Is Labor Dept.'s Expansion of Association Health Plans Legal?

The Labor Department’s proposed rule to expand association health plans could be coming soon and with it, the potential for lawsuits.

Skeptics of the proposed rule say conflict with existing federal law could subject a final regulation to litigation. That finalization may come sooner rather than later. Sen. Rand Paul (R-Ky.), a major congressional proponent of the rule, recently told Bloomberg Law that people could expect to see a final rule within the next month.

The rule would expand access to the small employer group health plans by changing the DOL’s definition of the term “employer” as it relates to federal employment law, allowing more people to access and form their own plans by geography or industry for the purpose of health insurance. The comment period for the rule ended March 6.

Supporters of the rule, like former Health and Human Services Secretary Tom Price who recently told Bloomberg Law he was looking forward to the final regulation, say it would allow more small businesses and self-employed individuals access the same affordable health care available to large companies. Critics say the low-cost, potentially low-coverage plans offered by associations could lure young, healthy people from the individual marketplace of the Affordable Care Act, ultimately leaving behind an older, sicker population.

President Donald Trump’s “determination to sabotage the ACA is so great that he has ordered his administration take measures that are very likely to be illegal, and that says everything you need to know about his priorities and values,” Andrew Bates, a spokesman for the liberal Super Political Action Committee American Bridge, told Bloomberg Law.

Conflict With ERISA?

Association health plans can’t be expanded by a regulation because it violates the Administrative Procedures Act, Stuart M. Gerson, former Justice Department official in the George H.W. Bush and Clinton administrations and lawyer at Epstein Becker & Green PC, told Bloomberg Law. “I certainly favor more competition, and competition across state lines, but I believe that would take a statutory change to properly take effect.”

Redefining the DOL’s interpretation of the word “employer” would violate the APA “because there would be a contradiction between a regulation and a statute,” Gerson said. The statute being the Employee Retirement income Security Act.

The administration, which asked the DOL to explore the idea of expanding association health plans in an October 2017 executive order, likely would defend itself against any accusations of wrongdoing by saying it was expanding the definition of employer under ERISA “to allow sufficient flexibility,” Gerson said.

“I don’t know how you amend ERISA by a regulation,” Gerson said. “It seems to me the sort of thing the Trump administration criticized the Obama administration for trying to do with respect to other aspects of the Affordable Care Act.”

Others disagree.

“The definition of employer under ERISA includes ‘a group or association of employers,’ but the statute doesn’t define what the group or association is,” Christopher Condeluci, a health-care attorney who helped write portions of the ACA as a member of the Senate Finance Committee, told Bloomberg Law. “The DOL has defined what it is through interpretive guidance.”

The department has the authority to change its own interpretive guidance, as long as it goes through the normal rulemaking process, Condeluci said. The “critical” point is that the DOL would be following the “Chevron deference” doctrine, which defers interpretation of statute to federal departments in cases where the statute is ambiguous or doesn’t define a term as lone as the interpretation is reasonable.

“Critics may argue that the department’s interpretation is unreasonable, but I would find it hard to believe that a court of law would view the department’s interpretation here as being unreasonable,” Condeluci said. “Especially because they’re going through the normal rulemaking process.”

Regulation Challenges Mounting

Congress gave the secretary of labor broad authority to interpret ERISA and the current rule falls under that authority, Bradford P. Campbell, a lawyer at Drinker Biddle & Reath LLP and former head of DOL’s Employee Benefits Security Administration when George W. Bush was president, told Bloomberg Law. EBSA is the agency responsible for the proposed association health plan rule.

“However, that doesn’t mean there wouldn’t be legal challenges against it,” Campbell said. Challenges against regulations typically fall into one of two categories, he said: Does the rule follow the administrative process? And is the regulation within the bounds of the agency’s authority and reasonable interpretation?

There’s been an increase in challenges against agency regulations over the past few years—the recent challenges to the Obama-era fiduciary rule being among them, he said. “But I don’t think that’s changing the ability of agencies to promulgate regulations.”