37 Former Insurance Commissioners, Former State Insurance Regulators, Experts on Association Health Issue Public Comment to Labor Dept.
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The comment was on Docket No. EBSA-2023-0020-0001.
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To: Assistant Secretary
Attention: RIN 1210-AC16
Room N-5655
Re: Definition of "Employer" - Association Health Plans - RIN 1210-AC16
Dear Assistant Secretary Gomez:
We are a group of former insurance commissioners, former state insurance regulators, and experts on association health plans (AHPs). Many of us signed onto an amicus brief in the D.C. Circuit in the New York v.
For the same reasons that we opposed the 2018 AHP Rule in court, we now support the DOL's proposal to rescind the 2018 Rule in its entirety.
AHP Fraud and Abuse Exists and Has Existed Since ERISA's Enactment
After ERISA was passed, individuals seeking to evade state insurance regulatory oversight used group purchasing arrangements called Multiple Employer Trusts (METS) to argue that these were entities covered by ERISA and that state insurance law did not apply. In 1982, after many multiple employer scams,
Even after ERISA was clarified, there have been several documented cycles of large-scale scams promoted through associations. According to the
1 363 F. Supp. 3d 109 (D.D.C. 2019).
2 "
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...Cycles of scams typically correspond to significant increases in premiums./3 Promoters (often unlicensed) market to small businesses and individuals, offering premiums at prices below what is generally available. Before the ACA, promoters also targeted self-employed people who could not pass medical underwriting or were charged higher rates based on their health. One self-employed person was left with
When
Between 2001 and 2003,
AHPs Have Been Used as a Way to Misrepresent Products and to Induce Consumers into Believing that
The state insurance departments took action against many AHPs for misrepresenting the products they were selling. Some AHPs made claims that their "much cheaper" products were "just as good a major medical health insurance," when in fact the AHP product was a bundled package of excepted benefit or other non-major medical products. These "bundled" AHPs products typically include a variety of excepted benefit policies, such as "mini-med," accident only, hospital indemnity, and cancer/specified disease, and/or short-term, limited-duration plans or medical discount cards.
Many people and small businesses were duped. Some associations told consumers that by joining the association, they were becoming employees of the association and could get less expensive coverage. For example, between 2006 and 2015, former Montana Insurance Commissioner John M...
3 Amicus Brief filed by Former Insurance Regulators in
4 Id. at 13.
5 Attorney General of the
6 Gallagher, Posey Announce Felony Charges against Operators of Unlicensed Insurance Entity,
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...Morrison (2000-2007) and former Montana Insurance Commissioner
AHPs have a long history of insolvencies. Self-insured AHPs are inherently less stable than state regulated insurance companies. Approximately 20 states have licensing standards specifically for self-insured AHPs./8 All other states reported that they require self-insured AHPs to be licensed as insurance companies.
Compared to traditional insurers, self-insured AHPs are at greater risk of becoming insolvent when claims exceed their reserves. States with special licensing schemes for AHPs apply lower solvency standards, such as reserve requirements, to AHPs than to traditional insurers. Low reserves make it harder for AHPs to avoid insolvency resulting from mismanagement or even just large unexpected claims./9 For example, an AHP in
Even when regulated by states, the risk of AHP insolvency is considerable. There are numerous examples of legitimate, state-licensed professional and trade AHPs becoming insolvent. An insolvency of the
Association health plans that self-insure successfully for years may still experience volatility and insolvency. For example, the
7
8 Amicus Brief filed by Former Insurance Regulators in
9 Amicus Brief filed by Former Insurance Regulators in
10 Id.
11 Id.
12
13 Amicus Brief filed by Former Insurance Regulators in
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...Commissioner
Former Montana Insurance Commissioner
AHPs cannot participate in guaranty funds and the application of receivership laws can be unclear.
When a licensed insurer becomes insolvent, usually a state's guaranty fund will pay most of the claims. Different from an insurer, when an AHP becomes insolvent, covered people are stuck with unpaid medical bills. When there is joint and several liability, then the AHP can assess participating employers and they are responsible for any unpaid medical bills. This exposes participating employers to significant financial risk.
Many small employers do not have the financial resources to bear this risk. State receivership laws, which allow insurance departments to take over financially failing insurance companies, sometimes exclude AHPs or are unclear. Without a receivership, an AHP ends up in bankruptcy court, where consumers line up with other creditors. Different from receiverships, outstanding medical claims do not receive priority status in bankruptcy court.14 When self-insured AHPs become insolvent, their members' medical bills go unpaid, leaving consumers with huge debts for medical care and harming medical providers when those debts are not paid.
Many states that license or certify self-insured AHPs invest significant resources to prevent problems and detect problems early. For example, to avoid problems like unqualified management, states require background checks on senior management prior to receiving authorization to operate...
14
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...a self-insured AHP. Self-insured AHPs often require greater state regulator resources for financial oversight than traditional insurers because solvency standards are lower for AHPs. One state devoted one full-time employee per AHP it licensed. This included monthly examinations of AHP financial condition, which required state regulators on-site to review AHP books.
The 2018 AHP Rule Would Have Opened the Door to More Fraud and Abuse
The 2018 Rule's stated purpose was to encourage the growth of AHPs, and more AHPs means more fraud and insolvencies. The 2018 Rule included specific changes that would have made it easier for unscrupulous promoters to set up scams and by creating new regulatory ambiguity, would have made it harder for state regulators to find and shut down such scams. We support DOL's current proposal to rescind the 2018 Rule. This rescission is grounded in decades of federal and state experience related to AHP failures, fraud, and insolvency and is necessary and appropriate.
The 2018 Rule Would Have Interfered with State Oversight
The 2018 Rule would have added new ambiguity to ERISA and state jurisdiction that could have been used by promoters to evade state oversight. The ability to evade state regulation is particularly problematic because, as the preamble to DOL's current proposal to rescind the 2018 rule states, "available [DOL] oversight resources are extremely limited and fraudulent operations resist detection until claims go unpaid, significant damage can be done before the Government even receives a complaint about an arrangement, making it difficult for regulators to mitigate damages and stop bad actors."/15
By allowing AHPs to "operate across state lines," the 2018 Rule created confusion regarding states' ability to establish regulatory jurisdiction./16 While the 2018 Rule established some minimal standards for AHPs under 29 C.F.R. Sec. 2510-3.5(b), those standards were so broad as to be essentially meaningless and none were similar to those found in state insurance regulatory frameworks, such as background checks for people who set up and operate AHPs.
In contrast to DOL's limitations, states have numerous tools that allow them to conduct regular oversight and intervene before consumers are harmed. These tools include background checks for operators and management of AHPs, financial and market conduct examinations, form reviews, rate reviews, etc. Thanks to the broker community, states also have "eyes and ears" on the ground to quickly identify bad actors who promote fake insurance. States also have and use enforcement tools, including administrative cease-and-desist authority and state receivership laws. States have vigorously pursued bad actors in the AHP market and have been able to act earlier and quicker than DOL, better protecting consumers from harm./17
DOL's current proposal to rescind the 2018 Rule is necessary to mitigate the jurisdictional ambiguities it created. Those ambiguities impede state insurance regulators' efforts in stopping fraud and insolvencies. We recommend:
* Finalizing the proposal to rescind the 2018 Rule;
15 Definition of "Employer"--Association Health Plans, 88 FR 87968, at 87973 (
16
17 Amicus Brief filed by Former Insurance Regulators in
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* Memorializing through regulation DOL's sub-regulatory guidance including its informational letters to insurance regulators and its guidance found in the DOL booklet MEWAs, Multiple Employer Welfare Arrangements under the Employee Retirement Income Security Act (ERISA): A Guide to Federal and State Regulation.
* Strengthening pre-2018 standards to help prevent fraud and insolvency. This is important given a long history of fraud and insolvency even under the pre-2018 regulatory framework.
Conclusion
We strongly support DOL's proposal to rescind the 2018 Rule in its entirety and urge the DOL to finalize its proposal expeditiously. We appreciate your consideration of our comments.
Former Insurance Commissioners and NAIC Presidents
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Former Insurance Commissioners
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Other Experts on AHP Fraud and Abuse
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Original text here: https://downloads.regulations.gov/EBSA-2023-0020-0033/attachment_1.pdf
TARGETED NEWS SERVICE (founded 2004) features non-partisan 'edited journalism' news briefs and information for news organizations, public policy groups and individuals; as well as 'gathered' public policy information, including news releases, reports, speeches. For more information contact
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