United States: Association Health Plans And The Sale Of Group Health Insurance "Across State Lines"

Last Updated: March 7 2018
Article by Alden J. Bianchi

In advance of issuing the Executive Order that culminated in the promulgation by the Department of Labor of proposed regulations expanding the availability of Association Health Plans, President Trump announced that one of the purposes of the order was to allow people to buy health insurance "across state lines." This post examines the consequences of, the obstacles to, and the inevitable clashes occasioned by, the interstate insurance sales of group health insurance.


Conservative lawmakers have long urged the adoption of rules permitting the interstate sale of health insurance to lower costs and stimulate competition in the national marketplace for health insurance. Before the President's executive order, however, references to the sale of health insurance across state lines generally referred to the sale of policies in the individual market. In the group market, which is synonymous with employer-provided coverage, insurance has been sold "across state lines" for as long as multi-state employers have offered group health plans. This is not new. In the context of the Executive Order, therefore, it appears that the President had in mind the sale of group health insurance that is subject to the laws in one state but is sold to an employer domiciled in another and that might cover employees who reside in still another. Should this be allowed, an insurer would be able to sell in other states coverage that is approved in the least-restrictive state. This may not be possible even assuming the adoption of the Department of Labor's proposed regulation.

Regulating Health Insurance in Multiple States

Employers have long offered group health coverage that covers employees in multiple states. Many multi-state plans are self-funded, which means that they are not subject to state benefit mandates and other requirements. (The Employee Retirement Income Security Act (ERISA), which governs employer health and welfare benefit plans, expressly preempts state law, but it saves from preemption state laws regulating insurance.) Multi-state plans that are fully-insured typically rely on carriers that are licensed in, and comply with, the separate state benefit mandates and other requirements of all 50 states and the District of Columbia. While this regulation is most visible in the form of benefit mandates, states also impose rules on carrier formation and financial matters, insurance contract and rate regulation, consumer protections, and unfair insurance practices. Effectively, there are under current law 51 separate insurance regulatory jurisdictions.

The run-up to the President's Executive Order seems to contemplate a Federal regulatory regime that allows for uniformity of plan design from jurisdiction-to-jurisdiction. This is certainly possible if "uniformity" means regulating AHPs as large groups, which are free from the following federal requirements:

  • Only individual and small group market health insurance coverage is subject to the requirement to cover essential health benefits;
  • The Affordable Care Act's (ACA's) risk adjustment program, which transfers funds from plans with lower-risk enrollees to plans with higher-risk enrollees, applies only to health insurance issuers offering coverage in the individual and small group markets, not the large group market;
  • The single risk pool requirement, which requires each health insurance issuer to consider the claims experience of all individuals enrolled in plans offered by the issuer in the individual market to be in a single risk pool, and all its individuals in the small group market to be members of a single risk pool, applies only in the individual and small group markets, not the large group market; and
  • The modified community rating rules that prohibit issuers from varying premiums except with respect to location, age (within certain limits), family size, and tobacco-use (within certain limits), apply only in the individual and small group markets.

(It is worth nothing that self-insured group health plans are exempt from each of these obligations regardless of the size of the employer that establishes or maintains the plan. For a discussion of the effect of the Department of Labor's proposal on self-funding, please see last week's post

The promise of a uniform regulatory regime that allows for uniform plan design free from state regulation is not something that the Department of Labor—or any other Federal agency—has the power to enable. This is a matter for Congress, which has the power to fully preempt state laws regulating insurance but chose not to in ERISA. Any attempt by Congress to expand the scope of ERISA preemption to the regulation of health insurance would face stiff resistance from state regulators and the NAIC, among others. It would also represent a major shift in the federal/state balance of power, upending more than 70 years of precedent.

Ground Zero—Benefits Mandates

By enabling the regulation of Association Health Plans (AHPs) as large groups, the proposed regulations permit and even encourage alternative plan designs, including plans with skimpier levels of benefits. Although such a design might be approved in one state, there is no guarantee that the design will be permitted in another. There is nothing in the Executive Order or the proposed regulations that will change this result.

In last week's post, we explained that ERISA limits a state's ability to regulate fully-insured AHPs to establish reserve requirements and contributions and funding rules. States are also free, under long-standing rules governing the preemption of state law by ERISA, to regulate the underlying insurance contact, which include imposing benefit mandates. But this power is over the contract, not the AHP—provided that the AHP qualifies as a multiple employer welfare arrangement that is a single employee welfare plan.

Some states look to the law of the state where the group insurance policy is delivered or issued for delivery to determine whether to assert regulatory jurisdiction. But a preponderance of the states expand the reach of their insurance mandates to any fully-insured health plans that cover residents of the state, irrespective of the domicile of the employer. When a state other than the state in which the contract has been delivered or issued for delivery imposes its separate regulatory requirements that application is referred to as the extraterritorial application of that state's regulatory authority.

The extraterritorial application of a state's insurance laws forces carriers to comply with differing and sometimes conflicting benefit mandates across the country. The NAIC, in a whitepaper on the subject, recommends against this practice. The NAIC whitepaper reports that "of the 39 states that responded to the survey, fourteen reported considering only where the policy was delivered or issued for delivery when determining the application of state mandated benefit laws." The whitepaper continues:

"The remaining 25 states indicated that they would consider other factors, such as whether the certificate is issued in the state, [one or more insureds reside] in the state, the employer's principal place of business is in the state or there is a branch office in the state when determining the application of mandated benefits."

The NAIC therefore urges state insurance regulators to forgo the extraterritorial application of their insurance law in the absence of a clear and unambiguous legislation to the contrary. This is not what happens in practice, however. States that wish to deploy their insurance mandates to bar alternative plan designs with skimpier levels of benefits will remain free to do so despite any provision of any final Department of Labor regulation on the subject.

Other State-based Rules Regulating AHPs

A more difficult question is the extent to which states might be able to impose on fully-insured AHPs the above-cited ACA individual and small group rules, among others. States are free to require that AHPs cover, at a minimum, all or some ACA essential health benefits through the state's benefit mandates. The requirement is imposed in this case directly on the insurance contract. The fact that the policy is sold in the context of an AHP is irrelevant. The result is the same in the case of state insurance laws governing carrier formation and financial matters, insurance contract and rate regulation, consumer protection, and unfair insurance practices.

Less clear is whether a state could impose a separate assessment on AHPs to fund a risk adjustment program. Such a rule would need to qualify under the relevant provision of ERISA as a law establishing "standards, requiring the maintenance of specified levels of reserves and specified levels of contributions." The same is true of rules requiring that the AHP be part of a single risk pool and those imposing modified community rating standards. In each case, what is regulated is not the insurance contact, but the collection of contracts in relation to the AHP (which could be construed as regulating the plan). Neither is an easy call. On the one hand, rules like these appear to fit squarely within the meaning of the "regulation of insurance" based on the plain text of ERISA and years of judicial precedent. On the other hand, it seems that these rules are directed at the AHP in its capacity as an ERISA-covered plan. And, if it's the latter, do these rules govern the maintenance of specified levels of reserves and specified levels of contributions, or do they do something else?

While the Department of Labor's proposed AHP regulation seeks to expand the reach of AHPs by encouraging small groups to band together to form larger, homogeneous risk pools, there is no shortage of state laws that seek to require small groups to remain a part of a single, state-wide, heterogeneous risk pool. There is no middle ground. If the Department of Labor's regulation is adopted as a final rule—and there is no reason to think that it will not be—this issue will likely have to be resolved by the courts.

Special thanks to Christopher Condeluci, Principal, CC Law & Policy PLLC, Washington, D.C. for his assistance with the preparation of this post.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions