitically, to be considered .. bona tide," a group of employers 

must meet (I) the .. commonality of interest" and (2) the "control" tests. 

Under the "control'' test. the employer members of the group must exercise "control," both in form and 

substance, over the activities and operations of the AHP. 13 The "commonality of interest" test is a facts and 

circumstances test that is not ahvays easy to satisfy. According to existing Department guidance, a group of 

employers would not be considered .. bona tide" unless (I) the employer members are ·'related'' (i.e., the 

employers arc in the same industry) and (2) the employer members are located in the same State or tri-State 

area. '

4 Also. a group of employers would not be considered "bona fide" if self-employed individuals with no 

employees arc a part oft he group. 15 

3. These Limitations Hare Barred NAR From (?[fering AHP Health Coverage To Arfemhers 

For decades. 1\AR as a member-run organization has been interested in establishing an A liP to offer health 

to our 1.3 million members nationwide. or supported local and state associations to provide coverage 

on a basis. Although the REAl.TORS"'satisfy the first component of the ''commonality of interest .. test 

(because all members arc .. related''), NAR at the national level is unable to meet other aspects of the 

--commonality of interest'' test. like the geographical limitation. 

More specifically, because the "commonality of interest" test eon tines an employer group to offering health 

coverage within the four-corners of a particular State (or in a tri-State area), NAR is unable to offer AHP health 

coverage to all members across the country. In addition. because the majority of members would be considered 

self-employed individuals \Vith no employees, NAR would not be considered a ··bona fide group or association 

of employers" fOr purposes of sponsoring an Af IP. Lastly. there is an existing Department regulation that also 

prohibits a self-employed individual with no employees (and their spouse) from participating in an ERISAcovered pLan. 10 

''DO! Adv. 25. 2012). DOL Adv. Op. 2005<?:5/\ (Dec. 30, 2005). DOL Ad1·. 

DOL i\Jy. Op. \ n~~c. 2003 ). DOL i\d\. Op. 200 !-0-J./\ 21. 200! ). DOL AdY. Op. 11 Gruher r. /luhard Bert Karle Webber, Jnc. 159 F.3d 780 (3 1

d Cir. 1' John Hancock 

90-1- (9111 Cir. !997}): .\'ational Ben ,[dministrators, Jnc., .\'ationa! 8usrncss .iss ·n 

(\V.D.K Y !l)t)!'): see also. DOL Ad\. Op. 2012-0..J.A 25. 201:2}, DOL Ad\·. Op. 2005-

25!\ (Dec. .10, 2005). DOL Adv. Op. 2003-!7A {Dec. !2. 

,, .\farce I Ia 1· /Jealrh Plan. inc. v. 293 F.3J 42 (2'"1 CiL 2002): see also, DOL i\dv. Op. 2003- IJA {Sept. ~0. 

c003). DOL i\ch. 1998), DOL Adv. Op. 94-07.\ (Mar. 14, 1994), DOL Adv. Op. 90-19/\ /June 15. 1990). 

"IJOI 

Page 4 
31 

CEWDOCROOM with DISTILLER


Insert offset folio 20 here 28982.020

B. The NPRM May Enable NAR To Offer A liP Health Coverage To Members 

The NPRM proposes to change existing Department guidance and regulations in such a way where NAR may 

finally be able offer health coverage through a fully-insured ·'large group" or self-insured AHP. This flexibility 

would be provided through the Department's modifications to the "commonality ofinteresC test and also 

because sell:employed individuals with no employees (hereinafter referred to as '·working owners'') would be 

able to participate in A liP '·group health plan" coverage. 

The Department explains its requisite authority to supersede its previous interpretations as articulated in nonbinding Advisory Opinions as well as supersede a prior interpretation by a Federal court- to address 

marketplace developments and new policy and regulatory issues. 17 Based on this precedent, many stakeholders 

believe the Department does indeed have the requisite authority to reinterpret its own rules to address new 

issues presented in an ever-evolving economic environment, especially considering the fact that courts have 

deterred to Federal agencies provided there is a rational basis for the decision and it is explained through the 

normal rulemaking process under the Admini:-;trative Procedure Act. 18 

I. REA[. TORS'" Support the Modifications to the "Commonalitv of1nterest'' Test 

In the NPRM. the Department has opted to modify its interpretation of the various factors that must be present 

to satisfy the '·commonality of interest'' test. Under the proposal, a group of employers would meet the 

"commonality of interest'' test if( I} the employers (and working owners) are in the same industry, line of 

business or profession or (2) the employers (and working owners) have a principal place of business in a 

particular State or metropolitan area (that may span more than one State). 

With respect to the first test noted above, the Department has chosen to eliminate the geographical limitation for 

"related" employers. This would allow national trade associations like NAR- to establish a fully-insured large 

group or self-insured A!IP, and oflcr such AHP health coverage to the Associations' members regardless of 

their geographic location. In other words, so long as the members of the group are "related" a test which 

NAR ·s members satisfy- AHP health coverage could be oftered to members located in all 50 States, or 

members located in a particular region of the country (e.g., Ne\v England, the Southeast States. or the Pacific 

North;;est to name a lew). As stated above, NAR strongly supports this modification, and urges the 

Department to finalize this proposal. 

2. REALTORS") Support Allowing TYorking Owners to Parr;clj)(lte in on AHP 

The Association commends the Department for allowing working owners to participate in "group health plan'' 

coverage through an AHP. NAR has long-advocated for policy changes that would provide additional health 

coverage options to working owners and currently. working owners have limited options when it comes to 

accessing health insurance. !fa working owner happens to have a spouse \\'ho is offered group health plan 

coverage through the spouse's employer, the working owner may be eligible for coverage. Ho\vcver, in some 

cases this '"family'" coverage may be unaftOrdabk to the working owner and his or her spouse. 

17 S'ec Pere::: l' /Jank<:rs Ass 'n. JJS S. Ct. 1199 (20!5); see also. Xationa/ Cable & Telecommunications Ass 'n ,., Hrand )( 

llir.:mer Serrin:s. 967 (2005). 

lH .\'ee Hot or I cehiclr i\Jam!fircrwers <1s.wdationr ,)'tale Farm :\lutua! Automobile Insurance lompany. 463 { JS 29 ( J9k3). 

Page 5 
32 

CEWDOCROOM with DISTILLER


Insert offset folio 21 here 28982.021

If a working owner is not married or their spouse· s employer does not offer group health plan coverage~ the 

only health care option available to them is health coverage in the fully-insured individual market. This can 

dramatically limit a working owner's ability to access affordable health coverage. 19 And, in today's individual 

market. finding a health plan that provides an adequate level of coverage at an allordable price is dit1icult. 20 

For the reasons discussed more fully below, NAR urges the Department to finalize the proposal to allow 

working owners to participate in a rully-insured "large group'' or self-insured AHP. As stated. providing this 

flexibility in the l;nv may enable NAR lo offer group health plan coverage to its members nationwide. and/or on 

a regional basis. 

II. Working Owners Will Benefit From Participating In a Fullv-Insured Large Group or Self-Insured 

AHP 

A. Working Owners Can Find Comprehensive Health Coverage Through a Fully-Insured Large Group 

or Self-Insured AHP 

Allowing working owners to access health coverage through an AHP either a fully-insured large group or 

self~ insured AHP will dramatically improve their ability to find comprehensive health coverage that best lits 

their needs. 

I. Consumer f'rotections Under ERISA and the ACA Apply to an AHP 

As the Department is \\ell aware. existing consumer protections under ERISA and the ACA require a f[tllyinsurcd large group and self~ insured AHP- as a group health plan- to provide a comprehensive level of 

coverage. 

For example, according to the ACA. a t[illy-insured large group or sell~ insured AHP (I) cannot deny an eligible 

plan participant health coverage if they have a pre-existing condition,21 (2) cannot refuse to cover certain 

government-approved preventive services (rather, the AHP must provide free coverage for these preventive 

and (3) cannot impose annual and lifetime limits on the "essential health benefits" covered under 

the plan. Other ACA requirements including- (I) covering adult children up to age 26, (2) free access to 

emergency care. and (2) the prohibition against rescinding coverage absent fraud -apply. 24 

2

"'- P!JSA section 27 !J. 

P! !SA section 27!!. 

='·1 PllSA s~.:ctlons 27!4, 2719A. and 2712. 

Page 6 
33 

CEWDOCROOM with DISTILLER


Insert offset folio 22 here 28982.022

Under ERISA. there are speci1ic notice and disclosure requirements, and also fiduciary responsibilities that 

apply." requiring the AHP and its employer members to act in the best interest of the plan participants. 

Participants also have a private right of action to sue the AHP if there is wrongdoing." and there are detailed 

procedures for filing health claims, 2

-1'1 and rigorous internal and external appeals proccsses. 29 In addition, 

continuation of coverage requirements under COBRA apply,w and according to the Health Insurance 

Porwbilily and Accountabilitr Act (HIPAA). premiums !(Jr an AHP plan participant canno/ be developed based 

on the participanrs health condition." 

Importantly. the '-JPRM docs nothing to change ERISA's and the ACA's consumer protections. 

2. State Benefit Mandates Applr 10 Fully-Insured Large Group AllPs 

In the case of a li.tlly-insurcd large group AHP, State benefit mandates apply, meaning speeiticd benctits and 

services that a particular State requires insurance contracts to cover must be included in the AHP plan. Many 

industry experts suggest that most State's bcne1it mandates are as good as the ACA's EHR requirement, even in 

cases where a State docs not cover all of the 10 medical services that make up the Federal EHR standard. The 

drafters ol"thc ACA reeogni1cd that fully-insured large group plans traditionally offer a comprehensive set of 

benefits similar to the ACA 's EHRs, \\hich led Congress to exempt !ltlly-insurcd large group plans from the 

EHB requirement entirely. 

3. Stale MEff'~1 Laws and So/rene)' Requirements Apply to Self-Insured AHPs 

With respect to a self~insured AHP. this arrangement would be considered a self-insured "multiple employer 

welfare arrangement" (MEWA). As the Department knows, Congress spccitically amended ERISA ·s 

preemption provision to give States the explicit authority to regulate self-insured MEW As operating within the 

State." Since that time. many States have enacted their own State MEWA laws with varying degrees of 

regulation ranging from restrictive to permissive. These la\VS often times impose specific coverage and/or 

premium rating requirements on selt~insured ME WAs. In addition. State MEWA laws typically impose the 

same solvency-- or reserve requirements that apply to insurance companies operating within the State. Other 

States outright prohibit sell~ insured ME WAs. 

~, LR!SA, -r itk L Subtitle B Part ! 26 LR!SA. Title L Sublitk B Pal14. 7 f-::RJS.\ .'.t:ction 502. 

ERISA scclion :S03. 

"'PI/SA ;,t'L"tion 271Y. 

Y! CRIS;\_ Title l. Subtitle B Part 7 . 

. , ERISA section 702. 

1·cquir..::d 

(0\l'rl'd'" 

{:;uch as ;t..:upuncturi.-.ts 1)1" chirori\lCt(lrsl and "fKrsons 

Adding up these lm\'>. there drc more than L900 

indi\ idual '>Utuk t~\ cr more th<m W 

Lcgi.'.!:Jt<lc•, t( let. 

Page 7 
34 

CEWDOCROOM with DISTILLER


Insert offset folio 23 here 28982.023

4. AHPs Will Proride Adequate Health CO\•erage 

NAR recognizes that other stakeholders will sound the alarm over the tact that fully-insured large group and 

self-insured AI·IPs arc not subject to the ACA 's EHB and A V requirements, and also the ACA 's adjusted 

community premium rating rules and the single-risk pool requirement. Hov-.'ever. these concerns arc misplaced 

due to the applicable consumer protections and existing State regulation discussed above. 

B. Working Owners Can Find Lower Costing Health Coverage Through an AHP 

Allowing \\orking owners to access health coverage through ftilly-insured large group or self~ insured AHP will 

dramatically improve their ability to find comprehensive health coverage at an affordable price. 

L Cows Are l.)pical/y Lowerfvr Fu/1)'-/nsured Large Group Plans 

Prices in the fully-insured large group market arc typically lower than individual and small group market plans. 

Some have asse11ed that this lower price point is o!len times the product of less comprehensive or "skinny'' 

coverage. In fact large group plans tend to offer more comprehensive coverage than small group or individual 

health insurance plans. Contrary to the assertions. the lower costs in the fully-insured large group marketrelative to the individual and small group markets- are driven by administrative efficiencies. In other words, 

the same administrative costs that drive up tile cost of individual and small group coverage are not present in the 

1\dly-insurcd large group market. For example, individuals and small employers ofien times drop in and out of 

the insurance markets. In addition, individuals and small employers routinely change insurance carriers. 

sometimes every ycar. 3

'

1 This volatility- which drives up administrative costs is not present in the single 

employer fldly-insurcd large group market, as well as among existing fully-insured large group A liPs (e.g.) in 

the case of existing fully-insured large group AHPs, the health coverage is traditionally superior to coverage a 

small employer might independently find in the commercial insurance market, and as a result, there is limited 

turn-over among small employer members). 

In addition. prices in the individual and small group markets arc typically higher on account of the ACA 's risk 

adju:-.tment program. In other words, insurance carriers typically price any potential risk adjustment .. charges·' 

into their premiums, which arbitrarily increases costs. Because the ACA's risk adjustment program docs not 

apply to the fully-insured large group market, these added costs are not present, thus resulting in a lower costing 

health plan relative to individual and small group plans. 

The requirement to cover the AC' A's EHBs and the ACA 's adjusted community rating rules also have cost 

implications f(lf individual and small group plans. which arc also not present in the fully-insured large group 

market. For example. fully-insured large group premiums may be developed based on the "health claims 

experience .. or all of the employees employed by a large employer, while this type of under-writing practice is 

prohibited in the individual and small group markets (i.e .. premiums in the individual and small group market 

cannot be based on health status). In addition, age rating in the individual and small group markets is limited to 

a 3-to-1 ratio (which increases costs for younger individuals), while age rating in the fully-insured large group 

market is typically based on a 5-to-l ratio, which many argue produces an ·•actuarially fair" premium rate, 

industry experts h:ne explained thatvolati!lty in the small 

n.w smal!~group CO\Tragc. as greater resources arc 

already very 

u~>··clll,<>tttng and rcPage 8 
35 

CEWDOCROOM with DISTILLER


Insert offset folio 24 here 28982.024

2. ('osls Are hadilionallv Lmrerjbr Selj:fnsured Plans 

Self: insured group health plans arc not subject to the ACA 's risk adjustment program. as well as the ACA's 

EHBs and adjusted community rating requirements. which as discussed above- means that these plans will 

have a lower cost relative to individual and small group plans. In addition, self-insured plans arc not subject to 

State premium taxes. and therefore, unlike fully-insured plans (e.g .. individual, small group. and large group 

plans). there is no tax liability that is passed through to the participant. Self-insured plan premiums also do not 

include a "risk" and "profit" load that insurance carriers traditionally build into their costs to employers and 

their employees. 

3. Costs ff!ill Be L!NerjiJr Fully-Insured and Self: Insured AHPs 

Based on the foregoing. regardless of whether an A liP is a fully-insured large group or self:insured plan. the 

cost of coverage will primarily be lo\ver than individual and small group health plans. And contrary to vvhat 

may critics of /\liPs may say. such k)vvcr costs are not driven by the plans offering limited benefits. 

C Allowing Working Owners to Participate In an AHP Will Not Materially Impact the Existing 

Individual Market 

Critics of Al-ll's argue that the allowing working owners to participate in these arrangements will adversely 

affect the individual health insurance market. While it is true that some working owners may seck to exit the 

individual market and opt lew health coverage offered through an AIIP, the impact on the individual market will 

not be as severe as these critics suggest. Rather the proposed rule would provide another choice for more 

consumers to seck out more aff()rdab!e coverage. 

I. Working Owners Fligihlefhr rile ACA 's Premium Tax Credit Will Ukelv Remain In the Individual 

Market 

To determine how AHPs may impact the individual market, it is important to first examine the type of working 

o\vncrs purchasing an individual market plan. For example. a working owner with income between ! 00 percent 

and 400 percent of the Federal Poverty Level (FPL) will qualify lor the ACA's premium tax credit if the 

working owner enrolls in an individual market plan sold through an ACA Exchange. In most if not all cases. 

working owners in this income cohort are likely to remain in the individual market because any coverage they 

may access through an ;\llP vvould not be subsidizcd. 36 

It is true that if a working <mner in this income cohort enrolls in an A! IP. they would be able to deduct I 00 

percent of the cost of the AIIP coverage as an above-the-line deduction as permitted under section 162(1) of the 

Internal Revenue Code ("'Code"). But. this tax benefit will likely be lower than the value of an ACA premium 

tax credit and theretbre. it would be in a working owner's best economic interest to remain covered under an 

AC/\ Exchange plan (instead of' exiting the individual market and enrolling in AHP coverage). 37 

indicate~ that 1)06.000 \vorking own~.:r~ (and their dependents) are enrolled in an individual market 

tax credit. 

n Not~.:. in an individuul murkct plan through an ACA Exchange~ 

the \Wrking ~.mncr cannot a!so take an ahovc~!inc~Jeduction under section 162(1) (i.e.. "dc•ublc-dmomc .. l 

Page 9 
36 

CEWDOCROOM with DISTILLER


Insert offset folio 25 here 28982.025

FVorking Owners IVot Eligihlejhr the /lCA 's Premium Tax Credit Afa_r Seek Coverage Under an AHP 

For those working owners with income above 400 percent of FPL. these individuals do not quality for 

subsidized individual market plans. As a result. these working owners must pay for the full-cost of an individual 

market plan out of their own pocket. A working owner may deduct 100 percent of the cost of the individual 

market plan as an above-the-line deduction under Code section 162(1). However. it is unlikely that this tax 

benefit will make the individual market coverage affl>rdablc. As a result. it is likely that a working owner in the 

··un-subsidizcd'' individual market will exit that market and seek coverage under an AHP. 

3. Owners Exiting the lin-Subsidized Individual Market, They May Be Healthy or They 

The tact that \Vorking owners may exit the on-subsidized individual market does no!- in and of itself- mean 

that the individual market will be adversely atTcctcd. For example, AHP coverage may be equally attractive to 

both a .. healthy" working owner QI a working owner that utilizes a significant amount of health care (i.e., a 

"high medical-utilizer"). As a result. while a healthy working owner may exit the individual market thereby 

having a negative effect on the overall risk pool, a high medical-utilizer may also exit the individual market thus 

having a positive impact on the overall risk pool. This would occur in instances ~yvhere a high-medical-utilizer 

would llnd that the AHP coverage is superior to any tm-subsidizcd individual market coverage. And. it would 

occur in cases where the AllP is less costly than any on-subsidized individual market coverage. 

NAR ·s members are a case-in-point. \Vhcrc average membership age 53 years old. 3g While information about 

the specilic health risks of our membership remains private as required under HIPAA (and thus unknown to 

us) objective data indicates that older individuals tend to use more health care than younger individuals:N 

And, while it is too soon to determine whether the health insurance coverage NAR may offer through an AflP 

will cost less t()r members who are currently covered by an tm-subsidized individual market plan. if the AHP 

coverage does indeed have a lower cost, then it is likelv that manv members who skew older and thus mav be 

high m~dical-utilizers- will exit the individual market: This acti~n wi\1\ikc\y have a positive impact on th~ 

overall individual market risk pool. 

It is dil1icult to determine whether there will be a one-l()f-one trade-off between healthy working owners and 

high medical-utilizers who may exit the un-subsidized individual market even for skilled actuaries. However, 

the assertion that the existence of AHPs will "siphon oil" healthy risks from the individual market is similarly 

not a \veil-founded claim that can be objcctive.!y verified. A stronger argument can be made that high-medica! 

utilizers will lind AHP coverage attractive. and thus. exit the individual market. 

III. Remove the Proposal That Would Disallow Participation In an AHP If a Working Owner Is 

Eligible for Subsidized Health Coverage Through Their Spouse's Em plover 

As stated above. the National Association of REALTORS'' has long-advocated for policy changes that would 

provide additional health coverage options to working owners. The Association applauds the Department for 

finally providing the flexibility that this organization has long sought- allowing working owners to participate 

in group health plan coverage offered through an AHP. llowever. NAR feels that the eligibility criteria for 

qualifying as a working owner is overly constraining. The proposed eligibility criteria that must be met to be 

1n \JAR 2017 Member Pro tile. 

N ,\\:c Dak I!. Yamunwto. !!eu!th ('are Costs ~From Birth to Death. Society of Actuaries (June 2013). http: 'tim url.~..·om'..,i:i!.:~-::_\~:2. 

Page 10 
37 

CEWDOCROOM with DISTILLER


Insert offset folio 26 here 28982.026

considered a working O\\ner will limit the number of self-employed individuals who may be eligible to 

participate in an AHP, which seems contrary to the Department's policy goal of expanding health coverage to 

these individuals. 

A, Disallowing Participation In an AHP Due To Eligibility for Subsidized Health Coverage Through 

a Working Owner's Spouse Will Limit the Formation of Alii's 

According to the NPRM, a selt~employed individual with no employees who is eligible for subsidized health 

coverage through their spouse's employer would not he considered a ··working owner"' for purposes of 

participating in an AHP, Based on a survey of membership, 32 percent ofNAR's members are covered under 

their spouse's employer plan."' This statistic docs not account for those members who may be "eligible'' fiw 

subsidized health coverage through their spouse's employer, but who have not enrolled, which would likely be 

higher. 

If close to halfofNAR's membership tall in this category and arc therefore preemptively excluded from AHPs, 

it may be ditllcult for NAR to attract enough members to offer a more affordable, better quality plan than the 

individual markcL As currently structured, the proposed rule could inadvertently prevent NAR from establishing 

an AHP, contrary to what the intent of the rule. 

R Disallowing Participation In an A HI' Due To Eligibility for Subsidized Health Coverage Through 

a Working Owner's Spouse Is Arbitrary, Constraining, and Against Good Public Policy 

It appears that this eligibility factor is intended to protect the small group market "risk pool" by limiting the 

number of working 0\\,ncrs who may seek health coverage under an A liP (and theret()fe, exit the small group 

market and enroll in A HP coverage). However, if a \vorking owner has access to subsidized health coverage 

through their spouse's employer. enrolling in such health coverage will in many cases- be in the working 

O\\'ller's hcst economic interest. In these instances. working owners should have the choice and decide vvhcther 

or not to c\it the small group market 

For example, health coverage offered through an A liP will not be subsidized in any (other than through the 

Code section 162(1) above-the-line deduction). In contrast if a working owner's spouse oflered "family" 

health coverage that is subsidized through employer contributions (and also through tax-ti·ee employee 

contributions that may be made), the cost of this coverage will be cheaper than the on-subsidized AHP 

coverage. As a result, it \vould not be in the working owner's economic best interest to opt-out of their spouse's 

employer plan to enroll in !\liP coverage, Meaning, it is unlikely that the working owner would exit the small 

group market. 

I {owevcr. there may be instances where even though the "family~· coverage is subsidized with employer 

contributions (and tax-free employee contributions)~ the coverage may still he "unaffordable" to the working 

owner and his or her spouse (because. f()r example, the employer subsidy is minimal or the employer imposes a 

costly "spousal surcharge''). In this case, a working owner should not be arbitrarily forced to choose between 

(I) no health coverage and (2) "unaffordable" health coverage. Instead, this working owner should be given 

another "choice," and the freedom to seek coverage under an AHP. 

''' 1\bout 32 percent receiYe hca!th insurance through a spouse. partner. or family member. NAR 2017 ~1cmhcr Profile. 

Page 11 
38 

CEWDOCROOM with DISTILLER


Insert offset folio 27 here 28982.027

Suggesting what form an appropriate ·'affbrdability" test could take- or suggesting what constitutes 

"subsidized'' coverage- is beyond the scope of this comment letter. However, this situation is not an 

uncommon case \Vherc a vvorking owner and his or her spouse are faced with employer coverage that they 

cannot afford. and also individual market coverage that is too costly and/or does not provide adequate health 

coverage. If this proposed eligibility t3ctor is finalized, this working owner would be blocked from accessing 

what could be affordable and comprehensive coverage through an AHP (even if such coverage is unsub;:.,idi?ed). Again. a result that the Department does not intend. 

Referring back to the example above: Even if the subsidized "family" coverage is ·'affordable," a working 

owner should still be given the option to enroll in an AHP even if it is not in the working owner's best economic 

interest. For example, there may be instances where coverage under an AHP is superior to subsidized health 

coverage through the vvorking owner's spouSC1S employer such as when a family"s preferred health providers 

are participants in the AHP plan hut not the spouse's employer plan. And, even though the coverage under the 

A liP is un-subsidized, the working owner should not be precluded from enrolling in the superior AHP 

coverage. 

The over-arching goal is that working owners should have as many choices available to them as possible. And, 

any concern over the impact AHP coverage may have on. for example, the small group market risk pool should 

not drive the development of an eligibility factor that is arbitrary and constraining. In addition, a working mvncr 

should not be put in a position where they have to choose between a spouse and affordable/quality health 

CO\ erage. a reasonable concern that that this type of eligibility tUctor is anti-marriage. 

C. Disallowing Participation In an AHP Due To Eligibility for Subsidized Health Cove•·age Through 

a Worl<ing Owner's Spouse Is Modeled After a Section ofthe Internal Revenue Code That Does 

Not Share a Parallel Provision Under ERISA 

NAR understands that this eligibility criteria is modeled alter a requirement set forth under Code section 162(1) 

in particular Code section 162(1)(2)(fl)- which denies the above-line-deduction l(lr health care costs if a selt~ 

employed individual is eligible for subsidized health coverage through his or her spouse's employer. There is 

virtually no implementing guidance on this provision of the Tax Code and there is no history on why Congress 

included this rule in the Tax Code in the first place. It is reasonable to conclude that Congress did no! develop 

this provision to serve as a !actor i(Jr determining eligibility to participate in a group health plan. While there are 

a number of parallel provisions in both the Tax Code and ERISA. Code section I 62(1)(2)(8) is not one of those 

p<1ral\c! provisions. As a result, there is no reason vvhy an unrelated section of the Tax Code should be used as 

precedent for limiting \Vorking owners' ability to participate in an A T-IP. 

As discussed above, suggesting what constitutes "subsidized" coverage is beyond the scope of this comment 

letter. llowever. ever since 1986 when section 162(1)(2)(B) was tirst added to the Tax Code- neither 

Congress nor the Department of Treasury has defined \\'hat the term ''subsidized'" coverage means for the 

purposes <1fthis limitation. Attempting to develop a definition at this point is an ill-advised exercise that will 

merely add complexity to an already complex issue area. 
39 

CEWDOCROOM with DISTILLER


Insert offset folio 28 here 28982.028

IV. Comments on the "Hours Worked" Eligibility Requirement and the Nondiscrimination 

Protections 

A. The "!lours Worked" Requirement for Qualifying as a Working Owner 

Another eligibility H1ctor for quali(ying as a working owner requires that an individual work at least 120 hours 

per month providing personal services to a "trade or business:· Real estate professionals do not have a 

traditional work schedule relative to workers in other industries and as independent contractors, such hours are 

not readily tracked like in an employer-employee relationship. The Department should modify this "hours 

worked'' eligibility criteria. taking into account that there are many industries- like real estate- where workers 

may not have a defined schedule that leads to working 120 hours in a particular month." 

B. The Nondiscrimination Protections 

The NPRM establishes four different nondiscrimination protections applicable to AHPs. Under the first 

proposed nondiscrimination protection. an employer group cannot deny other employers and/or working O\vners 

membership in the group- and by extension participation in an AIJP- on account of any ''health 1\tctor .. " of an 

employee, a former employee. or the working owner. Under the second and third proposed nondiscrimination 

protections, the premiums t(Jr AHP health coverage- and eligibility f(Jr benefits covered under the plancannot vary based on a particular participant's health factor. And under the fourth proposed nondiscrimination 

protection, an AHP cannot develop different premiums for different employer groups or working owners based 

on their health claims experience. 

With regard to the first nondiscrimination protection, NAR supports this proposal, as no employer or working 

owner should be denied membership in an organization because of a person's health status. In our opinion, 

denying membership based on a health factor is against public policy and is merely a subterfuge to denying a 

person health coverage under an AHP. which is currently prohibited by the ACA. 

\\lith respect to the second and third nondiscrimination protections. the Association is also supportive of these 

provisions. As the Department knows, these are requirements that currently apply to existing group health plans. 

And as a group health plan- any A liP that N/\R may sponsor will comply with this current law requirement 

and therefore. \\ill not develop premiums or de tine eligibility l(lf benefits based on any health factor of a 

particular plan participant. 

While NAR strongly supports the other provisions. NAR is concerned that the inability to develop difterent 

premiums for different employer groups based on health claims experience may adversely affect existing AHPs 

that are currently sponsored by other trade associations and employer-run organizations. This is because like 

single employers that sponsor fully-insured large group and self-insured plans. most existing AHPs engage in 

the practice of·"cxperience-rating'' to develop their premiums. And. the inability to engage in this commonly 

used practice may be disruptive to current AHP plan participants. In addition, the inability to experience-rate 

employer members may limit the formation of AHPs in the future. 

41 i\rt)und 16 percent of}.;AR mcmb~:rs work fewer than 30 hours per week and make less than $10.000. ;-..iAR 20 I 7 Member Profile. 

~:A "lwaith bctor .. is ddin<..'d as: ht'alth status. mt·dica! condition (induding both physical anJ mental illness), claims experience. 

receipt nfhcahh care. medical hl: .. tor;.-. genetic infOrmation. c\·idcnt:t: of insurability. and disability. 

Page 13 
40 

CEWDOCROOM with DISTILLER


Insert offset folio 29 here 28982.029

V. State Regulation of AHPs 

The preamble of the NPRM explains that- in the Department's opinion- nothing in the proposal alters a 

State's authority to regulate insurance. "NAR agrees. 

It should be noted however. that States may attempt to act upon their authority to regulate insurance and enact 

legislation or promulgate rules tore-characterize a fully-insured large group AHP as a "small group .. health 

plan. thereby subjecting the fully-insured AHP to the insurance rules applicable in the small group market. In 

addition. States adverse to selt~insurcd A liP health coverage may seck to enact reserve requirements that arc so 

high that the requirement is prohibitive. Either state action could frustrate the intent of the rule, which is to 

expand access to AHPs in order to offer more affordable. better quality health plans. 

NARis sensitive to this type of State regulation because of the interest in oflering fully-insured large group or 

scli~insurcd AHP coverage on a nationwide basis to all members and the ability of state associations to offer 

coverage on a regional basis. a: hmvcver. States set up barriers to the formation of AHPs, NAR- along with 

other national trade associations~ would be severely disadvantaged. 

A. Fully-Insured Large Group AHPs 

As the Department knows. a fully-insured large group AHP is subject to State benetit mandates that apply to 

insurance contracts sold within a respective State. This means that even as an ERISA-covered plan- which in 

some cases enjoy ERISA's preemption powers State benefit mandates are not preempted by ERISA. There is. 

however. question as to whether a State law or regulation that re-characterizes a large group fully-insured AHP 

as a "small group" plan 1rould be preempted by ERISA (and therefore, would not apply to an ERISA-eovered 

fully-insured A liP). 

On the one hand, an argument can be made that because States have the authority to regulate the insurance 

contracts sold within their State. a State could indeed enact a law or regulation to rc-charactcrizc a fully-insured 

large group AHP as a .. small group'" plan. and this law/regulation would be ··saved" from preemption undt:r 

ERISA 's "savings clause" (and theref(ore, the law/regulation would not be preempted). 43 But. a legal argument 

can be made that this "re-characterization law" is directly impacting the ERISA-covered plan (and not the 

insurance contract). and even though the plan is !lilly-insured. any State law directly impacting an ERISAcovcrcd plan is preempted under ERISA's "deemer clause."" 

In addition. the statute of ERISA itself states that a fully-insured MEWA (i.e., a tlJIIy-insurcd AHP) may be 

subject to any State insurance laY\ "to the extent that such law ... requires the maintenance of specified levels of 

reserve and specified levels of contributions."45 A legal argument can be made that a State law or regulation that 

re-charactcrizes the .. large group'' Cully-insured AHP as a ··small group" plan is not a lmv that .. requires the 

maintenance of specified levels of reserve and specified levels of contributions.'' 

While the Department is currently not in a position to opine on (I) whether a State law or regulation purporting 

to re-charaeterizc a fully-insured large group AHP as a "small group" plan is preempted under ERISA 's 

"deemer clause'' or (2) whether this law or regulation has no effect on a fully-insured AI IP hecause the 

4 ' .\!!e UUSA section 514\b)(2)(A). 14 FR!SA :.cction 5l.t(b)(2l(B). 

"' LRlSA scclion 514(b){6)(A)(i}(!). 

Page 11 
41 

CEWDOCROOM with DISTILLER


Insert offset folio 30 here 28982.030

law/regulation is not one that "requires the maintenance of specified levels of reserve and specified levels of 

contributions," NAR urges the Department to consider clarifying this issue soon after final regulations arc 

released. 

There are various steps that the Department could take to address this issue. For example, the Department could 

issue informal guidance in the form of a Technical Release, explaining that- in the Department's opinion- a 

State law purporting to re-characterizc a li.illy-insured large group AHP as a "small group'' plan is indeed 

preempted or the law simply does not apply (because this State action is not a law that "requires the 

maintenance of specified levels of reserve and specified levels of contributions"). Alternatively, the Department 

could submit proposed legislation that would amend ERISA's preemption provisions. allowing ftlily-insured 

large group and sclt~insured Alii's to operate free from State lmv. provided specific Federal requirements are 

satisfied. 

B. Self-Insured AHPs 

As noted ahove, a self-insured AHP would be considered a self-insured MEWA, and ERISA explicitly gives 

States the authority to impose any State insurance law requirement on self-insured MEW As. As also discussed 

above, many States have acted on this authority by enacting State MEW A laws. 

The Association agrees with the Department that the proposed regulations in no way impact a State's ability to 

regulate self-insured AHPs through their State MEWA laws. As a result. a self-insured AHP must satisfy each 

State MEWA law in each of the States in which the AHP coverage is offered. Unfortunately, however, this tact 

may limit the extent to which selt~insured AHPs are formed. This is because a self-insured AHP wanting to 

ofter health coverage in multiple States must navigate the different legal requirements and licensing practices in 

each State in which the coverage may be offered. The cost and time associated with complying with this 

"patchwork" set of regulations and licensing rules is otlen times prohibitive. Some States may choose to enact 

requirements as a back-door way of preventing self~ insured AHPs from operating within the State. If the 

Department believes that this is inconsistent with ERISA. the Department could submit proposed legislation 

that would amend ERISA 's preemption provisions, to clarily this issue. 

*** 

Thank you in advance for considering these comments. Please do not hesitate to contact me with any questions, 

or if' REALTORS~ can serve as a resource on these very important matters. 

Sincerely, 

Elizabeth Mendenhall 

2018 President, National Association of REALTORS""' 

Page 15 
42 

Chairman WALBERG. Thank you. 

Now I recognize Mr. Arensmeyer for your five minutes of testimony. 

TESTIMONY OF JOHN ARENSMEYER, FOUNDER AND CEO, 

SMALL BUSINESS MAJORITY 

Mr. ARENSMEYER. Good morning, Chairman Walberg, Ranking 

Member Blunt Rochester, members of the Subcommittee. I’m the 

founder and CEO of Small Business Majority. Our mission is to 

empower America’s 28 million entrepreneurs to build a thriving 

and inclusive economy. Working from nine offices across the country, we work closely with more than our network of 55,000 small 

business owners and over 1,000 local business organizations. 

Over the past six years, the ACA has provided health care to 

more than 20 million individuals who otherwise couldn’t access coverage, millions of whom work for small employers or are themselves business owners or self-employed individuals. 

Equally important, the small group market has seen rates stabilized under the ACA, with an average cost increase of 5.2 percent, down from a rate of more than 10 percent prior to the ACA. 

It should come as no surprise that scientific polling we conducted 

last year found that six in 10 small business owners favor retaining 

and strengthening the ACA. That’s why we’re so concerned about 

the proposed changes in the Department of Labor’s rules governing 

AHPs. 

In order for small businesses to receive affordable coverage, the 

small group market’s risk pool must be robust and well balanced. 

The proposed rule would allow associations to operate as a single 

large employer, thus creating separate risk pools for different types 

of small businesses, particularly when it comes to things like essential health benefits, age rating, actuarial value, adjusted community rating, the single-risk pool requirement, and risk adjustment. 

While this might mean that some small businesses with younger, 

healthier employees can purchase cheaper plans, the remaining 

risk pool becomes unbalanced, causing rates to soar for everybody 

else. 

What’s more, the proposed rule suggests that current protections 

against discriminatory marketing practices would not apply to 

AHPs, which would allow these plans to discourage enrollment 

from companies with employees that have expensive or complicated 

health issues. 

Under this proposed rule, AHPs would also offer fewer consumer 

safeguards. It’s concerning that the proposed rule is ambiguous 

about whether it will block states’ abilities to regulate AHPs. It’s 

unacceptable to prevent state insurance commissioners from enforcing rules they deem to be in the best interest of their state’s small 

businesses and consumers. 

Small business owners may turn to AHPs in search of lower-cost 

options. But without protections in place to prevent fraud, they can 

find themselves the victims of scams, on the hook for costly medical 

expenses for issues they thought their plan covered. As Adam 

Rochon, the owner of a small independent insurance agency says, 

‘‘The bottom line is AHPs are only good as long as you don’t get 

sick.’’ 

CEWDOCROOM with DISTILLER

43 

Importantly, AHPs are not a new idea. In fact, states have already experimented with these plans with disastrous results. An 

Urban Institute analysis of Oregon’s regulations of AHPs prior to 

the ACA found that policies and lack of regulatory oversight increased the potential for adverse selection in the remaining small 

group market in the state. 

This issue, as well as the concerns outlined above regarding 

fraud and abuse, is why a coalition of 17 attorneys general recently 

submitted comments to the Labor Department opposing the proposed rule. As noted in their comments, the proposed rule undermines the intent and structure of the ACA and is also contrary to 

the Labor Department’s longstanding interpretation of ERISA, 

which, among other things, requires that large groups have a, 

quote, ‘‘common economic or representational interest,’’ close quote, 

unrelated to the provision of benefits. 

Finally, much has been made of the proposed rule’s inclusion of 

independent contractors or so-called working owners. This is a 

group that has dramatically benefited from the ACA’s individual 

market, with as many as one-third of participants in California’s 

exchange being sole proprietors. As such, enacting this rule would 

significantly weaken the individual markets. 

Rather than pursuing policies to undermine the ACA, we encourage lawmakers to advance legislation that would stabilize health 

care marketplaces and protect the robustness of covered options for 

small business owners, employees, and independent business owners. 

Legislations like the bill that was recently introduced by the 

ranking members of the Energy and Commerce, Ways and Means, 

and Education and Workforce Committees would be an important 

step in lowering premiums and stabilizing markets. 

Thank you. And I look forward to answering your questions. 

[The statement of Mr. Arensmeyer follows:] 

CEWDOCROOM with DISTILLER

44 

CEWDOCROOM with DISTILLER


Insert offset folio 31 here 28982.031

TESTIMOlliY BEFORE THE 

SUBCOMMITTEE ON HEALTH, EMPLOYMENT, lABOR, AND PENSIONS, COMMITTEE 

ON EDUCATION AND THE WORKFORCE, UNITED STATES HOUSE OF 

REPRESENTATIVES 

HEARING ON 

"EXPANDING AFFORDABLE HEALTH CARE OPTIONS: EXAMINING THE 

DEPARTMENT OF lABOR'S PROPOSED RULE ON ASSOCIATION HEALTH PLANS" 

March 20, 2018 

John Arensmeyer 

Founder & CEO, Small Business Majority 

Thank you, Chairman 'I:Valherg, Ranking Member Sablan, Congresswoman Blunt-Rochester and 

members of the Subcommittee on Health, Employment, Labor, and Pensions. 

As a representative of the 28 million small businesses in America, Small Business Majority is 

pleased to regarding options to expand access to affordable hea1thcare and the 

detrimental effects the U.S. Department of Labor's proposed changes to Association Health Plan 

(AHP) regulations would have on small businesses. 

entrepreneurs to build a thriYing and 

inclusive economy. We actively business owners and poJicymakers in support of public 

policy solutions, and deliver information and resources to entrepreneurs that promote small business 

growth. Our extensive scientific opinion polling, focus groups and economic research help us educate 

and inform the media and other stakeholders about key issues impacting small 

businesses and including }walthcan.', access to capital, taxes, retirement and critical 

workforce issues. 

Small Business Majority has a network of more than 55,000 sma!J business owners across the country. 

\vith nine offices in Washington. D.C. and seven states. We work closelyv.rith our network and with 

more than 1,000 local business groups to create a strong small business \·oice in \Vashington and state 

l'apitals. and ddiver critical education and resources to America's job-creating entrepreneurs. A key 

part of our ·work over the past 12 has been to advocate for policies that help small businesses, 

their employees and entrepreneurs access affordable and comprehcnsin:- health 

coverage. 

Over the past six years, the Patient Protection and Affordable Care Act (ACA) has provided healthcare 

to 24 million indh·iduals nationwide who otherwise couldn't access coverage, many of whom work for 

small or are themselves business O\vners or self-employed indiYiduals. Unfortunately, prior 

to the enactment, small businesses and their employees comprised a disproportionate share of 

the working uninsured. Whafs more, sma1l employt>rs faced greater instability in their health costs 

and coverage options, and when they could access health coverage, small businesses paid on average 

18% more than their larger countcrpatis, usually for less comprehensive coverage. 

Critically, many small businesses have st~en their health insurance rah~s stabilize under the ACA. Since 

2010, thl'- increase in sma1i business lwalthear·e costs lws been at the lmvcst level in years, following 

rPgu!ar double-digit increases prlor to the law's \:'nactmcnt. In fad, between 2008 and 2010, the 

• (202) 
45 

CEWDOCROOM with DISTILLER


Insert offset folio 32 here 28982.032

average yearly premium increase in the small group market was 10-4% according to the Centers for 

Medicare and Medicaid Services. Between 2011 and 2015, the average increase dropped in half to just 

5.2%. It should come as no surprise then that scientific opinion polling we conducted last year found 6 

in 10 small business owners support retaining and strengthening the ACA1 

More recent data from the Kaiser Family Foundation's 2017 Employer Health Benefits Survey shows 

that premiums continue to be stable for small businesses that offer employer-sponsored coverage to 

their employees. For all firms between 3-199 employees, the average premium increase from 2016 to 

2017 was less than 1%. This is lO\verthan the average premium rate increases from 2016 to 2017 across 

all firm sizes, which were 4% for singles and 3% for families.' Employee contributions for employersponsored coverage have also stabilized, reversing a pre-ACA trend of double-digit increases in 

insurance costs for small businesses that they often had to pass off onto their employees. This has 

made a significant im.pact on small businesses' bottom lines. 

However, national efforts to chip away at the healthcare law, or repeal it entirely, threaten this 

progress. Recent efforts to undo key provisions of the ACA through legislation and executive action 

threaten to disrupt the marketplaces and in turn harm small business owners, their employees and 

self-employed individuals. While we believe certain provisions of the ACA can and should be 

improved, undermining the ACA eradicates hard-won benefits for America's entrepreneurs, causing a 

rapid rise in healthcare costs and creating tremendous economic instability. 

That's why we're so concerned about the proposed changes to the Department of Labor's rules 

governing AHPs. In order for small businesses to be able to receive affordable coverage, the small 

group market's risk pool must be robust and well balanced. It's important to note that the small group 

market is where most small businesses currently purchase health coverage) which is why it's crucial to 

protect this market and ensure it's as strong as possible. The proposed rule would allow associations to 

operate as a single large employer, which would in turn al1ow them to be regulated as a large group 

health plan. 

We believe this proposed change would result in disruptions in the smalJ group market by creating 

separate risk pools for some employers, which would have the unintended consequence of raising 

premiums for other small businesses. When firms with healthy employees exit the small group market, 

the risk pool becomes unbalanced, causing rates to soar for the remaining employers and employees. 

Indeed, the National Small Business Association, in its submitted comments to the Labor Department 

on the proposed rule, emphasized the importance of "ensuring that the millions of smaller companies 

not purchasing coverage through an AHP do not see their insurance costs further escalate as a result of 

selection issues that create price disparities based on health status rather than the reduction of actual 

healthcare costs." We believe allowing self~employed individuals to enroll in AHPs will have similar 

repercussions for the individual marketplace. 

Moreover, regulations for such plans do not require that they cover certain essential health benefits 

while also not requiring protections that typically prevent insurers from charging higher fees based on 

factors like gender, occupation and industry, age and group size. While this might mean that some 

small businesses with younger, healthier employees can purchase a cheaper plan, these plans won't 

provide the coverage they need if someone gets sick, thus undermining the goal of ensuring that most 

healthcare is covered and that the long-standing phenomenon of uncompensated care is reduced. 

Additionally, we're concerned about the impact the proposed mle would have on small businesses as 

their workforce ages, as it is unclear whether the rule prevents insurers from charging more based on 

age than is allowed by the ACA. This is a patticular concern for small businesses, as many have 

employees that work with them for years. As their employees age and potentially face health risks, 

small businesses could find themselves with few or no options for affordable health coverage. 

'http:/ /smal!businC'ssmajority.orgjour-researchjhealthcare/small-businesses-support-aca-o\·cr-replacenwnl-plan 

~Kaiser Family Foundation, 2017 Employer Health Benefits Survey, September 2017, 

Srna.!! Bu';iness ~·1ajority www .smallbu~JnessmaJority .org 
46 

CEWDOCROOM with DISTILLER


Insert offset folio 33 here 28982.033

As nott·d abon>, these plans are also nut required to co,·cr essential health benefits and could use this 

exemption to dt•sigll health plans that inkntiona!ly exclude ce1iain indiYiduals. the plans 

could exclude services for rnatnnity coverag(' or nH'ntal health treatment, preventing businesses 

with employl~es that need such services from enrolllng. \A/hat's rnore, the proposed rule that 

current protections against discriminatory marketing practices would not apply to AHPs, would 

allow these to use marketing techniques to discourag(~ enrollment from companies vvith 

cmploypes have expensive or complicated health issues, including pre-existing conditions .. or 

small businesses lhat cmplo~v a high numhtT of females or older workers. These discriminatory 

practices would exacerbate the problem of creating separate risk pools and further disadvantage small 

business owners or employees with the most critical need for affordable, quality healthrare. 

In addition to proYiding less comprehensive con• rage, these multi-state \vould offer fewer 

ronsunler safeguards. In fal'L covered by these association \nndd not actually he 

protected in the state where they .since tlw regulations cre:1ted for tl spccit\c plan could .supersede 

state l.aw.s that protect eonsumcrs from rate increast>s and poor CO\Tragc. It's a!so concerning that the 

proposed rule is about vvhethcr it will block states' ability to regulate AHPs. It's 

ww.cccptablt: for the state insurance commissioners from enforcing rules 

thL'Y deem to be in the be;.;t interest statc·s s.mall businesses and <'onsumers. 

State regulation of multiple employer welfan· (ME\~VAs) has shovvn that such regulation 

and w('akcning statrs' abilities to enforce 

seeurit~· of small business enrollees. 

is critical to protecting consumers from frand or 

unne'""""could thr(•aten the health and 

of association plans in search of lower cost options, but 

without protections in place to prevent thPy can find themselves tlw Yictim of scams, on the 

hook for t•ostly medical expenses for issues they thought their plan coYerecL 

Importantly, AIIPs are not a new kl~~a. 1n fact, states have \vith 

disaslrous results. Claims that AT-IPs will be a boon to small and 

in fact nnwh evidence exists to the contrary. An Urban Institute analysis of Oregon's regulation of 

AI IPs prior to the ACA found that policies and lack of regulatory increased the potential for 

<1dversc selt~ction in the group market in t!w issue, as well as the concerns 

fraud abuse, is in part \\·hy a coalition of 17 state attorney generals 

comments to the Labor Department opposing the proposed rule. A.<; noted in the 

comments authored by state attorne.v generals, the proposed rule is also in that it is 

contrary to and unckrmitws the intent and stnwtttl'l' of the AC.A, and is contrary to the Labor 

Department's longstanding interpretation of ERISA, \Vhich has been ratified by Congress. 

Lastly, \ve an> concerned about the proposed ruk because we'Ye heard directly from small business 

O\~'ners who are 'vorried about the cffc('ls of AliPs on their insurance. Adam Rochon is lh(' owner of 

Sequoia B<.~nefi1s and tnsurance Solutions, a small independent insurance agency with fe\-Yer 

than 10 Mr. Rochon "The bottom lint' is AHPs arc as don't get 

itself without an or a 

\·Vorsc, if one small portion group market gets these low rates, 

eYer~·oJH' else's rates up in the existing insuranc<.' mtu'kets." As an insurance broker, Mr. Roc:hon has 

personally· small businesses insurance on an association health plan when one 

employee got sick, such as an entir'--' practict' being kicked off their plan when just one 

employee fell ill. 

Rathl'r than po!kie.s that undermiH(" the ACA, \-ve lavvmakers to adYance 

legislation that stabili:z,; healthcarc marketplaces and protect robustness of coverage options 

for small business owners and their employees. Legislation like the Undo Snbotngt' and Expand 

Aflordahility of Health Insurance .Act, \Vhkh Y\"J.S recently introduced the ranking members of the 

Energ~· and Com me r-et>, \Nays and Means and Education and the Committees, would be an 
47 

CEWDOCROOM with DISTILLER


Insert offset folio 34 here 28982.034

important sttp in lmvcring premiums and protecting consunwrs. The would extend the 

and size of tax credits that offset premiums, ('Xpand subsidies and 

allmv for AHPs or other types ofjunk insurance. H would also restore 

open enrollment, proYidc additional funding to .states for educational outreach and creates a national 

reinsurance program to further .stabilize marketplaces. These arc some of the common-sense 

solutions \\T support and believe kgislators should pursue to stabilize and health CO\'Nagc 

for the small husin<:ss con11nunit~'· 

In LO!H:lusion, the ACA is the first meaningful hcalthcan• n'form to help address the disparities in 

~H'eC'ss to affordable, qua lit~~ ht'althcarc, and if::; been particularly impo1tant for Amt>rica's small 

husinessf's and entrepreneurs. Howe\'cr, we believe proposals like the rule 

change will undo these gains for our nation'sjob cn'alors. \Ve we can 

to ensure small businesses can access quality, affordable health coverage so 

their busitwsses. This 111t'<.H1S small and individual 

enacting rules that undermine create in the health insunmce markets. Thcsl' 

policit'S makl' it easier for small btt'>iuesses to offer health instJrancc, kt'eping themselves and their 

healthy <1nd produetivt>, which in turn benefits their bottom line. Arcess to affordable 

l'!lSlll'l'S that small business owners can continue to do whttt they do best-generate 

veD!l0!1lic growtl1 and <.Teate job.s. 

cornmunit~·. 1 

('Omment on this imp01tant issue for America's smnl! business 

happy to anE>\Yl'r an~· qut'stions. 
48 

Mrs. FOXX. [Presiding.] Thank you very much. 

Mr. Condeluci, you’re recognized for five minutes. 

TESTIMONY OF CHRISTOPHER E. CONDELUCI, PRINCIPAL 

AND SOLE SHAREHOLDER, CC LAW & POLICY, PLLC 

Mr. CONDELUCI. Thank you, Chairwoman, Ranking Member 

Blunt Rochester, and members of the Subcommittee, for this opportunity. My name is Chris Condeluci, the sole shareholder of CC 

Law & Policy, a legal and policy practice that focuses on issues relating to the Affordable Care Act. I am also an ERISA attorney by 

training. 

I want to start today by saying association health plans, or 

AHPs, are not the same as short-term health plans. For months 

now, critics of AHPs have publicly stated that similar to short-term 

health plans, AHPs can deny a person coverage if they have a preexisting condition, can refuse to cover preventive services, and can 

impose annual lifetime limits. I want to say unequivocally and emphatically that these statements are incorrect. 

AHPs as a group health plan under the law are subject to the 

ACA’s coverage requirements, meaning they cannot deny a person 

health coverage if they have a preexisting condition, cannot refuse 

to provide free coverage for certain preventive services, and cannot 

impose annual lifetime limits on the federal essential health benefits covered under the plan. Other notable ACA requirements like 

coverage for adult children up to age 26, free access to emergency 

care, and the prohibition against rescinding coverage absent fraud 

all apply. 

ERISA’s notice and disclosure requirements, fiduciary responsibilities, and health plan procedures all apply to AHPs. COBRA 

continuation coverage applies, and HIPAA prohibits an AHP from 

developing premiums based on a particular participant’s health 

status. State benefit mandates to -- state benefit mandates apply 

to fully insured AHPs, and state solvency requirements will apply 

to self-insured AHPs. 

So now that we’ve established that AHPs are subject to existing 

law that requires the provision of comprehensive coverage, I will 

turn to the Department of Labor’s proposed regulations. 

The proposed rules would allow employers in the same industry 

to offer AHP coverage to their members nationwide or on a regional 

basis. Currently, these related employers can only offer AHP coverage within a particular state. This proposed change is critical for 

national trade associations, franchisees, and companies with cooperative members. 

The proposed regulations would also allow employers in different 

industries but located in the same state or metropolitan area to 

form an AHP. This change is critical for local chambers of commerce and other employer-run organizations made up of multiple 

unrelated employers. 

Prior to 2011, many of these organizations offered AHP coverage, 

but were forced to discontinue their plan due to guidance issued by 

the Obama administration. The proposed regulations would also 

allow self-employed individuals with no employees, referred to as 

working owners, to get health coverage through an AHP. This 

change is critical because working owners have limited options 

CEWDOCROOM with DISTILLER

49 

when it comes to accessing health insurance. Some may be able to 

access coverage through their spouse, but in cases where family 

coverage is unaffordable or a working owner is not married, the option -- the only option is the ACA’s individual market, which has 

proven problematic for those not eligible for a premium subsidy. 

Lastly, the Department of Labor should issue a class exemption 

that would exempt self-insured AHPs from the nonsolvency requirements of state MEWA laws. A class exemption is advisable because there’s a patchwork set of state laws with different rules and 

licensing requirements. And the lack of uniformity in the law will 

likely limit the formation of self-insured AHPs. 

As a former Republican counsel to the Senate Finance Committee who had the opportunity to draft portions of the ACA, I 

wish the ACA worked better. I wish the individual and small group 

markets would have evolved into balanced markets where comprehensive coverage is available. But the reality is that did not 

happen, and the reality is the status quo is not working for many 

Americans. 

One way to improve the status quo is by coming up with alternatives to the ACA that will continue to provide comprehensive 

coverage at a lower cost. And that is exactly what the AHP proposal is. It is an alternative that is going to help millions of employers to offer health coverage to attract and retain talented workers. It is an alternative that is going to help a large number of national trade associations, franchisees, and cooperative-run companies to provide additional benefits to their members and attract 

new members. And it is an alternative that’s going to help working 

owners who have been struggling to afford health coverage in the 

ACA’s unsubsidized individual market. This alternative will cost 

less than individual and small group plans, but the coverage will 

continue to be comprehensive as required under the ACA, ERISA, 

HIPAA, COBRA, and state law. 

Thank you for your time. I look forward to answering any questions you may have. 

[The statement of Mr. Condeluci follows:] 

CEWDOCROOM with DISTILLER

50 

CEWDOCROOM with DISTILLER


Insert offset folio 35 here 28982.035

CC Law & Policy 

Testimony Before the 

Committee on Education and the Workforce, 

Subcommittee on Health, 

Employment, Labor, and Pensions 

Hearing on Expanding Affordable Health Care Options: 

Examining the Department of Labor's Proposed Rule on 

Association Health Plans 

Christopher E. Condeluci, Esq. 

Principal and Sole Shareholder 

CC Law & Policy PLLC 

March 20, 2018 
51 

CEWDOCROOM with DISTILLER


Insert offset folio 36 here 28982.036

Thank you Chairman Walberg, Ranking Member Sablan, and members of the Subcommittee 

l(lr the opportunity to speak with you today. My name is Chris Condeluci. I am the principal and sole 

shareholder ot'CC Law & Policy. a legal and policy practice that focuses on issues relating to the 

Patient Protection and Affordable Care Act ("ACA "). Prior to starting my own practice, I served as 

Counsel to the Senate Finance Committee. During my time on the Finance Committee, I participated 

in drafting portions of the ACA, including the ACA Exchanges, the State insurance market reforms, 

and all of the taxes under the law. 

In my current practice. I provide legal counsel on the statutory and regulatory requirements 

impacting stakeholders ranging from employers and health IT companies to the ACA Exchanges and 

private exchanges. I also provide policy analysis relating to the manner in which the ACA is being 

implemented. This includes observing and analyzing the evolution of the ACA 's reformed 

.. individual" and ··small group" health insurance markets, and the impact the ACA is having on large 

ti.Jily-insured and sclf~insured ''group health plans'' 

Organization of Testimony 

My written testimony is organized into four parts. First, I distinguish association health plans 

( .. /\liPs'') from short-term limited duration plans (referred to as "short-term health plans'') by 

describing the i\CA 's .. coverage requirements" that apply to AHPs, in addition to consumer 

protections applicable under the Employee Retirement Income Security Act ("ERISA"), the Health 

Insurance Portability and Accountability Act ("HIPAA"), and the Consolidated Omnibus Budget 

Reconciliation Act ("COBRA"). Second, I explain the current treatment ofAHPs under existing law. 

including a description of the "bona tide group or association of employers" definition under ERISA. 

Third, I discuss various proposals included in the Department of Labor·s ("DOL") proposed AHP 

regulations. And fourth. I examine issues relating to State regulation of fully-insured "large group .. 

and sell~insurccl /\liPs. 

I. Association Health Plans Arc Not the Same As Short-Term Health Plans- AHPs Provide 

Comprehensive Coverage As Required Under the ACA, ERISA, HIPAA, and COBRA 

I want to start with this top-line statement: Association health plans- or AHPs are no/the 

same as short-term health plans. 

It is important to make this distinction because ever since President Trump issued Executive 

Order 13S 13, 1 the media and critics oft he current Administration have inaccurately explained the rules 

applicable to MiPs. In short, the media and these critics have conflated A liPs and short-term health 

plans, and they have described these health plans as being one-in-the-same. AHPs and short-term 

health plans arc vastly different. 

1 Exccutin~ Order 1381 J., "Promoting }Iealthcare Choice nnJ Competition Across the United States," directed the 

Ikpartmcnl of I "abor ("DOL"). the of l Icalth and Human Services {"'liHS'"), and the Department of Treasury 

("Tn.::asur) ")to issue n:gulations tn ( t) association health plans (";\f-lPs''). (2) short-term health plans, and (3) 

expanding the usc of Health Reimhurscment J\rr:.mgemcnts (''! !Ri\s .. ). 
52 

CEWDOCROOM with DISTILLER


Insert offset folio 37 here 28982.037

A. Short-Term Health Plans Are Exempt from the ACA's Insnrance and Coverage 

Requirements 

Under existing law, short-term health plans are not considered "health insurance" offered in the 

individual insurance market? and therefore, short-term health plans are not subject to the ACA 's 

insurance and coverage requircments 3 As a result, short-term health plans can deny a person coverage 

with a pre-existing condition (because the ACA 's pre-existing condition protections do not apply). 

Also. a short-term health plan can develop premiums based on a person's health condition (because the 

prohibition against developing premiums based on health status does not apply). And, a short-term 

health plan can impose annual and lifetime limits on benefits and medical services covered under the 

plan (because the prohibition against imposing annual and lifetime limits does not apply). 

On the other hand, AHPs- as a "group health plan"4 - are subject to the ACA 's coverage 

requirements 5 Again, this distinction is important to understand because a number of stakeholders 

have publicly stated that- similar to short-term health plans- A HI's (I) can deny a person coverage if 

they have a pre-existing condition, (2) can develop premiums based on a participant's health condition. 

and (3) can impose annual and lifetime limits. These statements are incorrect. 

B. AHPs Are Subject to the ACA 's Coverage Requirements 

According to the ACA, a fully-insured ··large group'' and self-insured AHP- as a "group health 

plan'' must: 

Eliminate all pre-existing condition exclusions for all plan participants-" 

Stop imposing annual and lifetime limits on the "essential health benefits" covered under 

the plan 7 

Provide coverage for certain preventive health services with no cost-sharing.x 

Cover "adult children" up to age 26.9 

Stop rescinding coverage absent fraud or misrcprcsentation. 1n 

Include new internal and external appeals processes (and provide notice).'' 

Allow participants a choice of primary care physician/pediatrician/OB/GYN. 12 

: Section 279l(b)(5) or th~ Public !lca!th St.T\"icc Act .section ("PllSA '"), that the v.::nn .. indiddual health 

insuranct: mcans health insurance coverage of!Cred to market. but docs not include 

short-tcrrn duration insurance. 

l Section ! 55 l or the Amn·dable Care Act the definitions under the PHSA including PI IS;\ section 

:279t(b)(5) into lhc AC/\·s insurance coverage '""''"''"'om'''"' 1 St.'dion 733(a}( l) of the Income Retirement Security Act ('"ERISA") and PHSA section 279l{a)( I) provide that 

a --group he<.llth plan·· is fund, or program cstnhlisht•d or maintained by an cmpil.)ycr (or employee 

organization or both) for the medi.;a! <:arc to employees or th1..~ir dependents ... dirc-.:t!y. or through 

insurance. reimbursement. or 5 ERJS/\ see\ ion 715 incorporatt.:s b) rcfcrencl..' the ACA ·s coverage requirements apr!icabk to a "group health plan" into 

ICTUS/\" 

1

' S'ee Pl-lSA section 2704. 7 ,)'ee PJISA section 2711. 8 Si!e PI IS!\ section 27 LL 

",)'ee PI IS/\ section 2714. 

Ju .'>i.!c PHS/\ section 7.7 12. 11 See PHS;\ section 27!9. 

''M 
53 

CEWDOCROOM with DISTILLER


Insert offset folio 38 here 28982.038

Provide direct access to emergency services. 13 

Refrain from establishing rules for eligibility based on, among other things, health status, 

medical condition, claims experience, medical history, or genetic information.'' 

Limit the plan's cost-sharing to the maximum out-of-pocket limits for a high-deductible 

health plan defined under the health savings account ("l-ISA") rules for 2014. 15 

Eliminate waiting periods that exceed 90 days. 16 

Cover the cost of clinical trial participation. 17 

Provide participants with a summary of benefits and coverage.'" 

Provide annual reports describing the plan's quality-of-care provisions. 19 

C. Consumer Protections Under ERISA, HIPAA, and COBRA Apply to AHPs 

Under ERISA, there are specific notice and disclosure requirements that a fully-insured ''large 

group" and selt~insurcd AHP must comply with20 In addition. ERISA's 1iduciary responsibilities 

apply," requiring the AHP and its employer members to act in the best interest of the plan participants. 

AHP plan participants also have a private right of action to sue the AHP ifthere is wrong-doing, 22 and 

there arc detailed procedures for 1lling health statusY 

According to COBRA. a plan participant terminating coverage under an AHP has a right to 

continuation ofcoveragc,24 and according to HIPAA, premiums for an AHP participant cannol be 

developed based on the participant's health condition. 25 

D. The Proposed AHP Regulations Do Not Change the Requirements Under ERISA, 

HIPAA, COBRA, and the ACA 

Importantly, the proposed A liP regulations do nothing to change the requirements under 

ERISA, HlPAA. COBRA and the ACA that otherwise apply to a "group health plan.'' As a result, it is 

important to once again emphasize that AI·!Ps are not short-term health plans tree from the above 

described Federal law requirements. Rather, AHPs arc required to provide a comprehensive level of 

coverage with adequate consumer protections that both Republicans and Democrats in Congress have 

enacted into law over the past decades. 

11 Se!! PI IS/\ sect inn 2719A. 

; 1 ,)'ee PI ISA section 2705. 

·; .\'ee PHS/\ section 2707(b). 

H, See PI !SA section 2701\. 

n S'ee PHS/\ section 2709. 1

" S'ee PI IS/\ section 2715. 1

'

1 .\'e<! PHS/\ ~ection 2717. 

'" !:RIS.·\. Title I. Sublillc B Pan I. 

" U<ISA. Title I. Subtillc B Part 4. 

:::::: LR!SJ\ scdi0n 502. 

:~ERISA ,section 503. 

"I:IUS,". Title I. Subtille B Part 7. 

:~ ER !SA sect inn 702. 
54 

CEWDOCROOM with DISTILLER


Insert offset folio 39 here 28982.039

E. State Benefit Mandates Apply to Fully-Insured "Large Group" AHPs 

Another important layer of coverage requirements that is often times overlooked by critics of 

AllPs is this: A ti.Jily-insured ··large group" AHP will be subject to State benefit mandates. State 

benefit mandates require an insurance contract sold within a particular State to cover specified benefits 

and medical services. The State benefit mandates applicable to fully-insured ··Jarge group" plans in 

most States are as good as the ACA 's Federal ··essential health benefits" ("EI-IB"') requirement. Even 

in States where their benefit mandates do not cover all of the 10 medical services that make up the 

Federal EI-IB standard. the drafters of the ACA observed that most if not all fully-insured "large 

group·· plans comply with the Federal EIIBs. which led Congress to exempt fully-insured "large group 

plans"' from the EHB requirement entirely. 

F. State MEWA Statutes Apply to Self-Insured AHPs 

In the case of a sell~insured A l-IP. this arrangement is by definition a "multiple employer 

welf~lrc arrangement" (""MEWA"'). In the case of a selt~insured MEWA, Congress specifically 

amended ERISA 's preemption provision to give States the explicit authority to regulate self-insured 

ME WAs operating within the State. Since that time, many States have enacted their own State 

MEWA laws with varying degrees of regulation- ranging ti·om restrictive to permissive. These laws 

often times impose specitic coverage and/or premium rating requirements on self-insured ME WAs. In 

addition, State MEW A laws typically impose the same solvency or reserve- requirements that apply 

to insurance companies operating within the State. Other States outright prohibit self-insured 

MEW As. States that have yet to enact a State MEWA statute arc not prohibited from doing so in the 

fi.1ture. In addition, States with existing State MEWA statutes are free to amend those statutes to 

impose specific coverage, rating. and/or solvency requirements on self~ insured AHPs. 

G. What ACA Requirements Do Not Apply To AHPs? 

As discussed more fully below, while the ACA imposes the same coverage requirements on 

individuaL small group fully-insured. large group fully-insured, and self-insured plans, the ACA does 

no/ impose certain insurance market reforms otherwise applicable to individual and small group plans 

to li.llly-insured '·large group'" and selt~insured plans. These reforms include the ACA 's EHB29 and 

·'actuarial value" ("A V")3(1 requirements. and also the ACA 's adjusted community premium rating 

26 to the ACA. indi\·idua! and small group health plans must cover a list or 10 medical services that make up the 

""h . .xt.:ra! standard:·· ambulatnry patient services; st..·rvices; hospitalization; maternity and newborn ~arc: 

mental health and substance usc disordLT services. including health treatment: relw.bi!itativc 

and habililativc service::. and devices: !aboratm') sen ices: pre\·cntivc and well ness services und 

management: and services. including oral and vision care. fi\CA section 1302(b)l. 07 See Ul.IS;\ 3(40). 

U<IS.~ section 5\.J(b)(6)(A)(ii). 

~"The of Health and !Iuman Sen ices ( · f ll IS'') issued the EHB requirement. 

an "essential h...:alth p!un. [See 78 Fed. Reg. 12834 (1-'eb. 25. 

2013)1. health bcndlts-hcnchmark" plan is the most popular health plan in the State's small 

group market b> enrollment. 

· tn the ACA. the minimum "actuarial\ a!uc" {--A V .. ) that ma) be provided for under an individual or .srnal! 

group p!an 6{YYu (i.e., the "bron;.c" pbn). [ACA st.:ction 1302(d)( I)(/\ )1. The ACA u!so establishes a .. silver'· plan. v.;hich 

must pru' Ide 70 ~"0 A V, a "'gold" that must provide 801Xl AV. and a "platinum" plan that must provide 90% AV. fACA 

:>ection 1302(d)( !)(B)-{D)l. a measure ofhmr much the health plan pays !{)r a CO\t:rCd benefit or service. and hO\v 

much the policy-hn!Jcr must pay, 
55 

CEWDOCROOM with DISTILLER


Insert offset folio 40 here 28982.040

rulcs31 and the single risk pool rcquirement. 32 In addition. the ACA's ''risk adjustment" program does 

not apply to tully-insured ''large group'' and self~insured plans. 13 

As mentioned, the drafters of the ACA specifically decided against imposing the above 

described insurance requirements on ti!lly-insured "large group" and self-insured plans. Why? 

Because the AC A drafters tl:~lt that these plans covered benefits that were as good if not better than the 

Federal EHBs. The drafters also discovered that the typical group health plan was an 80% AV plan. 

And. the practice of"experience rating" to determine premium rates tor a group of employees worked 

relatively well (because as a best practice, most if not all "group health plans'' develop premiums based 

on the "health claims experience" of the entire group of employees, and then charge each employee the 

same dollar amount). 

II. Background on the Current Treatment of AHPs 

To better understand the DOL's proposed regulations- and the policy reasons for changing the 

law it is important to discuss the current law treatment of AHPs, which includes a description of 

guidance issued by the Department of Health and Human Services ("Hf·IS") in 2011, along with the 

existing definition of a ''bona tide group or association of employers" for purposes of ERISA. 

A, Employer Groups Forming A liPs Pre-ACA 

Prior to the enactment of the ACA, small employers often times banded together to create a 

fully-insured or self-insured AHP. In the case of a fidly-insured AHP, most States treated the AHP as 

a '·large group" plan, subject to a State's large group market insurance rcgu lations. In other words, 

small employers that participated in the AHP were not subject to the State's "small group'' market 

insurance requirements. 

R The Enactment of the ACA 

The AC A enacted new ·•coverage requirements" applicable to fully-insured plans sold in the 

individual, small group, and large group markets, as well as to "self-insured" group health plans. 

However, as discussed above, certain insurance market reforms that are otherwise applicable to 

individual and small group plans do not apply to fully-insured "large group" and self-insured plans. 

As stated, these reforms include the ACA 's El !Band AV requirements, the ACA's adjusted 

community premium rating rules, the single risk pool requirement and the ACA 's ''risk adjustment" 

program. 

an insurance carrier from dcn~loping premiums for individual and smal! grt)l!p plans based on health 

swtus. ratt"s may only vary by t 1) age (but by no more than a to 1 ratio), (2) tobacco use (but by no more than a 

Utolratio),(3) orlamil; and(4) [ACAscction2701(a)(l)]. 

'

2 The i\CA the health risks indi\ idua! market must be 

risk pO(Jl by the (Jrrier cm·eragc. the health risks"','""''''"'"'"' 

must be pookd together by the carrier underwriting the coverage fpr smal! employers. 

H S'ee ;\C.'\ section 1343. 
56 

CEWDOCROOM with DISTILLER


Insert offset folio 41 here 28982.041

C. HHS Guidance Relating to AHPs Issued In 2011 

Shortly after the enactment of the ACA, State and Federal regulators were concerned that small 

employers may choose to join an existing fully-insured AHP to avoid the AC A's small group market 

ref(Jrms. To address this concern- in 20 II - HHS issued guidance that essentially prohibited small 

employers from limning a fully-insured "large group" health plan. 34 This meant that the ACA 's small 

group market insurance reforms would apply to fully-insured AHP employer members with 50 or 

fewer employees. 

The 2011 guidance dramatically reduced the number of fully-insured AHPs that operate today. 

as many existing tlrlly-insured AfiPs had a choice to make: (I) discontinue the plan or (2) shift to a 

sell: insured AHP (because HHS's 201 I guidance does not apply to a sell~ insured "group health plan·· 

sponsored by an employer group). 35 While some AHPs chose to shift to a self-insured arrangement, a 

greater number of existing AllPs discontinued their health coverage. 

D. An Exception Under HHS's 2011 Guidance: AHPs Sponsored By a "Bona Fide Group or 

Association of Employers" For Purposes of ERISA 

There was another option available to fully-insured Af!Ps in the wake ofthe release ofi!HS's 

guidance: The ·'group of employers" sponsoring the AHP could satisfy the definition of a ''bona fide 

group or association or employers" for purposes of ERISA. More specifically, in HHS's 2011 

guidance. the Department explained that if a group of employers sponsoring the AHP satisfied 

ERISA's the definition of a "bona fide group or association or employers,'' the fully-insured AHP 

would continue to be considered a "large group" plan (and thus. small employer members participating 

in the A l-IP would not be subject to the ACA 's small group market reforms). In this case, the 

arrangement would be considered a '·large group" plan because- as HHS further explains the 

employees of all of the individual employer members of the "bona fide" group will be aggregated 

together lor purposes of determining the size of the overall group of employees covered under the 

plan. 36 

For example, if an ERISA "bona fide" group included 100 employer members with 25 

employees each, the AHP sponsored by this ''bona fide" group would be deemed to cover 2,500 

employees. which makes this plan a ·'large group" plan (because existing law provides that a "large 

group" plan is one that covers 51 nr more employees)." As a result, each individual employer member 

with 25 employees would not be subject to the ACA's small group market reforms. Instead, the entire 

plan would be subject to the "large group'' market requirements. 

14 See 

insurance issuer." 

insurance sen~ ice, or insurance 

in:)ureJ plan i~ b)- definition not 

mnlm"'nlH1Q Pf !SA scctillll 271 S stutc 

279!ib)(2l PllS 1\cl"). 

'''/d. ut S..:-ction I! LB. 

Pl !SA St'ction 13), 

confirm this {i.e., the regulation~ 

issuer. as defined by section 
57 

CEWDOCROOM with DISTILLER


Insert offset folio 42 here 28982.042

E. ERISA's "Bona Fide Gronp or Association of Employers" Definition 

To be considered a "bona fide group or association of employers" for purposes of ERISA, a 

"group" of employers must meet ( 1) the "commonality of interest'' and (2) the ··control" tests. Under 

the ''control" test, the employer members must exercise "control," both in form and substance, over the 

activities and operations of the health plan the group is sponsoring." 

The "commonality of interest" test is a facts and circumstances test that is not always easy to 

satisfY, According to court decisions and existing DOL guidance, a group of employers would not be 

considered "bona fide" unless (I) the employer members are "related" (i.e., the employers are in the 

same industry) and (2) the employer members arc located in the same State or tri-State area."' Also. a 

group of employers ;vould not be considered "bona fide'' if selt~employcd individuals with no 

employees arc a part of the group.'0 

F. Existing HHS and DOL Guidance Limits the Formation of AHPs 

Based on the existing definition ofthe "commonality of interest" test. a significant number of 

employer groups fail to meet the test because. for example, they include members in multiple 

industries (i.e., the membership is made up of"unrelated" employers). Other employer groups include 

"independent contractors" (i.e .. selt~employed individuals with no employees) as members. In each of 

these cases, the employer-run organiLation would fail to be considered a "bona fide group or 

association of employers" tor purposes of ERISA. and therefore, any fully-insured AHP that they 

would choose to sponsor would no/ be considered a "large group" plan, meaning the employer 

members of the organization would be subject to the ACA's small group market reforms (which has 

discouraged the f(lrmation of fully-insured AHPs). 

In many cases. the demographics of these employer-run organizations is not conducive to 

sponsoring a sell~insured plan. As a result, forming a sclt~insured AHP has not been an option either. 

In addition, many employer groups that include employer members in the same industry (and 

thus would meet the first component of the "commonality of interest'' test because they arc "related'') 

would like to provide health coverage to their employer members located in multiple States. However. 

these groups are constrained by the "commonality of interest" test's geographical limitation, and 

therefore. they are unable to form any type ofAHP (e.g., a fully-insured or self-insured i\HP) and offer 

A liP health coverage nationwide. or on a regional basis. 

" DOL 1\Jv. Op. 20 12-04;\ (May 25. 20 12). DOL Adv. Op. 2005-251\ (Dec. 30. 2005). DOL Adv. Op. 2005-24A (Dec. 

30. 2005). DOL Adv. Op. 2003-17/\ (Dec. 12. 2003). DOL /\dv. Op. 2001-04/\ (Mar. 22. 2001). DOL /\Jv. Op. 96-25/\ 

3 L 1996). 

(Jruher v. I fuhard Flert Karle If'ehhi!r, Inc .. 159 F.3d 780 (J'd Cir. I 99X) (citing Steen v. 

106 F.ld 904 {9th Cir. 1997)): Sa!wnal Ben. Administrafors, Inc 

F. Supp. 1169 (W.D.K Y 1991 ): sue also. DOL Adv. Op. 2012-04/\ (May 25, 2012). DOL 

201151. DOL Adv. Op. 2005-251\ (Dec. 30. 2005). DOL 1\Jv. 2003-17A 12. 2003 ). 10 :ilorce!/a v Crtpilnf !Jist. Phrsicians' Health !)!an, Inc. v. 42 Cir. 2002): set.' also. DOL AJv. Op. 2003-13;\ 

(Sept. 30. 20031. DOL Adv. Op. 98-0RA (Oct. '!. 19n). DOL Ad\. Op. 94-07 A ('VIar. 14. 1994 ), DOL Adv. Op. 90-19A 

(lunc 15. 1990) 
58 

CEWDOCROOM with DISTILLER


Insert offset folio 43 here 28982.043

III. The DOL's Proposed Al-IP Regulations 

Recognizing these constraints. the DOL proposes to modify ERISA 's "bona fide group or 

association of employers" definition by reinterpreting the factors that must be satisfied to meet the 

"commonality of interest'' test. The DOL also proposes to allow sclt~employcd individuals with no 

employees (referred to as "working owners'') to elect to (I) act as an "employer" tor purposes of 

sponsoring a "group health plan" and (2) act as an ··employee" for purposes of participating in AHP 

health coverage. In my opinion. these two changes to current law are the cornerstones of the proposed 

rule. and they arc intended to not only allow small employers and working owners to band together to 

create (I) negotiating leverage based on economics of scale and (2) a bigger "risk pool," but the rules 

are designed to allow the formation of a fully-insured "large group" or selt:insured AHP. which would 

be exempt from some of the ACA 's insurance market reforms. 

A. Proposed Modifications to the "Commonality oflnterest" Test 

As discussed above. to meet the existing ·'commonality of interest" test, an employer group 

must be (I) "related" (i.e .. in the same industry) and (2) located in the same State or tri-State area. 

Lnder the proposed regulations, however, a group of employers would meet the "commonality of 

interest" test if (I) the employers are in the same industry, line of business or profession QL' (2) the 

employers have a principal place of business in a particular State or Metropolitan area (that may span 

more than one State). 

I. "Related ·Employers 

With respect to the first component of the test. the Department has chosen to eliminate the 

geographical limitation for "related'' employers. In other words. the proposed regulations would allow 

employers in the same industry or profession (i.e .. "related" employers) to f()rm an AHP. and o!Ter 

fully-insured "large group" or self-insured A liP health coverage to the employees of these "related" 

employers, regardless of the employer members' geographic location. 

This change is critical for national trade associations, franchisees, and companies with 

"cooperative" members. For decades. these types of employer groups have wanted to offer some type 

of health coverage to their employer members through a fully-insured or self-insured AHP on a 

nationwide, or a regional basis. And. although these organizations typically satisfied the first 

component of the existing "commonality of interest" test (because all of their members are "related"), 

these organizations have never been able to satisfy other aspects of the "commonality of interest" test. 

like the geographical limitation. But. if the proposed regulations arc finalized, these employer groups 

would linally be able to offer health coverage through a fully-insured ''large group'' or selt~insured 

AHP to their members located in multiple States. 

2. "Unrelaicd" Employers 

With respect to the second component oft he proposed ''commonality of interest" test, the DOL 

maintains the geographical limitation, but eliminates the requirement that the employer members be 

"related." In other words, the proposed regulations would also allow employers in different industries 

and professions (i.e .. "unrelated" employers) to form an AHP. bul only ifthese "unrelated" employers 

are located in the same State or Metropolitan area (that spans a tri-State area). 
59 

CEWDOCROOM with DISTILLER


Insert offset folio 44 here 28982.044

This change is critical tor local Chambers of Commerce and other employer-run organizations 

that are made up of multiple "unrelated" employers that want to offer fully-insured "large group" or 

self-insured AHP health coverage to their employer members in a specific geographic locale. This 

change is particularly important because many of the employer groups adversely impacted by HHS's 

2011 guidance are organizations like local Chambers of Commerce that were forced to discontinue 

their plan because (1) the plan was fully-insured and (2) the Chambers could not meet the definition of 

a ''bona fide group or association ofemplo}ers" for purposes of ERISA. 

While stakeholders are supportive of the DOL's modifications to the "commonality of interest" 

test, reasonable questions have been raised over why the geographical limitation was eliminated for 

"related" employers, but this limitation continues to apply to "unrelated"' employers. A strong 

argument can be made that ·•unrelated employers·· should not be limited to a geographic location. 

It is important to emphasize that the most critical component of a "bona group or association of 

employers" sponsoring an AHP is "control" over (I) the operations of the employer group and (2) the 

provision of health coverage through the A liP. Thus it follows that if the employer members of a 

particular group have the requisite "control'' over the employer-run organization and the AHP, it 

should not matter whether the group is made up of"rclated'' or "unrelated" employers offering health 

coverage in one State or multiple States. As a result, it is reasonable to suggest that the geographical 

limitation for ·•unrelated" employers should be eliminated in cases where these ''unrelated" employers 

can adequately show to the DOL that they have the requisite '·control" over ( 1) the operations of the 

employer group and (2) the provision of health coverage through an AHP. 

If the DOL continues to believe that some sort of geographic constraint should apply in cases of 

"unrelated" employers, it is reasonable to allow ·'unrelated" employers located in three contiguous 

Stales to meet the "commonality of interest" test (based on precedent set forth in proposed Department 

of Treasury ('Treasury") regulations relating to the ·'geographic locale'' restriction for participation in 

a Voluntary Employees' Beneficiary Association ("VERA"), governed by the rules set forth under 

Section 50l(c)(9) ofthe Internal Revenue Code ("Code''))." The Assistant Secretary of the Employee 

Benefits Security Administration ("EBSA") could also be given the authority to recognize larger areas 

as a geographical limitation tor purposes of the "commonality of interest" test on a case-by-case basis 

upon application by an AHP seeking to offer health coverage to members located in multiple States. 

B. Proposal to Allow Working Owners to Participate In an AHP 

l. Proposed Changes lo DOL Reg Section 2510.3-3 

The DOL proposes to allow self-employed individuals with no employees (i.e .. working 

owners) to participate in an AHP. In this case, according to the proposed changes, working owners in 

the same industry/profession and located in different geographic locations could participate in an AI !P 

established by other '·related" employer members. For example, working owners who are WidgetMakers and who arc members of the National Widget-Maker Association could participate in the 

Association's AHP alongside the Widget-Maker employer members. In addition, other working 

owners like self-employed farmers who are members of an agricultural "cooperative" could participate 

in an AHP sponsored by a "cooperative"-based company to which these ''cooperatives'' (which include 

the sclf~employed farmers) arc members. This would allow AHP health coverage to be offered to self11 See 57 Fed. Reg. 34.886 (Aug. 7. 1992). 
60 

CEWDOCROOM with DISTILLER


Insert offset folio 45 here 28982.045

employed tanners. along with other "cooperative" members with employees, located in multiple 

States. The greater plan participation would provide greater financial security and reduce 

administrative costs. 

In addition, according the proposed rules, working owners in the same industry/profession 

could also establish an AHP solely for "related" working owner members. This would allow, for 

example. Uber drivers to establish an A liP in which Uber drivers all across the country could receive 

fully-insured or self~ insured AHP health coverage. Again, the greater plan participation would provide 

greater financial security and reduce administrative costs for the AHP. 

Lastly. pursuant to the proposed changes, working owners in different industries and 

professions (i.e .. "unrelated" working owners) could join. for example, a local Chamber of Commerce 

A l-IP. provided the working owners are located in the same State or Metropolitan area as the local 

Chamber's employer members. 

2. The Proposed Definition of'" Working Owner" 

For purposes of participating in an AIIP. the proposed regulations would define a working 

owner to mean an individual who: 

I. Has an ownership right in a "trade, or business,·· regardless of whether the "trade or 

business" is incorporated or unincorporated. 

2. Earns wages or self-employment income from the "trade or business." 

3. Is not eligible to participate in any subsidized "group health plan" maintained by any other 

employer of the working owner or of the working owner's spouse. 

4. Works at least 120 hours per month providing personal services to the ·'trade or business" 

or earns income ti·om the "trade or business'' that at least equals the working owner's cost 

of the AHP health coverage. 

Arguments have been made that that the eligibility criteria for qualifying as a working owner is 

overly constraining. These arguments claim that the proposed eligibility criteria will limit the number 

of self~employed individuals who may be eligible to participate in an AHP, which seems contrary to 

the DOL ·s policy goal of expanding health coverage to these individuals. 

For example. according to the proposed rule, a self-employed individual with no employees 

who is eligible for subsidized health coverage through their spouse's employer would not be 

considered a "working owner" for purposes of participating in an AHP. Interestingly, it appears that 

this eligibility criteria is modeled after a requirement set forth under Section 162(1) ofthc [nternal 

Revenue Code ("Code"). which denies a self-employed individual an above-line-deduction tor health 

care costs if the individual is eligible ti.1r subsidized health coverage through his or her spouse's 

employer. Unfortunately. there is no clear implementing guidance or legislative history on why this 

rule was included in the Tax Code in the tlrst place. But. it is reasonable to conclude that Congress did 

not develop this provision to serve as a factor for determining eligibility to participate in a ·'group 

health plan." 

Another eligibility factor for qualifying as a working owner requires that an individual work at 

least 120 hours per month providing personal services to a "trade or business." However, there are a 

number of industries where working owners do not have a traditional work schedule. As a result, these 
61 

CEWDOCROOM with DISTILLER


Insert offset folio 46 here 28982.046

working owners may work at least 120 hours in a particular month, but there may be other months 

where their hours fluctuate such that they do not meet the proposed hours threshold. An argument can 

be made that the DOL should modify this "hours worked" eligibility criteria, taking into account that 

there are many industries where workers do not have a defined schedule that leads to working 120 

hours in a particular month. 

3. The DOL's Authorily to Modifj: DOL Reg. Seclion2510.3-3 

The DOL points out that "the touchstone of ERISA is the provision ofbenetlts through the 

employmenr relarionship." The DOL further points out that a "participant'' in an ERISA-covered 

group health plan "is an employee of an employer who may receive benefits ti·om that employer's own 

benetlt plan:· And. that "individuals" who are not participants (i.e .. individuals who are not employees 

or former employees of an employer sponsoring a particular plan) "are ineligible to be covered by an 

ERISA plan." However, as stated above, the DOL has opted to modify its current regulations to allow 

working owners ( l) to act as an "employer" for purposes of sponsoring a "group health plan" and also 

(2) to be treated as an "employee" for purposes of being covered by an AHP. 

The DOL justifies this modification to current law, explaining that "this approach is consistent 

with advisory opinions in which the Department has concluded that working owners may be 

·participants· in ERISA plans. For example. Advisory Opinion 99-04A reviews various provisions of 

ERISA and the Code that spccitically address working owner issues in ERISA plans, and concludes 

that, taken as a whole, they reveal a clear Congressional design to include working owners within the 

detinition of participant for purposes of Title I of ERISA.'' 

The DOL also acknowledges that the U.S. Supreme Court in Yates v. Hendon. 42 concluded that 

"under ERISA. a working owner may have dual status (i.e., he can be an employee entitled to 

participate in a plan, and, at the same time, the employer (or owner or member of the employer) who 

established the plan." And, the DOL notes that section 401(c) of the Internal Revenue Code ("Code'') 

"generally treats a sole proprietor as both an employer and an employee." 

Based on this analysis and interpretation of ERISA, the Code, and court decisions, the DOL 

proposes to allow working owners to participate in group health plan coverage through an AHP 

(sponsored by groups of employers and/or groups of working owners). The DOL explains that it has 

the authority to supersede its previous interpretations as articulated in non-binding advisory opinions 

as well as supersede a prior interpretation by a Federal court- to address marketplace developments 

and new policy and regulatory issues.'13 

Based on this precedent, many stakeholders believe that the DOL does indeed have the 

requisite authority to re-interpret its own rules to address new issues presented in an ever-evolving 

economic environment. And while other stakeholders argue that the DOL has exceeded its authority 

thereby setting up a legal challenge it is important to understand that DOL Reg. section 2510-3.3 is 

no! a codification of the statute. Rather, the regulation is an interpretation of the statute developed by 

the DOL and memorialized in administrative guidance. Which means, the DOL can change its own 

interpretation of the statute. and thus, change the regulation, provided the change in the regnlation goes 

541 U.S. I 12004). 

-ll _)'ee Pere::: \', Jlortgage Bankers .c1ss 'n, 135 S. Ct. 1 l 99 (2015); see also. National Cable & Tefecommunh.·ations Ass 'n v 

Brand X /nfernet Senices. 545 U.S. 967 (2005). 
62 

CEWDOCROOM with DISTILLER


Insert offset folio 47 here 28982.047

through the normal rulemaking process (e.g .. proposed regulations. which the public can comment on. 

prior to finalizing the change). 

C. The Proposed Nondiscrimination Protections 

The proposed regulations establish tour different nondiscrimination protections applicable to 

A !IPs. Under the lirst proposed nondiscrimination protection, an employer group cannot deny other 

employers and/or working owners membership in the group and by extension participation in an 

AHP- on account of any "'health factor''"" of an employee. a former employee, or the working owner. 

Under the second and third proposed nondiscrimination protections, the premiums tor AHP health 

coverage- and eligibility for benefits covered under the plan- cannot vary based on a particular 

participant's health factor. And. under the t(lurth proposed nondiscrimination protection. an AHP 

cannot develop different premium rates for different employer and/or working owner members based 

on the members· "health claims experience" (i.e .. the AHP cannot "'experience-rate" premiums for 

different employer/working owner members). !fan employer group fails to satisfy any of these 

nondiscrimination protections. the group would fail to be considered a ''bona fide group or association 

of employers, .. even in cases where the employer group satisfies the "'commonality of interest'' and 

"'control" tests. 

I. Allowing A HI's /o "Experience-Rate .. Premiums Will Not Render the Nondiscrimination 

Protections lne(fective 

i\ vast majority of stakeholders have raised concerns over the fourth nondiscrimination 

protection, and they have argued that the DOL should remove this nondiscrimination protection from 

the llnal regulations. The DOL. however. explains that if this fourth nondiscrimination protection is 

not finalized. the first three nondiscrimination protections discussed above could be rendered 

ineffective (because an employer group could offer membership to all employers meeting the requisite 

membership criteria. but then charge specific employer members higher premiums based on their 

health-claims experience). Stakeholders disagree. 

l'or example, in cases where a prospective employer member may employ employees who 

utilize a significant amount of health care (i.e .. "'high-medical-utilizers''), this employer may benefit by 

finding more aflordable health coverage through an AHP. due to the fact that this employer cannot be 

denied membership in the employer group sponsoring the plan on account of these high-medicalutilizers. More atTordablc premium rates will likely be available to an employer with high-medicalutilizers because- on account of experience-rating the AHP will be able to attract employer 

members with "'healthy" employees (by offering these employers a lower premium rate). The tact that 

these healthy risks may now be a part of the AHP. these healthy risks arc able to offset the exposure 

the high-medical utilizers may pose to the risk pool. This allows the AHP to develop competitive 

premium rates tor the employer with high-medical-utilizers, notwithstanding the tact that this 

employer's premiums may be higher than employer members with healthy employees. 

In other words, by allowing an AHP to develop di tTerent premiums tor ditTerent employers, the 

A liP will be able to otTer competitive premium rates that hoth employers with healthy employees and 

employers with high-medical-utilizers may find attractive. which not only benefits the employer 

A "h.:<:dth llh::tor·· is defined as: health status. medical condition {including both physical and mental illness}. claims 

C\.pcrlcncc. receipt nt'hea!lh carL', mt:dica! histor). genetic in!~)rmation. evidence of insurability. anJ disability. 
63 

CEWDOCROOM with DISTILLER


Insert offset folio 48 here 28982.048

member (from a tinancial perspective). but also its employees (especially those employees who may be 

high-medical-utilizers because they may now have access to aftordable and quality health coverage 

subject to ERISA ·sand the ACA 's consumer protections). 

With respect to the prohibition against varying premiums and eligibility for benefits based on 

any health factor, these are requirements that currently apply to existing ·'group health plans" under 

HIPAA. As the Department knows- currently- self~ insured and fully-insured ''large group" health 

plans develop their premium rates based on experience-rating, which is not prohibited under HIPAA. 

Importantly. this current law prohibition against varying premiums or eligibility for benefits based on 

any health factor of a particular participant is in no way rendered ineffective by virtue of the existing 

experience-rating practice adopted by these plans. Allowing employer-run organizations sponsoring 

an i\HP to engage in the practice of experience-rating will similarly do nothing to change or inhibit the 

effectiveness of these nondiscrimination protections. 

2. Experience-Rating Would Be Done To Maintain the Solvency oft he AHP, Which Is "Acting 

In the Best ln!erest" ojEmployees 

As discussed above, one of the most important components of a "bona group or association of 

employers" sponsoring an AHP is •·control" over (I) the operations of the employer group and (2) the 

provision of health coverage through the AHP. This ·'control" is critical because it ensures that the 

employer members sponsoring the AHP are ·'acting in the best interest'' of their employees. 

Importantly. developing different premiums lor each employer member based on their health claims 

experience is actually is done in funhcrance of"acting in the best interest" of the employees covered 

under the AHP. For example, if the A I-ll' did not develop ditferent premium rates for pat1icular 

employer members. the solvency of the AHP might be called into question, which could adversely 

atTect the health coverage offered to plan participants. 

As a result. to ensure that aflordable and quality health coverage is consistently made available 

to employees of the sponsoring employer members, the AHP is required to experience-rate employer 

members to maintain its solvency. Engaging in practices that would ensure the long-term viability of 

the AHP is by dellnition "acting in the best interest" of employees participating the plan because 

without experience-rating. the employer-run organization may no longer be able to offer health 

coverage. 

In addition. by experience-rating different employer members, an AHP has a better chance to 

attract employer members with "'healthy'' employees who arc then able to offset the health risks 

associated with high-medical-utilizers. This means that high-medical-utilizers can enjoy a competitive 

premium rate for affordable and quality health coverage. And, healthy employees can also enjoy a 

competitive rate relative to, tor example. the small group market. 

3. A HI's Would Be !'laced AI a Compelilive Disadvanlage IjAHPs Cannot Develop Differem 

Premiums ji;r Differenr Employer Members 

Without the ability to experience-rate employer members, AHPs would be placed ala 

competitive disadvantage relative to commercial insurance carriers. It appears, however, that 

commercial insurance carriers have argued that if AHPs were permitted to develop different premiums 

filr different employer members. that commercial insurers would be the entities placed at a competitive 

disadvantage, especially as it relates to selling health plans to small employers. In addition, it appears 
64 

CEWDOCROOM with DISTILLER


Insert offset folio 49 here 28982.049

that the commercial carriers argued that if AHPs could engage in a premium rating practice that 

commercial carriers in the small group market were prohibited from adopting, AHPs would ''segment" 

the market leaving only employers with high-medical-utilizers for commercial carriers to cover. 

It is important to point out that the ACA 's small group market reforms prohibit the 

development of premiums based on the health claims experience of a small employer. Instead. 

premiums f(lr small group plans may only vary by age, tobacco, geography. and family size. Based on 

these new rules~ and in response to the commercial carriers' arguments~ it appears that the DOL 

developed a nondiscrimination protection that essentially mirrors the premium rating practices now 

required in the /\CA ·s small group market. 

Unfortunately. by imposing similar premium rating practices that apply to commercial insurers 

selling small group plans to /d-IPs. the DOL is detrimentally impacting existing AHPs, and calling into 

question whether AHPs will be formed in the it1ture. This is due in large part to the fact that 

commercial insurance carriers have greater scale relative to AHPs. In other words, AHPs can only 

cover a finite number of·'lives" under their plan. Which means, the risk pool of AI IPs are going to be 

small relative to commercial carriers who have access to a much greater number of lives on account of 

under-writing coverage for small employers that are not members of a ''bona fide group or association 

of employers.'' 

More specifically. if an AHP is not permitted to develop different premium rates for different 

employer members. the /\HP would not be able to compete with the commercial carriers. and 

therefore, the plan would not be able to attract enough lives especially "healthy" lives to create a 

sustainable risk pool. As discussed above, the practice of experience-rating will help an AHP attract 

employer members with '·healthy'' employers, which is critical to offsetting the exposure of employer 

members with high-medical-utilizers that will likely seek health coverage through an AHP (especially 

because employer groups cannot deny membership based on the health status of an employer's 

employees). 

Even if AHPs become the preferred choice for health coverage among small employers in a 

particular State's small group market, many stakeholders do not believe that the ability to experiencerate employer members will result in "cherry-picking" small employers with good health risks over 

small employers employing high-medical-utilizers (a scenario that it appears the DOL is trying to 

prevent through the development of this nondiscrimination protection). This is because- as stated 

the employer members sponsoring the AHP (as an employment-based arrangement) will be "acting in 

the best interest" of their employees. taking the necessary steps to provide amlrdablc and quality health 

coverage to each and every employer member. In other words, an AHP is not going ·'price" its 

employer members out of the AHP coverage, thereby leaving small employers with high-medicalutilizers to the commercial insurance carriers. 

IV. State Regulation of AHPs 

The preamble oft he proposed regulations explains that in the DOL's opinion~ nothing in the 

proposal alters a State's authority to regulate insurance. I agree. 

However. policymakcrs must be mindful that States may attempt to act upon their authority to 

regulate insurance and enact legislation or promulgate rules, providing that any fully-insured "large 
65 

CEWDOCROOM with DISTILLER


Insert offset folio 50 here 28982.050

group" A liP operating within the State must comply with the ACA 's "small group" market rules. 

States may also choose to enact a solvency requirement (i.e., a specified reserve level) that is so high 

that even well-run, well-capitalized self-insured AHPs cannot satisfy. 

Any such State actions would be counter the policy goals that the DOL is trying to achieve. 

And, any such State actions are arguably inconsistent with ERISA. If leti standing, these barriers to 

the formation of AHPs would surely disadvantage national trade associations, franchises, 

"cooperative"-run companies, and working owners who are currently struggling to afford health 

coverage in the ACA 's "un-subsidized" individual market. 

I. Fullv-Insured "Lar[!.C Group .. AHPs 

As discussed above. a fully-insured "large group'' AHP is subject to State benefit mandates that 

apply to insuran~e contracts sold within a respective State. This means that even as an ER!SA-covered 

plan- which in some cases enjoy ERISA 's preemption powers State benefit mandates arc not 

preempted by ERISA. 

There is, however, question as to whether a State law or regulation that re-characterizes a large 

group fully-insured AHP as a "small group" plan would be preempted by ERISA (and therefore, would 

not apply to an ERISA-covered fl1lly-insured AHP). 

On the one hand, an argument can be made that because States have the authority to regulate 

the insurance contracts sold within their State, a State could indeed enact a law or regulation torecharactcrize a fully-insured large group AHP as a "small group" plan, and this law/regulation would be 

"saved" t!·om preemption under ERISA 's "savings clause" (and therefore, the law/regulation would 1101 

be preempted):" But, a legal argument can be made that this ''re-characterization law" is directly 

impacting the ERISA-covered plan (and not the insurance contract), and even though the plan is fullyinsured, any State law directly impacting an ERISA-covered plan is preempted under ERISA's 

''dccmcr clause. '"-1 6 

In addition, the statute of ERISA itself states that a fully-insured MEW A (i.e., a tully-insured 

A liP) may be subject to any State insurance law "to the extent that such law ... requircs the 

maintenance of specified levels of reserve and specified levels of contributions.""" A legal argument 

can be made that a State law or regulation that re-characterizes the "large group" fully-insured AHP as 

a "small group" plan is not a law that "requires the maintenance of specified levels of reserve and 

specified levels of contributions." 

At this point, it does not appear that the DOL is in a position to opine on (I) whether a State 

law or regulation purporting tore-characterize a fully-insured "large group" AHP as a ''small group" 

plan is preempted under ERISA ·s "deemer clause'' or (2) whether this law or regulation has no eftcct 

on a fully-insured AHP because the law/regulation is not one that "requires the maintenance of 

specified levels of reserve and specified levels of contributions.'' But, it is advisable tor the DOL to 

clarify this issue soon alter final regulations are released. 

"See ERISA section 514(h)(2l(i\). 

"'Sec ERISA section 51.J(b)(2)(ll). 

"!:IUS/\ section 514(h)(6)(A)(i)(l). 
66 

CEWDOCROOM with DISTILLER


Insert offset folio 51 here 28982.051

There are various steps that the DOL could take to address this issue. For example, the DOL 

could issue informal guidance in the form of a Technical Release, explaining that in the DOL's 

opinion -a State law purporting to re-charactcrize a fully-insured large group AHP as a "small group" 

plan is indeed preempted or the law simply does not apply (because this State action is not a law that 

"'requires the maintenance of specified levels of reserve and specified levels of contributions"). 

Alternatively, the DOL could submit proposed legislation that would amend ERISA 's preemption 

provisions, allowing ti.illy-insurcd large group and self-insured AHPs to operate free trom State law, 

provided specific Federal requirements are satisfied. 

2. It fl- Imperative That the DOL l~sue a "Class Exemption" From the Non-Solvency 

Requirements of.'.'tale MEt~:-t Laws 

As discussed above, an Al!P is by definition a MEWA. In the case of a self~insured MEWA, 

ERISA gives States the exclusive authority to impose any State insurance law requirement on these 

arrangements. Over the years, States have enacted their own State MEWA laws with varying degrees 

of regulation ranging fi·om restrictive to permissive. This has created a "patchwork'' set of rules and 

requirements that self-insured ME WAs must meet if an employer-run organization sponsoring this 

type of arrangement wants to oiTer health coverage to employees located in multiple States. 

As a result, a sell~insured AHP (as a sell~insurcd MEWA) must satisfy each State MEWA law 

in each of the States in which the AHP coverage may be offered. Unfortunately. however, this fact 

may limit the extent to which self-insured A l-IPs are formed. This is because a self-insured AHP 

wanting to offer health coverage in multiple States must navigate the different legal requirements and 

licensing practices in each State in which the coverage may be offered. The cost and time associated 

with complying with this "patchwork" set of regulations and licensing rules is often times prohibitive. 

Congress enacted ERISA to avoid the multiplicity of regulation in order to permit the 

nationally uniform administration of employee benefit plans. Consistent with the purpose of ERISA, 

developing a "class exemption" would provide a level of"unifonnity" that would allow scll~insurcd 

AHPs to otTer health coverage in multiple States free from the burden of complying with a set of 

regulations that difter State-by-State. 

Please note, I am not suggesting that self~insured AHPs should be freed from regulation. What 

I am suggesting is that such regulation should be uniform. And such uniformity can be accomplished 

through developing a "class exemption'· that would include specitlc Federal rules that must first be met 

prior to a scll~insured AHP availing itself of any exemption from a State MEWA law's non-solvency 

requirements. 

Providing specific suggestions on what may be considered "reasonable'' and '·appropriate" 

regulation of a selt~insured Al-IP through a "class exemption" is beyond the scope of my testimony. 

However, I believe the DOL should consider developing a "'class exemption" that codifies an existing 

State MEW A statute that the Department- and outside stakeholders- believe provides an appropriate 

level of regulation and oversight. The "'class exemption'· may also require a specified number of lives 

be covered under the self-insured AHP as well as a requirement to meet a reasonable solvency 

requirement- as conditions to qualilying for the "class exemption." 
67 

CEWDOCROOM with DISTILLER


Insert offset folio 52 here 28982.052

I understand that even if a ··class exemption" is developed (so that self-insured AHPs may be 

exempt tl·om the non-solvency requirements of State MEW A laws), State insurance laws regulating 

reserve and contribution levels will continue to apply. I believe this is good policy (not to mention a 

statutory requirement under ERISA) because I believe a defined set of solvency requirements arc 

imperative to ensure the viability of self-insured AHPs. However, while the DOL does not have the 

authority to dictate the type of reserve requirement a State may put into place, consideration must be 

given to the tact that States may choose to enact prohibitive reserve requirements as a back-door way 

of preventing self:-insured A l-IPs ti·orn operating within the State. An argument can be made that such 

State actions are inconsistent with ERISA. 

Make no mistake. I am well aware of the history of sell: insured MEW As, which include 

fraudulent arrangements and arrangements which have experienced solvency deficiencies. But. it is 

important to emphasize that policymakers at both the Federal and State level have taken steps to 

ameliorate the problems that have plagued self-insured ME WAs in the past. As stated, Congress 

specifically amended ERISA 's preemption provision to give States the explicit authority to regulate 

self-insured ME WAs operating within the State. Since that time. States have enacted their own State 

MEWA laws with varying degrees of regulation. 

Most recently. Congress strengthened the DOL ·s ability to monitor self-insured MEW As 

through increased notice and disclosure requirements as part of the ACAY The ACA also enhanced 

the DOL's enforcement authority by providing extended civil and new criminal penalties,49 and the 

ACA now allows the DOL to stop a MEWA 's operations or seize its assets in certain circumstances 

without a court order."J Congress is free to further augment the DOL's enforcement authority either 

through increased funding for enforcement or additional enforcement tools- if concerns over 

fraudulent sclt~insured AHPs remain. 

V. Conclusion 

A. A HI's Will Provide Adequate Health Coverage At a Lower Cost 

I recognize that other stakeholders will sound the alarm over the tact that fully-insured "large 

group" and self-insured AHPs are not subject to the ACA 's EHB and A V requirements, and also the 

ACA 's adjusted community premium rating rules and the single-risk pool requirement. However. a 

strong argument can be made that these concerns arc mis-placed due to the applicable consumer 

protections and coverage requirements, as discussed above. 

I also recognize that stakeholders will argue that the lower costing health coverage that fullyinsured "large group'' and sclt~insured AHPs will likely provide is a proxy for less comprehensive or 

··skinny"· coverage. I once again disagree. 

It is important to emphasize that lower costs in the fully-insured ·'large group" market are 

driven by administrative efficiencies. In other words, the same administrative costs that drive up the 

cost for fully-insured individual and small group coverage are not present in the tully-insured large 

group market. For example, individuals and small employers often times drop in and out of the 

insurance markets. In addition, individuals and small employers routinely change insurance carriers, 

IS ;\CA .section 6606. 

i\C;\ ;.cction 6601. 

'() J\CJ\ section 6605. 
68 

CEWDOCROOM with DISTILLER


Insert offset folio 53 here 28982.053

sometimes every year. This volatility which drives up administrative costs- is not present in the 

fully-insured large group market. 

In addition, prices in the individual and small group markets are typically higher on account of 

the ACA 's "risk adjustment" program. ln recent years, insurance carriers have engaged in "defensive 

pricing" by loading any potential "risk adjustment" payments under the program into their plan 

premiums. This results in increased costs for the consumer, regardless of whether the carrier is 

required to pay a "risk adjustment" charge under the program or not. Unfortunately, in cases where the 

carrier ultimately receives a "risk adjustment" payment, the carrier does not "rebate" premiums back to 

the policyholders. As stated above, the ACA 's risk adjustment program does not apply to the fullyinsured '"large group" plans, which means the added costs ti·om "defensive pricing" are not present in 

the ''large group'' market, which means that costs are by definition lower than individual and small 

group plans. 

The Congressional Budget OtTice has indicated that the ACA's EHBs and the ACA's adjusted 

community rating rules increase costs for individual and small group plans." In particular, the 

requirement that premiums tor individual and small group market plans can only vary by a 3-to-1 ratio 

has been shown to increase cost tor younger individuals52 In contrast age rating in the fully-insured 

'"large group" market is typically based on a 5-to-1 ratio, which actuaries suggest produces an 

"actuarially fair" premium rate (which is lower than premiums in the individual and small group 

market). 

Seli~insured group health plans are not subject to the ACA 's risk adjustment program, as well 

as the ACA's E!!Bs and adjusted community rating requirements, which as discussed above·- means 

that these plans will have a lower cost relative to individual and small group plans. In addition, selfinsured plans arc not subject to State premium taxes, and therefore, unlike fully-insured plans (e.g., 

individual, small group, and large group plans), there is no tax liability that is passed through to the 

participant. Sclt~insured plan premiums also do not include a ·'risk"' and "profit" load that insurance 

carriers traditionally build into their costs to employers and their employees. 

As a result, regardless of whether an AHP is a fully-insured "large group" or sclt:insured plan, 

the cost of coverage will primarily be lower than individual and small group health plans. And 

contrary to what critics of A liPs may say, such lower costs are not driven by the plans offering limited 

benefits. 

B. Employer Members Will Seck to Offer Comprehensive Health Coverage to Attract 

and Retain Talent 

It is important to emphasize that one of the main reasons why employers offer health coverage 

to their employees even through an AHP is to attract and retain talent. A strong argument can be 

made that to remain competitive among their peers. employers- especially those offering health 

coverage through an AHP are going to make sure that their plan otTers a comprehensive level of 

health coverage so they can attract and retain talented workers. 

51 Congressional Budget Orficc. Private Health Insurance Premiums and Federal Policy. February 2016. 

i~S-'_\?.rlS 51 _ _U_D::_ 
69 

CEWDOCROOM with DISTILLER


Insert offset folio 54 here 28982.054

Employers also otTer health benefits to their employees to promote healthy lifestyles and 

·'prescnteeism" in the workplace (and to combat "absenteeism"). If given the flexibility to develop 

plan designs that may not tit neatly into the "standardized" EHB framework- for example, valuebased insurance designs (''VBID'') that provide coverage for high-value services that is actuarially 

equivalent to an EHB plan I believe more employers (especially small employers) will want to offer 

health coverage that provides a level of coverage that is as comprehensive as the EHBs. And. as 

discussed above. the cost of these types of comprehensive plans will likely be more affordable than 

ACA-compliant small group and individual market plans. 
70 

[10:34 a.m.] 

Mrs. FOXX. Thank you very much. And, again, I want to thank 

all of our witnesses for being here today. 

Mr. Condeluci, I will come back to you in a minute, but I do want 

to thank you very much for setting the record straight in your testimony. I think that is extraordinarily important. 

Ms. Monson, in your testimony you mentioned that because 

AHPs have a larger pool of enrollees they can more effectively balance the risk associated with providing health insurance coverage 

to their employees. For many small businesses, if an employee gets 

sick the individual company or franchise may have to bear the increased costs in premiums alone. Do AHPs provide more financial 

stability for small business faced with higher claims? 

Ms. MONSON. Absolutely. AHPs will provide financial stability to 

small business owners. The biggest complaint of all small business 

owners is the cost of providing quality health insurance to their 

employees. Many can’t afford to. With AHPs bringing down the cost 

because of the greater pool and lower administrative costs, it will 

definitely help financially those small business owners. And it really all comes down to competition for great employees. Nobody 

wants to hire bad employees, but to keep the best employees you’ve 

got to have great benefits. And too many small employers can’t afford to have the same similar quality insurance that labor unions 

and large companies do. AHPs will solve that. 

Mrs. FOXX. Thank you very much. Mr. Condeluci, we have heard 

from a number of small business and employer groups that small 

group market costs continue to increase and the number of small 

employers offering health insurance, especially for very small businesses, continues to decrease. 

How is small group market size currently defined in the states? 

Is there significant difference in cost or offer rates between groups 

that are fewer than five or 10 and those that are over 50 or 100? 

Mr. CONDELUCI. Thank you for the question, Chairwoman. First, 

the states typically define the small group market as an employer 

employing at least two and up to 50 employees. As you may recall, 

the ACA actually changed that definition and moved that up to 

100, but that change in the law from the ACA was changed by Congress back to 50. So it is two to 50 is the definition. 

To your question with regard to the cost as it’s—let’s say the 

price for groups that are smaller in size versus those that are 51 

and above, the ACA, as many know, reformed the small group market, or enacted reforms to the small group market, and in particular, the adjusted community rating rules, the single risk pool 

requirement, essential health benefits, and actuary value all apply 

to small group market plans. So typically the prices are not that 

different between the various groups because even if you’re a small 

group of five, relative to a small group of 45 still in a small group 

market, the prices are typically going to be the same. 

When you look at the large group market, which is 51 and above, 

often times the cost in the large group market is lower. There are 

administrative efficiencies in the large group market that is not 

present in the small group market. Or stated differently, the small 

group market has a lot of volatility. A lot of small employers dropping out of the market, in and out of the market, there’s underCEWDOCROOM with DISTILLER

71 

writing issues. And that just drives up administrative cost. And 

that volatility is not quite present in the large group market, and 

therefore large group often times has a lower cost associated with 

it. 

So those are just some factors between the differences between 

small group and large group market plans. 

Mrs. FOXX. Thank you very much. Mr. McGrew, as you know 

firsthand, health care costs are just one of the many budget line 

items that small business owners have to balance while running 

their companies. Operating costs, payroll, maintenance, marketing, 

and many other duties compete for limited time and resources. Can 

you describe the other costs your business incurs and how health 

care costs factor into strategic decisions, including hiring and expansion? 

Mr. MCGREW. Thank you, Madam Chairwoman. There is no 

question that when you’re a small business owner you wear a lot 

of hats and we don’t have an extensive HR department in our company. Therefore, we rely a lot on outside advisors. We have to 

count on them for their expertise, and those are costs associated 

with having them help advise us with regard to these things. 

If I could spend more time helping my agents create more opportunities and help more consumers, my time is better spent than 

spending it on regulations and searching for health care options. 

In the state of Kansas, there are two health care insurance plans 

available in the whole state. We don’t have a lot of choices. And 

so we spend a lot of time trying to figure out if there’s a better way 

to do things. Unfortunately, that’s spinning our wheels because we 

really at this point have only very limited choices. 

Thank you. 

Mrs. FOXX. Thank you very much. And, again, thanks to all of 

you. Mr. Scott, you are recognized for five minutes. 

Mr. SCOTT. Thank you. Mr. Arensmeyer, do the AHPs reduce the 

overall cost of health insurance for everybody, or just move it 

around so that different people pay different rates? 

Mr. ARENSMEYER. They do not decrease the overall costs. The 

cost factors in the health insurance market are governed by many 

underlying issues. And you’re right, they just move it around. 

Mr. SCOTT. Okay. So if you allow healthy people to form their 

own AHPs what happens to everybody else? 

Mr. ARENSMEYER. Everybody else gets left in a group that’s 

forced to raise prices, and most people are going to have their 

prices go up. 

Mr. SCOTT. And what happens to stability if healthy people start 

forming their own associations? 

Mr. ARENSMEYER. Well, stability of the market decreases. Congress decided we’ve got three basic groups, risk groups. You’ve got 

large groups, small groups, and individual and each one of those 

needs to be as robust as possible. If you start to weaken any one 

of them you weaken the whole system. 

Mr. SCOTT. Now, if you form an AHP and people in your program 

start getting sick what can they do? 

Mr. ARENSMEYER. If they’re in an AHP? If they start getting sick 

and the AHP starts to incur losses, the AHP could go away. Unlike 

a large group, which is there because everyone’s got a common ecoCEWDOCROOM with DISTILLER

72 

nomic interest, you know, in a big company. You know this is a 

group that’s just set up for health insurance purposes only and it 

could just disintegrate. 

Mr. SCOTT. That means they can go back into the normal individual or small market pool? 

Mr. ARENSMEYER. They would ultimately have to back into it, 

yes. But you’re talking about destabilizing a market in the process. 

Mr. SCOTT. Now, what is the history of insolvency in AHPs? 

Mr. ARENSMEYER. There’s been a tremendous history of insolvency. And as I said, again, if you set up an entity for the sole purpose of providing health coverage you don’t have the foundation 

that you have in the large group market with a large company 

that’s there for many reasons beyond health insurance. So once 

something starts to go wrong, there’s absolutely no incentive for 

people to stay in the system. 

Mr. SCOTT. So if the cost go up because a few people got sick, 

everybody will start bailing? Is that right? 

Mr. ARENSMEYER. That’s right. 

Mr. SCOTT. Is it possible to design a benefit package that attracts 

healthy people rather than average people? 

Mr. ARENSMEYER. Absolutely. I mean if you don’t have the same 

rules regarding essential health benefits you create different rules 

of the road. The reason that—and I should add, as I said in my testimony, the small group market, unlike some of what you’ve heard, 

has actually been relatively stable. In fact, between three and 199 

employees it has only gone up one percent in the last year. So 

that’s how you have a stable market is you have as much risk 

spread out as possible. 

Mr. SCOTT. But if you had designed a program that you did not 

have services for diabetes, did not have chemotherapy, you did not 

have AIDS medicine on your formulary, you would discourage people with those diseases from joining the pool. Is that right? 

Mr. ARENSMEYER. That’s correct. 

Mr. SCOTT. And you would have a healthier pool as long as they 

stayed healthy, and everybody would be happy until somebody got 

sick? 

Mr. ARENSMEYER. That’s correct. 

Mr. SCOTT. Can you give some examples of what happened—you 

mentioned fraud. What happened? Can you mention what happens 

when people get defrauded in this situation? 

Mr. ARENSMEYER. Well, if they think they’re signing up for comprehensive health benefits and then all the sudden the AHP weakness, then they are out of luck. 

Mr. SCOTT. What happens when the AHP goes insolvent? 

Mr. ARENSMEYER. The people don’t have coverage anymore. 

Mr. SCOTT. We have heard that nobody is going to really sell 

these skimpy plans because nobody would want to buy it. Doesn’t 

a skimpy plan have the advantage of a very low price? 

Mr. ARENSMEYER. Absolutely. I mean it becomes very attractive 

on the surface and all of the sudden you find out it’s not covering 

what you need it to cover. 

Mr. SCOTT. And so the whole point of this is to lower the prices. 

And if you can get a low price then people would be attracted to 

it until they get an illness that is not covered. Nowhere they have 

CEWDOCROOM with DISTILLER

73 

done these, has the cost of the residual market, those that didn’t 

get into an AHP, have you seen the cost go up for everybody else? 

Mr. ARENSMEYER. Absolutely. I mean the cost increases in the 

small group market prior to the ACA, particularly when you had 

AHPs in the system, were much higher. I mean the growth was 

higher, the rate of increase was higher. 

Mr. SCOTT. Is there any problem with discriminating based on 

gender or designing a pool that has traditional male employees? 

Mr. ARENSMEYER. You can certainly design a pool, design a set 

of benefits to intentionally exclude, or at least implicitly exclude 

certain people by not having maternity coverage, not having coverage for things that people who are older tend to get. Again, it’s 

about having separate rules of the road than the small group market. The whole point of the small group market, as we just heard 

from Mr. Condeluci, it’s actually you get pretty common costs 

across the entire small group market because you have a common 

set of rules and a common risk pool. 

Mr. SCOTT. Thank you, Mr. Chairman. 

Chairman WALBERG. I thank the gentleman and, again, thank 

you for the panel for being here. I apologize for having to leave to 

go to two other subcommittee hearings that are going on at the 

same time for me. 

Mr. Condeluci, there has been a lot of discussion about whether 

AHPs will provide adequate consumer protections to their members. Some fear that expanding AHPs will lead to discrimination 

against employees who are older, sicker, or more expensive than 

other workers. That has been brought out this morning already. 

Can you discuss which nondiscrimination requirements apply to 

AHPs and how those compare to requirements applicable to existing plans in the large group market? 

Mr. CONDELUCI. Thank you for the question. In the Department 

of Labor’s proposed regulations, there’s a nondiscrimination protection that says that members seeking to join an employer group, or 

a group that is going to sponsor an AHP, cannot deny membership 

based on the health status of that employer member’s employees. 

So there is a nondiscrimination protection when it comes to membership in the employer group, which almost by extension is a nondiscrimination protection as it relates to participation in the AHP. 

When it comes to the AHP there are current law nondiscrimination protections, as I discussed, and they’re built into the proposed 

regulations, which say that an AHP cannot vary premiums based 

on a particular participant’s health condition, nor can they vary eligibility for benefits based on a particular employee’s or a particular 

participant’s health condition. So those are current law, nondiscrimination protections that again are built into the proposed 

regulations. 

Chairman WALBERG. Okay. And group market plans are required 

to cover preexisting conditions as well? 

Mr. CONDELUCI. Yes, sir. Large group plans, self-insured plans, 

as well as small group plans and individual market plans are subject to the ACA coverage requirements. And those ACA coverage 

requirements, which apply to all plans in all of those markets, have 

a prohibition against denying someone coverage based on a health 

CEWDOCROOM with DISTILLER

74 

condition or discriminating against a particular participant based 

on the health condition of that individual. 

Chairman WALBERG. Okay, great. Thank you. Ms. Monson, you 

briefly talked about the cost of providing health insurance to your 

employees, as well as the challenges that franchised businesses can 

face when obtaining health insurance coverage. How does the ability to offer great health insurance coverage affect your franchisees’ 

ability to attract and retain talent? And what impact do you think 

that offering an AHP would have? 

Ms. MONSON. Thank you for the question. Every business requires the best employees to be the most successful that they can 

be. And small employers have really struggled, franchise businesses with small staffs have really struggled to find that same 

level of quality care, quality health insurance, at a reasonable 

price. My franchisees, every day, compete for the same employee 

candidates as large corporations do. 

Chairman WALBERG. So competition is real? 

Ms. MONSON. Competition is real for great employees. And we 

need to help those small business owners and those franchise business owners have access to quality, affordable health insurance— 

AHPs will bring that—so that they can have a level playing field 

when competing for the best employees, hiring the best employees, 

and keeping the best employees. 

Chairman WALBERG. Okay. Thank you. Mr. McGrew, cost is a 

significant concern for small employers who want to offer health insurance. Do you believe that AHPs can offer the independent contractors you work with more affordable health plans and they can 

find it and purchase it today? 

Mr. MCGREW. Thank you, Mr. Chairman. Absolutely. I am very 

confident, in my case, that the National Association of Realtors 

would be able to provide an option for my independent contractor 

realtor family members. There are so few choices when you’re in 

the individual market that are good choices. And to have another 

option from a valued trusted business partner, as the National Association of Realtors is, would I think be a very valuable and viable 

option for my realtor family. 

Chairman WALBERG. Okay. Mr. Condeluci—excuse me, Ms. Monson. I want go to back to her. Can you describe how an AHP would 

help small employers manage the administrative costs of their 

plan? 

Ms. MONSON. If I take a look at the International Franchise Association representing, you know, 733,000 franchise businesses, 

with the stability of great coverage and an affordable price, there’s 

not going to be the small businesses joining and leaving all the 

time. That reduces the administrative cost. There’s a certain administrative cost that goes over one company, no matter if it’s 

small or if it’s very, very large. And so then we can spread the administrative costs over millions of employees or thousands of employees or hundreds of employees, rather than just 10 or 15 or 20. 

Chairman WALBERG. Thank you. I see my time has expired. 

Thank you. 

I recognize Ms. Blunt Rochester for her five minutes of questioning. 

CEWDOCROOM with DISTILLER

75 

Ms. BLUNT ROCHESTER. Thank you, Mr. Chairman. And, again, 

thank you to the panel. You know, as I listened to the conversation 

one of the things that becomes clear to me is that we all value affordable, quality health care and access to it. I think one of the concerns, and one of the reasons why my focus has been on strengthening the Affordable Care Act is because to me this is kind of going 

backwards. It is saying we are piecemeal as a country instead of 

all in this together. 

So I start with that premise and I thank the panel for your testimony. 

Mr. Condeluci, I will probably ask you some questions later 

based on the new testimony, so I will come back to you with some 

of that later. But I would like to ask a question, starting with the 

fact that the Affordable Care Act, what was really powerful about 

it was that it afforded protections to older consumers, particularly 

as more people are living longer and staying longer in the workforce. And I worry that older business owners and older workers 

who could be left with fewer options or even more expensive coverage under this rule. AARP states in a comment letter that the 

rule could ‘‘greatly increase the likelihood that working Americans, 

especially those age 50–64, would face higher insurance premiums 

and the loss of access to critical health insurance coverage’’. 

Mr. Arensmeyer, are you concerned about the impact that the 

rule could have on older workers? 

Mr. ARENSMEYER. Absolutely. I mean if you just look at the large 

group market now, the age banding between the most expensive for 

older workers and the least expensive is five to one, whereas in the 

small group markets, as you know, it’s three to one. So you’re automatically talking about a situation where you would have relatively 

higher prices for older people, which would then create problems 

for small businesses with older workforces. 

Ms. BLUNT ROCHESTER. And another thing that concerns me 

about the rule is that it could discourage businesses with employees who have preexisting conditions and health issues, or even people with disabilities, from enrolling in association health plans. For 

example, right now small group plans must cover rehabilitative 

services, but under the rule this requirement would not apply. 

In your position, would a plan without that coverage be attractive to, for example, a small business owner with a physical disability? 

Mr. ARENSMEYER. No, it wouldn’t. And, again, it gets back to the 

fact that you’ve got different rules of the road. We’ve heard a lot 

about the fact there would still be certain prohibitions against 

overt discrimination, but that doesn’t stop you from setting up a 

plan that has different benefits than the essential health benefits 

required in the small group market, and thereby discouraging people who might be higher health risks from joining that plan. 

Ms. BLUNT ROCHESTER. Right. And my last question, earlier this 

week the President announced his plan to combat the opioid crisis. 

And while I don’t think we are going to debate the plan here, I will 

mention that I think it is really encouraging that the President and 

Congress are having this important conversation and actually having it in a bipartisan way. But I am a little nervous about the rule 

and that impact on association health plans to avoid covering needCEWDOCROOM with DISTILLER

76 

ed services for substance use disorder. Entirely counterproductive 

to what we are saying that we are trying to do with stemming the 

opioid crisis. 

Would you comment on the importance of substance use disorder 

treatment and why maintaining coverage for essential health benefits is important? 

Mr. ARENSMEYER. Again, it gets back to the fact that you have 

different rules for different risk pools here. And there’s no question 

you could again design plans that had less coverage for drug abuse 

treatment and you’d then be skewing the market accordingly. So, 

again, I’m going to stress that in the large group market, where 

you have common economic interest in a company, there’s an interest in covering everybody, you know, with the best benefits as you 

can in that company. When you set up a plan that—or an organization or association is purely for the purpose of providing health coverage, you don’t have that and you don’t start off with a pool of 

people that you want to cover. You’re saying we’re going to set up 

this particular plan, then we’re going to attract people to come into 

it. By definition, you’re then skewing the risk pool that’s in that 

market, making it not only different from the small group market, 

but different from a large group that’s actually representing a company. 

Ms. BLUNT ROCHESTER. I am just going to close out by saying the 

Committee knows I have served as Deputy Secretary of Health and 

Social Services, Secretary of Labor, State Personnel Director. This 

issue of health care cost and quality has been one that has plagued 

us for many, many years. We need to all be on the same page and 

be doing it as one country, not a lot of different separate groups. 

Thank you. And I yield back. 

Chairman WALBERG. I thank the gentlelady. And now I recognize 

my friend from Tennessee, Dr. Roe. 

Mr. ROE. Thank you, Mr. Chairman. And I have been in the 

small group market when we started our practice and grew now to 

the large group market. I have also served as a mayor of my local 

community where we did self-insurance plans. So I have a fairly 

good understanding of the market. I also have the Affordable Care 

Act and have had two major operations in the last 18 months, one 

for cancer, and I would have been better off with each of them just 

to have written a check. It would have been cheaper. In my district, almost as many people paid the penalty last year as got a 

subsidy. So it isn’t working like a charm in the First Congressional 

District of Tennessee. I will just start by saying that. 

Now, secondly, I could not agree more that we want to increase 

the access to care to people, lower cost, and increase quality. I have 

a good friend of mine I won’t mention, he has over 15,000 employees in his business. He has been able to put a health maintenance 

plan in that business. And we know what the drivers are, hypertension, diabetes, obesity, smoking, cancer, we know what those 

are. And with a large group like that, you can manage your health 

care costs. And he has been able to keep those at one percent level 

for the last several years. Why in the world would we put a roadblock up to keep these small business owners from doing the same 

thing? I know you are absolutely right, Ms. Monson, one of the 

hardest things to do and one of the most valuable people in my ofCEWDOCROOM with DISTILLER

77 

fice are my employees in a doctor’s office or in a realty office. Good 

people are hard to find. They need this coverage for their families 

and themselves and they need it affordable. And the way you can 

provide that is getting a larger risk pool. And, look, we had great 

employees who had serious health benefits, we wanted to—as an 

employer, I wanted to take care of those people, not only in a small 

business. These are not just employees, they are your friends. You 

may have worked with them for 25–30 years, which I did routinely. 

And I found out when we got older things happen to us. We didn’t 

abandon those people. And it is offensive to me when people come 

up here and say that I would do that, that small business owners 

would do that. 

So I know them, I work around them, and, by the way, we had 

this Christian sharing ministries that has grown dramatically after 

the Affordable Care Act simply because coverage costs went down. 

And, Ms. Monson, you made a comment—and I think you will find 

this with all small business owners—if they could find a product 

that was affordable and offered quality coverage for their employees, they would buy it. The problem is cost, and that is how do you 

get the cost down. And I agree with you all, how do you provide 

quality product. 

So I think, Mr. Condeluci, I read your testimony last night and 

you made some incredibly good points in here, is that this is not 

a fly by night plan, these are quality plans that are governed by 

ERISA, they are in a different silo, agreed, than the small group 

market. And one of the comments, Mr. McGrew, that you made, 

was that there are two insurers in the state of Kansas. Well, if I 

were those two insurers, I wouldn’t want any competition in the 

state of Kansas. I certainly wouldn’t want an association health 

plan where my people there could buy insurance from somewhere 

else. And in Alabama, I know there is a dominant player in that 

market. In Tennessee there is a dominant player in the market. So 

I bring these up. 

And Ms. Monson, back to you. I want you just to again comment 

on the importance of your employees in your franchise business. 

And quite frankly, if 10 percent of franchise employee workers 

would get health insurance, you would have an incredibly large 

700,000–1,000,000 people in a market. And, believe me, you can 

control costs doing that. 

Ms. MONSON. Thank you. It all comes down to competition and 

competing for the best employees. And the best employees are 

smart, they understand. You know, I keep hearing this, we’re going 

to provide skinny plans or poor coverage. That’s not the case. People today are educated. The employment candidate is going to ask 

questions about the health insurance, they’re going to know what 

it covers. There is no upside for any employer to offer subpar 

health insurance because we do, we care about our employees, we 

want them to be healthy, we want them to continue and grow within the organization and to remain. There’s no incentive to have 

lousy coverage, only good coverage. 

And thinking about the 7.6 million employees that work for the 

733,000 franchise establishments in the U.S., what an amazing 

large pool. Think about the buying power. It’s all buying power. 

CEWDOCROOM with DISTILLER

78 

Mr. ROE. Well, the last thing I will say before I close up, one of 

the things I wish the ACA had worked as well, and it has for some 

people, but it has failed a lot of people. And what we are seeing 

in our practice is with the out of pockets and co-pays so high, people come get a preventive service, but then if you find anything 

wrong with them and you have to send them down to the hospital 

or wherever, to a diagnostic center to get testing, all of that is on 

their nickel. And if you have got a $4-5-6-7000 out-of-pocket, you 

just don’t get it done. 

So I think this is an incredible opportunity. I am excited about 

this. I think it will be fun to see if this could work. I know it will. 

Thanks and I yield back my time. 

Chairman WALBERG. I thank the gentleman. I recognize the gentleman from New York, Mr. Espaillat. 

Mr. ESPAILLAT. Thank you, Chairman Walberg, for this opportunity. I ask for unanimous consent to enter a comment letter submitted by state attorneys general in opposition to the Department 

of Labor’s proposed association health plan rule. 

Chairman WALBERG. Without objection; hearing none it will be 

submitted. 

Mr. ESPAILLAT. Thank you, Mr. Chairman. Mr. Chairman, as I 

have said, 16 state attorneys general and the attorney general from 

the District of Columbia, have submitted this comment that stipulates in fact that they have great concerns with this proposed action. 

Mr. Chairman, here we are again, talking about association 

health plans, an idea which has failed time and time again. As our 

attorney generals have said, their state and respective offices have 

the duty and experience of protecting consumers from predatory 

practices associated with AHPs, but this proposed rule will threaten those very protections and open up consumers in states and regions across the country to the real potential of fraud and catastrophic wrongdoing. 

Almost 75 pieces of legislation dealing directly with AHPs have 

consistently been introduced in Congress, dating all the way back 

to the 103rd Congress. Let me repeat this again, almost 75 pieces 

of legislation dealing with these issues have been consistently introduced in the U.S. Congress dating back to the 103rd Congress. 

Of those almost 75 pieces of legislation, nine bills have passed at 

least one of the Chambers of Congress, and of those nine, not one— 

not one has been signed into law. Additionally, during that time, 

then-Secretary of Labor Elaine Chao’s testimony on AHPs in 2013, 

it was clear that the Department of Labor did not have the authority to act on AHPs without legislative action from Congress. 

This effort will lead to segregating the insurance pool into one 

that has healthy young people, people with preexisting conditions, 

and the others will have seniors, people with catastrophic illnesses, 

people with preexisting conditions, poor people. That is what this 

actually will do. 

This tells me two things, one, there has never been enough support of confidence in this kind of association health plan proposal 

to actually authorize them through federal legislation, and, two, 

until now the Department of Labor has never believed it had the 

authority to establish these kinds of AHPs on its own. In fact, this 

CEWDOCROOM with DISTILLER

79 

proposal is directly opposed to the ratified Congressional intent of 

both ERISA as well as the intent of the ACA. 

Aside from the massive enforcement issue, potential for widespread fraud and abuse, and as well as the constant legal battles 

that will be attached to AHPs, it seems to me that the Department 

of Labor requires Congressional authority to implement these rules 

and the Department quite simply lacks that authority. 

My question is—recognizing Mr. Condeluci found it acceptable to 

submit a brand new testimony this morning, which I am going to 

completely ignore—I am going to ask Mr. Arensmeyer this question. I represent New York’s 13th Congressional District, which is 

home to many small businesses that are critical to the local economy, our neighborhoods, and workforce. If implemented, what exactly does this proposed rule mean for those small businesses and 

the health of their employees? 

Mr. ARENSMEYER. What it means is if they don’t find the AHPs 

that have access to—if they don’t have the kind of benefits they 

want they are left in the core small group pool, but by pulling out 

the participants in that pool that are healthier and younger, their 

costs are likely to go up. Or, if they chose to join an AHP, they’re 

at risk they don’t have coverage for certain needs that they might 

have. 

Mr. ESPAILLAT. One last quick question, as I am running out of 

time, how does this impact the ultimate risk factors that are considered for any pool of insurers? 

Mr. ARENSMEYER. Well, again, I mean it comes down to you want 

as broad and robust a pool as possible. And there’s—operating with 

the same rules of the road. So when you start to play with that and 

you start to pull certain people out of a pool, you start to create 

instability in the whole marketplace. I mean we’re all for competition and we’d love it if there were more group plans participating 

in the small group market. So, again, if they come in playing by 

the same rules that would be great. We all are concerned about 

costs, there’s underlying costs in the system we need to deal with. 

It’s a question of people in the common pools that are joined by 

common economic interests. 

Mr. ESPAILLAT. Thank you, Mr. Chairman. 

Chairman WALBERG. I thank the gentleman. I recognize the 

gentlelady from Oregon, Ms. Bonamici. 

Ms. BONAMICI. Thank you very much. 

Chairman WALBERG. Oh, excuse me, excuse me. I saw you 

hustling around there and—can’t keep track of the players here. So 

take your time, take your time, get in place. And now I recognize 

the gentleman I never want to slight, the gentleman from Minnesota, Mr. Lewis. 

Mr. LEWIS. Thank you, belatedly, Mr. Chairman. You know, I am 

a little perplexed as to the opposition to expanding these small 

business pools. For many, many years we have had large businesses operate under the notion of say a self-insured plan to get 

out from under very onerous state mandates. They obviously had 

purchasing power advantages and large networks that small businesses didn’t have. So the idea of granting in the association health 

plans that same purchasing power, economies of scale that self-insured plans had or that larger businesses had, seems to me to be 

CEWDOCROOM with DISTILLER

80 

something that wouldn’t generate much opposition, especially since 

you look at the status quo. And as the Committee has pointed out, 

since 2008, the share of small businesses with fewer than ten employees offering coverage at all has dropped nearly 40 percent. In 

my home state of Minnesota, just since 2013 and the implementation of the Affordable Care Act, some 7000 more small businesses 

have dropped coverage. So we do have a crisis here. 

It seems to me, Mr. Condeluci, that therefore the fallback revision of the opponents of this is well, if you allow these pools to 

form, why, they will be offering these skimpy plans. Now, you 

know, my parent used to buy something called major medical. 

When we understood what real insurance models looked like, we 

realized that your automobile insurance doesn’t cover the tires, 

doesn’t cover the oil change. If so, it would be sky high. And therefore health insurance for many, many years used to cover a catastrophic event that could bankrupt a family, but if you took Johnny 

or Susie to the annual physical, you paid it. We now with the Affordable Care Act gone the other way. We ought to have first dollar 

coverage on everything, I don’t want any co-pays, I don’t want any 

deductibles. And we put the system on the market and all we are 

left with are spiraling out of control premiums. 

But, isn’t it true, Mr. Condeluci, that for many, many years, 

businesses, especially self-insured, were trying to get out from 

under very costly state mandates, for that very reason, right? 

Mr. CONDELUCI. Yes. Self-insured plans have ERISA preemption 

protections and therefore the state benefit mandates do not apply 

to those self-insured plans. And therefore, the costs associated with 

the self-insured plan is typically lower. While employers, be it 

small, be it large, they’re sponsoring those self-insured plans, offer 

comprehensive coverage that are almost as comprehensive as the 

essential health benefits, as well as many of the state benefit mandates that would otherwise apply for ERISA preemption. 

Mr. LEWIS. And those people under self-insured plans weren’t 

shortchanged, they had very good health insurance. But the fact is 

there were costly mandates in my home state of Minnesota that 

some larger corporations wanted to get out from under to tailor a 

health insurance plan to fit their employees. And they had that option, but small business didn’t have the option. But it is also true 

that the Affordable Care Act wanted to limit that, and therefore 

came up with these essential health benefit plans. So the notion 

that they could get out from under those under the ACA simply by 

an association health plan is erroneous, is it not? 

Mr. CONDELUCI. Yes, it is, sir. And it’s important to understand 

that employers offer health coverage to attract and retain talented 

workers. And small employers compete with large employers for 

talent as well as they compete with their own small employer 

peers. And those small employers are going to seek to offer comprehensive coverage. And virtually every large employer out there 

offers coverage that includes the essential health benefits or offers 

coverage that is actuarially equivalent to the essential health benefits. So the claim that these association health plans will offer 

skimpy plans I think is difficult to accept, just basically seeing 

what large employers out there are offering. And I will note, the 

drafters of the ACA specifically exempted large group, fully insured 

CEWDOCROOM with DISTILLER

81 

plans and self-insured plans from the essential health benefits requirement, as well as some of the other insurance market reforms 

because the drafters accepted the notion that these large employers 

were offering comprehensive enough coverage. And therefore, the 

drafters said why should we impose these requirements when these 

employers are already doing the right thing? 

Mr. LEWIS. So if it is good enough for those large employers, it 

is probably good enough for small business, isn’t it? 

Mr. CONDELUCI. Yes, sir. 

Mr. LEWIS. Having said all of this, isn’t it true, however, that we 

have got to get back to the notion of a catastrophic health insurance policy that allows people to buy coverage that starts, quite 

frankly, with a very low deductible, but that wouldn’t bankrupt 

their family. Instead, we have gone down this road of prepaid medicine, thinking about that first dollar coverage, and that is an impossibility in most insurance markets, isn’t it? 

Mr. CONDELUCI. Yes, sir. 

Mr. LEWIS. Thank you so much. I yield back. 

Chairman WALBERG. I thank the gentleman. And now I recognize, again, the lady from Oregon, Ms. Bonamici. 

Ms. BONAMICI. Thank you very much, Mr. Chairman, and Ranking Member, and thank you to our witnesses for being here. 

I used to do financial counseling at Legal Aid and I would work 

with clients who were devastated often times by health care costs. 

And some of them just could not afford insurance and some of them 

had insurance but it didn’t cover them when they needed it. Also, 

when I was in private practice, I represented franchisees, and I 

know how hard they work, often family owned businesses. And I 

know they want to do right by their employees. And even before 

that my first job was in my mom’s small business. I understand 

and know how important small businesses are to our communities, 

to our economy, and of course we all want small business owners 

and employees to have access to affordable, accessible health care. 

But I am very concerned because we have seen a great deal of 

evidence suggesting that association health plans do not work as 

intended. I think back to before the Affordable Care Act, which 

passed before my time in Congress. We knew that people who could 

not afford insurance would get their health care in emergency 

rooms, which is the least effective, most expensive way to get 

health care. Those costs would get passed along to everyone. And 

even Dr. Roe recognized the ACA works for some people. 

What we should be doing is, we should be strengthening the Affordable Care Act by providing certainty for insurers, we should be 

strengthening and stabilizing the individual and small group markets. That is what would really make a difference. 

Mr. Chairman, I would like to introduce into the record a letter 

addressed to Secretary Acosta from the AARP, in which they note 

the proposed rule’s expansion of AHPs could greatly increase the 

likelihood that working Americans, especially those age 50–64, 

would face higher insurance premiums and the loss of access to 

critical health insurance coverage. 

Chairman WALBERG. Without objection; and hearing none, it will 

be introduced. 

CEWDOCROOM with DISTILLER

82 

Ms. BONAMICI. Thank you, Mr. Chairman. Mr. Arensmeyer, you 

referenced a letter signed by 17 state attorneys general, including 

Oregon Attorney General Ellen Rosenblum, from my home state. 

Could you explain why these attorneys general are so concerned 

about this rule and their ability to enforce state regulations on association health plans? 

Mr. ARENSMEYER. Well, based on the letter I think they’re concerned about a lot of the concerns that I’ve raised here about separate risk pools. They’re concerned that, particularly on the interpretation of ERISA, that ERISA is based upon regulating plans 

that may not have the same rules as the small group market, but 

they are based on a common economic interest in the—you know, 

among the participants in that plan. 

So, again, we’ve heard a lot about comparing large group plans 

with the AHPs. I mean large companies, like General Motors, IBM, 

Google, they have an interest in providing comprehensive coverage. 

We’ve heard that most of them provide essential health benefits because they have an economic in doing that. There’s no common economic interest in an association health plan that is set up purely 

to provide coverage and could go away tomorrow. That’s not the 

case with a large group plan. Google is not going to get rid of its 

large group plan tomorrow because, you know, there’s some issues 

with risk in it. 

So, again, they’re concerned that ERISA, the way it was written 

and the way it’s been interpreted, that this flies in the face of that. 

It’s also concerned that it flies in the face of the intent of the Affordable Care Act. Ms. BONAMICI. Thank you. And I noticed in your testimony you 

mentioned an Urban Institute analysis of association health plans 

in Oregon prior to the ACA. That analysis found there was increasing potential for adverse selection in the state’s remaining small 

group market. Could you just briefly summarize that study and 

comment on whether this proposed rule might lead to adverse selection? 

Mr. ARENSMEYER. Well, again, it gets back to what I’m saying. 

If you have something that’s set up with a separate set of rules, 

it’s purely to provide health coverage, you don’t have the built in 

protections, just sort of market protections, that you have with a 

normal large group plan. So there’s a tendency to maximize, you 

know, to try to keep the cost down by reducing benefits and by— 

you know, at some point then people start to get sick and they’re 

not covered and the whole system— 

Ms. BONAMICI. Thank you. I wanted to get one more quick question in. Mr.—I know you said Condeluci, I want to say Condeluci— 

it has been referenced before, there has been a long and well documented history of health insurance scams promoted through AHPs. 

According to the GAO, between 1988 and ’91 operators of multiple 

employer entities left about 400,000 people with medical bills. 

There is just a whole history here. The Department of Labor does 

not address the fraud that is prevalent in this market. There is not 

clear indication of how the rule would protect consumers. So what 

would the Department of Labor need to do to prevent fraud and 

protect legitimate Associations or small businesses or self-employed 

individuals from being scammed? 

CEWDOCROOM with DISTILLER

83 

Mr. CONDELUCI. It’s a very fair question. And it’s important to 

note, because a lot of folks overlook the fact that the ACA, driven 

by the GAO report and the investigation on fraudulent activity, led 

to actually enactment under the ACA additional enforcement authority for the Department of Labor. So the Department of Labor 

now can actually impose civil and criminal penalties if there’s 

fraudulent activities in these self-insured and/or fully insured AHP 

type plans. In addition, the DOL can go in and seize assets if 

there’s solvency concern without a court order. So there are now 

enforcement tools that are in the law that have been offered to the 

Department of Labor, which many would argue have contained 

many of the fraudulent activity that occurred in, let’s say, the early 

2000s to the 2004 timeframe. And Congress does have the ability 

to provide additional funding to the Department of Labor to increase that enforcement authority and/or provide additional tools to 

ensure that there are not fraudulent activities, and therefore containing much of the concern and much of the fraudulent activity 

that has happened in the past. 

Ms. BONAMICI. Thank you. I see my time has expired. Thank 

you, Mr. Chairman. 

Chairman WALBERG. Very adeptly done, to get that last question 

in. Thank you. I thank the gentlelady. I recognize my good friend 

and colleague from Michigan, Mr. Mitchell. 

Mr. MITCHELL. Thank you, Mr. Chair. Let me start briefly, Mr. 

Arensmeyer, with a comment for you. I led a couple of small businesses, one that evolved into a fair sized business; I was chair of 

an association of those small businesses. I am astonished, and 

frankly a little offended, with your comment that somehow there 

is not a joint economic interest, that we do not have the same level 

of economic interest in the wellbeing and health of our employees 

as large businesses do. And I think it is based on the very premise 

with which you go forward with your testimony. So your position, 

of course, you are welcome to it, it is noted, but I think it is based 

on some false premises. I was extremely concerned with the health 

and wellbeing of our employees. 

Let me go through a little history. As with Dr. Roe, I was in a 

large group plan with Chrysler Corporation and a self-insured 

plan. We had a business that grew to 650 employees and we had 

part-time employees that were teachers and instructors that 

worked less than—some less than 15 hours a week because they 

were instructors. During the economic downturn we created a 

health insurance plan for employees that were regularly scheduled 

at least nine hours a week, because frankly in many cases they 

were female employees, their husbands were losing jobs in the auto 

industry and they had no health insurance. 

Along came the ACA, which by definition, because we had this 

plan as an option that we created for our part-time employees, created obligations that frankly we couldn’t afford for part-time employees, some of which worked as little, as I said, 12 hours a week. 

It created obligations that we had to make a choice between continuing insurance for employees, which we did because we thought 

it was necessary for them and their families, or telling them to go 

to the Affordable Care Act. Huge obligations that no one seemed to 

care much about. 

CEWDOCROOM with DISTILLER

84 

I met with a large employer recently, a hospital, who told me 

two-thirds of their ER cases should go to primary care—still primary care or urgent care but still come to the ER. The Affordable 

Care Act has failed to deal with the fundamental problems which 

we are kicking around today, a lack of transparency of cost and 

choice. Try to find out what the cost of an MRI at a clinic versus 

an MRI at the hospital—let me know how that works for you. Second, is a lack of user input and involvement in the cost and choice. 

And, third, is the lack of the competition on what the cost is. We 

have disassociated the user from the cost, and now we are trying 

to paper it over with one reg. after another. 

Until we fundamentally deal with the Affordable Care Act, fundamentally deal with what we are not talking about, which is the 

cost of health care in this nation, and people having a choice in understanding what their costs are, we are going to continue to try 

to move costs around from one group to another. And then, hope 

the government will pay for it, the taxpayers. 

So, while we talk about this plan today, the longer we sit here 

and hope that the federal government is going to somehow find a 

way to milk the taxpayer to pay costs for someone that doesn’t 

know what their cost is, that goes to the emergency room for care 

they could go to urgent care. Because that is what they have done 

their entire life, our health care costs will spiral. And we should 

do that, we should actually take the effort to do that here in Congress. 

A couple of quick questions. I am running out of time, and I 

apologize, but it frankly frustrates me. 

Ms. Monson and Mr. Condeluci—I apologize for the pronouncement, sir. 

Mr. CONDELUCI. Quite all right. 

Mr. MITCHELL. Is there some reason there wasn’t some explicit 

language put in place on the joint employer to exclude them or to 

clarify the exclusion so in fact it doesn’t create a further risk as 

being defined as joint employer? Can you help me with that? 

Ms. MONSON. I know that the International Franchise Association has made a request that we have a safe harbor because we do 

not want to have the risk of being deemed joint employers just because there is this valuable affordable quality health care plan 

available, whether it’s through the FASTSIGN sister or whether 

it’s through the International Franchise Association, it’s certainly 

a request we’ve made. 

Mr. MITCHELL. Well, given all the conversation we have had, including with the Secretary of Labor, both here and in meetings 

about the joint employer rule, I am frankly astonished that there 

wasn’t something done in the regulation to in fact address that. I 

don’t understand why and I think by letter I may well participate 

in making a comment on that because I don’t understand why it 

is they didn’t address that. It has been a huge conversation around 

here, yet it is ignored by the Department frankly. 

One more quick question because I know I am going to run out 

of time, but I am going to see if I can use my colleague, Ms. 

Bonamici’s, time. You note, Mr. Condeluci, a potential conflict between potential state law and the redefinition of large group AHPs 

CEWDOCROOM with DISTILLER

85 

by state law saying the small groups are causing issues there. How 

do you propose they resolve that? 

Mr. CONDELUCI. First, the proposed regulations do nothing to 

change state regulation. So therefore, states could, if they so 

choose, enact a law that re-characterizes a large group, a large 

group fully insured AHP, as a small group plan, therefore subject 

to the small group market rules. And there is an argument that 

could be subject to an ERISA preemption challenge. 

And, in addition, there is certain language in ERISA that requires states to impose certain regulation on fully insured MEWAs 

or fully insured AHPs. And a re-characterization law such as this 

is arguably inconsistent with the ERISA statute as it relates to 

regulating fully insured MEWAs as the state level. 

Mr. MITCHELL. Thank you, sir. One quick comment, Mr. Chair, 

is I did review really quickly the letter from the 16 attorneys general opposing this regulation. It won’t shock you to know, Mr. 

Chair, that all 16 attorneys general have explicitly expressed in no 

small manner their support for the current Affordable Care Act, 

such states as New York, Massachusetts, and California. So that 

will state a great deal their rational. 

Thank you, sir. 

Chairman WALBERG. I thank the gentleman for doing your homework. And I recognize the gentlelady from Florida, Ms. Wilson. 

Ms. WILSON of Florida. Thank you. I want to begin by thanking 

our subcommittee Chairman Walberg and Ranking Member Sablan 

for holding today’s hearing. And I would like to thank our witnesses for your testimony and for being here today. I ask unanimous consent to enter into the record a comment letter in response 

to the proposed rule from the American Cancer Society Cancer Action Network. 

Chairman WALBERG. Hearing no objection, and I hear none, it 

will be entered. 

Ms. WILSON of Florida. I strongly believe that if the Department 

of Labor’s proposed rule is to expand association health plans goes 

into effect it would seriously undermine many of the benefits offered under the Affordable Care Act, mainly by weakening consumer protections and shifting cost onto working people. Indeed, 

underlying effects of association health plans limit access to comprehensive health coverage, increase costs for consumers, and 

threaten coverage for people with preexisting conditions. Moreover, 

they leave consumers with even fewer protections against fraud. 

Certainly, without guaranteed coverage for essential benefits 

such as maternity care, mental health treatment, and substance 

use treatment, many people may be left with inadequate coverage 

that neither gives them access to the care they need, nor offers 

adequate financial protection against serious medical conditions. 

And, in fact, the proposed rule goes so far as to explicitly state that 

some association health plans might thrive by delivering savings to 

members by other means, such as by offering less comprehensive 

benefits. 

In addition, these plans would increase cost and threaten coverage for people with preexisting conditions, as healthier and lower 

cost consumers get cheaper plans with less benefits that may not 

meet their health care needs. Association health plans would leave 

CEWDOCROOM with DISTILLER

86 

older, sicker, and higher cost consumers or consumers with preexisting conditions behind in a traditional market with skyrocketing costs, making it outright difficult to obtain coverage. 

I want to ask a few questions of our witnesses. 

Mr. John Arensmeyer, you state in your testimony that because 

most small businesses currently purchase coverage in the small 

group market, it is important to protect the stability of this market. In your opinion, does the proposed rule contribute to stability 

or does it undermine it? 

Mr. ARENSMEYER. We believe it undermines it. And, again, as I 

said before, by removing certain participants in that market who 

are likely to be at a lower risk, thereby leaving higher risk folks 

in the small group market and increasing costs and increasing instability. 

Ms. WILSON of Florida. Under the proposed rule associations tied 

together by the same industry or geographic area can form solely 

for the purpose of offering coverage. This means employers could 

form a new organization for the sole purpose of achieving savings, 

avoiding many of the Affordable Care Act’s consumer protections. 

But what about small businesses and workers that want these protections? If they choose to stay in the traditional market, what 

could the rule mean for them? 

Mr. ARENSMEYER. Well, obviously, if they choose to stay in the 

existing market and you remove lower risk out of the small group 

market, you’re going to end up with higher costs, more instability 

in what’s left and it’s going to jeopardize the protections that they 

have. Again, it’s really about, you know, we welcome competition 

and there’s been a lot of talk about cost reduction. Absolutely, there 

is a lot of need to reduce health care costs in the whole system, but 

at the same time if we’re going to be talking about coverage and 

robust and stable markets, we have to have everybody playing by 

the same rules. 

Ms. WILSON of Florida. What role do you think states should play 

in regulating these health plans? 

Mr. ARENSMEYER. Well, traditionally states have played a very 

significant role in regulating health coverage. And right now it’s 

unclear, and as Mr. Condeluci said, you know, states may believe 

they can still regulate these or re-characterize these groups as 

small group, but there would be a likely challenge under ERISA. 

So it again creates legal instability on top of the economic instability. 

Ms. WILSON of Florida. Mr. Michael McGrew, in its proposal 

DOL speculates that associated health plans will generate substantial inefficiencies that result in cost savings for their members, but 

provides no evidence and no actual numbers to support its assertions. What specific administrative functions will you perform more 

efficiently than an insurer, and what percent savings does that 

yield? 

Mr. MCGREW. Thank you, Madam Congresswoman. I am not an 

insurance expert, but I would say that from the standpoint of the 

National Association of Realtors, if they were given the opportunity 

to provide an AHP plan to our 1.3 million members, we would certainly benefit from the fact that the National Association of Realtors has a robust value proposition to offer the rest of us who are 

CEWDOCROOM with DISTILLER

87 

small, independent, and individual company owners who do not 

have the time and the ability to do the kind of work that you’re 

suggesting. 

Chairman WALBERG. I thank the gentlelady; her time has expired. I recognize the businessman and gentleman from Pennsylvania, Mr. Smucker. 

Mr. SMUCKER. Thank you, Mr. Chairman. Mr. McGrew, your testimony underscores what I heard just recently in a meeting with 

realtors and their association in the district that I represent. I 

think top concern for them was health care. And I think all of them 

in the room, or almost all of them in the room, were covered 

through the individual marketplace and were experiencing the 

kinds of things that we have been hearing here, high cost, prohibitive premium costs, and very high deductibles. 

I know in other situations I have heard individuals who really 

wanted to go into business for themselves but saw the costs of 

health care as a barrier to entry essentially. Are you finding that 

with realtors as well? Are they making decisions not to go into real 

estate because of the cost of health care? 

Mr. MCGREW. Absolutely. There are career decisions being made 

every day based on your ability to get health insurance. And it’s 

interesting to me. The entrepreneurial spirit that is embodied in 

the realtor community is prevalent around the United States as 

well. And why is it that individual sole proprietors that have this 

spirit are discriminated against, if you will, from having the ability 

to access the more affordable health care markets? 

Mr. SMUCKER. That is the way I see it. It was mentioned earlier 

that we want to ensure that everybody can get to play by the same 

rules. And I think, you know, we have seen tremendous opportunities, tremendous prosperity in our country because of unleashing 

individuals’ ability to start a business, to grow their businesses. 

And I was an owner of a large enough business with several hundred employees that could self-insure. First of all, we had a large 

enough pool we could buy our own insurance, but as we continued 

to grow we were able to self-insure. And being able to attract employees from other businesses, the health insurance that we had 

available was often the deciding factor, being able to pull them 

away from another maybe potentially smaller business. So it really 

isn’t a level playing field today, is it? 

Mr. MCGREW. It does not feel like that, no, sir. 

Mr. SMUCKER. And do you find that as well, Ms. Monson? 

Ms. MONSON. I do find it as well that us as small employers don’t 

have the same opportunities to get affordable health care for our 

employees as large employers and labor unions do. And it puts us 

at a competitive disadvantage. 

Mr. SMUCKER. Mr. McGrew, back to the realtors. In the event 

that the Association could put together an AHP, what percentage 

of realtors do you think participate in that? 

Mr. MCGREW. From the standpoint of viewing that as an option, 

I think virtually all of them would. Today 90 percent of our members are covered one way or another, many of them through their 

spouses. If they had the opportunity to see better options that are 

provided from a brand they trust, a brand they already do business 

CEWDOCROOM with DISTILLER

88 

with, the National Association of Realtors, I believe many of them 

would seriously consider that as an option. 

Mr. SMUCKER. Ms. Monson, one of the things that I have noticed 

as well is that small businesses, particularly businesses under 

maybe ten employees, have just simply given up on being able to 

provide health care for their employees. The employees go to the 

individual marketplace and then are faced with the kind of high 

cost that we are seeing. Are you finding that with your franchisees 

as well? 

Ms. MONSON. Yes, I am. I find that with our FASTSIGN 

franchisees. And also, on a recent survey that the International 

Franchise Association conducted with its 733,000 other franchise 

location members, 65 percent don’t provide health coverage, primarily because of the cost. But then, when they were asked the follow-up question, if quality affordable insurance was available 

through say an IFA AHP or some other AHP—and let me just clarify, IFA is a bona fide association. This is not a fly by night deal, 

we are not looking to make a quick buck by getting into the association health plan market, this is about taking care of our members and our members’ employees. We have a fiduciary responsibility, we care about our brand. We would never do anything to 

hurt our brand. So when I hear accusations that it’s fly-by-night, 

that we’re just going to put something together to make a quick 

buck, nothing could be further from the truth. And in that survey 

of our members, 100 percent say they would be looking forward to 

offering that quality, affordable health care coverage through an 

AHP. 

Mr. SMUCKER. Thank you. 

Chairman WALBERG. I thank the gentleman and I recognize my 

friend from Connecticut, Mr. Courtney. 

Mr. COURTNEY. Thank you, Mr. Chairman. And as long as we are 

all doing homework around here, I just would note that the letter 

that was submitted from the National Association of Insurance 

Commissioners that made a forceful argument for retaining regaining state authority over the operation of MEWAs and these association health plans was actually a very bipartisan letter. We have 

the Commissioner of the Tennessee Department of Insurance, as 

well as the South Carolina Department of Insurance who signed 

this letter. And, again, I would ask that it be added to the record. 

Chairman WALBERG. It has been already, and duly noted, and 

Mr. Mitchell and Dr. Roe will probably want to discuss that with 

you. 

Mr. COURTNEY. Well, again, I think, you know, these are the 

folks who are closest to this issue on the ground. And they talk 

about the fact that, you know, these plans have been plagued by 

insolvencies. That is quote, unquote in terms of the letter that they 

submitted. And, again, they raised a whole series of questions because, frankly, the Department has been very kind of slippery in 

terms of just, you know, what is going to be the lines of authority 

here, as was stated by some of the other witnesses. And because 

of that, they say at a minimum this rule should be put off until 

2020, until we get to a really clear understanding of this. 

I would just say, you know, to Mr. Condeluci, that, you know, the 

track record of U.S. DOL in terms of enforcing pension problems 

CEWDOCROOM with DISTILLER

89 

that, again, is their jurisdiction since ERISA was passed, is very, 

very spotty. And we have had casework in my office where we have 

struggled, even under the Obama administration, in getting actually help for people in terms of pensions. So the notion that, you 

know, not to worry, you know, that the U.S. Department of Labor 

is going to have jurisdiction over 311 million people in this country 

with, you know, all the other authorities that they have to do and 

take it away from the folks in the attorneys general’s offices or the 

insurance commissioner’s office, in my opinion is really a very risky 

proposition. And, again, we have amply experience to show that 

really is not, in my opinion, the way to go given, again, the real 

empirical history that we know about in terms of association health 

plans. 

Now, we have heard some conversations here about the fact that, 

you know, we really should give people the option for the catastrophic coverage. Mr. Lewis talked about that earlier. 

Again, Mr. Arensmeyer, you know, I actually just had a hip surgery eight weeks ago and, you know, after one night in the hospital 

it was, you know, get out of here, because, as we know, health care 

has shifted outside of hospitals now. I mean the notion that the old 

days of catastrophic coverage—actually, that was where the majority of health care was delivered, you know, back in the ’60s and the 

’70s, in the heyday of catastrophic coverage. The essential health 

benefits, which was part of the Affordable Care Act, was grounded 

in the Institute of Medicine going out and analyzing, you know, 

what is health care, you know, where is it delivered. And that is 

really what was sort of the structure in terms of making sure that 

people are going to get the necessary care that they need. 

And catastrophic plans, which just take care of hospitalization, 

that doesn’t work in the 21st century. And I was wondering if you 

could comment on that. 

Mr. ARENSMEYER. Well, absolutely. And I want to echo what the 

Ranking Member said, that the way we’re going to—first of all, the 

ACA needs some fixes. I mean we’re the first to argue that. But 

we need to do this on a common ground, working together with a 

common risk pool, with common rules of the road. And if you start 

to sort of Balkanize or break off different pieces of the market it 

makes it much harder. 

Essential health benefits not only were put in place to cover, you 

know, what was generally perceived among professionals to be stuff 

that should be covered, there also was a common set of rules. And, 

again, to say it again, Mr. Condeluci said the small group market 

as a result doesn’t have a lot of price differences in it because of 

that. So we would absolutely—we want to see more competition, we 

want to see fixes made to the Affordable Care Act, but we want 

that done with a common set of rules. 

Mr. COURTNEY. Thank you. And, again, as a small employer myself before I was elected to Congress ten years ago, and saw what 

was happening to age rating pre-Affordable Care Act, I mean every 

time I had an employee who hit the age of 50 their rates went 

through the roof because age rating was about six to one back then 

under the market. The ACA contracted that down to three to one. 

And, again, I wasn’t here earlier, but I just want to reinforce that 

point. We are opening the door here now to age rating, which I 

CEWDOCROOM with DISTILLER

90 

have a lot of realtor friends back home, I mean they tend to be, 

you know, folks in their 50s and up and they tend to be frankly 

more women. And, you know, gender rating and age rating, you are 

reintroducing that. You know, careful what you ask for. 

And I would just note again, lastly, that there are 652 operating 

association health plans in this country right now, so this is not 

like the ACA posed some existential threat to association health 

plans, they are out there and they are working. The question is 

how are they going to be organized. And we want to make sure 

that people get the care that they need in 21st century terms, not 

20th century terms. And we also want to make sure that the benefits are going to be fair in terms of how they are allocated. 

With that, I yield back. 

Chairman WALBERG. I thank the gentleman. And now I am privileged to recognize the gentleman and hero from South Carolina, 

Mr. Wilson. 

Mr. WILSON South Carolina. And thank you very much, Chairman, Tim Walberg. I appreciate your leadership to promote positive health care, to address that Obamacare has destroyed 300,000 

business jobs and forced 10,000 small businesses to close. 

And, Mr. McGrew, thank you for your testimony on behalf of the 

National Association of Realtors. As a former real estate attorney 

myself and a grateful dad of a realtor, I appreciate your service on 

the executive committee and board of directors of the Association. 

You mentioned in your testimony that many of your real estate 

agents serve as independent contractors. Can you explain the system in the real estate industry and elaborate on the advantages 

that operating as an independent contractor provides for real estate 

agents and for the agencies they work? 

Mr. MCGREW. Thank you, Mr. Congressman. Yes, independent 

contractors are a notion that not everyone understands. When you 

have the opportunity to make a living with the least number of restrictions on the way that you do your business, that is the spirit 

that most independent contractors, certainly realtor independent 

contractors bring. They want that opportunity to build their own 

brand within the confines of the required supervision that companies like mine provide for them, but they can build their own business with a minimum of interference. And that’s the good news. 

The bad news is, as I mentioned in my testimony, it’s an eat 

what you kill business. They have to have something to hunt and 

we do not guarantee them a paycheck. 

Mr. WILSON South Carolina. Well, I just want to point out, too, 

as Mr. Courtney, that we appreciate realtors in our community. 

They are leaders in the Chamber, the Rotary Club, the Lions Club, 

wherever you need a volunteer, there are realtors. So thank you 

very much for such professionals. 

Mr. MCGREW. Thank you. 

Mr. WILSON South Carolina. And, Ms. Monson, I want to thank 

you for being here today too on behalf of the International Franchise Association. Your organization is appreciated for providing 

entry-level jobs leading to extraordinary achievement for workers. 

What a great opportunity to provide for young people in particular 

to achieve. 

CEWDOCROOM with DISTILLER

91 

You mentioned that the recently proposed rule to allow small 

businesses to band together to help lower cost, create greater flexibility, increase access, and reduce administrative expenses. You 

noted that many of the same principles have allowed the franchise 

model to be successful, having franchising especially suitable to the 

formation of association health plans. You say ‘‘franchising is perfectly built for AHPs.’’ Can you explain how the franchise model 

utilizes its distribution communication and business practices that 

would complement an association health plan? 

Ms. MONSON. Yes. Thank you very much. So if we take a look 

at just what FASTSIGNS International does for its franchisees, 

with over 600 locations in the United States and then another 30 

in Canada, and in other countries as well, when we look at the supplies that they use every day, we negotiate with vendors. Because 

of the volume purchases, we get lower prices. Even for services like 

payroll processing, we have an amazing rate with some of the payroll processing companies, giving our franchisees lower cost compared to their independent competitors. And we do that with equipment, supplies, services, everything that a franchisee in our business would need. We have that expertise, we have a supply chain 

group that focuses just on lowering costs for franchisees through 

negotiating. 

Likewise, the International Franchise Association could do the 

same, bringing that same knowledge and expertise of franchising, 

of group buying power, and negotiating. And so we are very confident that we can bring the cost down and compete for the same 

quality coverage that large companies and unions have, at a lesser 

price using that supply chain negotiating skill and experience. 

Mr. WILSON South Carolina. And, again, I appreciate franchises. 

On Sunday, I was at a Wendy’s and I couldn’t believe how hardworking the people were as they were confronted with a baseball 

tournament at a next door park. A line as far as you could see. And 

then a bus full of Chinese tourists in West Columbia, South Carolina. And the people behind the counter had a smile the whole 

time, which was startling. 

And then, Mr. Condeluci, in your written references to the 2011 

guidance by the Department of Health and Human Services prohibiting forming a fully insured large group plan. What impact did 

this have on association health plans? 

Mr. CONDELUCI. I first want to set the record straight that when 

I said that small group plans typically have uniform prices, that’s 

based on the fact that there are uniform rules within a particular 

market. But different state, small group markets vary widely, so 

costs vary widely. And relative to the large group market, small 

group market costs are much higher. So I just want to set the 

record straight because Mr. Arensmeyer continues to point out the 

point that I had made earlier. So I just want to clarify that point. 

Sir, to your question, thank you very much for that. The 2011 

guidance had an adverse effect on employer-run organizations like 

local chambers of commerce and otherwise who are offering fullyinsured association health plans. It essentially blew up their plan. 

They had a choice to either discontinue their plan or shift to a selfinsured plan because the guidance required the insurance company 

to look through the association, the underlying size of the group, 

CEWDOCROOM with DISTILLER

92 

to apply the ACA’s new market reforms. And that had an adverse 

impact and discouraged these employer-run organizations offering 

these plans. And that is the adverse effect that the 2011 guidance 

had on those fully insured arrangements. 

Mr. WILSON South Carolina. And thank you all for being here 

today. 

Chairman WALBERG. I thank the gentleman. I want to at this 

time thank the panel for your competency and your commitment to 

presenting your case in the real worlds that you live in. So thank 

you for taking the time to be with us today. 

So at this point I would ask my friend and colleague from Delaware, Ms. Blunt Rochester, for your closing comments. 

Ms. BLUNT ROCHESTER. Thank you, Mr. Chairman. I want to 

first thank the Chairman and the witnesses for your testimony. 

Ms. Monson made a comment about caring about the brand and 

also about our people. And that is evident by the fact that you are 

all here on this panel. I think one of the challenges that we face 

as lawmakers, and the same with our attorneys general across the 

country, and our insurance commissioners, is that we are protecting folks because of folks that are not in this room, that do not 

care as much as you do, which reminds me of a clarification that 

we would like to share on the letter that Mr. Courtney referenced. 

It was not a duplicate, it was actually from the National Association of Insurance Commissioners. So we would like to submit that 

letter on his behalf. 

Chairman WALBERG. Without objection, I hear none, it will be 

submitted. 

Ms. BLUNT ROCHESTER. Thank you. And I opened this hearing by 

noting the eighth anniversary of the ACA, and just a reminder of 

the progress that we have made in ensuring that more Americans 

have access to affordable, comprehensive coverage. This anniversary also serves as a call to action to strengthen the ACA and to 

do more to increase access to coverage. Instead, it feels like we are 

again defending the health care system. And at the latest, we are 

now attacking this from the small business owners and their employers’ perspective, their employees. 

I just want to be clear that I fully support small business owners, 

both in my home state of Delaware and across the country. Small 

businesses are the driving force of our economy and it is critical 

that we work to ensure that owners have the resources they need 

to build thriving businesses of their own. 

That is why I am deeply concerned about the potential impact of 

this proposed rule on small businesses and their workers. There is 

no doubt that the expansion of the association health plans as proposed under the rule would needlessly expose hardworking small 

business owners and their workers to inadequate coverage and out 

of pocket expenses. Many of the over 900 comment letters from 

legal experts and consumer advocates that were submitted to the 

Department have been mentioned here today, and many of these 

comments raised concerns that the proposed rule could destabilize 

the state regulated individual and small group markets, leaving 

consumers with less comprehensive coverage, undermining state’s 

authority to regulate health insurance markets and protect conCEWDOCROOM with DISTILLER

93 

sumers, and exposing small businesses and workers to fraud and 

insolvencies. 

As you are aware, there are serious doubts as to the Department 

of Labor’s legal authority to make the policy changes envisioned in 

this proposed rule. Mr. Condeluci in his testimony characterized 

the rule as changes to the law. 

If we want to help small businesses and their employees we 

should not advance a rule that would leave them with insufficient 

coverage that renders them unable to access vital health services, 

such as mental health treatment, maternity care, and substance 

use disorder treatment. 

I do think the Committee would benefit from the opportunity to 

hear from the Department of Labor on this rule and I will look forward to working with Chairman Walberg to make that happen. 

In the meantime, I think our time would be better spent talking 

about efforts to strengthen the Affordable Care Act and increase access to affordable, comprehensive health coverage. 

I yield the remainder of my time. 

Chairman WALBERG. I thank the gentlelady. And, again, this 

hearing has been just that, a hearing opportunity to have ideas and 

concerns raised to give us a better opportunity to address. Yes, 

eight years of the Affordable Care Act is coming to fruition. During 

the course of all of those eight years since the Affordable Care Act 

was passed in a non-bipartisan fashion and pushed through, we 

have had to deal with it. And multiple times, in fact, we have reformed portions, repealed portions that didn’t work in the Affordable Care Act, and have done that to a great degree in a bipartisan 

fashion, with even President Obama signing some of those changes. 

We did pass in the House very significant comprehensive reform, 

to a great extent to repeal. We did our work on that. We continue 

to address concerns, and this indeed is one of those areas that we 

have to work toward. 

As I listened today to the panel, it just reinforced my memory on 

the fundamental strength of this country that was developed as a 

result of small businesses, entrepreneurial efforts, people who took 

risks to provide goods and services to our developing nation that 

brought about a financial system, a finance system that was enabled to assist businesses, small businesses, entrepreneurs, in 

starting out their life and the opportunity to succeed in this great 

new formed country, which had an idea never before tried in the 

world. Doggonit, we have been pretty successful, haven’t we? And 

I think our process is to continue that and to find means by which 

we can encourage, not simply corporations—and we love that, certainly in Michigan—but the auto industry and many other large 

corporations that have helped this country be what it is. We still 

go back to those small businesses, business men and women who 

take that risk and want to move forward, who don’t want to be a 

part of a large corporation necessarily, but I would also state, want 

to acquire a workforce that makes them successful. And in this day 

and age, unlike not all that far back, there are communication 

abilities that allow individuals to know what is working and what 

will work better for them in another business opportunity. And so 

the competition has been ramped up. 

CEWDOCROOM with DISTILLER

94 

And I think it is a moral obligation for us to be as least restrictive as possible with the basic preventative and protection requirements still put in place, yes, but least restrictive to allow these entities as well, small businesses, to compete on as level of a playing 

field as we can make it, by allowing them to offer and afford to 

their employees an equal opportunity to have the most important 

care that they feel for themselves, and that is health care, brought 

to them in a least restrictive way, in the fullest possible way. 

And so that is the purpose of this hearing today. I think the 

issue will go on. I think we will continue to discuss it. We certainly 

want to hear from the Department of Labor. We want to know that 

they are doing good work to make sure that our people back in our 

Districts have that good work made available to them to continue 

to advance, to care for their employees, and to do it in the best way 

possible. 

So, again, I thank you for our Committee’s efforts, I thank the 

panel for being here today. But with no further agenda before the 

Subcommittee today, it stands adjourned. 

CEWDOCROOM with DISTILLER

95 

[Additional submission by Ms. Blunt Rochester follows:] 

CEWDOCROOM with DISTILLER


Insert offset folio 55 here 28982.055

National Association of 

Insurance Commissioners 

March 6, 2018 

&11;CENTEJ{ 

for INSURANCE . POLICY 

twd RESEARCH 

Office of Regulations and Interpretations 

Employee Benefits Security Administration 

Room N-5655 

U.S. Department of Labor 

200 Constitution Avenue N.W. 

Washington, DC 20210 

Attention: Definition of Employer-Small Business Health Plans RfN l210-AB85 

To Whom It May Concern: 

Thank you for the opportunity to comment on the proposed regulation, "Definition of 'Employer' Under Section 

3(5) of ERISA--Association Health Plans" (83 Fed. Reg. 614 (Jan. 5, 2018)) (AHP Proposed Rule), which 

expands the criteria under ERISA for determining when employers may join together in an association that is 

treated as the ERISA "employer" of a single, multiple employer group health plan. We write as the chief 

insurance regulators of our respective states and members of the National Association of Insurance 

Commissioners. 

Before turning to our specific comments on the proposed regulation, we think it is helpful to provide some 

experiential context as insurance regulators. As you know, states have a long history of regulating insurance in 

general and Multiple Employer Welfare Arrangements (MEW As) in particular. MEW As have had a colorful and 

troubling history since the enactment of ERISA in 1974. While the promise of MEW As has always been to give 

small employers access to low cost health coverage on terms similar to those available to large employers, that 

promise has never been the reality for a number of reasons. 

Prc-1983, MEW As were plagued by insolvencies. Opportunistic third party promoters saw MEW As as profitmaking opportunities. They claimed ERISA preemption of state laws, whether or not the MEWA was a 

legitimate ERISA plan. MEW A promoters took advantage of the regulatory void and made money at the expense 

of their participants. These insolvencies, whether through malice or incompetence, resulted in significant sums of 

unpaid claims and the loss of health insurance for participants. In 1983, in response to these troubling market 

conditions, Congress enacted the Erlenbom-Burton Amendment to save state regulation from ERISA 's 

preemption and deemer provisions. Congress recognized that it was both necessary and appropriate for the states 

to be able to establish, apply and enforce state insurance laws with respect to MEW As. 

Nevertheless, even after the 1983 ERISA Amendments expressly established that state regulation of MEW As was 

not preempted, MEW A promoters and others continued to create confusion and uncertainty by falsely claiming 

ERISA coverage and protection from state regulation under ERISA's preemption provisions. The U.S. 

Department of Labor (DOL) recognized that this confusion did not serve consumers. as outlined in the current 

AHP Proposed Rule preamble. 

Notably, fraud and abuse have not been the only issues with MEW As. Even weB-intentioned non-fully-insured 

MEW As have been notoriously prone to insolvencies. Keeping the cost of coverage low tends to be the primary 

focus of MEW As. In the past, some MEW As became insolvent simply because the MEW A did not want to raise 

rates for its member employers and their employees. Solvency is also a challenge for MEW As under the best of 

circumstances because they are, by their very nature, an unstable risk pool. They do not have the consistency of 

membership like a true large employer. 
96 

CEWDOCROOM with DISTILLER


Insert offset folio 56 here 28982.056

March 6. 2018 

Page 1 

With this historical contest. we turn to the proposed regulation. The DOL and the NAIC share the same goals 

providing affordable options for consumers. while ensuring markets remain stable and consumers are protected. 

It is panicularly important that the federal rule. as it is implemented, not threaten the states' ability to enforce 

existing laws or enact laws in the future that regulate insurance. States remain in the best position to monitor 

closely what is happening in their insurance markets and have the tools in place to respond quickly to any issues. 

The AHP Proposed Rule clearly and rightly contirms that Association Plans created under the new rules are still 

MEW As and are fully regulated by the states (largely indirectly in the case of fully-insured MEW As; directly in 

the case of non-fully-insured MEW As). The provisions in ERISA that preserve state regulatory authority over the 

MEW A and the plans it may purchase are not modified in this proposed rule and. therefore. existing state 

authority is not changed. 

However. some entities have commented that the revisions proposed by DOL to the definition of employer could 

create ambiguity regarding the ability of states to regulate MEW As: both MEW As that are not fully insured, and 

the insurance products offered to MEW As that are fully insured. To avoid potential confusion, and lawsuits, we 

recommend that DOL affirm in the final AHP Rule that these changes in no way limit the ability of states to 

regulate ME WAs, insurers offering coverage through MEW As. and insurance producers marketing that coverage 

to employers. 

Therei(lre. we encourage you to conttrm that states retain full authority. as recognized by the Erlenborn-Burton 

amendment to ERISA. to set and enforce solvency standards for all MEW As, and comprehensive licensure 

requirements and oversight lor non-fully-insured MEW As. The states' authority over non-fully-insured MEW As 

includes benetit, rating and consumer protection standards, and laws specifying who is eligible to apply for 

licensure. We also encourage you to affirm that states retain full authority under ER!SA's saving clause to 

regulate the terms of the insurance coverage that may be offered to fully insured MEW As. 

Given that bad actors have historically used any ambiguity regarding ERISA preemption as a shield to challenge 

state oversight and defraud consumers, it is critical that the t[nal rule dispel any questions. 

In addition to our overarching concerns, we provide the tOll owing comments: 

Coordination between DOL and State Insurance Departments -· It is critical that the DOL focus 

ct1orts and resources on coordination with state insurance departments. The NA!C has enjoyed a longstanding cooperative relationship with the DOL. especially with respect to MEW As. In the past, the DOL 

and states have worked together to identify bad actors and support the coordinated use of state and federal 

tools to prevent harm to consumers. We trust that this relationship will continue and look forward to 

renewed coordination with DOL to make sure that this expansion of AHPs doesn't lead to a new era of 

fraud. Jbuse and insolvencies that ultimately harm consumers. 

Exception for certain not fully insured MEW As - Consistent with our desires to coordinate with the 

DOL and avoid repeating the troubled history of ME WAs. we strongly caution against an exception from 

state law tor cet1ain not fully-insured MEW As. Granting such exceptions without first assembling all the 

resources and expertise necessary to carry out the regulatory functions currently exercised by the states 

would ignore the reasons (detailed above) for the preservation of the state regulation of MEW As under 

current law. 
97 

CEWDOCROOM with DISTILLER


Insert offset folio 57 here 28982.057

i'v1an::h 6. 2018 

Page 3 

Region not to Exceed State or Metropolitan Area The AHP Proposed Rule allows an AHP to satisfy 

the commonality requirement if its members have a principal place of business within a region that does 

not exceed the boundaries of the same state or metropolitan area. We suggest that DOL deline a 

metropolitan area consistent with detinitions developed by the Ot1ice of Management and Budget and 

used by the census bureau and other federal agencies. We are also concerned that the DOL commonality 

requirement does not include a deli nit ion of region. Without clear guidelines, an AHP could define a 

region or a metropolitan area to avoid areas that are less affluent and, therefore, more likely to have 

chronic health problems. States should continue to have the authority to set required service areas. 

Working Owners·- The AHP Proposed Rule extends the ability to join an AHP as an employer and as an 

employee to ··\vorking owners'" and requests comment on whether the rule should use different criteria 

than the number of hours of service per week or month or income that at least equals the cost of coverage. 

We suggest that the DOL should limit vvorking ovvners to individuals who can substantiate the claimed 

income or work hours through tax filings as selkmployed individuals or members of partnerships under 

the Internal Revenue Code (IRC). Using the IRC definition would ensure, consistent with the stated 

intent of the NPRM, that "working owners'' who join an Af-IP arc genuinely engaged in a trade or 

business and are perfOrming services for the trade or business in a manner that is in the nature of an 

employment relationship. 

Nondiscrimination -The AHP Proposed Rule requests comment on the nondiscrimination provisions. 

\Ve agree that nondiscrimination provisions are critical to preventing outright adverse selection against 

the individual and small group markets in a state. However, Af!Ps could also use benefit designs, 

membership requirements or dues structures to discriminate against employers with higher cost 

employees. This is another example of why it remains critical for states to be able to continue to regulate 

in this area. 

Notice Requirements - The AHP Proposed Rule asks for comment on whether there should be 

additional notice requirements to ensure that employers. their employees and beneficiaries are adequately 

informed of their rights and responsibilities with respect to AHP coverage. We support robust notice 

requirements; however, DOL must be sure to coordinate with the states on the contents of the notices to 

avoid confusion and undue administrative costs. 

Timing The DOL should postpone the effective date of the rule to 2020 to give stales time to review 

their rules and regulations and facilitate a smooth transition. 

Thank you for this opportunity to comment, and for the eftorts of Secretary Acosta and DOL leadership to engage 

with us constructively on this proposaL We are available to discuss these or other issues as the AHP Proposed 

Rule is finalized. 

Sincerely, 
98 

CEWDOCROOM with DISTILLER


Insert offset folio 58 here 28982.058

March 6. 20 18 

Page 4 

~ ~ Ytdu«. 

u 

Julie Mix McPeak 

NAIC President 

Commissioner 

Tennessee Depm1ment of 

Commerce & Insurance 

Raymond G. Farmer 

NAIC Vice President 

Director 

South Carolina Department of Insurance 

Eric A. Cioppa 

NAIC President-Elect 

Superintendent 

Maine Bureau of Insurance 

Gordon LIto 

NAIC Secretary-Treasurer 

Commissioner 

Insurance Division 

Hawaii Department of Commerce 

and Consumer Affairs 
99 

[Additional submission by Ms. Bonamici follows:] 

CEWDOCROOM with DISTILLER


Insert offset folio 59 here 28982.059

Real Possibilities 

March 6, 2018 

Secretary R. Alexander Acosta 

United States Department of Labor 

200 Constitution Avenue, NW 

Washington, DC 20120 

Re: RIN 1210-AB85 

601 E Street, NW Washin9ton, DC 20049 

202-434-2277 • 1-888-0UR-AARP 1-888-687-2277 TfY: 1-877-434-7598 

WNW aarp.org twitter @aarp facebook.com/aarp ; youtube.com/aarp 

Submitted electronically via regulations.gov 

Dear Secretary Acosta: 

AARP, with its nearly 38 million members in all 50 States and the District of Columbia, 

and US Territories, is a nonpartisan, nonprofit, nationwide organization that helps 

people turn their goals and dreams into real possibilities, strengthens communities and 

fights for the issues that matter most to families such as healthcare, employment and 

income security, retirement planning, affordable utilities and protection from financial 

abuse. 

We appreciate the opportunity to comment on the Department of Labor's (Department) 

proposed rule that would expand the availability of association health plans (AHPs) by 

expanding the definition of "employer" under section 3(5) of ERISA We write to express 

our concerns that the proposed rule's expansion of AHPs could put consumers at risk of 

fraud and abuse, preempt state consumer protections and oversight of these insurance 

products, and greatly increase the likelihood that working Americans, especially those 

age 50-64, would face higher insurance premiums and loss of access to critical health 

insurance coverage. 

AARP has long raised concerns with the lack of protections and benefits for consumers 

under AHPs, specifically since AHPs increase the fragmentation of risk pools, which 

drive up the costs for older Americans 1. With the passage of the Affordable Care Act 

(ACA), consumers in both the individual and small group markets were guaranteed a 

basic set of benefits and protections, including the prohibition on discrimination in 

coverage based on preexisting conditions and limitations on pricing based on age, as 

well as access to essential health benefits (EHBs). We have serious concerns that the 

'AARP letter to Sen. Enzi on 5.1955, March 7, 2006 
100 

CEWDOCROOM with DISTILLER


Insert offset folio 60 here 28982.060

Department's proposed rule is a step backwards and will once again subject consumers 

unaffordable costs and to inadequate health insurance coverage. 

Our biggest concerns are that, as a result of this proposal, older Americans in the 

existing small group market will see much higher costs. Specifically, the proposed rule 

would not apply the ACA's 3:1 age rating to AHPs. Prior to enactment, health insurers 

were allowed to discriminate against older workers and charge small businesses in 

some cases ten times higher for older workers than younger workers, effectively 

rendering coverage inaccessible for small businesses with older workers. The 3:1 age 

rating in current law is already a compromise that requires older Americans to pay three 

times more than younger individuals for health insurance coverage that protects older 

workers from being charged exorbitantly higher premiums than other people based 

solely on age. 

Not only is AARP concerned about significantly higher insurance costs for older adults, 

but we are also concerned about the Department's lack of ability to police these new 

plans. Currently. the Department employs 400 investigators to monitor over 5 million 

plans2 The Department acknowledges that AHPs have had a history of fraud and 

abuse, and yet has no significant additional resources to assure that fraud will be 

minimized. For those employees who find out that their hard earned money is not there 

when they need health insurance coverage. this can only add to the stress when they 

are dealing with an illness. 

Moreover, the Department's proposal lacks empirical analysis on the impact of AHPs in 

the current small group market. We are very concerned that the proposed rule's own 

impact analysis concedes a great amount of uncertainty in the impact of this rule on 

consumers. stating that while "the impacts of this proposed rule, and of AHPs 

themselves, are intended to be positive on net, the incidence, nature and magnitude of 

both positive and negative effects are uncertain." 

Alternatively, we are supportive of the 2011 AHP guidance from the Centers for 

Medicare & Medicaid Services (CMS) that holds 'in most situations involving 

employment-based association coverage, the group health plan exists at the individual 

employer level and not at the association-of-employers level. In these situations, the 

size of each individual employer participating in the association determines whether that 

employer's coverage is subject to the small group market or the large group market 

rules." This ensures that employees in the small group market are afforded protections 

in the ACA that prevent discrimination based on age and preexisting conditions. We 

encourage the Administration to maintain the view that employment based coverage be 

based on size alone. This would ensure that the ACA's consumer protections - most 

importantly the 3:1 age band and protections against preexisting condition 

discrimination -remain intact for small group coverage. 

Consumer protections in health insurance markets are critical to ensuring that 

consumers can rely on the coverage they purchase and that rt is there when they need 

z F:Kt Sheet, Efi5A Nestores $1.l Rillion to Employee Benefit Plans, goo.gljrQm7U6 

2 
101 

CEWDOCROOM with DISTILLER


Insert offset folio 61 here 28982.061

it The proposed rule itself provides examples (§2510.3 (d)(5)) that demonstrate the 

complexity of the proposal and the ability- despite the application of ERISA and HIPPA 

nondiscrimination standards- for discrimination based on a pre-existing condition in 

AHPs. The nondiscrimination standards that DOL relies upon are inadequate to 

providing meaningful consumer protection for older adults and people with pre-existing 

conditions. While an older worker may not be denied coverage outright based on their 

age or pre-existing condition, the proposed rule would allow AHPs to be formed and 

designed in such a way that would once again allow discrimination based on a preexisting condition and higher costs for small employers that employ older workers. 

Accordingly, AHPs would attract and meet the needs only for a healthier pool making 

this coverage option unaffordable for employers with an older workforce and/or workers 

that have pre-existing conditions. 

In addition, the Department requested comments on the types of consumer protections 

and disclosures that would be needed as part of any final AHP regulation. AARP 

strongly believes that DOL should clearly affirm that both the employer and AHP are 

fiduciaries with all of the attendant obligations that ERISA fiduciary duties include. The 

rule should make clear that employers must prudently select and monitor AHPs. The 

rule also must make clear that the AHP is required to serve as a named fiduciary. 

Given that AHP members are likely to be small employers, the AHP should be required 

to provide advance disclosure to employers of all fees and services, insurance 

contracts, and employer legal obligations under the contract DOL also should make 

clear whether employers or the AHP will provide all required notices to participants and 

beneficiaries and DOL. Participants and beneficiaries should be provided 

understandable disclosure of the role of the AHP, all plan benefits and charges, and any 

penalties that may occur for employer, participant or beneficiary non-payment of 

premiums. If the AHP files the Form 5500, then the names and addresses of all 

participating employers must be included and searchable by employer name on the 

DOL website. 

While the proposed rule asserts that AHPs may provide a useful service by helping 

small employers find insurers or pool administrative services and some risks, this 

proposal fundamentally undermines the quality, affordability, and availability of health 

insurance. Permitting an employer to contract for limited benefits will place a massive 

burden on older workers and their families every time a beneficiary develops a major 

illness such as cancer and finds out it is not covered. Current law requires employers to 

provide coverage that includes the EHBs. We cannot afford to take a step backwards 

and expose more Americans to unaffordable costs and inadequate health insurance 

coverage. 

Once again, we thank you for the opportunity to comment on this proposed rule. If you 

have any questions, please do not hesitate to contact Brendan Rose on our 

Government Affairs staff at 202-434-3770 or brose@aarp.org. 

3 
102 

CEWDOCROOM with DISTILLER


Insert offset folio 62 here 28982.062

Sincerely, 

/J 7 /4 ~~~z i;_-\::1--

David Gertner 

Legislative Counsel and Legislative Policy Director 

4 
103 

[Additional submission by Mr. Espaillat follows:] 

CEWDOCROOM with DISTILLER


Insert offset folio 63 here 28982.063

Attorneys General of New York, Massachusetts, California, Connecticut, 

Delaware, District of Columbia, Hawaii, Illinois, Iowa, Maine, Maryland, New 

Jersey, New Mexico, Oregon, Pennsylvania, Vermont, Virginia 

Via Federal eRulemaking Portal 

Director Joe Canary 

Office of Regulations and Interpretations 

Employee Benefits Security Administration 

U.S. Department of Labor 

200 Constitution Ave., NW, Ste. N-5655 

Washington, DC 20210 

March 6. 20 I 8 

Re: Comments on Proposed Rule: Definition of''Employer'' Under Section 3(5) of 

ERISA Association Health Plans. 83 Fed. Reg. 614 (Jan. 5, 2018), RIN 121 OAB85: Request for a Public Hearing 

Dear Mr. Canary: 

The undersigned State Attorneys General submit these comments to oppose the 

Department of Labor's Proposed Rule: Definition of "Employer" Under Section 3(5) of ERISA 

Association Health Plans. 83 Fed. Reg. 614 (proposed Jan. 5, 20 18) (to be codified at 29 C.F.R. 

pl. 251 0) ("Proposed Rule"). The Department of Labor (''Department" or ''DOL") proposes to 

expand the criteria for determining when employers may join together in an association to 

purchase health coverage, allowing individuals and small employers unprecedented ability to 

group together as an association in order to exempt them from many of the Affordable Care Act 

("ACA '') protections that currently apply to individual and small group plans (including essential 

health benefit coverage and premium restrictions based on race and sex). These changes would 

increase the risk of fraud and harm to consumers; would undermine the current small group and 

individual health insurance markets; and are inconsistent with the text of the Employee 

Retirement Income Security Act ("ERISA") and the ACA. 

Association Health Plans ("AHPs") have a long and notorious history of fraud, 

mismanagement. and deception. Over decades, Congress has legislated including through 

ERISA and the ACA- to protect health care consumers from this fraudulent conduct. The 

Proposed Rule would reverse many of these critical consumer protections and unduly expand 

access to AJ-!Ps without sufficient justification or consideration of the consequences. Because 

the Proposed Rule is an unlawful attempt to accomplish by executive rulemaking changes in law 

and policy that lie within the power of Congress and that Congress has refused or tailed to 

adopt we urge that the Proposed Rule be withdrawn. In addition, in light of the significant 

impacts this proposal would have on the States' consumers, health care markets, and 
104 

CEWDOCROOM with DISTILLER


Insert offset folio 64 here 28982.064

enforcement resources, we request that the Department hold a public hearing to receive input 

from atlectcd stakeholders before any regulatory changes are finalized. 1 

I. Background 

Section 3(5) of ERISA defines "employer'" as ''any person acting directly as an employer, 

or indirectly in the interest of an employer. in relation to an employee benefit plan; and includes 

a group or association of employers acting fbr an employer in such capacity.'" 29 U.S.C. § 

I 002(5). ERISA allows an "association of employers" to manage employee benefit plans 

offering health insurance. To protect these associations from becoming mere commercial 

insurance arrangements that serve only a profit motive instead of operating as legitimate 

employer/employee health benefit plan arrangements as ERISA intended- the Department has 

consistently required that members of such associations consist of a ''bona tide"' group of 

employers with a high degree of common interest, or '"commonality of" interest .. , beyond solely 

purchasing or offering health insurance. The association's employer members must also 

themselves exercise "control, .. both in form and substance, over the activities and operations of 

the employee welfare benefit plan. 

The Proposed Rule largely eliminates these current requirements, and instead would 

allow any group of employers in the same industry or the same geographic area to form 

employer associations under ERISA, even if their sole purpose is simply to purchase health 

insurance. In short, the Proposed Rule would make three substantial changes: 

I. Eradicate longstanding ERISA definitions such that associations may form solely for 

the purpose of purchasing or providing health plans if the employers are in the same 

industry or the same geographic region; 

2. Deem selt~employed individuals to be both employers and employees such that they 

can participate in employer associations; and 

3. Allow most associations to be single, large employers such that they may evade many 

i\CA requirements (now imposed on small group and individual plans). 

These changes would vastly expand the ability of AHPs to form in ways that would result in 

fewer protections for our citizens, increased fraud within our borders, and destabilization of our 

individual and group markets. 

1 See. Conflict ~f Interest Rule·-

Retirementlnn.:stment Advice 80 Fed. Reg. 34,869 (June 

18. 20 15) (scheduling a four-day public hearing August 20 I 5 to consider issues related to the Department's 

proposed conflict of interest rulemaking under FRISA); U.S. Dep 't of Labor, Hearing on Dejinition of .. Fiducimy · 

76 Fed. Reg. 2142 (Jan. lc, 2011) (scheduling a two-day public hearing for March 2011 to receive input on the 

Department's October 2010 fiduciary rulemaking proposal under ERISA, '"to ensure that all issues are fully 

considered and interested persons have sufficient time to share their views on this important regulation\'). 

2 
105 

CEWDOCROOM with DISTILLER


Insert offset folio 65 here 28982.065

II. The Proposed Rule Would Facilitate Increased Fraud aud Misconduct Relating 

to AHPs 

AHPs and other multiple employer welfare arrangements (''ME WAs") have a lengthy 

and well-documented history of fraud and abuse. Although AHPs and other MEW As are not 

uncommon, very few of these arrangements are covered by ERISA as they commonly fail to 

meet the requirements of ERISA and longstanding DOL regulations and guidance. By 

dramatically expanding the use ofAHPs under ERISA, while also failing to include any 

provisions that would decrease the likelihood of future misconduct. the Proposed Rule would 

substantially weaken the current regulatory structure that safeguards against fraud and abuse. 

A. There Has Been an Extensive History of Fraud and Mismanagement 

Associated with AHPs 

By enacting ERISA in 1974, Congress federalized the regulation of employee benefits, 

including employee benefits plans. Immediately after ERISA's passage, various entities 

marketing ME WAs entered the health insurance market. The plans offered by these entities 

were rife with abuse and mismanagement and left behind a trail of unpaid claims.2 When states 

sought to enforce their own insurance laws to regulate these plans, the entities argued that 

ERISA preempted state law, in many cases hindering efforts to stop fraudulent and illegal 

activity3 At the same time, the DOL claimed to lack authority over these insurance 

arrangements because most were not, in fact, ERISA plans 4 

In response, Congress amended ERISA in 1982 to eliminate any doubt regarding ERISA 

preemption of state laws as to MEW As, firmly declaring that MEW As are subject to state 

insurance laws. see 29 U.S.C. § ll44(b)(6)(A), and recognizing that the federal government 

alone could not adequately protect consumers against the fraud and insolvency of MEW As. 5 

Despite the unambiguous authority granted to the states to regulate ME WAs, entities 

seeking to market dubious AI·IPs have sought to exploit any regulatory gaps. These entities have 

an extensive record of fraud, gross mismanagement. and illegal activity in the marketing and 

operation of ME WAs and AHPs across the country 6 In the late 1980s. scammers unleashed a 

2 Mila Kofman, /fssoc. 1/ea/th Plans: Loss qf'Statt> Orer,\'ight :\4eans Regulatory Vacuum and J\,fore Fraud, Health 

Policy lost., at 2 (Summer 2005), https:iihpi.gcorgetown.edu/ahp.html (providing history of attempts to regulate 

:c\HPs by state and federal governments). 1 ld at7; see also U.S. Government Accountability Office ("GAO"), !Omployee Benefits· States .Veed Labor's !Jelp 

Regulaling :\/DI'As, GAO/HRD-92-40, at 8 (Mar. 10. 1992). https:i/www.gao.gov/assets/220/215647.pdf; U.S. 

Dep't of Labor, .·\-1/~'WAs· ,\lul!iple We(fi:1re Arrangements under the Employee ReNrement Income 

Securiry .let (ER!S,f). A Guide to and State Regula! ion, at 3 (Aug. 2013), 

https://www.dol.gov/sites/detaultltiles/ebsa/about-ebsa!our-activitiesiresource-center/publications/mewa-undererisa-a-guide-to-federal-and-state-regulation.pdf. 

4 Mila Kofman, supra note 2, at 7. 5 The House of Representatives had earlier clarified the intended scope of ERISA through a resolution stating that 

plans marketed by entrepreneurs to employers and employees are not covered by ERISA. See H.R. Rep. No. 1785, 

94th Cong .• 2d Sess. 48 (l977). 

'' S'ee, GAO, Pnra!e Health Ins .. F:mpfoJ•ers and Individuals f"ulnerab/e to Unauthori::.ed or Bogus Entities 

GA0-04-3 12, at 3-5 (Feb. 27. 1004), https:/iwww.gao.gov/assets/250124 I 559.pdf; GAO, 

3 
106 

CEWDOCROOM with DISTILLER


Insert offset folio 66 here 28982.066

wave ofti·aud and misconduct through phony unions, relying on the ERISA exemption for 

collectively bargained union plans. From 1988 to 1991, tailed ME WAs left thousands of people 

in dozens of states without health insurance and nearly 400,000 patients with medical bills 

exceeding $123 million 7 Following a 1991 Senate Report finding that t!·audsters attempted to 

usc ERISA to avoid state oversight, Congress eventually required ME WAs to register with the 

DOL before operating in a state.8 

A 2004 GAO Report again found that employers and individuals were vulnerable to 

unlicensed or ·'bogus" entities selling fl-audulent health insurance coverage through, among other 

things, "associations they created or through established associations of employers or 

individuals."9 In total, GAO identified 144 unauthorized entities that covered at least 15,000 

employers and more than 200,000 policyholders from 2000 through 2002_~ 0 These entities failed 

to pay at least $252 million in medical claims and state and federal regulators were able to 

recover only a fraction of this amount. 11 Although state insurance departments sought to stop 

these entities' activities in their states, nationwide enforcement was hampered because many of 

the promoters operated across state lines and the DOL was not able to effectively clamp down on 

these plans. 12 

The ACA, passed in 20 l 0, aimed to provide comprehensive health coverage for all, and 

its provisions have worked to prevent MEWA fraud in a number of ways. AHP members benefit 

n·om the protections of the individual and small group health plan market, including 

requirements to cover essential health benefits and meet actuarial value requirements. These 

protections arc vitally important in light of the extensive history prior to the ACA of skimpy 

health plans (of the sort that the DOL now seeks to encourage) causing significant harm to 

consumers through, for example, medical bankruptcies, failure to cover necessary benefits, and 

caps on coverage. In addition, the ACA incorporated a series of enforcement tools to prevent 

MEWA abuses. See, e.g., Sections 4376 (imposing fees on applicable sclt:insured MEW As); 

660 I (prohibiting false statements in connection with the marketing and sale of MEW As 

subject to up to ten years of imprisonment or fine); 6602 & 10606 (amending definition of 

"federal health care offense" to include violation of MEW A-related provisions); 6605 (enabling 

the DOL to issue administrative summary cease and desist orders against plans, including 

MEW As, that demonstrate linancially hazardous conditions); 6606 (requiring MEW As to 

register with the Secretary of Labor before operating in a state). These enforcement tools, which 

include tines and imprisonment, evidence the serious concerns Congress had with respect to 

ME WAs- plans that the Proposed Rule now seeks to proliferate. 

Henejifs. ,\'fates Seed Lahor 's Help Regulating ,1!EH~4s, at 3-7; Mila Kofman, et al.. Proliji:?ration of 

Ins States and the Fed Gol'/. Respond, Bureau ofNat'l Affairs. at 13-15 (Fall 2003). 

Benefits: States .\'eed l.ahor 's Help Regulating MEJI-As, at 2-3. 

/Iss ·n Health Plans: Loss qj'.\'tah: OrersiKht ,\.leans Regulatm:v Vacuum and .Hore .Fraud, .vupra 

note 2, at 12. 9 Ot\0. Private I !ealth Ins. F:mployers and !ndiriduals l 'ulnerable to Unauthori::ed or Bogus Entities Selling 

('orerage,at 1-4. 

IO fd at4. 

"ld 

"ld 

4 
107 

CEWDOCROOM with DISTILLER


Insert offset folio 67 here 28982.067

B. The Proposed Rule Would Dramatically Increase Problematic Use of AHPs 

by Weakening the Structural Safeguards Against Fraud and Abuse 

As States and State Attorneys General, we have extensive experience protecting 

individuals and small employers within our states from predatory entities that seek to defraud or 

deceive customers through the use of AHPs. See infi·a Part VI. In light of this experience. we 

believe that the Proposed Rule would invite fraud and wrongdoing in the health insurance market 

that will threaten the health and financial security of consumers in our states. 

First, by weakening the ''bona iide association" requirement to allow unrelated 

employers to associate solely for health benefit purposes. the Proposed Rule would encourage 

fly-by-night associations to form, engage in misconduct, and disappear with employees· 

premiums. The Proposed Rule would transform the "bona tide association·· conditions by (a) 

allowing the provision of health insurance to be the sole reason for an association's existence; (b) 

not requiring the association sponsoring an AHP to have been in existence for any length of time 

or to demonstrate its legitimacy its any other way; (c) eliminating the requirement that the 

association maintain substantive control over the AHP and, instead, require only that it have 

"formal" control by maintaining an organizational structure with by-laws and a board of 

directors; and (d) allowing geographic proximity alone to establish "commonality of interest." 

83 Fed. Reg. 6!4, 635. 

These changes would expand the treatment of"bona fide associations" to such an extent 

as to evade the statutory requirement that the association ''act[] directly as an employer, or ... 

indirectly in the interest of an employer." 29 U.S.C. § 1002(5). Under ERISA, the employer or 

an association on its behalf is intended to serve as the guarantor of its employees' interests; but 

an association that is not truly a bona tide representative of its employer members cannot be 

counted on to protect them. It is the "representational link between employees and an 

association of employers in the same industry 1\ho establish a trust for the benefit of those 

employees" that provides the "protective nexus" that differentiates ERISA plans from other 

health insurance arrangements. MDPhvsicians & Assocs., Inc. v_ State Bd of!ns., 957 F.2d 178, 

186 (5th Cir. 1992). The Proposed Rule weakens the requirements to be a ''bona tide 

association" so extensively that it would essentially eliminate any requirement of an underlying 

employer-employee relationship, without which small employers and employees are vulnerable 

to entities oflering health insurance with whom they have no preexisting relationship at all. It is 

for this reason that Congress specifically did not include "commercial products within the 

umbrella of the employee beneiit plan definition." See H.R. Rep. No. 1785, 94th Cong., 2d 

Sess. 48 ( 1977). 

Second. the Proposed Rule would further weaken protections against fraud and 

mismanagement by allowing individuals who purport to own a business to join AHPs as 

employers even though they have no employees ("working owners"). 83 Fed. Reg. 614, 636. 

The Proposed Rule would not require the association sponsoring the AHP to obtain any evidence 

beyond the written representation of the working owner that he or she in fact owns a qualifying 

business. !d. This provision is particularly susceptible to abuse because it opens the door for 

fraudsters to market to individuals and then enroll them if they "check a box" confirming 

compliance with the written representation requirement in the Proposed Rule. The AHP could 

5 
108 

CEWDOCROOM with DISTILLER


Insert offset folio 68 here 28982.068

then collect premiums, and, in the event that a policyholder submits claims, conduct an "'audit" 

that results in the policy being cancelled or rescinded when it turns out that the individual did 

not, in fact, qualify as a "working owner" as defined in the Proposed Rule. AHP promoters have 

long marketed fraudulent or deceptive health plans to individuals through associations with 

whom the individuals have no relationship other than the provision of health insurance; if the 

Department grants them explicit permission to do so, they will again seize the opportunity to 

enroll untold numbers of individuals in similar plans. 

The potential ftlr fraud is particularly concerning given the characteristics of the 

·'working owners·· that AHP promoters are likely to target if the Proposed Rule is promulgated. 

For example, a business owner may require workers to establish their own LLCs so that the 

owner canmisclassify these individuals as independent contractors even though they might 

otherwise meet the legal definition of employees. These employers would then very plausibly 

work with promoters to offer these employees access to AHPs that provide few benefits and little 

security, while nonetheless creating the impression that their employees are enrolling in 

comprehensive health care coverage. Workers in these situations, who are already subject to 

wage theft and other abuses, will be prime targets for unscrupulous AHPs when they should be 

considered employees eligible for employer-sponsored insurance in the first place. Similarly, 

"gig economy" workers could be taken advantage of through "employers'' who promise health 

insurance, but arrange tor skimpy AHP coverage instead, leaving these workers exposed to 

unexpected medical bills and without coverage for necessary medical services. Workers such as 

these are very likely to be harmed given the propensity of AHP promoters to engage in fraud and 

abuse or, at minimum, to otTer skimpy plans with limited coverage. 

Third. the Proposed Rule seeks to allow AHPs to provide coverage to a massively 

expanded universe of''employers" at the "association-level," rather than at the "employer-level." 

83 Fed. Reg. 614. 618-19. The ACA 's regulation of most AHPs at the "employer-level," 

generally as small groups, has reigned in much of AHPs' fraud and abuseD By moving so many 

small employers and individuals out of these markets and into the large group market, the 

Proposed Rule would undermine the ACA 's requirement of providing comprehensive coverage 

to individuals as well as to employees of small employers. 14 For example, the Proposed Rule 

would allow small employers and "working owners'' who do not share a true commonality of 

interest and who do not belong to a bona fide association in any meaningful way to be regulated 

as a single large employer, outside of the individual and small group plan protections of the 

ACA, orcning the door to fi·aud and abuse. 83 Fed. Reg. 614. 618-19. Moreover, the Proposed 

"The Centers for Medicare & Medicaid Services in 2011 set forth: "[l]n most situations involving employmentbased association coverage, the group health plan exists at the individual employer level and not at the associationof~cmploycrs level. ln these situations, the size of each individual employer participating in the association 

determines whether that employer's coverage is subject to the small group market or the large group market rules. In 

the rare instances where the association of employers is, in fact, sponsoring the group health plan and the association 

itself is deemed the ·employer,' the association coverage is considered a single group health plan. In that case, the 

numhcr of employees employed by all of the employers participating in the association determines whether the 

coverage is subject to the small group market or the large group market rules." lvfemorandum from Gary Cohen, 

Acting Dir., Otlicc of Oversight, Ctrs. for Medicare & Medicaid Sen•s., (Sept. I, 2011) (''CMS 2011 Guidance''), 

arailab/e at https://\V'\vw.cms.gov/CCIIO/Resources!Files/Downloads/association __ coverage _9 _I_ ::20 ll.pdf. This 

guidance was also codified by New York. N.Y. Ins. Law§ 4317(dHe). 

"ld 

6 
109 

CEWDOCROOM with DISTILLER


Insert offset folio 69 here 28982.069

Rule's application will resull in segmentation of the health care market into inexpensive plans 

with little coverage for the healthy and expensive full coverage for those with preexisting 

conditions. 

III. The Proposed Rule Would Violate the Administrative Procedure Act Because It Is 

Contrary to ERISA, and Because It Is an Arbitrary aud Capricious Change of 

Longstandiug Agency Position 

A. The Proposed Rule's Weakeniug ofthe "Bona Fide Association" Definition, 

if Finalized, Would Be Unlawful 

The Department's proposal to change the "bona tide association'' conditions is 

inconsistent with ERISA and several decades of case law applying ERISA, and would therefore 

be contrary to law and in excess of statutory authority. See Chevron U.S.A., Inc. v. Natural Res. 

Del Council. Inc .. 467 U.S. 837,842-43 (1984) (''If the intent of Congress is clear, that is the 

end of the matter; lor the court, as well as the agency, must give effect to the unambiguously 

expressed intent of Congress."). Further, because the Proposed Rule is also inconsistent with the 

DOL's own longstanding position, this change would be arbitrary and capricious under the 

Administrative Procedure Act (''APA''). 

I. The Proposed Rule's New "Commonality oflnterest" Requirements 

Arc Contrary to ERISA 

Section 3(5) of ERISA defines "employer" as "any person acting directly as an employer, 

or indirectly in the interest of an employer, in relation to an employee bene tit plan; and includes 

a group or association of employers acting for an employer in such capacity.'' 29 U.S.C. 

§ 1002(5). When enacting ERISA, Congress's intent was clear: to maintain an employee benefit 

plan under ERISA. an association must be tied to the employees or the contributing employers 

by genuine economic or representational interests unrelated to the provision of health insurance 

benefits, and employer members participating in the plan must exercise actual control over the 

program. 

Relying on a ·'plain reading of ERISA's language considered against the backdrop of 

express and implicit congressional intentions:' Courts of Appeal have consistently held that the 

"definition of an employee welfare benefit plan is grounded on the premise that the entity that 

maintains the plan and the individuals that benefit fi·mn the plan are tied by a common economic 

or represcntalion inleresr. unrelaied to the provision of benefits.'' Wis. Educ. Ass 'n Ins. Tr. v. 

Iowa Sture Bd. of Pub. Ins/me/ion. 804 F.2d I 059, I 063, 1065 (8th Cir. 1986) (emphasis added) 

('"decision is premised on ERISA ·s language and Congress' intent"); see also Gruher v. Hubbard 

Bert Karle Weber. Inc., 159 F.3d 780, 787 (3d Cir. 1998) ("commonality of interest requirement 

is well-established in the case law"): MDPhysicians Inc., 957 F.2d at 185. This "'common 

economic or representation interest" requires either that there be an ''economic relationship 

between employees and a person acting directly as their employer'' or a "'representational link 

between employees and an association of employers in the same industry who establish a trust 

for the benefit of those employees.'· ivfDPhvsicians Inc., 957 F.2d at 185-86. Where the ·'only 

7 
110 

CEWDOCROOM with DISTILLER


Insert offset folio 70 here 28982.070

relationship between the sponsoring [entity] and ... recipients stems from the benefit plan 

itselC'. the ·'relationship is similar to the relationship between a private insurance company. 

and the beneficiaries of a group insurance plan," and is simply not covered by ERISA. Wis. 

Educ. Ass 'n Ins. 7i·., 804 F.2d at 1063. 

Moreover. under the Proposed Rule, AHPs would be allowed to organize I(Jr the sole 

purpose of otTering health insurance coverage. Establishing an AHP for this purpose is the 

definition of a commercial insurance arrangement, rather than in service of an employeremployee relationship as intended by ERISA. This proposed change is inconsistent with 

Congress's intent of protecting ERISA plans from becoming mere commercial, for-profit 

insurance arrangements. Set' In!'! Ass 'n of Enlrepreneurs of Am. Benefit Tr. v. Foster, 883 F. 

Supp. I 050, 1057 (E.D. Va. 1995) (describing the circumstance of companies that market 

insurance products and characterize themselves as ERISA benefit plans to avoid state regulation, 

and noting that these plans ·'are no more ERISA plans than is any other insurance policy sold to 

an employee benefit plan") (quoting H.R. Rep. No. 1785, 94th Cong., 2d Sess. 48 (1977)). 

Despite this uniform judicial interpretation of ERISA, the Department is proposing to 

redefine the bona fide association and commonality of interest requirements so that they no 

longer ensure that the association and the employees have a "common economic or 

representation interest unrelated to the provision of benefits." The Proposed Rule goes as far as 

allowing employers connected only by geography to satisfy the commonality of interest 

requirement, and for associations that exist for the sole purpose of providing health insurance to 

be deemed bona fide. 83 Fed. Reg. 614. 635. The DOL asserts that neither its "previous 

advisory opinions. nor relevant court cases, have ever held that the Department is foreclosed 

trom adopting a more tlexible test in a regulation ... in determining whether a group or 

association can be treated as acting as an 'employer' or 'indirectly in the interest of an 

employer,· for purposes of the statutory definition." 83 Fed. Reg. 614, 617. However, the 

Department may not seek to issue a new regulatory interpretation that is counter to the 

unambiguous statutory language and the courts that have interpreted the statute. See Public 

Citizen. Inc. v. Mineta, 340 F.3d 39, 54-62 (D.C. Cir. 2003) (vacating rule because agency 

interpretation contravened legislative intent and plain reading of statute). 

2. The DOL Does Not Offer Reasoned, Evidence-Based Rationales for 

Reversing Its Longstanding Position 

The Proposed Rule would also be arbitrary and capricious because it would reverse 

several decades of consistent agency interpretation without reasoned support. See Perez v. 

lv!ortgage Bankers Ass 'n, 135 S. Ct. 1199. 1209 (2015) (explaining that ''the APA requires an 

agency to provide more substantial justification when 'its new policy rests upon factual findings 

that contradict those which underlay its prior policy'") (quoting F. C. C. v. Fox Tel. Stations. Inc., 

556 U.S. 502. 515 (2009)); see also l'vfotor Vehicle Mfi·s. Ass 'n v. State Farm lvful. Auto. Ins. Co., 

463 U.S. 29,57 (1983). 

First, the Proposed Rule acknowledges but tails to address the long history of fraudulent 

and abusive conduct by AHPs and other ME WAs. The DOL concedes that "fh]istorically, a 

number of MEW i\s have suffered from financial mismanagement or abuse, otlen leaving 

8 
111 

CEWDOCROOM with DISTILLER


Insert offset folio 71 here 28982.071

participants and providers with unpaid benetits and bills." 83 Fed. Reg. 614, 631. The 

Department also acknowledges that .. the Oexibility afforded AHPs under this proposal could 

introduce more opportunities for mismanagement or abuse, increasing potential oversight 

demands on the Department and State regulators." !d. at 632. In a footnote, the Department 

cites reports authored by the GAO and articles detailing the history of financial abuses associated 

with MEW As. !d. at 614, n. 24. The DOL. however, does nothing else with these sourceswhether to explain how the Proposed Rule would safeguard against the historical "tinancial 

mismanagement or abuse'' it acknowledges, or to discuss any methods for preventing such fraud, 

or even mitigating the costs associated with a proliferation of abusive MEW As. This is so 

despite the extensive records of this conduct maintained by the DOL, which may well show that 

entities that have engaged in tl·aud or gross mismanagement have operated in the very same ways 

that the Proposed Rule now seeks to encouragcY The justification provided by the Department 

to allow more people to benefit from cheaper, less comprehensive plans-- is woefi.illy 

inadequate in the face of the clear history of fraud and abuse in the marketplace. 

Second, the Proposed Rule allows AHPs to form on the basis of a ''single industry or 

trade," or a common geographic region within a single state or multi-state metropolitan area, and 

dilutes the prior commonality of interest requirements to the point of elimination. The Proposed 

Rule now requires only formal association documents and the right of association members to 

elect the association's directors or officers that control the group or association. 83 Fed. Reg. 

614, 620. Nothing in the Proposed Rule vests employer members with actual control over the 

directors or officers as is currently required by DOL guidance; instead, it appears to cede 

authority to govern the association to an elected body and not to the employer members. See 

DOL Adv. Op. 94-07 A, 1994 ERISA LEX IS II (Mar. !4, 1994) (association's governing 

documents provided ''no etlective way for members to affect the Board or operations of' AHP 

and trust operating plan and thus failed the control requirements). There is nothing in the 

Proposed Rule that explains how employer members of the association can adequately guard 

against the adverse interests of those who would treat the AHP as a commercial enterprise, the 

purpose of which is to make money for its promoter, service providers and sales force. The 

DOL's failure to provide reasoned and evidenced-based explanations lor its departure tl·om 

longstanding agency policy would be arbitrary and capricious if the Proposed Rule is enacted, 

and thus. the DOL should withdraw the Proposed Rule and start anew. 

3. The Department's Failure to Include Any Quantitative Analysis of the 

Costs and Benefits of the Proposed Rule Is Unjustifiable 

In addition, in proposing these extensive changes to how AHPs are defined and regulated, 

the Department has declined to include any quantitative analysis of the costs and benefits of the 

Proposed Rule. The failure to quantify the estimated costs to employees and health care 

consumers hinders the public's ability to comment on the Department's proposal, and is likely 

arbitrary and capricious under the AP A. 

''As other commenters have observed, the DOL's failure to make public and to analyze in the Proposed Rule its 

extensive data concerning AHP fraud and abuse provides a sufficient basis alone to require that the DOL withdraw 

the Proposed Rule and fundamentally reconsider its approach to this Issue. 

9 
112 

CEWDOCROOM with DISTILLER


Insert offset folio 72 here 28982.072

The Department's Regulatory Impact Analysis acknowledges that this proposal is 

"economically significant," and that the Department was therefore required to assess including 

by quantifying -the costs and benefits of the proposal. 83 Fed. Reg. 614.625. But despite 

acknowledging AHPs' history of"financial mismanagement and abuse," the Department makes 

no effort to assess the economic impact of weakening the requirements for groups seeking to 

qualify as bona fide associations. Id. at631. Nor docs the DOL quantify the likely costs of a 

proliferation of A liPs in the form of the additional resources to be needed by state and federal 

agencies to monitor A liPs and enforce state and federal standards. The Department makes only 

the general assumption that AHPs "are an innovative option'' that ·'can help reduce the cost of 

health coverage'' because AHPs will "help small businesses ... to group together to self-insure 

or purchase large group health insurance." 83 Fed. Reg. 614, 615. In particular. the Department 

li1ils to quantify the likely attendant costs of a proliferation ofAHPs on the existing individual 

and small group ACA marketsi 6 

Agencies are obligated to provide reasons, not bare conclusions, to support an action. 

Amerijel fnt'l Inc. v. Pistole, 753 FJd 1343, 1350 (D.C. Cir. 2014) (''conclusory statements will 

not do: an agency's statement must be one of reasoning") (internal quotations omitted). Failing 

to quantify the costs of a proposal that could have as significant an impact on the health care 

market as this one would be arbitrary and capricious if absent in a final rule. See Ctr.for 

Biological Diversity v. Nat '/!fighH·ay l!YI(fic Safely Admin, 538 F.3d 1172. 1201 (9th Cir. 2008) 

("[T]hcre is no evidence to support [the agency's] conclusion that the appropriate course was not 

to monetize or quantify the value of carbon emissions reduction at all.''). 

B. The Proposed Rule's Dual Treatment of Sole Proprietors as Both Employers 

and Employees Is Unlawful 

1. The Proposed Rule's Treatment of Sole Proprietors Is Contrary to 

ERISA 

In a dramatic departure from judicial precedent interpreting ERISA, the Proposed Rule 

takes the unprecedented step of defining "sole proprietors" referred to in the Proposed Rule as 

"working owners" as both employers and employees. 83 Fed. Reg. 614, 621. This dual 

treatment of sole proprietors as employers and employees conflicts with ERISA and judicial 

interpretation of the statute's text. See 29 U.S.C. § I 002(5). This precise question was squarely 

before the Second Circuit in lvfarcel/a v. Capital Dis/. Physicians' Health Plan, Inc., 293 F.3d 42 

(2d Cir. 2002). In tvfarcel/a, the court examined whether plaintiff: an independent contractor, 

could be a member of an AHP governed by ERISA. Membership in the plan at issue was open 

to ''businesses with employees, but also to sole proprietorships without employees and to 

"'Projections forecast that the Proposed Rule, if finalized, will lead to 3.2 million enrollees shifting out of the 

ACA 's individual and small group markets into i\HPs by 2022 and that the Proposed Rule would increase premiums 

tOr those remaining in the individual ACA market by 3.5 percent. See llssociation I /ealth Plan.,-: Prqjecting 1he 

Impact of/he Proposed Rule. A val ere (Feb. 28, 20 \8), http:.l/go.avalere.corn/acton/attachment/12909/f-052f/ I/-/-/-/-

/ Association%20Hea\th%20Pians'Yo20White%20Paper.pdf. 

10 
113 

CEWDOCROOM with DISTILLER


Insert offset folio 73 here 28982.073

individuals such as plaintitr; neil her ofwhich can logically he considered an 'employer' ... •·. 293 

F.3d at 48 (emphasis added). The Second Circuit held that "[t]he plain language of the statute 

would. therefore, seem to preclude finding that the group is 'a group or association of 

employers,' because not all members of the Chamber are employers.'' !d. (quoting Section 3(5) 

of ERISA). 

The Department cites Yates v. Hendon, 541 U.S. I (2004), to support its argument that 

sett:employed working owners can participate in large group coverage through an association 

even if they have no employees, but Yaft•s asked a different question. In Yates, the Court held 

that a working owner (i.e. the employer) can also qualify as a participant of an ERISA plan only 

"[i]fthe plan covers one or more employees other than the business owner and his or her 

spouse." 541 U.S. at 6. In fact, the Court explicitly noted that ''[c]ourts agree that if a benefit 

plan covers only working owners, it is not covered by Title I'' of ERISA. !d. at 21, n. 6 (citing 

cases fi·om the Second, Sixth, Ninth, and Eleventh Circuits) (emphasis added). 

2. The DOL Does Not Offer Reasoned, Evidence-Based Rationales for 

Its "Working Owner" Definition as Both Employer and Employee 

The Proposed Rule's expanded definition of·'employer" to include sole proprietors also 

contlicts with well-established existing regulations. Most significantly, 29 C.F.R. § 2510.3-3(b) 

specifically excludes ''any plan. fund, [and] program ... under which no employees are 

participants covered under the plan" from the definition of ERISA-covered plans, and uses the 

specific example of a plan where ·'only[] sole proprietor[s] arc participants" as not covered by 

ERISA. See id at (c)(l) (''[a]n individual and his or her spouse shall not be deemed to be 

employees with respect to a trade or business. whether incorporated or unincorporated. which is 

wholly owned by the individual or by the individual and his or her spouse.") (emphasis 

added). The Proposed Rule, which newly defines sole proprietors as employers and employees 

subject to ERISA. does not provide adequate justification for this significant proposed change. 

Indeed, the Department acknowledges the strain of defining ·'sole proprietors" as both 

employers and employees, and attempts to minimize this well-established regulation, asserting 

its application is limited to "narrow circumstance" despite its previously broad application. 83 

Fed. Reg. 614. 621. Ultimately, the Department is forced to concede that an amendment of 

current regulation may be the only way to avoid this irreconcilable conflict: 

[T]o the extent the regulation could result in working owners not being able to participate 

as employees even in some circumstances, the Department believes the policies and 

objectives underlying this proposal support an amendment of the 29 CFR 2510.3-3 

regulation so that it clearly does not interfere with working owners participating in AHPs 

as envisioned in this proposal. ... Accordingly, and to eliminate any potential ambiguity 

regarding the interaction of this proposal with the regulation at 29 CFR 2510.3-3, this 

proposal also includes a technical amendment of paragraph (c) of251 0.3-3 to include an 

express cross-reference to the working owner provision in this proposaL 83 Fed. Reg. 

614,621-22. 

II 
114 

CEWDOCROOM with DISTILLER


Insert offset folio 74 here 28982.074

The stated policies and objectives to support such a change do not provide adequate legal 

support. The Department ultimately invites comment on ways to ensure that working owners 

who join an AHP are genuinely engaged in a trade or business. 83 Fed. Reg. 614,622. But 

similar to the loosening of bona fide association and commonality of interest requirements, the 

DOL does not support the proposition of working owners as both employers and employees with 

plausible justification for this significant- and illogical change. Notwithstanding that this 

unprecedented dual treatment of working owners as employer and employee will open the door 

to negative consequences, the DOL has failed to present adequate explanation for its reversal of 

longstanding agency policy, judicial precedent, and existing regulations. 

IV. The Proposed Rule Conflicts with the ACA's Statutory Scheme and Congressional 

Intent 

The intent of the Proposed Rule is not covert: the President himself plainly cited the 

sabotage of the ACA as the clear purpose of the Proposed Rule. While signing the Executive 

Order directing this rulemaking, he stated he was "taking crucial steps towards saving the 

American people from the nightmare of0bamacare,"17 and tweeted the following day that 

"ObamaCarc is a broken mess. Piece by piece we will now begin the process of giving America 

the great HcalthCare it deserves!·• IX Just days ago. the President reiterated these points, saying 

at the Conservative Political Action Conference that ''piece by piece by piece, Obamacare is just 

being wiped out." 19 Given the President's goal to destroy rather than faithfully execute the 

ACA. the Proposed Rule unsurprisingly conflicts with the ACA in its attempt to undermine the 

Act through executive means, as set forth in detail below. 

First, the Proposed Rule is contrarv to and will undermine the ACA 's individual, small 

group and large group structure. The ACA categorizes health plans as large group, small group 

or individual, offering the greatest protections to small group and individual plans.20 In its 

simplest terms, the Proposed Rule seeks to expand the category of'·targe groups" so that the 

many consumers previously protected by the ACA 's individual and small group provisions wilL 

through AHPs, become members of large group plans outside of many of the ACA 's protections. 

Specifically, the Proposed Rule provides that unrelated small employers and ·'working owners" 

may band together solely for the purchase of insurance to form a single large employer, thereby 

undermining the market structure set forth by the ACA, which defines these small employers as 

part of the small group market, and ''working owners" as part of the individual market. 42 

LJ .S.C. ~ l8024(a)( I )-(3). The ACA builds this small group and individual market structure into 

17 Donald J. Trump. President of the U.S .. Remarks at Signing of Executive Order Promoting Healthcarc Choice and 

Competition (Oct. 12, 20 17). https://www.whitehouse.gov/brietings-statementsiremarks-president-trump-signingcxccutive-order-promoting-healthcare-choice-competition/. 

" Zachary Tracer, 7i·ump .\lm·ing 'Siep by Step· to h1ke Apart Obamacare on I lis 0ll'n, Bloomberg (Oct. 13, 2017. 

2146 PM), https: 1

iwww .bloomberg.com/news/articles/20 I 7-1 0-13/trump-orders-an-end-to-key-obamacarei nsurnnce-subs id ies. 111 \'vlathcw Yglesias, Donald Trump's CPAC 5;peech Is a Reminder 7hat lie's Sot Really in Charge t<lffis White 

/louse. Vox (Feb. 23. 2018, l: 10 PM). https:!lwww.vox.com/2018/2/23117044770/trump-cpac·2018·speech. 

42 l! .S.C. g l8024(a): see. e g, 42 U.S.C. g (requiring individual and small group health plans to provide 

coverage for ten essential health benefits); see also 201 I Guidance. supra, note 13. 

12 
115 

CEWDOCROOM with DISTILLER


Insert offset folio 75 here 28982.075

the ACA itselC as well as the Public Health Services Act ("PHSA") and ERISA. 21 The Proposed 

Rule. which candidly seeks to expand access to cheaper plans that do not have to abide by the 

ACA individual and small group rules, anticipates regulating these AHPs as large employers, 

and is thus in conflict with all three ofthcse statutes. 83 Fed. Reg. 614,615-16. 

The ACA's individual, small group and large group market structure is clearly defined in 

42 U.S.C. § 18024 and 42 U.S.C. § 300gg~9l(e). Each market receives different ACA 

protections, with the individual and small group markets afforded the greatest protections. For 

example, the ACA requires small group plans to utilize adjusted community rating to calculate 

premiums, which prevents insurers Jl·om varying premiums within a geographic area based on 

age, gender, health status, or other tactors 22 42 U.S.C. § 300gg(a). The ACA also requires 

individual and small group plans to cover ten essential health benetlts, including pediatric 

services. maternity care, prescription drugs and coverage for mental health services. 42 U.S.C. § 

18022(b). Large group plans, in contrast, are not subject to community rating or essential health 

benellt mandates. or many other requirements, including premium restrictions based on health 

status, gender or age. 23 42 U.S.C. § 300gg(a). 

These ACA market designations are also etfectuated through amendments to the PHSA, 

and certain of these reforms are imported directly into ERISA. See 29 U.S.C. § ll85d (as 

amended by§ l536(e) ofthc ACA) (importing requirements of 42 U.S.C. §§ 300gg through 

300gg~"28 into ERISA ''as if included'' in that Act)24 For example, the essential health benefits 

and community rating requirements of the ACA, applying only to individual and small group 

"See, e . 42 U.S.C. §§ :l00gg(a)-300gg--28 (applying PHSA requirements to group plans based on market size); 

29 . § ll85d (provision of ERISA enacted by the ACA importing PHSA provisions into ERISA); 42 U"S"C § 

300gg~91(el (defining individual and very small group market levels for purposes of imported PHSA provisions)" 

"AC'A; Health Insurance Market Rules; Rate Review; Final Rule, 45 C.F.R. §§ 144.10! ""144.214, 147.100-"" 

147.200, 150.101-150.465. 154" 10 I~ 154.30 l, I 56.10-156.1256 (20 13), available at 

https:l/www.gpo.govlfdsys/pkg/FR -20 I 3-()2-27/pdf/20 13-04335"pdf. 

__::,Large t:mployers are required to provide their employees with insurance coverage or pay a penalty ("the employer 

mandate''). Through the employer mandate, the ACA imposes standards on the en1ployer itself, rather than 

regulating the plan offered by the employer or the iusurance issuer selling the plan. These standards include that 

employers must ofiCr coverage that achieves 60% actuarial value as measured against essential health benefits, or be 

at risk of paying a penalty of up to $3,000 per employee. 26 USC.§§ 4980H(b). 36B(c)(2)(C)(ii). They must also 

provide a summary of benefits and coverage, and notice of the right to designate a primary care physician and 

gynecologist without prior authorization~ set limits on out-of-pocket maximums; and comply with various reporting 

requirements. U.S. Senate, The Patient Protection and .. ~[fordable Care Act as 

ll'ith Changes Made by Title X Included ll'ilhin Titles I" IX. Where Appropriate, 1, 1·2, 

at http://www.dpe.senate.gov/healthreformhill/healthbill53.pdf (last visited Mar. 5, 20 18). 

29 U.S.C. § 1185d (as amended by§ 1563(e) of the AC'A) inserted this language into ERISA: "[T]he provisions 

of part A of title XXV!l of the Public Health Service Act [42 U"S.C. 300gg et seq"] (as amended by the Patient 

Protection and Affordable Care Act) shall apply to group health plans, and health insurance issuers providing health 

insurance coverage in connection with group health plans. as if included in this subpart"" Part A of Title 27 of the 

PHS/\ covers§§ 300gg through 300gg--28 ofTitle 42" See 29 USC.§ ll85d(a)(2) (as amended by § 1563(e) of 

the AC'A) ("[T]o the extent that any provision of this part conflicts with a provision of such part A with respect to 

group health plans, or health insurance issuers providing health insurance coverage in connection with group health 

plans. the provisions of such part A shall apply."). 

13 
116 

CEWDOCROOM with DISTILLER


Insert offset folio 76 here 28982.076

plans, are incorporated into ERISA. 42 LLS.C § 300gg--625 Thus, ERISA itself was amended to 

incorporate the market structure and protections of the ACA. 

In addition, in direct conf1ict with the Proposed Rule, the ACA provides that only in very 

narrow circumstances can employers join together to be treated as a single employer. This is 

achieved through the ACA 's incorporation of the ''aggregation rules" from the Internal Revenue 

Code ("IRC"). These aggregation rules determine when multiple business entities should be 

treated as a single employer. The ACA incorporates the IRC's aggregation rules. which state 

that an employer ·'treated as a single employer under subsection (b), (c), (m), or (o) of section 

414 of title 26 [the Internal Revenue Code of 1986]" should be treated as" I [single] employer'' 

for purposes of the ACA" (the "aggregation rule"). Sec, e.g., 42 U.S.C. § l8024(b)(4)(A). 

Pursuant to these rules, businesses may be treated as a single employer when they are in a 

controlled group of corporations or under common control.26 The ACA employs these 

aggregation rules in eight provisions. Most significantly, 42 U.S.C § l8024(b)(4)(A) uses the 

aggregation rule in order to determine employer size for small group and large group definitions; 

26 U.S. C.§ 45R(e)(5)(A) (as amended by§ 1421 of the ACA) requires entities that meet the 

aggregation rule be considered a single employer for purposes of determining health insurance ' 

credits for small employers; and 26 U.S.C. § 4980H(c)(2)(C)(i) (as amended by§ 1513 of the 

ACA) requires application of the aggregation rule to calculate employer size for the purpose of 

the employer mandate. Many of the provisions incorporated into ERISA include these narrow 

aggregation rules as well because they depend on the distinction between large and small group 

plans 2 s 

See a/.1'0 42 U.S.C. § :JOOgg(a)( I) (adjusted community rating for individuals and small group employers): 

§ 300gg,,,J (guaranteed availability of coverage):§ 300gg-2 (guaranteed renewability of coverage);§ 300gg--3 

(prohibition of preexisting condition exclusions or other discrimination based on health status);§ 300gg--5 (nondiscrimination in health care);§ 300gg II (no lifetime or annual limits);§ 300gg -13 (coverage of preventive health 

services). 

-::{,In dct!ning a ''single employer.'' the IRC looks to whether the employers operate under ''common control," 

perform functions (e.g. management services) for one another, or demonstrate a shareholder or partnership 

relationship; the lRC limits the '"single employer" designation to companies that have a "common owner or, .. are 

otherwise related." 26 U.S.C'. §§ 414(b), (c), (m): Determining If an Employer Is an Applicable rarge Employer, 

I R S, https:/ /www. irs .gov /affordable-care-act/employers/determining-i f-an-cmp Ioyer-is-an-app 1 icable-largeemployer (last updated Nov. 22, 20 17). 

'

7 See. e.g. 26 U.S. C.§ 49801(1)(9) (as amended by§ 9001 of the AC'A) (utilizing the aggregation rule to determine 

which entities are to be taxed tor high cost employer-sponsored coverage); 26 C.F.R. 51.1 (describing regulations 

issued to "provide guidance on the annual fee imposed on covered entities engaged in the business of manufacturing 

or importing branded prescription drugs by section 9008 of the [ACA]", which uses the aggregation rule to identify 

these branded prescription pharmaceutical manufacturers and importers): 26 U.S. C.§ 162(m)(6)(C)(ii) (as amended 

by § 9014 of the ACA) (requiring "two or more persons" to be treated as "single employers" when identifying the 

covered health providers to which the ACA ·s limitation on excessive remuneration applies); 26 U.S.C. § 

125(j)(5)(D)(ii) (as amended by § 9022 of the ACA) (using a related aggregation rule for purposes of identifying 

eligible employers that maintain "simple cafeteria plans"); 26 U.S.C. § 48D(c)(2)(B) (as amended by§ 9023 of the 

ACA) (identifying taxpayers that are eligible to receive the qualifying therapeutic discovery project credit by 

applying the aggregation rule). 23 See 29 U.S.C. ~ ll85d (importing requirements of 42 U.S.C. §§ 300gg through 300gg·28 into ERISA "as if 

included" in that Act); 42 U.S.C:. § 300gg-91(e) (defining market levels lor purposes of42 U.S.C. §§ 300gg through 

in relation to aggregation rules); see also 42 U.S.C. § 300gg(a)(l) (describing community rating):§ 

(describing group plans that must cover essential health benefits). 

14 
117 

CEWDOCROOM with DISTILLER


Insert offset folio 77 here 28982.077

Thus, the ACA as well as the PHSA and ERISA itself- already have aggregation rules 

[l)r determining when and for what purposes individuals and small employers should be grouped 

together to be considered a single large employer. The Proposed Rule- which seeks to allow all 

employers in common industry or close geographic location to form a "single large employer''-

plainly conflicts with these narrow aggregation rules. 29 Such a vast new definition of"single 

large employer" far exceeds the ACA's aggregation rules, as applicable under ERISA, the IRC, 

the PllSA, and the ACA, and therefore clearly conf1ict with these statutes. 

In addition, the Proposed Rule's new classillcation of''working owners" is directly 

inconsistent with the ACA. Under the ACA, including under provisions imported into ERISA by 

the A CA. sole proprietors without employees are treated as individuals not as employers 

protected by the individual market. See, e.g .. 42 U.S.C. § 300gg-91(d)(6), (e)(2). (e)(4) 

(detining ''large employer" and "small employer," and then defining ''employer'' to include ·'only 

employers of two or more employees"). 30 Moreover, the Proposed Rule offers neither 

justification nor evidence that the DOL considered the Rule's effect on these various statutory 

schemes, nor did it suggest ways that the Rule's conflict with law and prior guidance can be 

resolved (discussed supra Part Ill). 

By enabling individual and small groups to be deemed large group plans, the Proposed 

Rule will allow associations made up of individuals and small employers to evade the ACA's 

individual and small group protections. This will fultill the goal of the Proposed Rule to avoid 

comprehensive coverage and facilitate the sale of cheaper plans ·•across State lines." Exec. 

Ord<:r ~o. I 3813. 82 Fed. Reg. 48385 (Oct. 17, 2017). In fact, AHPs formed pursuant to the 

Proposed Rule may be subject to even fewer requirements than large employers currently are, 

since there may be no actual employer-- just an association created solely for the purpose of 

providing health coverage. Congress's intent in enacting the ACA could hardly have been 

clearer: it established definitions for participation in and protections for large group, small group, 

and individual plans. and narrow rules tor determining when multiple businesses can be treated 

as a single employer. It then applied those standards under ERISA "as if included" in that Act. 

This blatant attempt by the DOL to avoid the clear text and purpose of the ACA is contrary to 

law. 

Second. the Proposed Rule will undermine the jimdamental AC4 provisions that pool risk 

1rith the result a/destabilizing small group and individual insurance markets. Section 1312(c) 

of the ACA, ·'Single Risk Pool," imposes rules on the individual and small group markets to 

create a diverse risk pool in order to ensure the provision of affordable health care for healthy 

In particular. by crafting specific rules when applying ACA protections to group health plans under ERISA. 

Congress directly required the DOL to follow the IRC's narrow aggregation rules, barring the Department from 

applying another standard it prefers under more general ERISA language as a means to undercut the ACA . . )'ee 

Rw//_AX Gaten·ay 1/otel. UC , . . ·lmalgamaled liank. 566 U.S. 639,645 (2012) (Scalia, J., for a unanimous court) 

(internal citations and quotation marks omitted) ("[l]t is a commonplace of statutory construction that the specific 

governs the genera!. That is particularly true where, as J.hcre], Congress has enacted a comprehensive scheme and 

has deliberately targeted specific problems v .. ith solutions."). 

"'The ACA also amends the PHSA (42 U.S.C'. § ) by incorporating: "The term ·employer has the 

meaning given such term under section 3(5) of the Retirement Income Security Act of 1974 [29 U.S.C. § 

1002(5)], except that such term shall include only of/11'0 or more employees." (emphasis added). Thus, 

the Pl ISA also defines employer owners without any employees as individuals, and not as employers. 

15 
118 

CEWDOCROOM with DISTILLER


Insert offset folio 78 here 28982.078

and sick alike. 42 U.S.C. § 18032(c).31 The Proposed Rule, again, conf1icts with this structure, 

as Af·!Ps will likely attract healthy individuals out of the existing individual and small group 

markets. and leave the remaining offerings to turn into "sick" plans whereby premiums will 

dramatically increase. This will leave those whom the ACA was implemented to help the sick, 

elderly, those with preexisting conditions with unaffordable or inadequate coverage32 

For example, since most AHPs will not be required to offer the ACA's essential health 

benefits, they will opt not to include services that are more expensive or that are required by 

individuals with greater health care needs. For instance, while complying with the Proposed 

Rule's non-discrimination provisions, an AHP could opt not to include maternity coverage. This 

would naturally dissuade potential members who plan to have children from joining the AHP, 

and they will likely obtain coverage from an ACA-compliant exchange plan. Or an AHP could 

choose not to cover mental health and substance use disorder treatment, again with the 

expectation that individuals who need or are likely to need these services for themselves or their 

families will obtain coverage on the ACA exchanges. The same motivations will cause AHPs to 

exclude other expensive benefits such as cancer treatment or certain prescription drugs. This 

market segmentation will lower prices for healthier individuals and groups in the AHPs, but 

cause premiums to spike (likely out of reach) for people who need these essential health care 

services in direct conflict with the ACA 's goal of spreading risk. particularly within the small 

group and individualmarkets 33 

The Proposed Rule will also encourage AHPs to form in those industries that attract a 

younger. healthier, and male workforce (e.g., technology or engineering) or in those geographic 

areas that have healthier populations (e.g., wealthy communities and/or non-rural areas). The 

Proposed Rule places no restrictions on this type of risk selection. The Proposed Rule dismisses 

these risks as speculative and argues that AHPs will also torm in industries with older and less 

healthy workers by delivering sunicient administrative savings to offset the additional costs of 

insuring this population. 83 Fed. Reg. 614,628-29. However, the DOL provides no evidence to 

support the proposition that AHPs can deliver administrative savings that an insurance company 

cannot. Indeed, all available evidence and analysis is to the contrary 34 

"The "single risk pool"" provision is also referenced in the PHSA provisions imported into ERISA. See. e.g, 19 

U.S.C. ~ 1185d (importing 42 U.S.C. § 300gg. among other protections. into ERISA). 12 Although the Proposed Rule's non-discrimination provisions arc beneficial, they are inadequate to ensure that 

AHPs are unable to structure themselves to attract healthier individuals and groups while dissuading individuals who 

may have a greater need for health care services from enrolling in the AHP. Indeed, we have repeatedly seen AHPs 

that arc designed to do precisely this. (See, e.g., supra at Part II). 11 The Proposed Rule speculates that because large employers do not offer skimpy coverage to their employees, 

AllPs likely will not do so either. 83 Fed. Reg. 614, 628. However, there arc fundamental differences between 

large employers and AHPs that the Proposed Rule simply ignores. Large employer plans typically provide 

con1prehcnsive benefits because large employers employ a diverse set of individuals with varying health needs and 

must offer benefit packages to satisfy all current and potential employees. AHPs, on the other hand, allow selfemployed individuals and small businesses to pick their insurance plan based on the particular coverage that they 

need at the time given their current health needs. These individuals and small groups have every reason to enroll in 

skimpy, cheap coverage that appeals to their own narrow demographic group or health profile. 

'"Sec. Mark !I all. eta!., 1/ea/lh.\!ar/s, /1/PCs, .\!EIVAs. andAHPs. A Guidejbr the Perplexed, HEALTH 

A IT AIRS ): 142-53 (200 I), availahle a! https:/iwww.healthaffairs.orgldoi/pdfll 0.1377ihlthaff.20.1.142 

wenmvln<'numerous alternative means to save on health care coverage costs)~ Kaiser Family Foundation et aL. 

!:'mployl!r Benejits 2017 Annual ,__)'urrey, K,\fSER FAMILY FOUND. (20 17)1 

http: /!I les.k tT.org/attachmentiReport-Employer-l·lealth-Renefits-Annuai·Survey-20 17 (presenting findings on 

16 
119 

CEWDOCROOM with DISTILLER


Insert offset folio 79 here 28982.079

These consequences are in clear violation of the language and purpose of the ACA. Also 

clear is the APA ·s prohibition against rulemaking in conflict with established law, and as such, 

the Proposed Rule violates the APA. 

V, The Proposed Rule Is Contrary to l,ongstanding DOL Interpretation of ERISA 

That Has Been Ratified by Congress 

Not only is the Proposed Rule contrary to the ACA in key respects, but it also is contrary 

to the DOL ·s longstanding interpretation of·'bona tide association." Congress has ratified this 

longstanding interpretation over decades in a series of statutory schemes, including and most 

notably in the ACA, which was the capstone of Congress's decades-long efforts to address 

access to health care through individual and group insurance markets. 

As the Supreme Court has explained, ''[wlhere an agency's statutory construction has 

been 'fully brought to the attention of the public and the Congress,' and the latter has not sought 

to alter that interpretation although it has amended the statute in other respects, then presumably 

the legislative intent has been correctly discerned." N. Haven Bd. of Educ. v. Bell, 456 U.S. 5!2, 

535 (1982) (citation omitted); see. e.g., Commodity Futures Trading Comm 'n v. Schor, 478 U.S. 

833, 846 ( 1986) ("It is well established that when Congress revisits a statute giving rise to a 

longstanding administrative interpretation without pertinent change, the 'congressional failure to 

revise or repeal the agency's interpretation is persuasive evidence that the interpretation is the 

one intended by Congress.'") (citation omitted). 

As set forth supra in Parts 1 through III, the DOL has long maintained that only a ·'bona 

fide association'' of employers bound by a ·'commonality of interest" can meet the definition of 

"employer'' under 29 U.S.C ~ I 002(5) 35 The Department has consistently held that most 

MEW As are not regulated by ERISA as employee welfare benefit plans, and indeed that ERISA 

itself forecloses such an interpretation, unless such entities qualify as '·bona tide associations" 

under these well-established, narrow principles. See e.g., Brief for Petitioner-Appellant DOL at 

*7, Donovan v. Dillingham, 668 F.2d I J 96 (lith Cir. 1982) (No. 80-7879) ("[T]he statutory 

language of ERISA precludes a finding that a single, umbrella-like ERISA plan has been created 

in these cases."); see also Donovan v. Dillingham, 688 F.2d 1367, 1372 (lith Cir. 1982) ("An 

issue in other cases has been whether a multiple employer trust the enterprise is itself an 

strategies that private and non-federal public employers have used to shift health care costs to employees and thus 

reduce employer costs of health care coverage provision). 

See. e g. DOL Adv. Ops .. 80-40A. 19RO ERISA LEX IS 38 (July 9. 1980) ("bona fide" association depends on a 

number of factors, including control by employers over association, but does not cover "several unrelated 

employers" executing trust agreements as a means to fund benefits); 9J-42A, 1991 ERISA LEX IS 49 (Nov. 12, 

1991) ("[W)here several unrelated employers merely execute similar documents or otherwise participate in an 

arrangement as a means to fund benefits, in the absence of any genuine organizational relationship among the 

employers, no employer association, and consequently no employee welfare benefit plan, can be recognized."); 

2008·07 A, 2008 ERISA LEX IS 8 (Sept. 26. 2008) (rejecting local chamber of commerce's request to be an ERISA 

employee welfare benel1t plan); 20!7-02 AC, ERISA LEXIS 2 (May 16. 2017) ("The Department has expressed the 

view that where several unrelated employers merely execute identically worded trust agreements or similar 

documents as a means to fund or provide benefits, in the absence of any genuine organizational relationship between 

the employers, no employer group or association exists for purposes of ERISA section 3(5)."). 

17 
120 

CEWDOCROOM with DISTILLER


Insert offset folio 80 here 28982.080

employee welfare benetit plan. The courts, congressional committees, and the Secretary 

uniformly have held they are not."). 

The ACA directly included the phrase "bona tide association" in the components of the 

statute applicable under the PHSA and ERISA. As noted above, Congress imported key 

protections from Title 27 of the PHSA into ERISA ''as if included in" that Act. See 29 U.S.C. § 

1185d (as amended by§ 1563(e) of the ACA). Among the imported provisions is a guaranteedrenewability protection, see 42 U.S.C. § 300gg-2, that relies on the phrase "bona fide 

association," defined with a series of elements. such as five years of active existence and being 

"formed and maintained in good faith/iJr purposes other than obtaining insurance." See 42 

U.S. C. § 300gg·-91 ( d)(3) (emphasis added). As relevant here. the guaranteed-renewability 

provision requires a health insurance issuer in the large or small group market to "renew or 

continue in Ioree such coverage at the option of the plan sponsor or the individual, as 

applicable," except in connection with a series of exceptions, one of which involves when an 

employer in the small or large group markets ceases to be a member of a "bona fide association." 

!d. § 300gg-2(b)(6). In short, Congress in the ACA imported into ERISA's plain text the phrase 

"bona tide association," along with its attendant narrow definition. effectively ratifying the 

DOL's longstanding interpretation ofthat term. 

Even prior to the ACA 's enactment, Congress had amended ERISA and the interlocking 

statutes related to health plans in the IRC and PHSA numerous times based on the DOL's firmly 

settled interpretation. See, e.g., Consolidated Omnibus Budget Reconciliation Act ("COBRA''), 

Pub. L. No. 99-272, § 1000 I, I 00 Stat. 82, at 222-23 ( 1986) (amending, inter alia, 26 U.S.C. § 

I 06(b)); id. § I 0002, I 00 Stat. 82, at 227-31 (codified at 29 U.S.C. §§ 1161-69) (whereby 

Congress applied the narrow aggregation rules from the IRC, suggesting that Congress 

foreclosed a broad interpretation of"cmploycr•· that would group together many unrelated 

businesses in a single large group); and Health Insurance Portability and Accountability Act 

("HIPAA "). Pub. L. No. I 04-191, II 0 Stat. 1936, at 1964-66, 1982 ( 1996) (reflecting continued 

congressional judgment that unrelated small employers cannot simply be interpreted as one large 

employer at the DOL's discretion, including through a definition of"bona tide association"). 

Given these key statutory schemes creating health plan protections for consumers, and 

these statutes' reliance on DOL definitions, Congress has not len the Department with broad 

discretion to depart so drastically from a settled understanding of how business entities may be 

treated as one employer in these interlocking statutes. 36 In short through a long line of 

enactments establishing and amending interlocking statutory regimes, Congress long ago ratified 

the DOL's narrow conception of"bona tide association" and accordingly barred the Department 

tl·mn so fundamentally altering the established edifice of federal regulation of individual and 

group health insurance. 

For example. HlPAA enacted Section 2791 of the PHS.'\, which defined "large employer" as an employer with an 

average of at least 51 employees during the preceding calendar year and who employs at least 2 employees on the 

first day of the plan year. Pub. L. t\o. 104-191, § 102, I 10 Stat. 1936, at 1975-76. That section defined "small 

employer" as an employer who employed an average of at least 2 but not more than 50 employees on business days 

during the preceding calendar year and who employs at least 2 employees on the first day of the plan year." fd at 

1976. Like provisions earlier enacted in COBRA, and later enacted in the ACA. this HlP AA provision relied on the 

IRC's narrow aggregation rules. !d. 

!8 
121 

CEWDOCROOM with DISTILLER


Insert offset folio 81 here 28982.081

VI. The DOL Should Not Exempt AHPs from State Regulation 

The Proposed Rule also invites comment as to whether the DOL should seek to exercise 

its never-before-used authority to issue regulations that would exempt AHPs from most state 

insurance regulation and enforcement. 83 Fed. Reg. 614,625. The history detailed above (in 

Part ll) shows that this would be a tremendous mistake. Exempting AHPs from state insurance 

laws would allow fraudulent or improperly managed health plans to operate without fear of 

detection or punishment until after the damage has been done. The result would be policyholders 

with unpaid medical bills and health care providers who are not paid for their services. Since 

exercising this authority would require new regulations, if the DOL decides to explore this 

misguided idea further, it should issue a separate proposed rulemaking with an opportunity for 

notice and comment regarding the intended use of this exemption. See 29 U.S.C. 

~ 1144(b)(6)(B). 

To date. the DOL does not have, and has not sought, the regulatory or enforcement 

resources to step into the States' shoes and become the primary regulator of AHPs. Furthermore. 

the Department does not have. and has not proposed, federal financial or other insurance 

standards to protect beneficiaries from the serious consequences that result when an A HP cannot 

or docs not pay medical claims. Exempting A HI's from state regulation would threaten the 

health and financial security of individuals and small employers throughout the country. 

Indeed, States and State Attorneys General have extensive experience protecting 

individuals and small employers from predatory entities that seek to defraud or deceive 

customers through the usc of associations. Some examples include: 

• In 2007, the operators of an association that deceptively marketed its discount 

health plan products to Massachusetts residents as ''Affordable Hcalthcare Plans'' 

and "Top Rated Insurance" were ordered to pay restitution to the defrauded 

consumers, a substantial civil penalty and attorney's tees. and were permanently 

enjoined from engaging in various conduct in Massachusetts37 

In 2009, pursuant to a consent judgment following Massachusetts' consumer 

protection lawsuit, llcalthMarkcts, Inc. and its subsidiaries were ordered to pay 

$17 million, resulting fromunE1ir and deceptive practices through the sale of 

insurance products packaged with memberships in three different associations 38 

• In 2011, the United States Life Insurance Company in the City of New York 

agreed to pay full restitution to consumers whom it required to join associations 

and to whom it misrepresented the terms, benefits, and (very limited) coverage 

17 Compl. at~ 19. Commonwealth of Mass. v. Nat'! Alliance of Assocs. Professional Benefit Consultants. Inc. et al., 

Com pl. No. 09-14048 (Mass Super. Ct. Apr. 6, 2009). 1

:; S'cc Press Release, Att'y Gen. ofl\·1ass., .·lG Afartha c-naklev Reaches $17 ~\til/ion .\"'ettlementwith Health Insurers 

RegarclinK l;,~fair and Deceptire Conduct {Aug. 3l, 2009), hitp://www.mass.gov/agolnews-and-updates/pressrel eases1200<);ag -reaches-! 7 -m i 11 ion-settlement-with-hcalth.html, 

19 
122 

CEWDOCROOM with DISTILLER


Insert offset folio 82 here 28982.082

provided by its plans, as well as the fact that the policies had not been approved 

for sale in Massachusetts.39 

In 2015. Unified Life Insurance Co .. agreed to pay $2.8 million in restitution and 

civil penalties as a result of its deceptive and unlawful selling of sold short-term 

health insurance that was not authorized for sale in Massachusetts, but which it 

deceptively marketed through a third-party association40 

• In 2001. the Maryland Insurance Administration fined and revoked the 

registration of a MEW A administrator that engaged in "illegal and dishonest 

practices'' such as failing to register as an insurer as required by state law, failing 

to pay premiums for stop-loss insurance contrary to representations made to 

employer members (and thereby exposing these employers to unexpected losses), 

and failing to pay claims for insured employees. ivfd. Ins. Admin. v. SA/ Med 

Health Plan, LLC, No. MJA-6-1 /0 I (Md. Ins. Admin. Jan. 16, 200 I). 

• In 2005, the Maryland Insurance Administration lined and revoked the licenses of 

a MEW A's administrator for f~1iling to register with the state as required by law 

and making material misrepresentations regarding the relationship of the MEW A 

to the insured employees and, overall. engaging in conduct that was ''dishonest 

and lacked ... trustworthiness and competence." Md Ins. Admin. v. Dennis Kelly, 

e/ a! .. No. MIA-2005-07-004 (Mel. Ins. Admin. Mar. 30. 2007). 

• From the 1980s through the early 2000s in California, AHP failures hurt 

employees across many different industries. For example, thousands ofCalift)l'nia 

tim11 workers sufTered when a plan created by Sun kist Growers collapsed, leaving 

nearly 5.000 medical providers with an estimated $10 million in unpaid claims. 

Similarly, when Rubell-llelms Insurance Services went out of business, it 

reportedly let1 $l0 million in legitimate medical claims unpaid. 41 

Over many years, state enforcement efforts and oversight have lessened AHP fraud. 

Since the AC A. this success combined with the development of our state and federally facilitated 

health exchanges has resulted in consumers having comprehensive and reliable health coverage. 

Relatcdly, our states have made great strides in decreasing the uninsured rate since the ACA. 

This is largely due to the contluence of a range of atlordable plans together with one single risk 

pool with the same premiums paid by all members of a plan. For example, in New York, the 

"'See Press Release. Att'y Gen. of :VI ass .. Health Ins. Co. to Pay $760,000 j(H· Unlawji1lly Selling l !nauthnri=ed 

flealth Ins in Jfass. and Fai/;ng to Cover ,\!andated Benefits (Ape 25, 2011 ), http://www.mass.gov/ago/news-andupdates/press-releases/20 ll/health-insurance-company-to-pay-760000.html. 

..JO See Press Release, Gen. of Mass., Ins. Co. to Pay $2.8 ,\1i!lion to Resolve Claims Q( l!nlmtful, Deceptive 

Sales ofHealth Ins Stale l.ines (Apr. 4, 2017), http://www.mass.gov/ago/news-and-updates/pressreleases/20 17/20 17 -04-04-insurance-company-to-pay-2-8-mill ion.html. 41 See Melinda Fulmer & Ronald D. White, Sunkist 's I !ealth Plan Collapses, L.A. Times, Jan. 4, 2002, available at 

Robert L. Jackson, !fealth Insurance 'P,vramid' Scams 

l.:tamined: 1 fearing: .luthoriries Panel lhat lnh1e-Based Rubel/-! !eltn /nsuram:e Services Is am on:;; 

Firms under .\'crutinyfhr Allegedly Taking Premiums and .Vot Paying !_.arge. Legitimate Claims, L.A. Times, May 

16. 1990. amilahle a/ http://articles.latimes.com/1990-05-l6/businessifi-362.1~health-insurance. 

20 
123 

CEWDOCROOM with DISTILLER


Insert offset folio 83 here 28982.083

uninsured rate dropped from I 0% to 5%; in California, it dropped from 17% to 7%; in Illinois, 

t!·om 14% to 6.5%; in Maryland, from I 0% to 6%; and in Delaware, from 9% to 6%. In 

Massachusetts, the uninsured rate has dropped from more than I 0% before it enacted health 

refi.mn in 2006 to less than 4% today. The success of our state and federally facilitated 

exchanges, and our future success in decreasing the rates of uninsureds is likely to be impacted 

by any exemption from state regulations that govern the types of AHPs that are envisioned in the 

Proposed Ru !c. 

VII. Conclusion 

For the reasons set forth above, the States strongly oppose the Proposed Rule and urge 

that it be withdrawn. 

Sincerely, 

Calit<xnia Attorney General 

Matthew P. Denn 

Delaware Attorney General 

Acting Attorney General, State ofHawai'i 

21 

George Jepsen 

Connecticut Attorney General 

Attorney General for the District of Columbia 

IMz---l!t . Illinois 

Lisa Madigan 

Attorney 

~ General 
124 

CEWDOCROOM with DISTILLER


Insert offset folio 84 here 28982.084

~~ Tom Miller 

Iowa A Horney General 

Brian E. Frosh 

Maryland Attorney General 

New Mexico Attorney General 

\-~ 'c---:'C , u O\.A ~ -o~-

.losh Shapiro 

Pennsylvania Attorney General 

~Vla,.$1 (R. {-~ Mark R. Herring A 

Virginia Attorney General (J 

Maine Attorney General 

Gurbir S. Grewal 

New Jersey Attorney General 

~ 4:·-;c:~,J.L~-·--

'IJCn F. Rosenblum 

Oregon Attorney General 

22 

Thom~s J/lOnovan Jr. 

Vermbnt t:}torney General 
125 

[Additional submissions by Chairman Walberg follow:] 

CEWDOCROOM with DISTILLER


Insert offset folio 87 here 28982.087

March 20. 2018 

The Honorable Tim Walberg 

Chairman 

Subcommittee on Health. Employment. Labor and Pensions 

U.S. House of Representatives 

2176 Rayburn House Office Building 

Washington, D.C. 20515 

RE: Statement lor the Record: Hearing on the Department of Labor's Proposed 

Rule on Association Health Plans 

Dear Chairman Walberg: 

Thank you for holding the hearing on March 20, 2018 on expanding affordable healthcare 

options that will examine the Department of Labor's (DOL) Proposed Rule on Association 

Health Plans (AHPs). We submitted a comprehensive response to the Proposed Rule and 

appreciate the opportunity to summarize our comments below. 

The National Restaurant Association is the leading business association for the restaurant and 

li.1odservice industry, representing more than 14.7 million employees, nearly I 0 percent of the 

nation's workforce. With one million locations across the country. the $798.7 billion in sales from 

the restaurant industry makes up tour percent of the U.S. GDP. 

Moreover. the restaurant industry is 90% small businesses, serving local communities and 

neighborhoods. Our small business members experienced the same difficulties obtaining 

health coverage as all small businesses- declining from an average of 63% in the ten years 

preceding the Patient Protection and Atlordable Care Act (''PPACA") to 56%1 in 2016. 

We applaud the DOL's endeavor to execute Executive Order 13813 and accomplish its 

three goals, especially regarding A liPs. Having recently launched the Restaurant & 

Hospitality Association Benefit Trust (RHABT) we can validate the difficulties 

establishing an AI-IP. Allowing small businesses to gain the economies of scale and same 

benefit requirements as large employers will allow them to offer more affordable coverage 

and compete for talent on a level playing field. 

1 Kaiser Family Foundation, Employer Health Benefits Annual Survey {2016}, Exhibit H 
126 

CEWDOCROOM with DISTILLER


Insert offset folio 88 here 28982.088

We particularly support the requirement that AHPs must have an organizational structure 

and be fimctionally controlled by its members. This is an important safeguard to ensure 

the AHP represents its members. We also support the Department's efforts to expand the 

oftcring to working owners who are often navigating the unsubsidized individual market. 

While the Proposed Rule offers some regulatory relief, the non-discrimination components 

dramatically expand regulatory requirements resulting in a proposed rule diametrically 

opposed to the goal of the Executive Order. The proposed non-discrimination rules, 

specifically for varying premiums by employer, would effectively eliminate the creation of 

any startup AHPs and jeopardize the viability of existing AHPs. A startup's lack of 

experience. combined with onerous non-discrimination rules, would make carriers even 

less likely to support a new AHP. 

The DOL's logic for this regulatory expansion is flawed on several levels: 

• Much of the order is spent establishing the level of cohesion and commonality necessary 

to diflcrentiate an AHP versus a commercial insurance company. The DOL then 

proposes expanding commercial insurance regulatory requirement to AHPs to distinguish 

them from being a commercial insurance company. 

• The DOL writes employer-by-employer risk rating undermines ·'acting in the interest of 

employers." However, AHPs by regulation are run by and for the benefit of the employer 

members. It is illogical to say an entity run by and for the benefit of employer members is 

not acting in the interests of said employer members. 

• The DOL treats employers as similarly situated individual employees, despite critical 

dif!crences in how employers obtain health insurance versus individuals. Employers have 

real choices in the open market for health insurance where they can switch vendors if 

they do not like pricing. service, networks, or wellness program options. Employees 

etlcctivcly can only choose between heavily subsidized employer coverage or no 

coverage. Individual employees benefit trom non-discrimination because they do not 

have choices. The ability to change vendors in an open market is a critical distinction for 

why it is incorrect to expand this regulation from individual employees to employers. 

• The proposed non-discrimination rules would destabilize the existing AHP 51+ segment 

by creating adverse selection. The existing 51+ segment allows insurance carriers to vary 

premiums by employer whereas AHPs must offer the same rate to all employers. This 

creates a system where less healthy employers gravitate to AHPs driving up costs for 

remaining members. The resulting cost increases would quickly limit the ability of 

relatively small AHPs to attract moderately healthy groups. This would effectively force 

existing AHPs out of business or exiting the 51+ segment- resulting in increased 

consolidation in the marketplace and decreased competition. 
127 

CEWDOCROOM with DISTILLER


Insert offset folio 89 here 28982.089

Below arc further suggestions we submitted for DOL's Consideration: 

• Grandfather Existing Multiple Employer Welfare Arrangements ("MEW As") 

/AHPs. lfthc DOL publishes the final rule, in substantially the same form, there needs to 

be a clearly stated option for existing MEW As/AHPs to be grandfathered into the current 

regulatory structure or many existing AHPs will likely be put out of business. Reducing 

choice and competition in the market is the exact opposite of the Executive Order. 

• Promote transparency vs regulation. Transparency to employers and consumers is 

critical to ensuring the tradeoff between premium reductions and benefit/financial 

protection reductions is clearly understood especially in the under 50-segment. To 

mitigate this possible issue the Association supports the creation of a simple, standard 

disclosure form that clearly states in plain language any differences in benefit coverage to 

Essential Health Benefits and if financial limits are higher than the PPACA limits. 

Thank you tix our leadership on this issue and the opportunity to comment further on the 

Proposed Rule to expand access to health coverage by allowing more employers to form AHPs 

and the Request for Information on sclt:insurance. 

Respcctfi.J!Iy submitted, 

Senior Vice President, Health and Insurance Services National Restaurant Association 
128 

CEWDOCROOM with DISTILLER


Insert offset folio 85 here 28982.085

C!tnngr.css nf t11e l~nit.cll §fates 

llinslringtou, 1il<!r 20515 

The Honorable Alexander Acosta 

Secretary 

U.S. Department of Labor 

200 Constitution Avenue, N.W. 

Washinb'lon, D.C. 20210 

March 23,2018 

RE: Definition of "Employer" Under Section 3(5) of ERlSA-Association Health Plans 

RIN 1210-ABSS 

Dear Secretary Acosta: 

We write to you regarding association health plans ("AHP") in the State oflndiana. We applaud 

the Administration for taking action to expand the benefits of AHPs to more small businesses. 

My home state oflndiana is fortunate to have a robust AHP market that provides value and 

choice to a significant number of employees and dependents. While we share the 

Administration's commitment to expand access for small businesses to AHPs, we encourage the 

Department take appropriate steps to ensure that new regulations do not adversely impact AHPs 

that have been successfully operating. 

For a number of years, AHPs have offered valuable coverage options for small employers 

seeking alternatives to costlier products available in the traditional small group market. There are 

a number of fully-insured and self-funded AHPs successfully operating across Indiana, and their 

continued success demonstrates the demand among small businesses seeking to provide 

comprehensive coverage options to their employees. Importantly, these plans satisfy all state and 

federal benefit requirements, with some offering more generous coverage than required for 

ACA-compliant plans, while also offering important consumer protections like guaranteed issue 

and renewal of coverage. 

While the Department's proposed rule would make several important changes to expand access 

to AHPs, the proposal could significantly alter the successful AHP market in Indiana by 

inhibiting AHPs from treating different employer members as distinct groups for rating purposes. 

This could threaten the comprehensive benefits currently available through AHPs in Indiana. By 

removing the ability to set premiums for each member employer based on the experience of their 

workforce and dependents, AHPs are left with fewer options to create affordable plans that can 

compete with products on the small group market. This could lead to AHPs reducing the benefits 

they currently provide, potentially forcing employees and their dependents off plans that are 

working for them. 

The Department can avoid this outcome by modifying the regulation to permit AHPs operating 

prior to the date when the proposed rule was published in the Federal Register to continue 
129 

CEWDOCROOM with DISTILLER


Insert offset folio 86 here 28982.086

operating as they have been. We encourage the Department to consider grandfathering these 

plans and allowing them to set premiums for each of their employer members using the same 

approaches they have used for many years. A grandfathering approach could result in even more 

choice for small businesses by allowing them to choose from plans in the traditional small group 

market, the grand fathered AHP market, and the newly expanded AHP market. 

We appreciate the Department's efforts to promote access to AHPs through this rulemaking. By 

carefully considering the needs of existing plans successfully operating in Indiana and other 

states, the Department can deliver on the promise of expanded coverage options for small 

businesses while ensuring that changes to current regulations and l:,'llidance do not adversely 

impact existing plans and the families they cover. 

... ~ 

Jackie Walorski 

Member of Congress 

Susan W. Brooks 

Member of Congress 

Sincerely, 

~-fF"'VL~Ao'~·. on, M.D. 

'ongress 

Member of Congress 
130 

CEWDOCROOM with DISTILLER


Insert offset folio 90 here 28982.090

Multi-Association Health Plan Coalition 

April3, 2018 

The Honorable Tim Walberg, 

Chairman 

Subcommittee on Health, Employment, Labor, 

and Pensions 

Committee on Education and the Workforce 

U.S. House of Representatives 

Washington, DC 20515 

The Honorable Gregorio Kilili Camacho Sablan, 

Ranking Member 

Subcommittee on Health, Employment, Labor, 

and Pensions 

Committee on Education and the Workforce 

U.S. House of Representatives 

Washington, DC 20515 

Re: Hearing on Expanding Affordable Health Care Options: Examining the Department of Labor's 

Proposed Rule on Association Health Plans 

Dear Chairman Walberg and Ranking Member Sablan: 

The Multi-Association Health Plan (MAHP) Coalition is pleased to submit this statement for the 

subcommittee's March 20 hearing on DOL's proposed rule on Association Health Plans (AHPs). Our 

coalition operates within the printing, publishing, communications and allied industries and was formed 

to obtain association health insurance for our small business members. 

We believe AHPs can be part of the solution for America's healthcare, and are gratified by the proposed 

regulatory framework put forward from DOL's Employment Benefits Security Administration (EBSA). 

Specifically, we support EBSA's proposed language to expand "commonality-of-interest" requirements 

and promote AHP formation on the basis of industry, and we have asked that the final rule clarify that a 

related group of associations can band together as a Multi-Association Health Plan and be considered an 

"employer" in order to provide a health plan to the MAHP's collective membership. 

Bona fide associations in the same line of business should be able to form AHPs and MAHPs anywhere in 

the country and the full text of our comments to EBSA is attached. 

Thank you, 

Susan Rowell 

President 

National Newspaper Association and 

Publisher, The Lancaster (SC) News 

Hamilton Davison 

President & Executive Director 

American Catalog Mailers Association 

Attachment: MAHP Coalition Comments to DOL/EBSA 

Michael Makin 

President & CEO 

Printing Industries of America 
131 

CEWDOCROOM with DISTILLER


Insert offset folio 91 here 28982.091

Multi-Association Health Plan Coalition 

March 1, 2018 

Office of Regulations and Interpretations 

Employment Benefits Security Administration 

U.S. Department of Labor, Room N-5655 

200 Constitution Avenue, NW 

Washington, DC 20210 

Attn: Definition of Employer- Small Business Health Plans RIN 1210-AB85 

To the Docket: 

On behalf of the Multi-Association Health Plan {MAHP) Coalition, comprising the National Newspaper 

Association and Printing Industries of America, we enthusiastically support President Trump's Oct. 12, 

2017, Executive Order {EO) 13813 "Promoting Healthcare Choice and Competition Across the United 

States," to expand healthcare options for America. Our coalition operates within the printing, 

publishing, communications and allied industries and was formed to obtain association health insurance 

for our small business members. 

Our small business members have struggled before the Affordable Care Act {ACA) was passed as well as 

after its implementation to find affordable health plans. Most have long since been priced out of group 

plans for themselves and their employees. As such, they and their staffs either are attempting to 

purchase affordable insurance on the ACA exchanges or are going without coverage, at great risk to 

their health and productivity. Many report that even if they can find coverage on the exchanges, the 

choices are too limited for them to find what they need, and some of our members are in counties 

where no plans or only one plan have been offered for periods of time. 

We believe association health plans {AHPs) can be part of the solution for America's healthcare, and are 

gratified by the proposed regulatory framework that has been put forward for comment from the Dept. 

of Labor {DOL). Specifically, we are pleased by proposed language that would expand the ability to meet 

"commonality-of-interest" requirements in DOL advisory opinions (AO 94-07A and AO 2001-04A) that 

interpret the definition of an "employer" under Section 3{5) of the Employee Retirement Income 

Security Act (ERISA). We are particularly pleased that this language would promote AHP formation on 

the basis of industry. 

Definition of "Employer" 

The proposed rule would amend the definition of "employer" to expand the types of groups and 

associations that would qualify as single employers for purposes of sponsoring an ERISA health plan. 
132 

CEWDOCROOM with DISTILLER


Insert offset folio 92 here 28982.092

Under current law, only a "bona fide" employer association can act as an employer and establish an 

ERISA plan. A bona fide employer association must consist of individual member employers who: 

Join together for reasons other than providing health coverage; 

Have one or more common law employees; 

Control the association; and 

Share a "commonality-of-interest," which generally means the member employers and the 

association share a sufficiently close economic or representational interest, such as operating in 

the same industry. 

AHPs have been regulated under ERISA as multiple employer welfare arrangements (or MEW As), which 

could be an employee benefit plan covering all members of an association. As stated, this has been 

defined as a bona fide group or association over which dues paying members exercise the requisite 

control. DOL would determine the existence of a bona fide association of employers based on criteria 

listed above per AO 2005-20A. 

This criterion has prevented employers from joining together for the exclusive purpose of providing 

health coverage and prevented employers from joining together if they are not closely related, even if in 

the same geographic area. The rationale for this traditional definition is sound, as it discourages creation 

of risky plans, ensures that individuals with experience in their industries have a stake in the governance 

of the plans and lends credibility in the marketplace. 

Bona fide employer associations also have another advantage over individual plans and small group 

markets (SO or fewer employees) under the Affordable Care Act in that they qualify for the large group 

market (51 or more employees) and are not required to provide ACA essential health benefits. Thus, a 

group health plan established and maintained by a bona fide employer association is considered a single 

plan and, assuming there are at least 51 employees in the aggregate among all member employers, the 

plan will fall into the large group market rather than having to comply with more costly rules in the 

smaller health plan regulatory structure. 

We support the proposed rule's expanded definition of "employer" to allow more associations to qualify 

as bona fide and ask that the final rule clarify that a related group of associations can band together (as 

a Multi-Association Health Plan or MAHP) and be considered an "employer" in order to provide a health 

plan to the collective membership. This would be done consistent with current protections that are 

designed to prevent adverse consequences and to ensure that AHPs resemble employer-sponsored 

arrangements and not commercial insurance. 

AHP Certainty 

Many of us have desired the opportunity to develop health insurance plans for our small business 

members for more than two decades and have supported bipartisan legislation to that effect. In so 

doing, it has always been our goal to create a regulatory framework that fosters legitimate AHPs and 

precludes fraudulent activity that could leave participants in the lurch. For example, we are pleased that 

5. 1818, the Small Business Health Plans Act of 2017, establishes financial transparency and regulatory 

oversight for AHPs in Sec. 806 Requirements for Application and Related Requirements, including a 

bonding disclosure requirement to state officials where an AHP operates, and that these requirements 

are augmented in Sec. 3 Cooperation Between Federal and State Authorities. 

Also, Sec. 801 Association Health Plans and Sec. 803 Requirements Relating to Sponsors and Boards of 

Trustees in H.R. 1101, the Small Business Health Fairness Act of 2017, provide criteria for sponsorship of 
133 

CEWDOCROOM with DISTILLER


Insert offset folio 93 here 28982.093

AHPs that we support. However, please note that we prefer the clarifying language inS. 1818 that a 

consortium of bona fide associations [a Multi-Association Health Plan or MAHP] qualifies as a plan 

sponsor, so that organizations with insufficient numbers of small members to form a favorable risk pool 

can join together for a more solvent and attractive offering. 

Commonality-of-Interest 

Among the factors considered by DOL for a bona fide group or association have been the purpose for 

which a group/association was formed and who controls and directs operations of the benefit program. 

Also, employers that participate in a benefit program must directly or indirectly exercise control over the 

program, and DOL further clarified that the person or group that maintains the plan must be "tied to the 

employers and employees that participate in the plan by some common economic or representation 

interest or genuine organizational relationship unrelated to the provision of benefits." 

The degree of commonality-of-interest has depended on the facts, but an association of employers in 

unrelated industries would most likely not meet the current criteria. However, a group of associations 

whose members comprise different facets of a common industry, such as a supply or distribution chain, 

would appear to meet the current criteria and definitely would appear to qualify under the proposed 

language's expanded view. As such, we support that aspect of the proposal and hope the Department 

(EBSA) makes clear that such a group would qualify. 

Under the proposed rule, member employers can establish a commonality-of-interest if they "Are in the 

same trade, industry, line of business, or profession, regardless of state boundaries." 

Accordingly, the MAHP Coalition urges consideration of these concerns: 

1. Many associations are too small or have too few eligible plan participants to form a viable 

risk pool. We are not seeking a self-insured plan, but hoping to attract a qualified 

underwriter. One of the lessons from the Senate Health Education Labor and Pensions 

(HELP) and House Education and the Workforce Committees' thorough examination of 

healthcare over the past decade is that the widest possible pool of enrollees is necessary to 

enable insurers to underwrite viable plans. We believe the concept is sound to require 

associations to prove that they were formed and are in continuing existence for purposes 

other than providing health insurance. But DOL must allow bona fide associations to create 

umbrella entities that can serve a number of otherwise-qualified associations and allow 

them to combine their enrollees into a large, consolidated pool in order to attract 

competition for the plans. 

2. We have worked with Sen. Mike Enzi to ensure that these networks (Multi-Association 

Health Plans or MAHPs) can be created, and his Small Business Health Plans Act of 2017 (S. 

1818) includes language in Section 801(b)(4) that a qualified plan sponsor can be "a bona 

fide trade association or a consortium of such associations." This language ensures that 

smaller associations can band together to sponsor a health plan, thus creating a more 

attractive economy-of-scale for underwriters. For these reasons, we support the proposed 

rule's expanded view of "commonality-of-interest" and request that DOL's final regulations 

take the same approach. 
134 

CEWDOCROOM with DISTILLER


Insert offset folio 94 here 28982.094

Preemption of State Rules 

Finally, the question of requiring nationally-based, federally-regulated health plans to comply with 

regulations of the various states must be carefully addressed. Simply put, states have two kinds of 

mandates in place: 1) health coverage mandates; and 2) financial solvency mandates. 

While our organizations intend to seek plans that provide coverage of pre-existing conditions, the 

impossibility and expense of complying with each state's coverage mandates have defeated AHPs in the 

past. It is crucial that federal regulations provide flexibility for the market to offer plans that address 

various coverage needs, and for associations to shop for and provide the plans that best fit their 

members' needs. 

Federal regulations will have to preempt state coverage mandates to some extent in order for AHPs to 

maintain the efficiencies that will translate to lower insurance costs for participants. The vast majority 

of AHPs, including the Multi-Association Health Plan we want, would be fully insured. Therefore, they 

would be based on insurance offerings already registered, regulated and routinely filed in every state 

(under the rubric of policy-holder protection), which lends itself to federal streamlining. 

Also, the issue of "must offer vs. must provide" for coverage requirements should be addressed since 

"must provide" mandates are driving up the costs of health insurance. The ability of bona fide employer 

associations to qualify for the large group market and not be required to provide ACA essential benefits 

will need to be augmented with federal preemption over "must-provide" state coverage mandates. 

One possibility would be modeled on the Health Insurance Marketplace Modernization and Affordability 

Act of 2006 introduced by Sen. Mike Enzi. Under that legislation, Small Business Health Plans (or AHPs) 

would have to offer at least one comprehensive benefit package modeled on a state employee plan in 

one of the five most populous states. AHPs that offer such a plan would be granted the flexibility to 

offer other benefit packages that are exempt from state mandated benefits laws (from which large 

corporations and unions are now exempt). 

With regard to financial solvency mandates, states certainly have an interest in requiring a sound fiscal 

basis for plans operating within their borders. And, per ERISA's preemption rules, if a MEWA (including 

an AHP) is fully insured, state insurance regulations can require the MEWA to maintain specified levels 

of reserves and/or contributions. However, fifty varying mandates on other coverage requirements will 

be problematic to the viability of AHPs that want to cross state lines. 

As stated, we support reasonable financial solvency and transparency requirements for AHPs, but the 

viability of nationwide AHPs will depend on their being able to maintain their economies-of-scale. The 

patchwork quilt of state mandates creates complex legal barriers that will thwart the promise of AHPs as 

envisioned in the proposed rule. Therefore, we recommend that federal regulations preempt these 

mandates perhaps by sweeping them into ERISA-Ievel regulation, and we again also suggest language in 

S. 1818 and H.R. 1101 as possible templates for the proposed rule's interplay with state solvency and 

transparency requirements. 

Conclusion 

We note that White House talking points that accompanied President Trump's Executive Order state 

that a factor for regulatory action to allow AHPs across state lines is that, "A broader consumer-friendly 

interpretation of the federal law governing insurance (ERISA) could potentially allow employers in the 
135 

CEWDOCROOM with DISTILLER


Insert offset folio 95 here 28982.095

same line of business anywhere in the country to join together to offer healthcare coverage to their 

employees." 

We agree that employers who belong to bona fide associations in the same line of business should be 

able to form AHPs and MAHPs anywhere in the country, and urge Secretary Acosta and EBSA to enable 

associations related by supply chain or other common interests to band together to offer such health 

plans. 

Thank you, 

Susan Rowell 

President 

National Newspaper Association and 

Publisher, The Lancaster (SC) News 

Hamilton Davison 

President & Executive Director 

American Catalog Mailers Association 

Michael Makin 

President & CEO 

Printing Industries of America 
136 

CEWDOCROOM with DISTILLER


Insert offset folio 96 here 28982.096

National Association of Home Builders 

120 l I ~)th Stmet NW 

\Nmh1ngton DC ?000~ 

f H00308b2.t.;:: 

f 202 2G6 8400 

March 20, 2018 

The Honorable Tim Walberg 

Chairman 

Subcommittee on Health, Employment, 

Labor, and Pensions 

U.S. House of Representatives 

Washington, DC 20515 

Government Affairs 

James W Tobm !II 

President & Chief lobbyist 

and Communications Group 

The Honorable Gregorio Sablan 

Ranking Member 

Subcommittee on Health, Employment, 

Labor, and Pensions, 

U.S. House of Representatives 

Washington, DC 20515 

Dear Chairman Walberg and Ranking Member Sablan: 

On behalf of the approximately 140,000 members of the National Association of 

Home Builders (NAHB), I am writing to express NAHB's appreciation to the 

Subcommittee on Health, Employment, Labor, and Pensions for holding today's 

important hearing on the Department of Labor's (DOL) proposed rule expanding the 

ability of employers to join together to secure health care coverage through an 

association health plan (AHP). We thank this Subcommittee and the Committee on 

Education and the Workforce for their continued attention to this issue. 

Smaller employers face significant challenges in negotiating high-quality care at 

costs that they and their employees can afford. In a 2015 survey, 72% of NAHB 

members saw premium increases of over 10% in the year prior, including 8% who 

saw more than a 50% increase. Small businesses are subject to higher premiums. 

and because of their size, limited in the types of plans to which they have access 

through the small group health insurance market. 

NAHB has long advocated for association health plans as a means for smaller 

employers to provide group health benefits for their employees. Currently, only 

certain states allow employers to band together in AHPs, with regulations varying 

vastly from state to state among those that do. Even in these states, the barriers to 

successfully setting up and operating an AHP are high. 

NAHB has welcomed recent proposals from Congress and the Trump Administration 

to loosen restrictions on the expansion of AHPs, including the House-passed Small 

Business Health Fairness Act (H.R. 1101) and the Small Business Health Plans Act 

(S. 1818). Earlier this month, we were pleased to submit comments on the 

Department of Labor's proposed rule to provide a regulatory framework for treating 

health plans sponsored by associations as large group health coverage for purposes 

of federal and state health care laws. This will enable more associations to provide 

affordable quality health benefits to their members. 

NAHB is supportive of the proposed rule. We believe that associations such as ours 

are uniquely suited to provide comprehensive, affordable health care for their 

members through a single large group health plan by leveraging economies of scale 

and administrative efficiency. The proposed rule's expansion of the definition of 
137 

CEWDOCROOM with DISTILLER


Insert offset folio 97 here 28982.097

··employer· tor purposes ot :;ect1on 3(!:>) of I::KI:;A Will allow us to establish and operate an AHP 

across state lines, expand our member businesses' coverage options and rates, and also help 

attract and retain talented workers with competitive benefit offerings. Additionally, the proposed 

expansion of coverage under an AHP to "working owners" will help more workers in the 

residential construction sector to gain access to affordable health coverage by allowing 

independent contractors to sign up for a health plan offered by an association. 

At the same time, we believe there is further opportunity to improve upon the proposed rule. 

Specifically, NAHB recommends that only a legitimate established organization, or a trust or 

other entity affiliated with such an organization, be permitted to sponsor an AHP to prevent 

fraud and abuse. Further, we urge further improvements to ERISA to ensure a smooth 

coordination between AHPs and state insurance laws. 

NAHB's full comments to DOL are enclosed. We look forward to working with the Department of 

Labor and other agency stakeholders, the White House, and Congress to expand access to 

AHPs and further promote and expand health care options for small businesses. 

Again, thank you for holding this important hearing and for considering our views. 

James W. Tobin Ill 

Encl: NAHB Comments: Definition of Employer- Small Business Health Plans RIN 1210-AB85. 
138 

CEWDOCROOM with DISTILLER


Insert offset folio 98 here 28982.098

National Assocl~tfon 

of Home Builders 

March 5, 2018 

Office of Regulations and Interpretations 

Employee Benefits Security Administration 

Room N-5655 

U.S. Department of Labor 

200 Constitution Avenue, NW 

Washington, DC 20210 

Office of Legal Affairs 

James G. Rizzo 

Executive Vice President & Chief Legal Officer 

JRizzo@nahb.org 

Attention: Definition of Employer- Small Business Health Plans RIN 1210-ABBS. 

To Whom It May Concern: 

On behalf of the National Association of Homebuilders ("NAHB") and its membership, I am pleased to submit 

comments in response to proposed rules issued by the Department of labor (the "Department") that would 

broaden the criteria under Section 3(5) of the Employee Retirement Income Security Act of 1974, as amended 

("ERISA") for determining when employers and individuals may join together to form a group or association 

treated as the sponsor of a single large group health plan (the "Proposed Rules"). 

Overview of NAHB 

Since it was founded in the early 1940s, NAHB has worked to ensure that housing is a national priority and that 

all Americans have access to safe, decent and affordable housing. NAHB represents the largest network of 

craftsmen, innovators and problem solvers dedicated to building and enriching communities. Each year, NAHB's 

members construct about 80% of the new homes built in the United States, both single-family and multifamily. 

Comprised of a federation of more than 700 state and local builders' associations, NAHB represents more than 

140,000 members. About one-third of NAHB's members are home builders and remodelers and the remaining 

members work in closely related specialties, such as, sales and marketing, housing finance, building trades and 

manufacturing and supply of building materials. We are dedicated to providing education and tools to our 

members, servicing their business needs and assisting them in navigating today's complex political and 

economic issues. 

NAHB commends the Department on issuing the Proposed Rules to better enable associations to provide 

affordable quality health benefits to their members and to provide a regulatory framework for treating health 

plans sponsored by associations ("Association Health Plans" or "AHPs") as large group health coverage for 

purposes of federal and state health care laws. We believe that associations, such as NAHB, are uniquely suited 

to provide comprehensive, affordable health care for their members through a single large group health plan by 

leveraging economies of scale and administrative efficiency. We recognize that the Proposed Rules chart new 

territory for group health plans sponsored by associations and appreciate the opportunity to submit the 

following comments on the Proposed Rules. 

120115th Street NW I Washington, DC 20005 I T 202 266 8200 I 800 368 5242 I nahb.org 
139 

CEWDOCROOM with DISTILLER


Insert offset folio 99 here 28982.099

Office of Regulations and Interpretations 

Employee Benefits Security Administration 

March 5, 2018 

Page 2 

Definition of Bona Fide Association (§2510.3-S(b)(l)) 

While NAHB supports the expansion of the definition of "employer" for purposes of Section 3(5) of ERISA, we 

are concerned that permitting an entity to form an association solely for the purpose of providing health 

benefits without any nexus or tie to an existing, legitimate association is problematic and subject to abuse. 

We recommend that only a legitimate established organization, or a trust or other entity affiliated with such an 

organization, be permitted to sponsor an AHP and that the organization affiliated with or sponsoring the AHP 

have a legitimate business purpose separate and apart from the establishment of a health plan for its members. 

To that end, we recommend that the criteria to be a "bona fide association" be revised to require that the 

association be (i) organized under the laws of a state, (ii) recognized as a not-for-profit corporation with 

exemption from federal taxation; and (iii) established and operated for at least two years prior to the date the 

AHP is established. In addition, we recommend that the final rule be clarified to permit an association (as 

defined above), or multiple affiliated associations in the same industry, to join together to establish a trust or 

other legal entity for purposes of sponsoring an AHP. This clarification will ensure that AHPs are sponsored and 

administered by bona fide associations, or joint entities or trusts established by or affiliated with bona fide 

associations, and will protect consumers from commercial arrangements that are established solely for financial 

gain without any other connection to the members. 

Further, the Proposed Rules make an assumption that the members of an association are either employers of 

common law employees or working owners with dual employer/employee status. We would like to highlight the 

fact that not all association membership consists solely of employer groups and working owners. In fact, 

membership in an association is often comprised of individuals who may be common law employees of 

employers that are not also members of the association. For example, membership in the NAHB consists of 

individuals who are members of their local affiliated building association (which can either be an employer or 

individual membership), sole proprietors working in the industry who meet membership criteria and students or 

apprentices sponsored by a member. Other associations where this membership structure is prevalent include 

professional associations, such as the American Bar Association. We encourage the Department to clarify that 

members of an association may participate in an AHP sponsored by that association even if their common law 

employer is not also a member of the association. 

Commonality of Interest Test (§2510.3-S(c)) 

NAHB supports the first prong for satisfying the "commonality of interest" test set forth in §2510.3-5(c)(1) of the 

Proposed Rules, namely that the employers be in the same trade, industry, line of business or profession, 

regardless of geographic location. However, we have concerns about the second prong of the commonality of 

interest test set forth in §2510.3-5(c)(2) of the Proposed Rules that would permit single large group health plans 

to be established by regional associations without any common ties by trade, industry or profession. We believe 

the second prong of the commonality of interest test facilitates the establishment of commercial arrangements 

with no connection or ties to underlying participants (other than geography) and could result in an increase in 

sham arrangements that are susceptible to financial mismanagement and insolvency- arrangements which the 

existing MEWA rules are meant to discourage. 

With regard to the meaning of the terms "trade", "industry" or "line of business", NAHB encourages the 

regulators to interpret these terms broadly to encompass related trades in the same industry. For example, 

while all NAHB members must serve the home building, multi-family development and remodeling industry, in 

120115th Street NW I Washington, DC 20005 I T I 800 368 5242 I nahb.org 
140 

CEWDOCROOM with DISTILLER


Insert offset folio 100 here 28982.100

Office of Regulations and Interpretations 

Employee Benefits Security Administration 

March 5, 2018 

Page 3 

addition to builders and developers, members also include a wide variety of professionals, artisans and 

tradespeople, such as plumbers and electricians, who support the home building and development industry. In 

short, all members of a legitimate association (and their families) should be permitted to participate in an AHP 

sponsored by or affiliated with the association, provided they otherwise meet the criteria for membership. For 

this reason, we agree that it is important to maintain the organizational structure, participation, governance and 

functional control requirements of the Proposed Rules. 

Expansion of AHP coverage to Working Owners and Definition of Working Owner (§2510.3-S(e)(l) and {2)) 

NAHB strongly supports the expansion of coverage under an AHP to "working owners", but has concerns about 

the way in which the term "working owner" is defined in the Proposed Rules. First, we recommend that the 

definition of "working owner" in §2510.3·5(e)(2) be modified to eliminate the requirement in subparagraph (iii) 

that the individual must not be eligible for other subsidized group health plan coverage under a group health 

plan sponsored by any other employer of the individual or the spouse's employer. This requirement unfairly 

disadvantages working owners and their spouses who have access to other employer sponsored health care and 

would also be administratively cumbersome for AHPs to monitor. Further, coverage through a spouse's or other 

employer's health plan may not be the most affordable or appropriate option for a working owner and his or her 

family and may cause undue hardship to an individual who is precluded from electing preferable AHP coverage 

on this basis. 

In addition, we believe the hours requirement for purposes of meeting the definition of "working owner" in 

§2510.3-S(e)(iv)(A) should be modified to enable interns and apprentices of trades, such as the building trades, 

to qualify for health coverage under an AHP sponsored by an association of which they are members. 

Participation criteria could be based on hours worked performing services for a trade even if such individuals are 

not working a full-time schedule or paid for their work. Apprenticeship and internship programs are extremely 

common in many industries, including the building industry, and offer a career path to many individuals who 

choose not to attend a four-year college or university. 

We do, however, support the provision in the Proposed Rules that would permit a group or association 

sponsoring an AHP to reasonably rely on a written representation from an individual that he or she meets the 

eligibility criteria for participation in the AHP as a working owner. A written representation will greatly relieve 

the administrative burden on the plan sponsor to request proof and verify eligibility and is consistent with other 

forms of written representations used in concert with group health plan administration. 

Clarify that Participation in AHP is not a Basis for finding Joint Employment Status under other Federal and 

State laws 

We believe it is important for the Department to add a safe harbor to the regulation to clarify that an 

employer's participation in an AHP with other unrelated employers may not be used as indicia of joint 

employment status for purposes of other sections of ERISA, such as Section 510 of ERISA, or other federal and 

state labor laws, or common law. The independent nature of small businesses and working owners should be 

preserved. The final rules should also clarify that the sponsor of the AHP cannot be sued as an "employer" 

under Section 510 of ERISA and should be treated as an "employer'' solely for purposes of Section 3(5) of ERISA 

to enable an AHP to be treated as a large group health plan. 

120115th Street NW I Washington, DC 20005 IT I 800 368 5242 I nahb.org 
141 

CEWDOCROOM with DISTILLER


Insert offset folio 101 here 28982.101

Office of Regulations and Interpretations 

Employee Benefits Security Administration 

March 5, 2018 

Page 4 

ERISA Preemption 

NAHB supports broad ERISA preemption of state insurance laws as they may apply to AHPs. Subjecting AHPs to 

myriad state insurance laws will significantly hamper their adoption by legitimate associations. We believe that 

the organizational structure, participation and governance requirements applicable to AHPs under the Proposed 

Rules, in connection with the additional requirements for sponsorship by, or affiliation with, bona fide 

associations or groups of associations discussed in these comments, will put AHPs on the same strong structural 

and financial footing as single employer plans which enjoy broad ERISA preemption. 

AHPS are already subject to sufficient federal and state regulatory oversight without additional regulation 

specifically aimed at multiple employer welfare arrangements, or MEW As. Associations that are exempt from 

federal tax are required to file Form 990 with the Internal Revenue Service and are subject to audit. 

Associations are also accountable to their dues-paying members and governing boards and may also be subject 

to additional state laws and reporting requirements under state laws that govern not-for-profit or charitable 

organizations. Insurers that issue group health insurance policies to AHPs are subject to licensing, reserve 

requirements and regulation under federal and state law, and group health insurance policies issued to AHPs 

must comply with state mandated benefit requirements and be filed with the department of insurance in the 

state where the policy is delivered and/or sitused. In addition, fully-insured and self-insured MEW As are subject 

to federal reporting on the Department's Form M·l and Form 5500 (with related financial schedules for AHPs 

funded through trusts) and are also subject to oversight, audit and enforcement by the Department under laws 

applicable to MEW As, recently strengthened under the Affordable Care Act. 

In conclusion, we support the Department's effort to expand the sponsorship of single employer large group 

health plans to legitimate associations for the benefit of their members and members' families and support 

affording such plans broad ERISA preemption from state insurance laws. We believe that AHPs, if properly 

structured, will result in lower costs and provide greater access to comprehensive health care for small 

employers and individuals through membership in an association. 

Respectfully submitted, 

James G. Rizzo 

120115th Street NW I Washington, DC 20005 I T I 800 368 5242 I nahb.org 
142 

[Additional submission by Ms. Wilson follows:] 

CEWDOCROOM with DISTILLER


Insert offset folio 102 here 28982.102

March 6, 2018 

Jeanne Klinefelter Wilson 

Deputy Assistant Secretary 

Employee Benefits Security Administration 

Department of Labor 

Room N-5655 

200 Constitution Avenue, NW 

Washington D.C. 20210 

American Cancer Society 

Cancer Action Network 

555 11" Street, NW 

Suite 300 

Washington, DC 20004 

202.661.5700 

www.acscan.org 

Re: RIN 1210·AB85: Definition of "Employer" Under Section 3(5) of ERISA- Association 

Health Plans Proposed Rule 

83 Fed. Reg. 614 (January 5, 2018) 

Dear Deputy Assistant Wilson: 

The American Cancer Society Cancer Action Network (ACS CAN) appreciates the opportunity to 

comment on the proposed rule implementing changes to the Employee Retiree Income Security Act's 

(ERISA's) definition of "employer" for purposes of determining when employers may join together to 

form an Association Health Plan (AHP). ACS CAN is the nonprofit, nonpartisan advocacy affiliate of the 

American Cancer Society and supports evidence-based policy and legislative solutions designed to 

eliminate cancer as a major health problem. As the nation's leading advocate for public policies that are 

helping to defeat cancer, ACS CAN ensures that cancer patients, survivors, and their families have a 

voice in public policy matters at all levels of government. 

ACS CAN supports efforts to reduce the number of uninsured Americans. Having adequate and 

affordable health insurance coverage is a key determinant in surviving cancer. Research from the 

American Cancer Society shows that uninsured Americans are less likely to get screened for cancer and 

thus are more likely to have their cancer diagnosed at an advanced stage when survival is less likely and 

the cost of care more expensive' 

We have opposed previous federal initiatives to encourage the growth of AHPs because these plans 

promote the growth of products that do not provide comprehensive coverage, could damage the nonAHP individual and small group markets, and inadequately address issues of plan solvency and 

regulatory oversight, especially in light of the long record of AHP fraud and solvency problems. As 

discussed in more detail below, we outline several concerns we with have with the proposed rule in its 

current form. We believe this proposed rule should not be finalized until the needs of the patient 

community have been met. 

AHP Coverage Could be Less Comprehensive: The health plans sold by AHPs are currently regulated 

mostly as either individual or small group coverage and are therefore subject to consumer protection 

1 E Ward et al, "Association of Insurance with Cancer Care Utilization and Outcomes," CA: A Cancer Journal for 

Clinicians 58:1 (Jan./Feb. 2008), http:!/www.cancer.org/cancer/news/report-links-health-insurance-status-withcancer-care. 
143 

CEWDOCROOM with DISTILLER


Insert offset folio 103 here 28982.103

American Cancer Society Cancer Action Network 

Comments an AHP Proposed Rule 

March 6, 2018 

Page2 

standards provided under the Affordable Care Act (ACA). The proposed rule could seriously erode the 

affordable comprehensive coverage now available in most states' individual and small group markets 

that is so critical to cancer patients and survivors. Exempt from any benefit and cost-sharing standards, 

AHPs could offer products lacking prescription drug coverage or rehabilitation services. These products 

could leave critical gaps in coverage (e.g., the plan could cover only generic drugs and a limited set of 

branded products) and could require very high deductibles and coinsurance. 

Expanding AHPs Could Lead ta Market Segmentation: Because the AHPs would no longer be subject to 

the Essential Health Benefit (EHB) requirements or the state benchmark requirements that define the 

scope of those benefits, these plans would fuel market segmentation. The premiums for AHP products 

would likely be lower than for ACA-compliant plans, not because of any AHP administrative efficiencies, 

but because of the more limited benefit packages. As a result, younger and healthier individuals would 

be attracted to enroll in AHPs, leaving older, sicker, and costlier individuals in the individual and small 

group products that are subject to the ACA's stricter consumer protection and other market 

requirements. The adverse selection spiral experienced by those non-AHPs, could lead the plans to 

charge increasingly higher premiums, making them unsustainable. It is for these reasons that the 

National Association of Insurance Commissioners,' the National Governors Association,' and the 

American Academy of Actuaries' have also been historically opposed to AHPs. 

Past Experience with AHPs: We are also concerned about the proliferation of AHPs because of their 

history of fraud and financial instability. For a long time, these products were not traditionally subject to 

the same state insurance solvency and licensing requirements that allowed regulators to maintain 

necessary oversight 5 If an AHP lacked the financial resources to pay claims, then enrollees were left 

with no coverage and high out-of-pocket costs. Even in cases of well-meaning AHP sponsors, 

insolvencies led to millions of dollars in unpaid claims 6 

Our concern about the potential for a new wave of AHP fraud and solvency problems arises out of the 

open question regarding the authority of the federal government and the states to regulate AHPs under 

the Department's outlined policy framework, a critical issue that we discuss in further detail later. The 

preamble notes that the Department of Labor has enforcement authority to issue a cease and desist 

order when a Multiple Employer Welfare Arrangement (MEWA), a type of AHP, engages in fraudulent or 

other abusive conduct and to issue a summary seizure order when a MEWA is in a financially hazardous 

condition_~ Called into question in the Request for Information and elsewhere in the proposed rule's 

preamble is the continuation of the existing state role in regulating MEW As, especially those that are 

not fully-insured and thus more likely to encounter solvency and fraud problems. The Department 

National Governors Association, Governors Oppose Association Health Plans, May 2004, available at 

b.t1!2.?.Jl.lc'!ww.nga.org/.£1Il..WlQrm:Lr.l'C\Nk.LoornjJl."-'!!;;.::L~ase~~QQ.4Lc:.Q!~content/main-content-
144 

CEWDOCROOM with DISTILLER


Insert offset folio 104 here 28982.104

American Cancer Society Cancer Action Network 

Comments on AHP Proposed Rule 

March 6, 2018 

Page 3 

appears to be considering a final rule that would provide a sweeping federal preemption of state 

authority in this arena. We are very concerned about any policy that would weaken the states' role in 

regulating AHPs. 

The Department of Labor would need far greater resources than it has had in the past or currently exists 

to fully monitor AHPs in aliSO states and provide for effective enforcement where noncompliance issues 

arise. ACS CAN strongly urges the Department to follow current law and reaffirm the authority of the 

states to regulate AHPs more generally. We note that state regulators are often on the front lines of 

consumer complaints and can be in a better position to monitor what is happening in their markets. 

PROPOSED REGULATION 

A. Employers Could Band Together for the Single Purpose of Obtaining Health Coverage 

The proposed rule seeks to allow employers to band together for the express purpose of offering health 

coverage if they are: (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. 

We note that the preamble discusses at length how this proposed policy would help small businesses 

reduce their health care costs, but at the same time, the Department declined to limit the policy only to 

small employers. In fact, the preamble notes that it expects minimal interest from large employers given 

that they already enjoy market advantages, nevertheless "there may be some large employers that may 

see cost savings and/or administrative efficiencies in using an AHP as a vehicle for providing health 

coverage to their employees."' We are concerned that allowing large employers to join together to form 

an AHP either with other large employers and/or a mixture of large and small employers would 

segment the market further and would siphon younger, healthier individuals into these products and 

away from the individual market. We strongly urge the Department to disallow large employers from 

forming an AHP. 

Under the proposed policy, an AHP could sell across state lines if the businesses to which membership 

was offered shared some common geographic area. It also seems likely, however, that AHPs could 

market across state lines to the extent that they meet the other commonality of interest provision, that 

is, that they are in the "same trade, industry, line of business or profession." To the extent that the rule 

was to permit a state to impose solvency and other standards on these plans, as we urge, it is unclear 

which state would have jurisdiction over the AHP. If an AHP were formed in the greater Washington, 

D.C. area, it is unclear whether the state insurance regulators in Maryland, D.C., and Virginia would have 

joint jurisdiction. If an AHP selling to real estate brokers across the country was domiciled in Georgia, 

would other states' insurance laws apply to that AHP? Or, as it appears possible under the preamble 

language, would any or all state laws be preempted from applying to the AHP coverage or would the 

application of state law be limited to only that state in which the AHP was primarily domiciled. The 

potential for problems to arise would be significant. AHP participants might discover that they have no 

recourse under state law to obtain benefits due under the terms of the AHP and federal law and 

oversight would seem to be minimal as outlined in the preamble. 

8 83 'ed. Reg. at 620 
145 

CEWDOCROOM with DISTILLER


Insert offset folio 105 here 28982.105

American Cancer Society Cancer Action Network 

Comments on AHP Proposed Rule 

March 6, 2018 

Page4 

B. The Group or Association Must Have an Organizational Structure and Be Functionally 

Controlled by Its Employer Members 

The proposed rule would require that the group or association have a formal organizational structure 

with a governing body and have by-laws or other indications of formality and that the group control its 

functions and activities. 

We are concerned that this proposal is not sufficient to address concerns regarding the financial 

solvency of the AHPs. The proposed rule does not impose any federal solvency requirements to ensure 

that entities have sufficient resources to prevent financial failure. These solvency requirements exist to 

ensure that a health insurer is able to pay claims when their enrollees experience high health care 

claims, such as when an enrollee is diagnosed with cancer. If an AHP has insufficient reserves to pay 

claims, the AHP risks folding, thus leaving enrollees suddenly with no health coverage and potentially 

liable for any medical expenses that have been incurred. 

In the preamble the Department recognizes past solvency and fraud problems with Multiple Employer 

Welfare Arrangements (MEW As) but glosses over the potential for these problems to multiply under the 

far less stringent organizational requirements specified in the proposed rule. This concern is magnified 

to the extent that states, which require issuers of insurance to meet capital and reserve requirements, 

are prevented from regulating AHPs. 

C. Group or Association Plan Coverage Must be Limited to Employees of Employer Members and 

Treatment of Working Owners 

The proposed rule would require that only employees and former employees (including dependents) 

may participate in the health plan sponsored by the association. 

More concerning though is the inclusion in the proposed rule of working owners (self-employed 

individuals) as eligible entities for coverage under AHPs based solely on their self-certification. The 

proposed policy is inconsistent with ERISA as a law created to protect employees of private sector firms, 

since a working owner may not have any employees-' 

In addition, the proposed policy could dramatically increase the likelihood that the individual insurance 

market, including the Qualified Health Plans (QHPs) selling through the ACA marketplaces, would 

experience severe adverse selection and become unsustainable. AHPs would draw healthier individuals 

away from the ACA-compliant individual market products, turning the latter into the coverage of last 

resort for those in need of more comprehensive benefits. Together with the repeal of the shared 

responsibility (individual mandate) requirement under the Tax Cuts and Jobs Act, signed into law in late 

2017, this measure would make it impossible over a few years' time for ACA-compliant plans to retain 

sufficiently large and balanced risk pools to survive. 10 (Federal costs would also grow substantially to 

cover the increased QHP premiums for those eligible for the ACA's premium subsidies.) 

9 Both ERISA regulation 29 CFR 2510.3-3 and the Public Health Service Act (42 U.S.C. § 300gg-91) make clear that 

employer-owners without any employees would not qualify as employees. 10 The Congressional Budget Office (CBO) estimated 13 million additional people would be uninsured by 2026 as a 

result of the repeal of the individual mandate. CBO, "Repealing the Individual Health Insurance Mandate: An 

Updated Estimate," November 2017, available at b.\![ls://www.cbo.gov/system/files/115th-congress-2017-

20 18/reports/5 3 300 · i nd ivid u alma n date. pdf. 
146 

CEWDOCROOM with DISTILLER


Insert offset folio 106 here 28982.106

American Cancer Society Cancer Action Network 

Comments on AHP Proposed Rule 

March 6, 2018 

Page 5 

Moreover, because AHPs would be exempt from the current law requirement for a single risk pool and 

risk adjustment, no mechanism would exist to require their participation in the spreading of risk that 

helps offset the losses of ACA-compliant plans (including QHPs. As the ACA-compliant individual and 

small group markets became more expensive, less well-meaning entities would likely form AHPs in an 

effort to make a quick profit off of consumers seeking lower-cost alternatives. 

D. Nondiscrimination Protections 

The proposed rule would prohibit the group or association from restricting members in the association 

itself based on any health factor of an employee (including former employees and family members). 

Health factors include health status, medical condition (both physical and mental illness), claims 

experience, receipt of healthcare, medical history, genetic information, evidence of insurability, and 

disability. 

We are pleased that the proposed rule would not allow the group health plan sponsored by the AHP 

group or the AHP to exclude enrollees based on a health factor, including their health history. We 

believe that an individual's health status and health history should not be taken into account for 

purposes of determining eligibility for health coverage or cost-sharing associated with benefits provided 

under the plan. 

However, we are concerned that the while the proposal would prohibit health discrimination within 

groups of similarly situated individuals, it would not prohibit discrimination across different groups of 

similarly situated individuals." For example an AHP could impose different rates based on age (the 3 to 

llimit under the ACA would not apply), gender, industry, group size and geography. It could also charge 

an employer with higher rates of females higher premiums or an employer with a relatively younger 

workforce lower premiums. An AHP seeking to achieve favorable selection would face few constraints 

on its ability to fashion and price products that attract the lowest-cost, lowest-risk enrollees. We are 

concerned that this provision provides a back-door way for an AHP to use health status to determine 

premiums. 

The Department requests comment on whether its proposed non-discrimination rules would result in 

involuntary cross-subsidization across firms that would discourage AHPs from forming. We strongly urge 

the Department to ensure that guaranteed issue, guaranteed renewability, adjusted community rating, 

a single risk pool and risk adjustment, all required under the ACA's individual and small group markets 

and applicable today to most AHPs, continue to apply to AHPs. A separate and weaker set of federal 

minimum standards, such as envisioned by this proposed rule, would invite the kind of risk 

segmentation that we have already described, greatly limiting the affordable coverage options for 

individuals with preexisting health conditions like cancer or a history of cancer, or are older or have 

other risk factors, such as employment in a high-risk industry. 

11 83 Fed. Reg. at 624. 
147 

CEWDOCROOM with DISTILLER


Insert offset folio 107 here 28982.107

REGULATORY IMPACT ANALYSIS 

1.3 AHP's Potential Impacts 

American Cancer Society Cancer Action Network 

Comments on AHP Proposed Rule 

March 6, 2018 

Page 6 

The proposed rule's stated goal is to facilitate the establishment of more AHPs in order to make more, 

and more affordable, health coverage options available to more. employees of small businesses and their 

dependents 1 ' However, even the rule itself notes that "[w]hile the impacts of this proposed rule, and 

AHPs themselves, are intended to be positive on the net, the incidence, nature and magnitude of both 

positive and negative effects are uncertain. Among factors impacting uncertainty, as cited in the 

proposed rule, are legislative proposals to repeal and replace the ACA, state's ability to regulate AHPs, 

and interaction with related initiatives including the short-term limited duration policies." 13 

Given the amount of uncertainty, we question the wisdom of allowing the proliferation of AHPs or 

whether it would be wise to delay the implementation of any proposed changes until such time as 

efforts to provide more stability to the individual market have been permitted to take effect. We caution 

that the impact analysis conducted by the Department is incomplete. The repeal of the individual 

mandate penalty beginning in 2019 is expected to have a significant impact on the individual market and 

the proposed rule failed to include any analysis regarding the extent to which the interaction of those 

policies would affect the viability of the individual market. 14 In addition, we note that other efforts by 

the Administration- such as the recently released proposed rule on short-term limited duration 

policies15 - will also have a profound impact on the individual market and should be taken into account 

for purposes of determining the impact on the individual market. 

1.5 Increased Choice 

The proposed rule notes that AHPs would not be subject to the individual and small group market rules, 

and thus "would enjoy greater flexibility with respect to the products and prices they could offer to 

small businesses." 16 We are concerned that the proposed rule would allow AHPs to offer coverage that 

does not include the Essential Health Benefits (EHBs) or the state EHB benchmarks that define their 

scope. 

Moreover, it appears that AHPs may also be exempt from the ACA's Minimum Essential Coverage and 

maximum out-of-pocket cost limits by virtue of the proposed rule's definitional changes. As a result, an 

AHP could offer lower-cost coverage than non-AHPs simply by not covering expensive cancer drugs or 

any prescription drugs or could cap the number of hospital days or offer no inpatient hospital coverage. 

Exemption from the ACA's 60 percent minimum essential coverage requirement could give rise to AHP 

coverage that actually pays for very little of an enrollee's health care expenses. 

"83 Fed. Reg. at 626. 13 83 Fed. Reg. at 627. 1

' Recent analysis by Avalere estimates higher premiums in both the individual and small group markets and an 

increase in the number of uninsured Americans relative to current law. Avalere, "Association Health Plans: 

Projecting the Impact of the Proposed Rule," Feb. 28, 2018, available at 

l:.WJ:!.;ilgQ.avalere .com/ acton/ attach me nt/12909/f -05 2JJ.1l.:H::.L: 

1Association%20Health%20Pians%20White%20Paper.pdf. 

"Internal Revenue Service, Employee Benefits Security Administration, and Department of Health and Human 

Services, Short-Term, Limited Duration lnsuranc,. Proposed Rule, 83 Fed. Reg. 7437 (Feb. 21, 2018). 

83 Fed. Reg. at 628. 
148 

CEWDOCROOM with DISTILLER


Insert offset folio 108 here 28982.108

American Cancer Society Cancer Action Network 

Comments on AHP Proposed Rule 

March 6, 2018 

Page 7 

Thus, AHPs could impose high enrollee cost-sharing on benefits likely to be expensive to insure or to 

attract higher-risk enrollees. While technically enrollees might be insured, the insurance offered to them 

would be inadequate to meet their needs, leaving them exposed to a significant amount of out-ofpocket costs. Enrollees who signed up for an AHP assuming that they were healthy and in little need of 

health care could find themselves uninsured for critically-needed health care in the event of a serious 

illness, like a cancer diagnosis. 

Moreover, to the extent that plans offered by AHPs do not meet the Minimum Essential Coverage 

requirements, an individual who needs or wants to leave their AHP to enroll in an ACA-compliant plan 

(for example to access more comprehensive coverage or because their AHP has become insolvent and 

stopped paying claims) would likely not be given a special enrollment period to do so, and would have to 

wait till open enrollment, thus resulting in a gap in coverage. 

The selection dynamics created by this proposed rule would inevitably lead to a severe segmentation of 

the private insurance market, jeopardizing the adequacy and affordability of coverage for those 

Americans most in need of health care. Should the rule be finalized in its current form, the ACAcompliant plans, especially the QHPs, could be significantly weakened, experiencing declining numbers 

of participants that would undermine the spreading of risk. As stated earlier, to the extent that AHPs 

draw the healthier and younger enrollees, the non-AHPs (especially the QHPs selling through the 

marketplaces) would likely become insurers of last resort, vulnerable to a death spiral undermining their 

viability. Especially in the absence of the enforceable individual mandate, healthier individuals and small 

groups will either migrate to AHPs or go uninsured. 

The proposed rule makes note of these concerns, yet dismisses them by stating that these risks "may be 

small, however, relative to the benefits realized by small businesses and their employees that gain 

access to more affordable insurance that more closely matches their preferences." 17 The Department is 

seemingly suggesting that a concern about the lack of adequate and affordable coverage options to 

those in the individual market is outweighed by lower premiums provided to small businesses (even 

though these premiums would be lower because coverage would not be as comprehensive). From a 

cancer perspective, affordable health insurance premiums are important but equally important are the 

adequacy of the benefits provided under the plan. 

1.6 Risk Pooling 

The proposed rule indicates that AHPs would not be part of the risk adjustment program that seeks to 

minimize risk for insurers in the individual and small group market. Rather, the Department suggests 

that such programs are not necessary given that AHPs would be subject to non-discrimination policies 

outlined above. However, we again note that non-grandfathered health insurance coverage and the 

insurers selling that coverage in the remaining individual and small group markets would have to meet 

federal minimum requirements related to rating, a single risk pool, the EHBs, and participation in the 

risk adjustment system. They would have to shoulder the effects of adverse selection through these risk 

pooling measures; AHPs, on the other hand, would be exempt from sharing in any of the costs 

associated with that adverse selection. The proposed application of a non-discrimination rule that allows 

AHPs to rate on factors other than those that are defined to be health-status related would create an 

extremely un-level playing field for insurers, likely leading most if not all to exit the marketplaces. 

17 83 Fed. Reg. at 628. 
149 

CEWDOCROOM with DISTILLER


Insert offset folio 109 here 28982.109

American Cancer Society Cancer Action Network 

Comments on AHP Proposed Rule 

March 6, 2018 

Page 8 

In response to concerns that AHPs could siphon younger and healthier individuals by offering lowerpriced products, the Department suggests that pricing flexibility would be the only advantage provided 

to AHPs and suggests that an AHP may realize sufficient efficiencies that would enable it to offer lower 

premiums even to less healthy individuals. Yet the Department offers no evidence to support its theory. 

The plans sold through the AHPs use the same network of healthcare providers as health insurers or 

third-party administrators (TPAs) and thus the likelihood is low that an AHP, even with a large number of 

participants, would be able to achieve more discounted prices than these issuers. If an AHP seeks to 

contract directly with providers in order to achieve discounted prices, it would require an enormous 

investment of resources to establish that network and again, seems unlikely to achieve deeper discounts 

than insurers or TPAs. Moreover, there are administrative costs associated with establishing and 

operating an AHP and they would have to be reflected in its premiums. For these reasons, when asked 

to estimate AHP proposals introduced in Congress, the Congressional Budget Office has concluded that 

they would not likely lead to significant increases in health insurance coverage, including for small 

businesses. 18 

1. 7 Individual and Small Group Markets 

We are concerned that the proposed rule seems to suggest that its intent is to shift individuals from 

marketplace coverage to coverage through an AHP, noting that many individuals who are enrolled in 

marketplace coverage could become eligible for an AHP. The proposed rule incorrectly suggests that 

"the ACA creates significant incentives for some people to wait to purchase insurance until an 

enrollment period that occurs after they have experienced a medical need." The ACA was designed to 

ensure that as many individuals as possible were enrolled in coverage and in fact contained a provision 

that imposed a fine on individuals who failed to maintain coverage. Also as the Department is aware, 

the Department of Health and Human Services has severely curtailed an individual's opportunity to 

enroll in marketplace coverage outside the annual open enrollment period, much less create a special 

enrollment period for individuals who have a medical need. 

In fact, the proposed rule notes that the "Department considered the potential susceptibilities of 

individual and small group markets to adverse selection under this proposal" but notes the "ACA's 

requirement that essentially all individuals acquire coverage and the provision of subsidies in Exchanges 

may reduce that susceptibility." 19 The individual mandate was repealed in recent legislation, thus 

negating the Department's arguments. 

18 Congressional Budget Office, Small Business Health Fairness Act of 2005 (H.R. 25), cost estimate (Apr. 2005), 

available at bJJsdLV-!ww.cbo.gov/sites/default/files/cbofiles/ftpdocs/62xx/doc626_2l.hr525.pdf; Congressional 

Budget Office "Increasing Small-Firm Health Insurance Coverage Through Association Health Plans and 

Healthmarts," (January 2000), available at 

hJ.!flJ/www.cbo.gov/sites/default/fi~bofiles/ftpdocs/18xx/doc1815/healthins.pdf. 

83 Fed. Reg. at 630·631. 
150 

CEWDOCROOM with DISTILLER


Insert offset folio 110 here 28982.110

Conclusion 

American Cancer Society Cancer Action Network 

Comments on AHP Proposed Rule 

March 6, 2018 

Page9 

On behalf of the American Cancer Society Cancer Action Network we thank you for the opportunity to 

comment on the proposed rule. If you have any questions, please feel free to contact me or have your 

staff contact Anna Schwamlein Howard, Policy Principal, Access and Quality of Care at 

Anna. Howard@cancer.org or 202-585-3261. 

Sincerely, 

Christopher W. Hansen 

President 

American Cancer Society Cancer Action Network 
151 

[Questions submitted for the record and their responses follow:] 

CEWDOCROOM with DISTILLER


Insert offset folio 111 here 28982.111

AprillO, 2018 

COMMITTEE ON EDUCATION 

AND THE WORKFORCE 

U.S. HOUSE OF REPRESENTATIVES 

2176 RAYBURN HOUSE OFFICE BUILDING 

WASHINGTON, DC 20515-6100 

Christopher E. Condeluci 

Principal and Sole Shareholder 

CC Law & Policy PLLC 

I 001 4th Street, SE 

Washington, DC 20003 

Dem Mr. Condcluci: 

HOBERTC"BO!'J6Y"SCOTT,VJRGINIA 

RS>i<lnvMen>ber 

Thank you again for testifying at the March 20,2018, Subcommittee on Health, Employment, 

Labor, and Pensions hearing on "Expanding Affordable Health Care Options: Exmnining the 

Department ofLahor's Proposed Rule on Association Health Plans." 

Enclosed are my additional questions following the hearing. Please provide written responses no 

later than April 24, 2018, for inclusion in the official hearing record. Responses should be sent to 

Alexis Murray ofthe Committee staff, and she can be contacted at (202) 225-7101. 

We appreciate your contribution to the work of the Committee. 

Sincerely,/ 

/./;~ .... ----~?A--M .. . / .. -· Tim Walberg /_/'" 

Chairman '"// 

SubcommiVeon Health, Employment, Labor, and Pensions 

Enclosure 

CC: 1l1e Honorable Gregorio Kilili Camacho Sablan 

Ranking Member, Subcommittee on Health, Employment, Labor, and Pensions 
152 

CEWDOCROOM with DISTILLER


Insert offset folio 112 here 28982.112

Questions for the Record 

Headng: "Expanding AffonlaiJic Health Care Options: Examining the Department of 

Labor's Pmposed Rule on Association Health l'lans" 

Tuesday, Mnch 20, 2018 

Chairman Walberg (Ml) 

There have been reports in the past regarding beneficiary diHicnlties dealing with 

interstate insurance sellers. I am interested lo know the steps this proposed rule will take 

to ensure consumers arc confident they arc dealing with legitimate insurance products 

and who or what entities will be responsible for advocating for the patient in purchase or 

coverage disputes? 

2 State regulators have long been at the forefront of detecting frandulent association health 

plan activity within their states, and arc equipped to respond more quickly than those at 

the federal level in shutting down insolvent operations. What do you think is the proper 

role of states in regulating association health plans and how do you view this rule 

afleeting that role? 
153 

CEWDOCROOM with DISTILLER


Insert offset folio 113 here 28982.113

Questions for the Record 

Hearing: E:qmnding Affordable Hl~alth Care Options: Examining the Department of 

Labor's Proposed Rule on Association Health Plans 

Tuesday, March 20,2018 

There have been reports in the past regarding beneficiary difficulties dealing with 

interstate insurance sellers. I am interested to know the steps this proposed rule will take 

to ensure that consumers are confident they are dealing with legitimate insurance products 

and who or what entities will be responsible for advocating for the patient in purchase or 

coverage disputes'? 

Can consumers he confidentthev are dealing with legitimate insurance products? 

An '"association health plan'' (A!IP) established pursuant to the proposed Department of Labor 

(DOL) regulations is considered a "group health plan" under the law. As a group health plan. a 

fully-insured and self-insured AHP will be subject to the Employee Retirement Income Security 

Act (ERISA). the AtTordable Care Act (ACA). the Health Insurance Portability and 

Accountability Act (IIIPAA), and the Consolidated Omnibus Budget Reconciliation Act 

(COBRA). 

Fully-insured and self-insured A HI's are subject to the ACA's "coverage requirements." This 

means that an AHP (l) cannot deny a person who is eligible to participate in the plan health 

coverage if they have a pre-existing condition, (2) cannot refuse to cover preventive services 

(rather. the AHP must provide free coverage for certain government-approved preventive 

services). and (3) cannot impose annual and lifetime limits on the Federal "essential health 

benefits'· covered under the plan. Additional ACA requirements apply- most notablycoverage for adult children up to age 26. free access to emergency care, and the prohibition 

against rescinding coverage absent fraud. 

lliPAA protections also apply to fully-insured and self-insured AHPs. For example, premiums 

for an AHP plan participant canna/ be developed based on the participant's health condition. 

Instead. premiums arc developed based on the "health claims experience" of the entire 

group. As a best practice. sponsors of a fully-insured or self-insured group health plan charge 

every participant the same premium rate. 

Under ERISA. there are specific notice and disclosure requirements, and also fiduciary 

responsibilities that apply, requiring the plan sponsor of the AHP to act in the best interest of the 

plan participants. Participants also have a private right of action to sue the plan sponsor of the 

AHP ifthere is wrong-doing. And. there are detailed procedures for tiling health claims. and 

rigorous internal and external appeals processes. In addition, continuation coverage rules under 

COBRA apply. 
154 

CEWDOCROOM with DISTILLER


Insert offset folio 114 here 28982.114

Who or what entities will be responsible fin· advocating fin· the patient in purchase or coverage 

disuules:' 

As stated above, a fully-insured and self-insured AHP is considered a group health plan under 

the law. As a result, the AHP will be governed by ERISA, which imposes specific fiduciary 

responsibilities on those individuals that exercise control over the AHP. 

The proposed DOL regulations require the group of employers and/or sell~employed individuals 

with no employees (referred to as "working owners") establishing an AHP to establish a formal 

organizational structure with a governing body (such as a Board of Directors or Trustees) to 

exercise control over the A liP. The proposed regulations also require that the employer and/or 

working owner members of the AHP must have the power to nominate, elect, and/or remove 

members of the Board of Directors or Trustees. 

The elected members of the Board of Directors or Trustees as fiduciaries of the AHP- are 

required to act in the best interest of the AHP participants. This includes advocating for A l-IP 

plan participants who may have purchase or coverage disputes with the insurance carrier underwriting the health coverage or the plan sponsor of a self-insured AHP, which is the Board. 

In the event the purchase or coverage disputes are not resolved to the A l-IP participant's 

satisfaction by the insurance carrier or the Board, there are specific claims procedures and 

internal and external appeals processes that the participant may pursue. For example. a 

participant may seek an external review of any coverage dispute. which includes an independent 

review of outside experts (often times in accordance with a State's external review requirements 

that are consistent with the National Association of Insurance Commissioners· Uniform External 

Review Model Act). 

The DOL is also responsible for ensuring that purchase or coverage disputes among ERISAcovered plan participants are adequately addressed. The DOL has Field Otlices in which 

ERISA-covered plan participants (which include AHP participants) can contact with specific 

complaints about coverage disputes or benefit denials. In addition, in cases where the AI-IP is 

fully-insured. an AHP participant can contact the State Insurance Department with specific 

pmchase or coverage disputes with the insurance carrier under-writing the coverage. 

State regulators have long been at the forefront of detecting fraudulent association health 

plan (AHP) activity within their States, and ar·c equipped to respond more quickly than 

those at the Federal level in shutting dowu insolvent operations. What do you think is the 

proper role of States in regulating AHPs and how do you view the proposed Department of 

Labor (DOL) regulations affecting that role? 

The proposed DOL regulations do not impact a State's ability to regulate insurance. In other 

words, States have the exclusive authority to regulate insurance products offered within their 

State, and the DOL regulations do nothing to impact this authority. As a result. States will 

wntinuc to serve as the primary regulator of AHPs- both fully-insured and self-insured AHPseven after the DOL regulations arc finalized. 
155 

[Whereupon, at 11:55 a.m., the Subcommittee was adjourned.] 

Æ 

CEWDOCROOM with DISTILLER


Insert offset folio 115 here 28982.115

It is important to note that an AHP is by definition a ··multiple employer welfare arrangement'' 

(MEW A). In the case of fully-insured ME WAs (i.e .. fully-insured AHPs). States are permitted 

to impose specific reserve and contribution level requirements on these plans. In addition, State 

insurance regulations applicable to the insurance carrier under-writing the AHP will continue to 

apply. And. the State's benefit mandates will apply to the AHP's insurance contract. 

In the case of self-insured MEW As (i.e., selt~insured AHPs), ERISA gives States the exclusive 

authority to impose any State insurance law requirement on these arrangements. Over the years, 

States have enacted their own State MEW;\ laws with varying degrees of regulation- ranging 

from restrictive to permissive. For example, some States have an outright prohibition against 

self~ insured ME WAs operating within the State, while other States allow self-insured ME WAs 

to operate free most of the State's insurance regulations. Because the DOL proposed regulations 

do nothing to inhibit a State's ability to regulate self-insured MEW As (i.e., selt~insured AHPs), 

States are tl·ee to amend their existing State MEW A laws to be more restrictive or permissive, as 

the case may be. 

I personally believe that the States should continue to serve as the primary regulator of AHPsboth fully-insured and self: insured AHPs because ''health care is local.'' That is. States have a 

better understanding of the needs of their constituents and the issues that may directly impact 

their insurance markets. In addition, because State regulators typically arc "closer'' to activities 

that may go on within their borders, States have the ability to swiftly act in cases of fraudulent or 

abusive activities. 

Having said that though, I also believe that the DOL should play a critical role in serving as a 

regulator of self~ insured AHPs. In my opinion. critics of AHPs overlook the fact that- through 

the Affordable Care Act (ACA)- Congress strengthened the DOL's ability to monitor selfinsured MEW As (i.e., self: insured AHPs) through increased notice and disclosure requirements. 

The ACA also enhanced the DOL's enforcement authority by providing extended civil and new 

criminal penalties, and the ACA now allows the DOL to stop a MEW A's operations or seize its 

assets in certain circumstances without a court order. Congress is free to further augment the 

DOL's enforcement authority either through increased funding for enforcement or additional 

enforcement tools if concerns over regulating self~insured AHPs remain.