Labor Department headquarters in Washington. (Photo: Mike Scarcella/ALM) (Photo: Mike Scarcella/ALM)

A federal judge in Washington has struck down the Trump administration’s association health plan (AHP program regulations.

The U.S. Department of Labor developed the regulations in an effort to ease the effects of the Affordable Care Act (ACA), by giving small businesses and self-employed people a way to join together to form multistate health plans that might be able avoid some of the ACA major medical coverage requirements.

A coalition of 12 states brought the litigation against the Labor Department. The plaintiffs argued that the department’s process for promulgating the AHP regulations violated the Administrative Procedure Act. The plaintiffs also argued that the regulations would drive up the cost of health care, by pulling healthier people away from the traditional major medical insurance market.

(Related: Federal Judge Hears Association Health Plan Suit Arguments)

U.S. District Judge John Bates said in a decision handed down late on Thursday that the regulations violated the Employee Retirement Income Security Act of 1974 (ERISA).

“The final rule is clearly an end-run around the ACA,” Bates wrote. “Indeed, as the president directed, and the secretary of Labor confirmed, the final rule was designed to expand access to AHPs in order to avoid the most stringent requirements of the ACA. In short, the final rule exceeds the statutory authority delegated by Congress in ERISA.”

An AHP gives the participants a way to team up to join a large group health plan, and to use the ERISA rules that govern large group health plans to escape from the effects of the ACA rules that govern individual and small-group major medical coverage.

Labor Department officials said, for example, that the Mental Health Parity and Addiction Equity Act of 2008, which applies to large groups, would apply to AHPs. But officials said the ACA essential health benefits rules, which set minimum standards for individual and small-group major medical policy benefits packages, would not.

In theory, for example, an AHP might be able to choose to cover inpatient hospital care, but not prescription drugs.

That goes against the intent of the ACA, the 12 states that oppose the new AHP regulations argued in their lawsuit last year.

Congress put the EHB provisions in the ACA to ensure that health plans included certain health benefits, the 12-state coalition said.

The Labor Department wants to let self-employed individuals with no employees define themselves as both the employer and the employee. That would contradict the definition of group health plans under ERISA, the coalition argued.

Bates sided with the states that brought the suit. He wrote in his ruling that Congress did not intend for self-employed people to be classified as employers when it approved ERISA.

“As a practical matter, one does not have an employment relationship with oneself,” Bates wrote. “There is no indication that Congress crafted the statute with the intent of sweeping working owners without employees — who employ no one — within ERISA’s scope through the statutory definition of ‘employer.’”

The states that oppose the new AHP regulations have also argued that the new regulations contradict ERISA, by allowing businesses to join an AHP if they’re in the same industry, state, or metropolitan area.

In the past, the Labor Department has interpreted ERISA to mean that businesses can join together in AHPs only if the businesses share a common interest.

Bates wrote that expanding how AHP scan be formed goes against what was authorized under ERISA.

“There is nothing intrinsic in common geography that would generate the types of economic or reputational ties that courts have deemed essential for a plan to be covered by ERISA,” Bates wrote. “DOL does not provide a rationale that would connect geography and common employer interest.”

Bates was appointed to the court in 2001, by former President George W. Bush.

New York state Attorney General Letitia James and Massachusetts Attorney General Maura Healey led the lawsuit along with attorneys general from California, Delaware, Kentucky, Maryland, New Jersey, Oregon, Pennsylvania, Virginia, Washington state and the District of Columbia. Representatives for James did not immediately comment on the decision.

James, in a statement issued Thursday evening, said the ruling will ensure better health care for millions of people nationwide.

“Today’s ruling is a win for the New Yorkers and Americans who seek access to quality, affordable healthcare in this country,” she said. “We are pleased that the District Court saw past the Trump administration’s transparent effort to sabotage our healthcare system, and gut these critical consumer protections in the service of its own partisan agenda.”

A spokesman for the Labor Department deferred comment to the U.S. Department of Justice Thursday evening. The Justice Department did not immediately respond to a request for comment.

— Read Trump’s Association Health Plans Will Be Like Big Employer Plans: DOLon ThinkAdvisor.

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