Financial Services Superintendent Maria T. Vullo today announced that the Department of Financial Services has issued guidance reminding insurers, health maintenance organizations, insurance agents and brokers that the recent U.S. Department of Labor final rule, also known as the Association Health Plan (AHP) Rule, expressly does not preempt New York Insurance law, which strictly limits the associations or groups of employers that may sponsor a health insurance plan. 

“The Department of Financial Services will continue to protect New Yorkers from federal actions that seek to undermine the Affordable Care Act and New York’s Insurance Law and regulations,” said Superintendent Vullo.  “Today we are saying loudly and clearly that the federal AHP Rule does not preempt state law and DFS will take all necessary actions to protect New York’s markets and consumers from any attempts to circumvent New York statutory and regulatory requirements with respect to accident and health insurance coverage, employee welfare benefit plans or association health plans.  This includes New York’s stringent requirements regarding the establishment of such groups, the requirement of essential health benefits and other consumer protections, regardless of the federal AHP Rule.  The AHP Rule expressly does not impair DFS’s regulatory authority to prevent brokers or insurers from seeking to offer plans impacting New York that have reduced benefit packages or otherwise do not comply with New York law.  DFS will continue to enforce New York’s Insurance Law and regulatory protections on Insurance policies offered to New Yorkers.”  

On June 21, 2018, the U.S. Department of Labor issued a final rule that allows a group or association of employers to establish a group health plan, under the federal Employee Retirement Income Security Act (ERISA) of 1974. The new rule expressly does not preempt state law and therefore New York’s requirements for group health plans apply fully. Accordingly, as set forth in today’s guidance, DFS notes that regardless of the federal rule, for a group or association of employers to sponsor a group health plan in New York, the group or association must meet specific requirements to be recognized as a group under the Insurance Law.  New York Insurance Law requires that an association be in active existence for at least two years and be formed principally for purposes other than obtaining insurance coverage for its members. An association formed for the purpose of obtaining health insurance coverage is not a recognized group in New York and therefore is not permitted to purchase health insurance coverage in New York.  Insurers may not deliver or issue for delivery health insurance policies or contracts in New York to an association that does not satisfy the New York Insurance Law requirements, nor may brokers or agents solicit or procure such a policy in this State.

Moreover, New York’s rules regarding essential health benefits and approval of rates apply to such members without any impact by the new federal rule.  In addition, DFS’s guidance provides that in the event an association is a recognized group under the Insurance Law, any health insurance policy delivered or issued for delivery in New York to the association must meet the requirements of New York Insurance Law, including those pertaining to rating and benefits.  New York Insurance Law requires that coverage issued to an association be rated based on its underlying member employers, and not based on the size of the association group; therefore, large employer members must be issued large group coverage, small employer members must be issued small group coverage, and individual members must be issued individual coverage.

DFS also notes that the AHP Rule does not modify the existing ERISA regulatory framework that allows states to regulate self-funded associations.  An association that self-funds health insurance benefits for the New York employees of its members would be “doing the business of insurance”, which, as defined under New York Insurance Law, requires the association to be licensed to conduct insurance business in this State regardless of where that self-funded association is located.

In short, the DFS guidance states that the AHP Rule does not preempt state jurisdiction over health insurance coverage issued to its residents or insurance policies delivered or issued for delivery in a state.  The AHP Rule clearly states that the application and enforcement of state insurance law remains the province of the states; therefore, the AHP Rule does not affect how in-state or out-of-state association coverage is regulated by DFS.  DFS is prepared to undertake all additional enforcement actions required to protect New Yorkers from the AHP Rule.

A full copy of the guidance can be found here.