When President Trump took office, he promised lower costs and more choices in healthcare. He also vowed to cut job-killing regulations that stifle growth. Those two priorities came together last year in the Department of Labor’s rule on association health plans, giving small businesses more freedom to band together to buy health coverage for their workers.
Last March, a federal judge invalidated the rule based on a flawed view of the department’s authority. This week, we will be asking the court of appeals to overturn that decision.
A brief history is in order. The department’s authority to regulate employer-provided health benefits comes from a 1974 law known as ERISA. The department’s rule on associated health plans adopted a more flexible interpretation of what constitutes an “employer” under ERISA for purposes of offering a benefit plan. The rule eased that definition for associations, expanding it to include associations of companies in the same city or state, regardless of their trade or industry.
In this way, the rule leveled the playing field for small employers, enabling them, through an association, to take advantage of larger risk pools and economies of scale, similar to those that big businesses enjoy. When a group of small businesses shops for coverage as an association, for example, they can exercise the same leverage in negotiation that a large employer does. They get more choices and will likely find more affordable coverage.
And this how the AHP rule worked until it was invalidated by the district court.
Much of the legal case hinges on ERISA’s definition of “employer,” which includes “a group or association of employers” that acts “indirectly in the interest of an employer.” For decades, the department relied on “guidance” that required members of the association to belong to the same trade or industry, effectively excluding most local business associations from sponsoring AHPs. At the direction of Trump, the department took a fresh look and initiated a rule-making, with public notice and comment, which resulted in a less restrictive interpretation.
That new rule is consistent with Americans’ long history of using associations to further shared interests. Americans “constantly form associations,” Alexis de Tocqueville observed in his travels across the United States nearly 200 years ago; these “united exertions” were essential to our democracy. The Labor Department’s AHP rule properly recognizes the role of local business associations in American communities, harnessing them so that small businesses deliver superior, lower-cost health coverage for their workers. The Congressional Budget Office projected that AHPs would cover up to 4 million employees by 2023, 400,000 of whom are presently uninsured.
A group of state attorneys general — mostly from coastal states — has nonetheless sued on the misguided theory that the department should be viewed skeptically when it displaces its informal “guidance” with a rule adopted after notice and comment rule-making. That argument turns the administrative process on its head.
Meantime, AHPs established before the lower court’s decision have enjoyed spectacular success in furthering the interests of their employer-members and of their employees. At least 35 AHPs were formed under the rule, covering tens of thousands of participants. Many are regionally-based business chambers, in cities and states across America.
At one local chamber that signed up hundreds of employers, employees are expected to save more than $2,000 per year in premium costs. Their monthly premiums under the AHP went from $413 to an average of $234 per month — a savings of 44%. Another AHP found cost savings of up to 30%. And a third AHP delivered members savings of 21% from their original rates.
In short, the AHP rule worked just as intended — empowering small businesses to deliver more affordable, high-quality health coverage for their workers. Reversal of the lower court’s decision will extend these benefits to small business owners and employees nationwide.
Eugene Scalia is the U.S. secretary of labor.
