View from Washington: AHPs, Elections, and More

1. View from Washington:AHPs, Elections, and More Scott Sinder and Kate Jensen

2. Agenda • The Political Landscape • Trump Administration Healthcare Policy • Congress on Healthcare • Deep Dive on Association Health Plans • Questions?

3. Top Voter Issues for the Mid-Terms • Pew Research Center (9/26/18) – Issues “very important” to voters? • 76% - Supreme Court appointments • 75% - Healthcare • 74% - Economy • 68% - Gun Policy • Followed by: Medicare, Social Security, Taxes, Immigration • Kaiser Family Foundation Poll (6/27/28) – “Most important” issue? • Democrats: 33% Healthcare; 30% Gun Policy • Republicans: 27% Economy and Jobs; 19% Immigration • Huffington Post (4/6/18) – Which 2 issues are MOST important to you? • 30% - Healthcare • 25% - Gun Policies • 25% - Immigration • 24% - Economy • Compared to 12% - Trump’s Record As President

4. The House – Month Out Projections • Democrats need to flip 23 Republican seats to take back the House • 23 House Republicans are in congressional districts won by Hillary Clinton • ABC News Forecast (10/10) : • Democrats have 77.8% chance of controlling the House • National CNN Poll (10/4 – 10/7) – If the election were held today, which party would you vote for in your district? • Likely voters: 54% Democrat, 41% Republican • Men: 45% Democrat, 50% Republican • Women: 63% Democrat, 33% Republican • Fox News House Power Rankings (10/10) • 200 seats likely or leaning Republican • 208 seats likely or leaning Democratic • 27 tossup races

5. What if Democrats Take the House? • Speaker Pelosi? • 40 to 50 Democratic candidates on record saying they will not vote for her • If not her, who? • House Democrats’ “Better Way” Agenda • Healthcare costs and prescription drug prices • Increasing wages (unions; growth industry and infrastructure investment) • Clean up Washington (campaign finance reform; voter protections; lobbying restrictions) • Other top agenda items? • Different tax reform proposal? • Oversight hearing/investigation bonanza? (Impeachment?)

6. The Senate – Month Out Projections • Fox News & CNN “Tossup” Races (10/10): • Nevada (Heller – Republican) • Tennessee (Corker (retiring) – Republican) • Arizona (Flake (retiring) – Republican) • Missouri (McCaskill – Democrat) • Indiana (Donnelly – Democrat) • Florida (Nelson – Democrat) • ABC News Projections on Key Races (10/10): • Nevada (Heller - R) – tossup • Arizona (Flake – R) – leaning Democratic • North Dakota (Heitkamp – D) – leaning Republican • Missouri (McCaskill – D) – tossup • Florida (Nelson – D) leaning Democratic

7. Trump Administration Healthcare Policy • “Day 1” Pledge: Repeal and Replace • Plan B: Administrative Action • Executive Order Directs Agencies to Act on 3 Priority Issues: • Association Health Plans (AHPs) – Final Rule • Short-term Limited Duration Insurance (STLDI) – Final Rule • Health Reimbursement Arrangements (HRAs) – Hot off the Presses • Blueprint to Lower Drug Prices: • Improving Price Competition (patents, biosimilars, IP theft abroad) • Medicare Program Reforms • FDA Approval Process Changes • President’s Commission on Drug Addiction and Opioid Crisis

8. Congress on Key Healthcare Issues - Passed • Repeal of the Individual Mandate (penalty = $0) • Opioid Crisis • Comprehensive legislation passed in July • Drug Costs and Price Transparency • Pharmacist “anti-gag clause” law

9. Congress on Key Healthcare Issues - Pending • Health Savings Account Reforms • Higher contribution limits • Eligible expenses (e.g., on-site clinics, OTC medications, primary care) • Repeal of the Employer Mandate • “Full-Time Employee” = 40 Hours • Further Delay of the Cadillac Tax • Democratic (Candidates) Single Payer Proposals

10. Association Health Plans – Final Rule • Objective: Make it easier for sole proprietors and small groups to band together to form large group ERISA plans • Key features for establishment of a single ERISA plan: • Allows “working owners” without employees to join • AHPs may be formed for primary purpose of offering health coverage • “Commonality of interest” based on geography or industry • Retains “bona fide group” requirements • Anti-discrimination provisions • Staggered applicability dates • Does NOT alter state MEWA authority

11. Commonality of Interest • Sufficient commonality of interest exists if member employers: • Are in the same “trade, industry, line of business, or profession” (not defined in final rule); or • Have a principal place of business within a region that does not exceed the boundaries of the same state or the same “metropolitan area” (also not defined in the final rule).

12. Bona Fide Groups • Group may exist for the primary purpose of providing health coverage • Must have at least one other “substantial business purpose” (not defined) • Examples: promoting common business or economic interests; conferences or educational classes; acting as a standard-setting organization; public relations activities • Other structural/organizational Requirements remain: • commonality of interest (described above) • formal organizational structure with governing body and by-laws • plan controlled in form and substance by employer members • health coverage limited to employees and former employees of employer members (and their beneficiaries) • have only employer members (i.e., employers of at least one person, including “working owners”) participating in the plan

13. Working Owners • “Working Owners” (i.e., sole proprietors and other self-employed individuals) without common law employees may participate in AHPs if the individual: • Has an ownership right of any nature in a trade or business; • Earns wages or self-employment income from the trade or business; and • Either: • Works an average of at least 20 hours per week or 80 hours per month for the trade or business; or • Has wages/income from the business that equals the cost of coverage (for the working owner and any covered beneficiaries) through the AHP • AHP must periodically confirm working owner eligibility through “reasonable monitoring procedures”

14. Nondiscrimination Provisions • Builds upon existing HIPAA rules (which are applicable to AHPs) • Generally, may not discriminate within groups of similarly-situated individuals (based on bona fide employment-based classifications, not health factor), but allows different treatment across such groups • Under the Final AHP Rule, AHPs: • May charge different premiums to different member employers; • May not condition employer membership on any individual’s health factor; • May not treat employees of different employer members as distinct groups based on health factors; and • Must comply with HIPAA’s rules with respect to application/eligibility for benefits, premiums, contributions, and coverage.

15. Provisions Applicable to ERISA-Plan AHPs • At the federal level, ERISA Title I requirements apply: • Summary plan descriptions • Form 5500 annual filing • Plan fiduciary obligations and restrictions • COBRA • HIPAA • Newborns’ and Mothers’ Health Protection Act • Mental Health Parity Act • Addiction Equity Act • GINA • Affordable Care Act (market reforms) • Note: MEWAs must also register with DOL prior to operating in a state

16. State MEWA (AHP) Authority • The Final Rule does not alter state authority over MEWAs. • State authority expanded in 1983 – special MEWA exception to ERISA preemption provisions: • Basic ERISA Preemption: federal law supersedes “any and all State laws” related to an employee benefit plan • ERISA “savings clause”: state laws regulating insurance not preempted • ERISA “deemer clause”: state laws that purport to regulate insurance cannot deem an employer plan to be an insurance company • MEWA exception to the deemer clause: states may treat MEWAs as insurance companies and regulate them under their insurance laws • States decide which insurance laws apply to MEWAs (i.e., laws applicable to all insurers v. MEWA-specific laws)

17. State MEWA Authority – Fully Insured AHPs • “Any law of any State which regulates insurance may apply to such arrangement to the extent such law provides – • standards requiring the maintenance of specified levels of reserves and specified levels of contributions . . . , and • provisions to enforce such standards.” • Authority interpreted broadly to include laws on: • Licensing • Registration • Certification • Financial reporting • Examination • Audit • Other requirements necessary to ensure compliance with reserve, contribution and funding requirements

18. State MEWA Authority – Self-Insured AHPs • In addition to ERISA Title I requirements, self-insured MEWAs are subject to “any law of any state which regulates insurance . . . to the extent not inconsistent with [Title I].” • “Inconsistent with Title I” – • Would abolish or abridge an ERISA Title I protection for plan participants, or • Would conflict with the federal law and make Title I compliance impossible. • NOT “inconsistent with Title I” – • Require MEWAs to meet more stringent standards than required by ERISA • Provide greater protections than those provided by ERISA • Specified levels of reserves and contributions • Requiring licenses or certificates of authority as conditions precedent to operate

19. Bottom Line – Impediments and Opportunities Impediments for AHPs – • 11 States and DC suing to block the rule • Self-insured MEWAs continue to be barred in some states and heavily regulated by others • Fully insured MEWAs also regulated by various state laws • DOL guidance for employers and plan administrators: “check with the applicable state insurance department for more information” Opportunities – • Intra-state AHPs (e.g., the Birmingham Chamber of Commerce Plan) • Regional AHPs? • Advocacy efforts under way to establish “best practices” for state MEWA laws to promote greater uniformity and more opportunities for multi-state AHPs (at least for insured AHPs)

20. Key Dates for AHPs • September 1, 2018: all associations may establish fully insured AHPs under the new rules • January 1, 2019: existing associations that sponsored AHPs before publication of the final rule may establish a self-funded AHP under the new regime • April 1, 2019: all associations may establish a self-funded AHP under the new rules

21. Thank you Questions? Scott Sinder & Kate Jensen ssinder@steptoe.com; kjensen@steptoe.com