State Coalition Argues DOL Rule Will Raise Premiums, Cut Benefits, and Cause People to Lose Coverage
(Washington, DC) – Attorney General Karl A. Racine, as part of a 12-state coalition, today sued the Trump Administration to stop a backdoor attempt to repeal the Affordable Care Act (ACA). The lawsuit against the United States Department of Labor (DOL) seeks to overturn a new DOL rule that would vastly expand the use of so-called “association health plans” (AHPs) across the country and in the District of Columbia. The move would endanger the District’s private health insurance market for small businesses and residents, cause some District residents to lose coverage altogether, and cause premiums for thousands of other residents to rise significantly.
"The Trump Administration Rule opens the door to health insurance scams, insolvencies and discrimination against people with preexisting conditions,” said Mila Kofman, JD, Executive Director of the DC Health Benefit Exchange Authority. “AG Karl Racine’s action is critical to protect District’s small businesses and self-employed people from promoters who collect premiums for phony coverage and don’t pay claims, and is also critical to keeping protections for people with preexisting conditions."
Under the ACA, about 100,000 people who live or work in the District currently obtain health insurance on DC Health Link, an online insurance marketplace. The competitive marketplace offers more than 150 insurance plans to small businesses and 26 plans to individuals and families. The ACA has also helped expand health coverage to more than 96 percent of District residents. Currently, the District has the lowest uninsured rate in the city’s history and has one of the lowest rates of uninsured residents of any state-level jurisdiction. The DOL rule, if allowed to go into effect on August 20, would likely reverse that progress.
Under the rule, the Trump Administration is expanding access to AHPs, which some small businesses or trade associations use to buy health insurance. It will exempt AHPs from many of the ACA’s requirements to cover essential health benefits like maternity care, mental health care, and prescription drug benefits. AHPs can also discourage enrollment by older consumers and those with pre-existing conditions from coverage and can discriminate in premiums based on gender, group size, and other characteristics. In the 1980s and 90s, plans like these came under scrutiny from state and federal regulators for being rife with fraud and abuse. During this period, many of the plans went bankrupt and left consumers with millions of dollars in unpaid claims.
“This Trump Administration rule undoubtedly puts thousands of District residents at risk of skyrocketing premiums, cuts in their insurance benefits, and losing health care coverage altogether,” said Attorney General Racine. “These junk plans offer substandard health coverage and threaten our local insurance market. With this lawsuit, we’re taking action to protect our residents’ access to decent, affordable coverage.”
The District currently has the nation’s second-youngest healthcare marketplace, according to the federal government. AHPs would undermine the District’s insurance market by drawing away small businesses and large numbers of younger, healthier enrollees. This would result in higher premiums for the remaining enrollees, who need more comprehensive coverage than an AHP can provide.
According to actuarial estimates, the DOL rule would mean thousands of District residents could lose their coverage altogether, and more than 57,000 people covered through District small businesses could be forced to accept the junk coverage offered by AHPs. Premiums for small groups could increase by as much as 25.8 percent, and individual market premiums could increase by as much as 10.9 percent on top of typical annual rate increases, according to the estimates.
The lawsuit, filed today in the U.S. District Court for the District of Columbia, argues that DOL’s rule is illegal on several grounds, including that it:
- Conflicts with the ACA’s mandate to protect individuals and group markets: The lawsuit says the rule allows fake “associations” composed of otherwise unrelated small employers and individuals to masquerade as a large employer for the purposes of health insurance – thereby exempting them from the protections Congress clearly intended to apply to individuals and small businesses with the ACA. This, in turn, would undermine the individual and small-group markets at the heart of the ACA.
- Violates federal law on employee benefit plans: The complaint says the rule’s expansion of the Employee Retirement Income Security Act (ERISA) to allow the creation of fake associations that exist only for the purposes of selling insurance clearly contradicts both ERISA’s purposes of protecting employees’ benefits and long-established federal case law.
- Was created illegally: DOL, the suit argues, exceeded its authority under federal law in making the rule. The agency also didn’t adequately justify its rulemaking action based on the evidence before it or account for the history of fraud and abuse committed by AHPs in the past.
The lawsuit asks the Court to declare that the DOL rule is illegal and block its implementation. New York AG Barbara Underwood and Massachusetts AG Maura Healey led the suit.
A copy of today’s complaint is available here: https://ag.ny.gov/sites/default/files/complaint_as-filed.pdf