States Suing Trump Administration Over Association Health Plans Seek Quick Win
States Suing Trump Administration Over Association Health Plans Seek Quick Win
Plaintiffs,
v.
Defendants.
TABLE OF CONTENTS
i
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TABLE OF AUTHORITIES
Page(s)
CASES
Boggs v. Boggs,
520 U.S. 833 (1997) .................................................................................................................50
ii
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In re Watson,
161 F.3d 593 (9th Cir. 1998) ...................................................................................................29
INS v. Cardoza-Fonseca,
480 U.S. 421 ............................................................................................................................26
Int’l Union, United Mine Workers of Am. v. Mine Safety & Health Admin.,
626 F.3d 84 (D.C. Cir. 2010) ...................................................................................................44
King v. Burwell,
135 S. Ct. 2480 (2015) .........................................................................................................4, 24
iii
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Mass. v. Morash,
490 U.S. 107 (1989) ...........................................................................................................50–51
Michigan v. EPA,
135 S. Ct. 2699 (2015) .............................................................................................................38
Morall v. DEA.,
412 F.3d 165 (D.C. Cir. 2005) .................................................................................................44
Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co.*,
463 U.S. 29 (1983) .................................................................................................42, 43, 50, 52
NAACP v. Trump,
2018 WL 3702588 (D.D.C. Aug. 3, 2018) ..............................................................................41
NAACP v. Trump,
298 F. Supp. 3d 209 (D.D.C. 2018) .............................................................................39, 41, 55
NAACP v. Trump,
2018 WL 3702588 (D.D.C. Aug. 3, 2018) ..............................................................................41
iv
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Schwartz v. Gordon,
761 F.2d 864 (2d Cir. 1985).................................................................................................6, 29
SEC v. Johnston,
143 F.3d 260 (6th Cir. 1998) ...................................................................................................29
Stewart v. Azar,
2018 WL 3203384 (D.D.C. Jun. 29, 2018)........................................................................13, 55
v
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Weary v. Cochran,
377 F.3d 522 (6th Cir. 2004) ...................................................................................................16
Yates v. Hendon*,
541 U.S. 1 (2004) .....................................................................................................................29
FEDERAL STATUTES
15 U.S.C.
§ 1011–15 .................................................................................................................................41
26 U.S.C.
§ 36B ..........................................................................................................................................4
§ 36B(c)(2)(C)(ii).......................................................................................................................5
§ 36B(c)(2)(C) .........................................................................................................................19
§ 45R ..........................................................................................................................................4
§ 414(b), (c), (m), (o) ...............................................................................................................18
§ 4980D ....................................................................................................................................54
§ 4980H ................................................................................................................................4, 19
§ 4980H(b) .................................................................................................................................5
§ 4980H(b)(1)(B) .......................................................................................................................5
§ 4980H(c)(2)(A) .....................................................................................................................20
§ 4980H(c)(6)...........................................................................................................................20
§ 9815.................................................................................................................................19, 54
29 U.S.C.
§ 630(b) ....................................................................................................................................16
§ 1002.......................................................................................................................................23
§ 1002(5) ..............................................................................................................................6, 22
§ 1002(40) ................................................................................................................................53
§ 1002(40)(A) ..........................................................................................................................16
§ 1031.....................................................................................................................................7–8
§ 1137(b) ................................................................................................................................7–8
§ 1144(d) ..............................................................................................................................8, 23
§ 1161(b) ..................................................................................................................................17
§ 1185d...............................................................................................................................19, 54
vi
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42 U.S.C.
§ 300gg.......................................................................................................................................4
§ 300gg-3 ...................................................................................................................................5
§ 300gg-6(a) .........................................................................................................................4, 11
§ 300gg-13(a) .............................................................................................................................5
§ 300gg-14(a) .............................................................................................................................5
§ 300gg-22 .........................................................................................................................12, 41
§ 300gg-91 .................................................................................................................................5
§ 300gg-91(a)(1) ................................................................................................................11, 32
§ 300gg-91(d)(3) ......................................................................................................................36
§ 300gg-91(d)(6) .............................................................................................................. passim
§ 300gg-91(e) .................................................................................................................5, 15, 54
§ 300gg-91(e)(1)(A).................................................................................................................32
§ 300gg-91(e)(1)(B)(i) .............................................................................................................32
§ 300gg-91(e)(2) ..........................................................................................................17, 18, 20
§ 12111.....................................................................................................................................16
§ 18022(a), (b), (c), (d) ........................................................................................................4, 11
§ 18024.......................................................................................................................................6
§ 18024(b)(1)–(2) .................................................................................................................5, 15
§ 18024(b)(4) ...........................................................................................................................18
§ 18031.................................................................................................................................4, 41
§ 18032(c) ............................................................................................................................3, 11
§ 18041(a) ................................................................................................................................25
§ 18111.......................................................................................................................................6
Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001, et seq*. ................. passim
Health Insurance Portability and Accountability Act, Pub. L. No. 104-191 (1996)................19, 36
Patient Protection and Affordable Care Act, Pub. L. No. 111-148 (2010)* .......................... passim
FEDERAL REGULATIONS
FEDERAL REGISTER
vii
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AGENCY GUIDANCE
LEGISLATIVE MATERIALS
115 Cong. Rec. S14,126 (daily ed. Dec. 2, 2009) (statement of Sen. Ensign) ..............................26
115 Cong. Rec. S13,681 (daily ed. Dec. 21, 2009) (statement of Sen. Enzi) ................................26
115 Cong. Rec. S13,829 (daily ed. Dec. 23, 2009) (statement of Sen. Kyl) .................................26
128 Cong. Rec. H1,1084 (daily ed. May 21, 1982) (statement of Sen. Erlenborn) ...................8, 45
155 Cong. Rec. S13,563-64 (daily ed. Dec. 20, 2009) (statement of Sen. Isaakson) ....................26
155 Cong. Rec. S13,573 (daily ed. Dec. 20, 2009) (statement of Sen. Baucus) ...........................27
155 Cong. Rec. S13,573 (daily ed. Dec. 23, 2009) (statement of Sen. Klobuchar) ......................27
156 Cong. Rec. H1,919 (daily ed. Mar. 21, 2010) (statement of Rep.
Frelinghusyen) .........................................................................................................................26
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Small Business Health Fairness Act of 2005, H.R. Rep. No. 109-41 ............................................26
Small Business Health Plans Act of 2008, S. 2818, 110th Cong., § 802 .......................................26
Small Business Health Plans Act of 2017, S. 1818, 115th Cong. ..................................................26
OTHER AUTHORITIES
Alexander Acosta, A Health Fix For Mom and Pop Shops, Wall St. J. (June 18,
2018) ..................................................................................................................................11–12
HEALTHCARE.GOV, https://www.healthcare.gov/self-employed/coverage/#self-
employedorsmallemployer .......................................................................................................31
Noam N. Levey, Trump’s New Insurance Rules are Panned by Nearly Every
Healthcare Group that Submitted Formal Comments, L.A. Times, May 30,
2018..........................................................................................................................................43
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INTRODUCTION
This lawsuit challenges a Final Rule issued by the U.S. Department of Labor that departs
from decades of settled practice and authorizes a dramatic expansion of the circumstances under
which employers may join together in an association to offer health insurance coverage exempt
from critical consumer protections. The Final Rule authorizes the expansion of association health
plans (“AHPs”) for the express purpose of overriding the Patient Protection and Affordable Care
Act (“ACA”) and exempting a significant portion of the health insurance market from the ACA’s
core protections. When announcing the Final Rule, the President proclaimed that the Rule was
another “truly historic step in our efforts to rescue Americans from ObamaCare and the
ObamaCare nightmare” and would “escape some of ObamaCare’s most burdensome mandates.” 1
The Final Rule seeks to further this goal by redefining the term “employer” in Section 3(5) of the
Employee Retirement Income Security Act, 29 U.S.C. § 1001, et seq. (“ERISA”) to allow
individuals and small employers to join “associations” that can offer large group health plans not
subject to the ACA’s principal safeguards. 83 Fed. Reg. 28,912 (June 21, 2018) (to be codified at
29 C.F.R. pt. 2510) (hereinafter the “Final Rule”). Simply put, the Final Rule seeks to expand
Plaintiffs—eleven States and the District of Columbia that are harmed by the Final
Rule—ask this Court to vacate and set aside the Final Rule under the Administrative Procedure
Act (“APA”) on the ground that it is arbitrary, capricious, not in accordance with law, and in
1
President Donald Trump, Remarks at the National Federation of Independent Businesses 75th
Anniversary Celebration (June 19, 2018), at https://www.whitehouse.gov/briefings-
statements/remarks-president-trump-national-federationindependent-businesses-75th-
anniversary-celebration/. See also Compl. ¶ 6 (ECF No. 1).
1
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The Final Rule violates the ACA by seeking to overturn Congress’s reforms of the
individual and small group markets—reforms that were intended to ensure that individuals and
coverage. To accomplish that goal in those markets, the ACA curtails discrimination in
premiums based on factors including health, gender, age, region, and occupation. The ACA also
requires coverage of ten “essential health benefits” and further requires that insurers treat all
enrollees in each of the individual and the small group markets—healthy or sick—as part of
unified insurance pools. Because of these reforms, the States have made enormous progress in
decreasing uninsured rates, ensuring comprehensive coverage, and achieving market stabilization
in the individual and small group markets. If the Final Rule takes effect as the Department of
Labor (“DOL”) intends, the result will be a vast expansion of associations that qualify as single,
large employers that evade core ACA protections and that will result in millions of people
exiting the unified risk pools for the individual and small group markets in many states—
The Final Rule also violates ERISA and unlawfully upends nearly forty years of ERISA
precedent. For the first time in ERISA’s history, the Final Rule deems sole proprietors with no
employees (called “working owners”) to be eligible to form associations under ERISA. And in a
dramatic departure from well-settled precedent and DOL’s own longstanding practice, the Final
Rule allows entirely unrelated and separate employers in a state or metropolitan area to form
associations, including associations created for the primary purpose of selling insurance for
profit. Because the States are entitled to judgment as a matter of law that the Final Rule is
unlawful, arbitrary, and capricious under the APA, Plaintiffs respectfully request that this Court
grant their motion for summary judgment and vacate the Rule.
2
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STATEMENT OF FACTS
A. The ACA Adopted Fundamental Reforms for the Individual and Small Group
Insurance Markets.
scheme of several interlocking and interdependent Acts governing health insurance at the
national level. See Pub. L. No. 111-148, 124 Stat. 119 (2010). The core reforms of the ACA
(defined as businesses employing fifty or fewer employees). Because the risk pools in these
markets prior to the ACA had been fragmented into multiple segments—thus pooling risk only
across small slices of the relevant population—premiums were volatile, benefits often were
inadequate, and people experienced severe discrimination based on health status and other
factors.2 Risk segmentation, in particular, led to wide and unsustainable fluctuations in costs for
individuals and small businesses. See, e.g., Cong. Research Serv., R40942, Private Health
Insurance Provisions in Senate-Passed H.R. 3590, the Patient Protection and Affordable Care
The ACA’s comprehensive reform of health insurance directly addressed these problems
in several ways. With respect to risk segmentation within the individual and small group market,
the ACA required insurers to treat all enrollees in each of those markets as “members of a single
risk pool.” 42 U.S.C. § 18032(c) (emphasis added). To ensure more uniform and robust health
coverage, the ACA required that all individual and small group plans provide a “comprehensive”
benefits package known as the “essential health benefits package” (“EHBs”). 42 U.S.C. § 300gg-
2
See Declaration of Kevin Lucia (“Lucia Dec.”) ¶ 16; see also Compl. ¶¶ 3, 52 (ECF No.1).
3
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6(a).3 This package also has financial protections for enrollees. 4 And, rather than permitting wide
variations in premiums that previously had priced out many consumers, the ACA severely
limited premium variation in the individual and small group markets. This provision, known as
the “community rating” provision, forbids premium variation except based on certain narrow
In addition, the ACA provided tax credits to subsidize individuals’ purchase of health
insurance, see 26 U.S.C. § 36B; credits to encourage small businesses to provide health
coverage, see id. § 45R; and exchanges to enable marketplace shopping for individual and small
group coverage, see 42 U.S.C. § 18031. See generally King v. Burwell, 135 S. Ct. 2480 (2015).
In contrast to its treatment of the individual and small group markets, the ACA adopted
different reforms for the large group market, which generally serves employers that employ more
than fifty employees. Because most large employers already offered comprehensive health
insurance to their employees, the ACA did not impose the same array of reforms on the large
group market. For example, broader variation in premiums is allowed. While Congress mandated
that large employers provide health coverage or pay a tax penalty, see 26 U.S.C. § 4980H, the
mandated coverage need not meet the standards of comprehensiveness set for the individual and
small group markets. A large employer pays this tax penalty only if the coverage the employer
provides is either unaffordable or does not provide “minimum value,” in the sense that it covers
3
The package must include ambulatory patient services, emergency services, hospitalization,
maternity and newborn care, mental health services, substance abuse services, prescription drugs,
rehabilitative and habilitative services and devices, laboratory services, preventive and wellness
services and chronic disease management, and pediatric services. 42 U.S.C. § 18022(b).
4
See 42 U.S.C. § 18022(a), (c) (limitations on cost-sharing); id. § 18022(d) (minimum actuarial
value).
4
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sixty percent of essential health benefit costs on an actuarial basis, id. § 4980H(b)(1)(B).5
Although not an essential health benefits requirement, that tax penalty provides some protection
for employees to ensure that relatively comprehensive benefits are provided by large employers. 6
In short, whether the ACA’s core protections apply to a particular type of coverage
depends on whether the coverage is individual, small group, or large group. The ACA supplies
essentially identical definitions of these terms at 42 U.S.C. § 300gg-91 and § 18024. 7 Under
each, a “small employer” is an “employer who employed an average of at least 1 but not more
than 50 employees on business days during the preceding calendar year and who employs at least
1 employees [sic] on the first day of the plan year,” and a “large employer” is an “employer who
employed” more than fifty employees. 42 U.S.C. §§ 300gg-91(e), 18024(b)(1)–(2). These same
sections define “employer” by reference to Section 3(5) of ERISA, 29 U.S.C. § 1002(5), “except
that such term shall include only employers of two or more employees,” thus excluding sole
5
Under 26 U.S.C. § 4980H(b), an employer who provides health coverage in the large group
market can be subject to the provision’s $3,000 penalty only if an employee buys a different
policy on an exchange using a premium tax credit under the ACA. The employee can be eligible
for such a credit only if the employer’s coverage does not provide “minimum value,” defined as
at least sixty percent of the “total allowed costs of benefits provided under the plan.” 26 U.S.C. §
36B(c)(2)(C)(ii).
6
Some of the ACA’s reforms applied to all three markets (individual, small group, and large
group). For example, Congress forbade exclusions based on pre-existing conditions in all three
markets, see 42 U.S.C. § 300gg-3; required that all group health plans, including large group
plans, cover certain benefits, such as preventive care and screenings for women, without cost-
sharing, see 42 U.S.C. § 300gg-13(a); and required that such plans cover an insured’s “adult
child until the child turns 26 years of age,” 42 U.S.C. § 300gg-14(a).
7
Two sets of definitions apply because ACA provisions are codified in different parts of Title
42.
8
42 U.S.C. § 18024 does not have its own definition of “employer,” but the definition contained
in 42 U.S.C. §300gg-91(d)(6) applies. See 42 U.S.C. § 18111 (“Unless specifically provided for
otherwise, the definitions contained in section 300gg–91 of this title shall apply with respect to
this title,” referring to Title I of the ACA, where 42 U.S.C. § 18024 was enacted).
5
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Congress enacted ERISA in 1974 principally to protect employees, pensioners, and their
employee pension and welfare benefits. ERISA imposed fiduciary obligations on plan
administrators and implemented disclosure requirements and other safeguards. Title I of ERISA
—which governs employee benefit plans, including group health plans—“was adopted [in part]
to remedy the abuses that existed in the handling and management of welfare and pension plan
assets[.] Workers in such traditional employer-employee relationships are more vulnerable than
self-employed individuals to abuses because the workers usually lack the control and
understanding required to manage pension funds created for their benefit[.]” Schwartz v. Gordon,
in the interest of an employer, in relation to an employee benefit plan; and includes a group or
ERISA’s definition of employer includes the employer who acts directly as an employer, and can
include an entity, like an association, that acts indirectly in the direct employer’s interest.
employers,” entities began abusing that definition to offer health insurance plans through
are one type). Those entities engaged in widespread fraud and abuse. 9 In response to such abuses,
DOL and the courts crafted a narrow interpretation of when an “association of employers” can be
deemed an “employer” under ERISA. First, the employer-members of the association must be
9
See Lucia Dec. ¶¶ 8-11; 83 Fed. Reg. at 28,954 n. 142 (acknowledging history of fraud and
abuse).
6
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Because of this requirement, associations formed to make money by selling insurance do not
qualify—a principle Congress reaffirmed shortly after passing ERISA. See Bell v. Emp. Sec.
Benefit Ass’n, 437 F. Supp. 382, 392 (D. Kan. 1977) (quoting Activity Report of the Committee
on Education and Labor of the U. S. House of Representatives, H.R. Rep. No. 94-1785, at 48
(1977)).10 Second, the association’s employer-members must have meaningful control over, and
direct involvement in, the establishment or maintenance of the plan and the association. See, e.g.,
Gruber v. Hubbard Bert Karle Weber, Inc., 159 F.3d 780, 787 (3d Cir. 1998); Matthew 25
Over the last several decades, DOL has established well-settled criteria to determine
whether an association is a “bona fide association” that qualifies as an “employer” under ERISA
Section 3(5). These criteria include: (1) the process by which the association was formed and the
purposes for which it was formed; (2) the existence, if any, of pre-existing relationships among
employer members; (3) whether employer members were solicited; (4) who is entitled to
participate and who actually participates in the association; (5) the powers, rights, and privileges
of employer members; and (6) whether employer members actually control and direct the
activities of the benefit plan. See, e.g., DOL Op. No. 2007-06A (Aug. 16, 2007); DOL Op., 1992
ERISA LEXIS 45 (Oct. 30, 1992) (Op. No. Not Assigned); DOL Op. No. 91-42A (Nov. 12,
1991). Associations that fail to satisfy these criteria cannot offer plans that would qualify as
ERISA plans. Thus, for example, when so-called “multiple employer trusts” formed as
entrepreneurial “associations” for profit-making purposes soon after ERISA’s enactment, DOL
10
See also Compl. ¶ 45 (noting that this House report has been described as “virtually conclusive
as to legislative intent” by a host of federal courts).
7
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testified before Congress that they were not ERISA plans, and argued in the courts that ERISA’s
statutory language precluded recognizing them as such. See Bell, 437 F. Supp. at 392 (quoting
It likewise has been settled for decades that an individual with no employees cannot be
both an “employer” and “employee” under ERISA. DOL has adhered to this interpretation since
1975, when the agency first implemented ERISA. See Coverage; Reporting and Disclosure
Congress expressly provided that ERISA does not “alter, amend, modify, invalidate,
impair, or supersede any law of the United States,” and restricted DOL’s authority to construe
President Trump signed Executive Order 13813 on October 12, 2017, directing his
administration to look for ways to expand AHPs. In January 2018, DOL published a notice of
proposed rulemaking in response to the President’s order. See Proposed Rule, 83 Fed. Reg. at
614 (Jan. 5, 2018). DOL received more than 900 comments on the Proposed Rule. See Final
Rule, 83 Fed. Reg. at 28,914. DOL released the Final Rule at issue in this case, “Definition of
‘Employer’ under Section 3(5) of ERISA – Association Health Plans,” on June 19, 2018, and
published it in the Federal Register on June 21, 2018. See id. at 28,912. With the purpose of
undermining core ACA protections, the Final Rule redefines the term “employer” in Section 3(5)
11
See also, e.g., Br. for Appellant DOL, at *7, Donovan v. Dillingham, 668 F.2d 1196 (11th Cir.
1982) (No. 80-7879), 1980 WL 340211; 128 Cong. Rec. H1,1084 at 11395 (daily ed. May 21,
1982) (statement of Sen. Erlenborn) (describing DOL congressional testimony); see infra at 39–
40 (describing congressional testimony of Administrator for Pension and Welfare Benefits
Jeffrey Clayton).
8
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of ERISA to expand what may qualify as an “association of employers” under ERISA. The
intended effect of this redefinition is to allow these associations to qualify as large employers
subject to the ACA’s more limited protections for large group plans and to shift millions of the
States’ residents out of the ACA’s individual and small group markets, thereby causing them to
lose the ACA’s most robust protections and destabilizing those markets.
The Final Rule accomplishes this goal through two primary changes. First, reversing
DOL’s longstanding reliance on the “bona fide association” test, the Final Rule enables
numerous unrelated employers to join an “association” formed primarily to offer insurance, and
then permits that association to include employers that are merely in the “same trade, industry,
line of business, or profession” or “have a principal place of business within a region that does
not exceed the same State or the same metropolitan area (even if the metropolitan area includes
more than one State).” Id. at 28,922. The result would be that associations (1) newly formed (2)
primarily to sell insurance (3) for profit (4) to all employers in the same industry or geographic
area (an undefined term that could include a whole state or an area that crosses many states’
borders) will qualify as “employers” under ERISA for the purpose of creating AHPs. 12
Second, for the first time in ERISA’s history, the Final Rule deems self-employed
individuals with no other employees to be “employers” under ERISA, thus enabling them to
form and/or join employer associations. The test under the Final Rule for an individual to be
considered self-employed is minimal. Under the Final Rule, to qualify as a so-called “working
owner,” an individual must merely “[w]ork[] on average at least 20 hours per week or at least 80
12
The Final Rule does not define “geographic area.” DOL makes clear that an area could be as
large as a state or metropolitan area (undefined), but “nothing in the final rule requires [] that a
group or association or their AHP cover the entire State or an entire metropolitan area in order
for the group or association to qualify as bona fide.” 83 Fed. Reg. at 28,925.
9
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hours per month providing personal services to the working owner’s trade or business,” or must
have “wages or self-employment income from such trade or business that at least equals the
working owner’s cost of coverage for participation by the working owner and any covered
beneficiaries in the group health plan sponsored by the group or association in which the
In addition, the preamble to the Final Rule purports to expand the number of AHPs that
will be deemed large group plans for the purposes of the ACA, by aggregating “the total number
of employees of all the employer-members participating in the AHP.” Id. at 28,915. Thus, which
ACA protections are applicable will be determined by counting the number of employees in the
entire association, rather than the number of employees of each direct employer.
The Final Rule became effective on August 20, 2018. Id. at 28,912. The Final Rule
allows “fully insured plans”—i.e., plans that purchase insurance from third-party insurance
companies—“to begin operating under the new rule on September 1, 2018,” id. at 28,953, thus
enabling such AHPs to begin operating within weeks, free from federal ACA protections not
otherwise duplicated under state law. In addition, “[e]xisting self-insured AHPs”—that directly
offer insurance themselves—“can begin operating under the new rule on January 1, 2019, and
new self-insured AHPs can begin on April 1, 2019.” Id. The Final Rule states that this “modest”
delay will allow DOL and states to prepare for the anticipated need to increase investigatory and
enforcement resources to prevent AHPs from engaging in fraud and abuse. Id. at 28,912,
28,954.13
13
Plaintiffs are not at this point seeking preliminary injunctive relief, but are carefully
monitoring the phased implementation of the Final Rule and may seek a preliminary injunction
in the future if circumstances warrant.
10
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ARGUMENT
Defendants promulgated the Final Rule for the express purpose of undermining the ACA
and to avoid the heightened protections established by that Act for individuals and employees of
small employers. Those protections include a guarantee that premiums for the individual and
small group markets will not vary based on a wide range of factors such as gender or health
status14; the requirement that health plans in these markets cover ten essential health benefits 15;
and the requirement that all enrollees in a given State’s individual and small group markets,
respectively, be placed in a common risk pool. 16 By contrast, health plans offered by large
The Final Rule explicitly seeks to overturn this congressional judgment. In the notice of
adoption, DOL acknowledged that its permissive rules for AHPs are intended to “level[] the
playing field between small employers in AHPs, on the one hand, and large employers, on the
other, who generally are not subject” to the ACA’s consumer protections. 83 Fed. Reg. at
28,933. Defendant Acosta, the Secretary of Labor, publicly stated that the purpose of the Final
Rule is to exempt small employers from the ACA’s “benefit mandates and rating restrictions.”
Alexander Acosta, A Health Fix For Mom and Pop Shops, Wall St. J. (June 18, 2018). As
Secretary Acosta admitted, the purpose of the Final Rule is to override Congress’s intent—he
declared that Congress’s judgment in the ACA was “backward” because “[s]mall businesses
should face the same regulatory burden as large companies, if not a lighter one.” Id.
14
See 42 U.S.C. § 300gg-91(a)(1); see also Compl. ¶¶ 4, 56 (describing other factors the ACA
does not permit to influence premiums).
15
See 42 U.S.C. §§ 300gg-6(a), 18022(a)(1), (b)(1).
16
See 42 U.S.C. § 18032(c).
11
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The Final Rule is unlawful under both the ACA and ERISA, and is arbitrary and
capricious as well. First, by allowing millions of unrelated individuals and small employers to
count as if they all worked for one large employer—for the express purpose of negating the
ACA’s most important consumer protections—the Final Rule conflicts with the health insurance
market structure at the heart of the ACA. Second, by allowing individuals with no employees to
be treated as “employers” for purposes of forming large group health plans, the Final Rule
violates the plain language of ERISA and the ACA. Moreover, the Final Rule violates the
ERISA. Third, the Final Rule is arbitrary and capricious because it departs from longstanding
agency practice without sufficient explanation, is counter to the evidence in the record before the
agency, relies on factors Congress did not intend DOL to consider, and is predicated on mutually
States will suffer significant harm as a result of the Final Rule. Many states have relied
on the ACA’s individual and small market protections as intended by Congress, 17 but have not
enacted similar protections in their own laws. 18 When AHPs authorized under the Final Rule
infiltrate those states’ markets with skimpy coverage that will no longer adhere to ACA coverage
requirements, the result, borne out by history, will be serious harm to those markets and the
17
Congress empowered the states to enforce core ACA provisions, with the Department of
Health and Human Services (“HHS”) stepping in only if a state substantially failed to do so. See
42 U.S.C. § 300gg-22.
18
See, e.g., Declaration of Stephen C. Taylor (“Taylor Dec.”) ¶ 20.
19
See, e.g., Declaration of J. Michael Brown (“Brown Dec.”) ¶ 13; Declaration of Pritika Dutt
(“Dutt Declaration”) ¶¶ 6–8; Declaration of Kevin Lucia (“Lucia Dec.”) ¶¶ 7–11; Declaration of
Mila Kofman (“Kofman Dec.”) ¶¶ 26–27, 30–31; Declaration of Christopher R. Monahan
12
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Many of the states’ most vulnerable residents in need of comprehensive health coverage
will remain in the individual and small group markets as they destabilize and shrink, and will
experience significant premium increases, potentially resulting in the loss of coverage entirely.
At the same time, the individuals who leave those markets—healthier individuals who may join
AHPs—will have substandard coverage that may not cover vital services (such as
hospitalization, maternity and newborn care, and prescription drugs) and will be denied access to
ACA subsidies that would enable them to acquire coverage for those services. 20
Where, as here, final agency action is challenged under the APA, “[s]ummary judgment
is the proper mechanism for deciding, as a matter of law, whether an agency action is supported
by the administrative record and consistent with the APA standard of review.” Stewart v. Azar,
2018 WL 3203384, *6 (D.D.C. June 29, 2018) (quoting Loma Linda Univ. Med. Ctr. v. Sebelius,
684 F. Supp. 2d 42, 52 (D.D.C. 2010) (citation omitted). “[T]he Court’s role is limited to
reviewing the administrative record, so the standard set forth in Rule 56(c) does not apply.”
Sierra Club v. Jackson, 833 F. Supp. 2d 11, 18 (D.D.C. 2012) (quoting Air Transport Ass’n of
Am., Inc. v. Nat’l Mediation Bd., 719 F. Supp. 2d 26, 32 (D.D.C. 2010); see also Stewart v. Azar,
2018 WL 3203384, at *6 (D.D.C. Jun. 29, 2018) (“The summary-judgment standard set forth in
Federal Rule of Civil Procedure 56(c), therefore, ‘does not apply because of the limited role of a
13
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court in reviewing the administrative record.’”) (quoting Sierra Club v. Mainella, 459 F. Supp.
The Final Rule violates the Administrative Procedure Act (“APA”), as it is “arbitrary,
§ 706(2)(A). The States thus respectfully request that this Court grant Plaintiff States summary
I. The Final Rule Unlawfully Seeks To Override the Affordable Care Act’s Market
Structure.
Under the Administrative Procedure Act, courts “shall” “hold unlawful and set aside”
agency regulatory action that is “not in accordance with law” or “in excess of statutory
Rule, DOL improperly seeks to override the ACA’s market structures in a manner that is not in
A key component of the ACA is its robust consumer protections for health plans in the
markets for individuals and small groups—i.e., small employers and their employees. Congress
focused on the individual and small group markets because those markets have historically had
worse coverage and were more volatile than the large group market. See Compl. ¶¶ 3–4, 52, 54–
58. In the ACA, Congress made a legislative judgment that individuals and employees of small
employers require more robust consumer protections than employees of large employers.
21
Plaintiffs intend to file a proposed scheduling order with the Court that addresses the filing of
the administrative record, consistent with Local Civil Rules 7(h)(2) and 7(n). Plaintiffs’ citations
to the rulemaking record in this memorandum will, pending the Court’s approval of the proposed
scheduling order, be included in a joint appendix to be filed with the Court.
14
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The stated intent of the Final Rule is to undo that legislative judgment based on
Defendants’ belief that Congress made the wrong policy choice. The Final Rule dramatically
expands the number of health benefit plans exempt from the ACA’s strict protections for
individual and small group plans by allowing the package of consumer protections applicable to
AHPs to be determined by aggregating “the total number of employees of all the employer-
members participating in the AHP.” 83 Fed. Reg. at 28,912, 28,915. In other words, under the
Final Rule, an association whose employer-members collectively have more than fifty employees
would be able to offer health plans exempt from the ACA’s individual and small group
small employers.
The ACA forecloses the aggregation principle that is relied on by the Final Rule. The
plain language of the ACA requires that the relevant consumer protections applicable to an
employee’s group health plan depend on the size of that employee’s employer—not on the size
of an association or other group of which the employer is a member. The ACA defines a “large
employer” as “an employer who employed an average of at least 51 employees” during the
preceding year, and a “small employer” as “an employer who employed an average of at least 1
but not more than 50 employees” in the preceding year. 42 U.S.C. §§ 300gg-91(e); 18024(b)(1)–
(2).22 Under analogous statutes defining the reach of a federal law based on the size of an
employer, the Supreme Court has made clear that the operative inquiry is the number of
employees who work for the employer—i.e., who have a common-law master-servant
22
Because the ACA amended multiple existing statutes, including the Public Health Service Act
(“PHSA”), the Internal Revenue Code (“IRC”), and ERISA, the market-size definitions are
codified in multiple sections, but do not differ in their operative language.
15
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For example, the Americans with Disabilities Act applies to an employer who “has 15 or
more employees for each working day in each of 20 or more calendar weeks in the preceding
calendar year.” 42 U.S.C. § 12111. The Supreme Court has interpreted that language to refer to
traditional, common-law employers—i.e., “the person, or group of persons, who owns and
manages the enterprise . . . can hire and fire employees, can assign tasks to employees and
supervise their performance, and can decide how the profits and losses of the business are to be
distributed.” Clackamas Gastroenterology Assocs., P.C. v. Wells, 538 U.S. 440, 449–50 (2003).
The Age Discrimination in Employment Act similarly applies to an employer who “has twenty
or more employees for each working day in each of twenty or more calendar weeks in the current
or preceding calendar year.” 29 U.S.C. § 630(b). Courts have applied the common-law test to
that definition as well. See Weary v. Cochran, 377 F.3d 522, 525 (6th Cir. 2004). These
decisions reflect the general principle that, when Congress uses terms such as “employer” or
“employee” that have “accumulated settled meaning under . . . the common law, a court must
infer, unless the statute otherwise dictates, that Congress means to incorporate the established
meaning of these terms.” Cmty. for Creative Non-Violence v. Reid, 490 U.S. 730, 739 (1989)
relationship to determine whether benefit plans offered by associations qualify as MEWAs under
ERISA. Such benefit plans are MEWAs if they are offered “to the employees of two or more
employers.” 29 U.S.C. § 1002(40)(A). The dispositive question under this language is whether
the individuals covered by the plan are employees of one employer (such as an association) or
instead multiple employers (such as the association’s employer-members). DOL has expressly
relied on the common law to make that determination, concluding that the common-law master-
16
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servant test not only determines who is an employee, but also “determin[es] by whom an
individual is employed” for purposes of ERISA’s MEWA provision. DOL Op. No. 93-29A n.2
(emphasis added); see also Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 323–24 (1992)
(applying common-law test to definition of “employee” under ERISA). In other words, common
The same interpretive principles apply to the ACA’s textually analogous definitions of
large and small employers. Congress specified that a “large employer” is an “employer who
employed” more than fifty employees. 42 U.S.C. § 300gg-91(e)(2) (emphasis added). As with the
other statutory sections discussed above, an employer (including an association) satisfies this
definition only if it exercises sufficient control and supervision to satisfy the common-law test
for an employer-employee relationship for more than fifty employees. Thus, even if an
association were to qualify as an “employer” under the ACA’s cross-reference to the definition
of “employer” in ERISA § 3(5), see 42 U.S.C. § 300gg-91(d)(6), it would not be the “employer
who employed” its members’ employees absent a common law relationship, and accordingly
could not aggregate those employees for purposes of being deemed a “large employer.” Id. §
300gg-91(e)(2) (emphases added). The Final Rule contravenes this plain reading of the ACA by
employer, even when those employees do not have a common law master-servant relationship
23
The same principles apply under ERISA provisions governing when a plan must provide
continuation coverage. See 29 U.S.C. § 1161(a). Those provisions contain an exemption for
employers that employ fewer than twenty employees. See id. § 1161(b). Only “common law
employees of an employer are taken into account in determining whether” this exemption
applies. 26 C.F.R. § 54.4980B-2.
17
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The ACA’s own statutory aggregation rules also foreclose the Final Rule’s treatment of
associations. For purposes of qualifying as a large employer, the ACA allows multiple employers
determining employer size,” 42 U.S.C. § 18024(b)(4), the ACA sets out an “aggregation rule for
employers” that provides, in full: “All persons treated as a single employer under subsection (b),
(c), (m), or (o) of section 414 of Title 26 shall be treated as 1 employer,” id. § 18024(b)(4)(A).
The cross-referenced subsections are clauses in the Internal Revenue Code (“IRC”) that allow
circumstances, none of which are applicable here. Id. 24 The existence of this section
demonstrates that, in enacting the ACA, Congress specifically defined the circumstances under
which employees of separate employers could be “treated as employed by a single employer” for
purposes of “determining employer size” under the ACA, and thus necessarily intended to
exclude other circumstances—including aggregation by an association. See John Wiley & Sons,
Inc. v. DRK Photo, 882 F.3d 394, 405 (2d Cir. 2018) (describing “interpretive canon of expressio
Finally, the Final Rule contravenes Congress’s intent to apply these principles across all
of the different statues amended by the ACA, including the IRC. The Final Rule states that its re-
definition of “employer” does not extend to the IRC. See 83 Fed. Reg. at 28,915. But in enacting
24
Specifically, aggregation of employees is permitted when: several corporations have a
common parent corporation that owns eighty percent of the stock in all of the corporations,
see 26 U.S.C. § 414(b); a group of partnerships or proprietorships are under “common control,”
id. § 414(c); arrangements in which one organization holds shares in another and performs
services for that organization, id. § 414(m); and certain arrangements intended to avoid
employee benefit requirements, id. § 414(o).
18
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the ACA, Congress applied core ACA provisions dependent on the term “employer” not only in
the Public Health Service Act (“PHSA”), but also in the IRC (and ERISA). See Compl. ¶ 58
substantively identical provisions across all of these statutes unambiguously expressed its intent
to apply the same market-size rules across the board.25 The Final Rule ignores that requirement.
The most egregious disparity introduced by the Final Rule’s disregard of the uniform
definitions mandated by Congress is its refusal to extend the ACA’s employer mandate (which is
contained in the IRC) to associations offering AHPs. The employer mandate is a tax added by
the ACA to the IRC that is imposed on any large employer that fails to offer its employees
affordable coverage that meets certain minimum standards. See 26 U.S.C. §§ 36B(c)(2)(C),
4980H. Congress plainly intended the large employer mandate generally to apply to the same
employers as the ACA’s more lenient consumer protections for large employer plans: the two
statutes use the same “employer who employed” language to define the size of the employer, and
further contain the same statutory aggregation rules and the same rules for treatment of
predecessor employers and employers not in existence in the previous year. Compare 42 U.S.C.
§ 300gg-91(e)(2), with 26 U.S.C. § 4980H(c)(2)(A). Congress also specified that any term
appearing in the IRC’s statutory provision imposing the employer mandate “shall have the same
25
Making doubly clear Congress’s intent that these substantively identical provisions across the
PHSA, ERISA, and IRC must be construed the same way is a separate provision instructing the
pertinent agencies to administer these statutes “so as to have the same effect at all times.” Health
Insurance Portability and Accountability Act (“HIPAA”), Pub. L. No. 104-191, § 104. That
provision, which remains on the books, was enacted when Congress in 1996 enacted the portions
of ERISA (Part 7), the PHSA (Part A of Title 27), and the IRC (Chapter 100) later amended by
the ACA. The Final Rule acknowledges that this provision applies but omits that it imposes an
obligation to construe these statutory provisions the same way. 83 Fed. Reg. at 28,915 n.9 (“The
Departments of Labor, HHS, and the Treasury operate under a Memorandum of Understanding
that implements section 104 of [HIPAA] and subsequent amendments, including certain sections
of the Affordable Care Act, and provides for coordination and consultation.”).
19
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meaning” as the same term in the ACA, 26 U.S.C. § 4980H(c)(6), meaning that any entity that
qualifies as an employer under the ACA must also qualify as an employer for purposes of the
employer mandate.
The Final Rule disregards the statutorily mandated parallel between the meaning of
“large employer” in the IRC and the ACA. For purposes of the employer mandate, the preamble
to the Final Rule asserts that the employer mandate will not apply to the association, but only to
“applicable large employer.” 83 Fed. Reg. at 28,933 & n.54. In other words, while the Final Rule
declares that a group of employers that band together to form an AHP will be treated as a single
large employer for purposes of evading the ACA’s protections for small group plans, see 83 Fed.
Reg. at 28,912, it provides that the same group will not be considered a large employer for
purposes of the employer mandate, see id. at 28,915, 28,933. DOL does not explain—nor could
it—how an association could qualify as a “large employer” within the meaning of the market-
size definitions but not as an “applicable large employer” within the meaning of the employer
from the protections for small group plans and from the employer mandate applicable to large
group plans.26
Finally, DOL misplaces its reliance on a 2011 bulletin issued by the Centers for Medicare
& Medicaid Services (“CMS”) that provided guidance on how to determine whether associations
are large or small employers. See CMS Ins. Stds. Bulletin Series (Sept. 1, 2011) (“CMS
26
DOL has represented that the Department of the Treasury—the agency that administers the
IRC—offered “consultation” on the Final Rule. 83 Fed. Reg. at 28,915. This token invocation of
another agency’s assent cannot permit DOL to divorce statutory provisions that Congress meant
as complementary—particularly in the absence of even an attempt to address the plain language
of the employer mandate.
20
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Bulletin”); see also 83 Proposed Rule, 83 Fed. Reg. at 618 & n.12 (quoting CMS Bulletin). The
CMS Bulletin supports Plaintiffs’ position by stating that in most cases a “group health plan
exists at the individual employer level and not at the association-of-employers level,” meaning
that “the size of each individual employer participating in the association determines whether
that employer’s coverage is subject to the small group market or the large group market rules.”
CMS Bulletin at 3; see also Proposed Rule, 83 Fed. Reg. at 618 (quoting CMS Bulletin). While
DOL relies on a statement in the CMS Bulletin that there are “rare” exceptions to this rule (CMS
Bulletin at 3), that statement did not analyze the provisions of the ACA discussed above, see
supra at 15–20, and was incorrect because the ACA does not contain any exception that would
market size. In any event, the Final Rule here sweeps well beyond what CMS could possibly
have intended in its 2011 Bulletin. At that time, as the Bulletin acknowledged, only a very
narrow class of “bona fide associations” could be considered “employers” under ERISA; as a
result, allowing this limited number of associations to qualify as large employers was sufficiently
“rare” to not materially affect the character of the small group and individual markets. DOL’s
dramatic expansion of the class of associations that may now qualify as “employers” under
ERISA (and “large employers” under the ACA) will have a far more than de minimis effect—
indeed, it will enable an association of virtually all employers in a state to qualify as a “large
employer.”
DOL’s authority to interpret the term “employer” under ERISA cannot justify its
subversion of the ACA’s statutory market-size definitions. To be sure, the ACA cross-references
the definition of “employer” in ERISA § 3(5), 42 U.S.C. 300gg-91(d)(6), and the ERISA
21
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definition includes a “group or association of employers” that is acting “indirectly in the interest
of an employer, in relation to an employee benefit plan,” 29 U.S.C. § 1002(5). But that cross-
reference at most establishes that an association of employers may be an “employer.” It does not
“small” employer under the ACA, which turns instead on whether the employer employs a
Indeed, as explained above (see supra at 16–17), in interpreting ERISA’s MEWA statute
DOL has explained that although an “association of employers may constitute an ‘employer’
within the meaning of ERISA Section 3(5),” that classification does not itself determine whether
the contrary, as DOL explained in 2013 guidance (that has not been rescinded):
Id. Under the principles stated in this interpretation, DOL’s classification of an association as an
“employer” under ERISA would not by itself permit the association to count its employer-
members’ employees as the association’s own employees for purposes of qualifying as a “large
employer” under the ACA. The preamble to the Final Rule does not even acknowledge, let alone
distinguish, this recent pronouncement from DOL regarding the limited implications of
27
U.S. Dep’t of Labor, MEWAs: Multiple Employer Welfare Arrangements under the Employee
Retirement Income Security Act (ERISA): A Guide to Federal & State Regulation 22 (2013), at
https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-
center/publications/mewa-under-erisa-a-guide-to-federal-and-state-regulation.pdf.
22
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In any event, because the ACA is both “later-enacted” and a “more specific,
comprehensive statute that targets the specific subject matter at issue,” it prevails if there is any
“potential conflict or discrepancy.” Nutritional Health All. v. FDA, 318 F.3d 92, 102 (2d Cir.
2003) (citing FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 143 (2000)). ERISA’s
nothing in that section—which defines scores of terms—has anything to do with market sizes or
the distinction between large and small employers for purposes of triggering the ACA’s
Finally, ERISA in particular is a statute that should not be read to change the meaning of
any other federal statute absent a clear congressional directive. ERISA contains an express non-
impairment clause providing that “[n]othing in [ERISA] shall be construed to alter, amend,
modify, invalidate, impair, or supersede any law of the United States.” Id. at § 1144(d). As the
D.C. Circuit has observed, this language is “expansive” and “unequivocal” and thus deserves
“broad application.” Oakey v. U.S. Airways Pilots Disability Income Plan, 723 F.3d 227, 233
(D.C. Cir. 2013). This non-impairment clause further undermines DOL’s attempt to leverage the
Hosp., 488 U.S. 204, 208 (1988). DOL here exceeded its authority by attempting to override
Congress’s judgment. While the Final Rule ostensibly seeks only to clarify the meaning of
“employer” under ERISA, the purpose and effect of this purported definitional clarification is to
23
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dramatically alter the health insurance market structures established under the ACA. This is not
The Final Rule identifies no statutory authority authorizing any agency—let alone
DOL—to abrogate by ERISA regulation the ACA’s critical consumer protections for the
individual and small group markets. Nor can such authority be inferred in the face of Congress’s
silence. The ACA’s protections for the individual and small group markets were some of the
discriminatory health plans. King v. Burwell, 135 S. Ct. 2480, 2489 (2015). Whether and how
those protections apply is thus “a question of deep ‘economic and political significance’ that is
central to this statutory scheme; had Congress wished to assign that question to an agency, it
surely would have done so expressly.” Id. No provision of the ACA provides such express
authority.
It is especially unlikely that Congress would have left to DOL the fundamental policy
choice of whether individuals and small employers may, by forming or joining associations,
evade the ACA’s consumer protection and rating requirements. Not only does this policy
benefits and consumer protections for individuals and small employers’ employees, but it could
undermine the shared risk pools Congress created to stabilize the individual and small group
markets. The Final Rule’s express purpose is to siphon people out of the individual and small
group markets—and thus out of these shared risk pools—by authorizing a new breed of AHPs
that will qualify as large group plans. See, e.g., 83 Fed. Reg. at 28,938–39.
Nothing in the ACA or ERISA suggests—let alone expressly provides—that DOL can
regulate to reverse the deliberate design of the ACA, which reflected Congress’s intent to
24
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consolidate rather than balkanize the risk pools for the individual and small group markets.
Indeed, DOL does not have expertise regulating healthcare or health insurance marketplaces, and
yet DOL’s justification for the Final Rule rested heavily on findings about how the health care
and health insurance markets function, including the risks and benefits of exempting small
employers from the ACA’s essential health benefit requirements; the possibility of adverse
selection and increased consumer out-of-pocket health care expenses in AHPs; and the effects of
siphoning individuals and small businesses out of the individual and small-group markets
through the expansion of AHPs. See, e.g., 83 Fed. Reg. at 28,912 (analyzing the economic
impact of the Final Rule, including the purported need for regulation). Congress typically
delegates this type of analysis not to DOL, but to HHS, which has general authority to carry out
the terms of the ACA, including the creation, operation, and oversight of health insurance
marketplaces.28 It is implausible that Congress would have silently delegated to DOL the
authority to make fundamental choices about the scope of a statute that a different agency would
typically administer. See Chamber of Commerce v. DOL, 885 F. 3d 360, 386 (5th Cir. 2018).
Even before the legislative process that led to the ACA’s enactment, Congress repeatedly
considered and rejected legislation to expand AHPs in precisely the ways that the Final Rule
attempts to pursue.29 Where Congress has repeatedly rejected legislation to amend a statute to
achieve a significant policy change (such as an expansion of AHPs under ERISA) and instead
28
See, e.g., 42 U.S.C. § 18041(a); see also ACA, Pub. L. No. 111-148, § 1254 (ordering HHS to
“conduct a study of the fully-insured and self-insured group health plan markets” to “compare
the characteristics of employers” and “determine the extent to which new insurance market
reforms are likely to cause adverse selection in the large group market or to encourage small and
midsize employers to self-insure.”). To be clear: the Final Rule would not be valid if it were
promulgated by HHS instead, in light of its other defects.
29
See, e.g., Small Business Health Fairness Act of 2005, H.R. Rep. No. 109-41, at 1–5
(describing Congress’s failure pass legislation expanding AHPs in 1995, 1996, 1997, 1998,
1999, 2001, 2002, and 2003).
25
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has enacted different reforms, an agency may not seize upon general language in the existing
statute to find an implied delegation to achieve the rejected ends through regulation. See INS v.
Cardoza-Fonseca, 480 U.S. 421, 442 (“Few principles of statutory construction are more
compelling than the proposition that Congress does not intend sub silentio to enact statutory
During debate on the ACA, and continuing in the years since enactment, members of
Congress proposed bills that would more freely allow small employers to band together into
large employers. None of those bills have passed, and many were rejected. See, e.g., S. 2818,
110th Cong., § 802 (Small Business Health Plans Act of 2008); S. 1818, 115th Cong. (Small
Business Health Plans Act of 2017); see also Compl. ¶¶ 64–72 (describing decades of rejected
legislation). Indeed, many opponents of the ACA bill expressly argued that it did not create a
way for small employers to band together to qualify for the large group market, and cited this as
an important reason for their opposition. 30 Their efforts to add AHP legislation to the ACA, or to
substitute AHP legislation for the ACA, were rejected. See Compl. ¶ 71 (describing rejections in
committee and on the floor of the House of Representatives). At the same time, members of
Congress who supported the ACA bill explicitly recognized the market pressures affecting
smaller employers and explained that the bill contained a specific, different solution to that issue.
As Senator Baucus, a principal architect of the ACA, explained, “small businesses lack the
buying power larger companies have to negotiate affordable group rates,” and therefore “[t]he
Senate bill creates small business insurance exchanges . . . where small businesses can band
30
See, e.g., 155 Cong. Rec. S13,563-64 (daily ed. Dec. 20, 2009) (statement of Sen. Isakson);
115 Cong. Rec. S13,681 (daily ed. Dec. 21, 2009) (statement of Sen. Enzi); 115 Cong. Rec.
S13,829 (daily ed. Dec. 23, 2009) (statement of Sen. Kyl); id. S14,126 (daily ed. Dec. 24, 2009)
(statement of Sen. Ensign); 156 Cong. Rec. H1,919 (daily ed. Mar. 21, 2010) (statement of Rep.
Frelinghuysen).
26
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together and pool their risks.” 155 Cong. Rec. S13,573 (daily ed. 2009); see also id. S13,864
(daily ed. Dec. 23, 2009) (statement of Sen. Klobuchar) (“small businesses can finally pool their
numbers and do what big businesses do”). DOL cannot substitute its judgment for Congress’s,
and it certainly may not negate the requirements Congress chose to apply.
Finally, whatever authority Congress may have delegated to clarify the precise definitions
of large and small employers under the ACA, Congress could not have authorized an agency to
entirely subvert the ACA’s statutory goals. See Brown & Williamson, 529 U.S. at 133 (a court
“must be guided to a degree by common sense as to the manner in which Congress is likely to
agency.”). But the Final Rule expressly and deliberately seeks to overturn Congress’s judgment
that individuals and small employers receive key consumer guarantees. And DOL’s attempt to
substitute its policy views for those of Congress is all the more remarkable because the agency
explicitly concedes that an association of “working owners” or small employers will not have the
same incentive to provide quality coverage that large employers do. See 83 Fed. Reg. at 28,944.
A true large employer has economic incentives to provide comprehensive coverage, whereas
DOL admits that AHPs will favor “risk differences between, for example, genders, age groups,
and industries, and more tailored, often less comprehensive benefits.” Id. DOL thus concedes
both (1) that it is attempting to reverse policies set by Congress, and (2) that it will not even be
able to provide an alternative route to the same quality of coverage Congress required.
Telecommunications Corp. v. AT&T, 512 U.S. 218, 231 (1994). Given the “enormous
importance to the statutory scheme” of the ACA’s reforms to the individual and small group
markets, id., a regulation that makes those reforms inapplicable to a wide swath of individuals
27
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and employers does not merely adjust the scope of the ACA, but utterly transforms it—changing
it from a scheme with a principal goal of protecting individuals and small employers’ employees
into a scheme that gives them fewer protections than the employees of large employers.
Whatever the merits of that idea as a policy matter, “it was not the idea Congress enacted into
law.” Id. at 232. By seeking to leverage its regulatory authority to effect changes to the ACA, a
law duly enacted by Congress, DOL has acted in excess of its statutory authority. See Bowen,
488 U.S. at 208; Am. Library Ass'n. v. FCC, 406 F.3d 689, 691 (D.C. Cir. 2005). The Final Rule
is also “not in accordance with law.” Atl. City Elec. Co. v. FERC, 295 F.3d 1, 14 (D.C. Cir.
2002) (citing 5 U.S.C. § 706(2)(A)). Therefore, as required by the APA, the Final Rule must be
II. The Final Rule Unlawfully Expands the Definition of “Employer” in the ACA
and ERISA.
The Final Rule also seeks to undermine the ACA by expanding those individuals and
associations that can qualify as “employers” in two ways that break sharply with judicial
interpretations of ERISA and DOL’s longstanding interpretations. First, the Final Rule redefines
a “working owner” with no other employees as an “employer” under ERISA. Second, the Final
Rule upends DOL’s decades-long requirement that a group of employers be a “bona fide
ERISA precludes DOL from redefining a “working owner” without any employees as an
“employer.” The Supreme Court spoke directly to this issue in Yates v. Hendon, 541 U.S. 1
(2004), stating that “[p]lans that cover only sole owners or partners and their spouses . . . fall
outside [ERISA] Title I’s domain.” Id. at 21 (emphasis added); see also id. at 21 n.6 (“Courts
28
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agree that if a benefit plan covers only working owners, it is not covered by Title I [of ERISA]”)
(emphasis added). The Second Circuit has likewise squarely held that a “sole proprietorship[]
employees. Marcella v. Capital Dist. Physicians’ Health Plan, Inc., 293 F.3d 42, 48 (2d Cir.
2002). As a result, the “plain language of the [ERISA] statute would . . . seem to preclude
finding” that an association that includes such sole proprietors qualifies as an “association of
employers” under ERISA’s definition. Id.; see also Schwartz, 761 F.2d at 867 (holding that self-
employed individual was not a participant in an ERISA plan where he was the only contributor
to the plan). Many courts of appeals have reached the same result. 31
DOL’s own rule on this question has consistently defined a “working owner” without
after ERISA’s enactment, 29 C.F.R. § 2510.3-3(b), 32 expressly excludes sole proprietors from
the definition of an “employee benefit plan,” stating that a plan under which “only partners or
only a sole proprietor are participants covered under the plan will not be covered” by Title I of
ERISA. Likewise, “[a]n individual and his or her spouse shall not be deemed to be employees
owned by the individual or by the individual and his or her spouse.” Id. at § 2510.3-3(c)(1).33
31
See, e.g., Dahl v. Charles F. Dahl, M.D., P.C. Defined Benefit Pension Tr., 744 F.3d 623, 629
(10th Cir. 2014); House v. Am. United Life Ins. Co., 499 F.3d 443, 450 (5th Cir. 2007); Provident
Life & Acc. Ins. Co. v. Sharpless, 364 F.3d 634, 639 (5th Cir. 2004); Slamen v. Paul Revere Life
Ins. Co., 166 F.3d 1102, 1105 (11th Cir. 1999); In re Watson, 161 F.3d 593, 597 (9th Cir. 1998);
SEC v. Johnston, 143 F.3d 260, 262–263 (6th Cir. 1998).
32
See 40 Fed. Reg. at 34,526, 34,533 (1975).
33
For this reason, the Final Rule also amends 29 C.F.R. § 2510.3-3 for the sole purpose of
defining “working owners” as ERISA “employees.”
29
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employees from the definition of “employer” has been consistent for many decades. DOL Op.
No. 07-06A (Aug. 16, 2007) (“[T]he Department has previously concluded that sole proprietors
without common-law employees are not eligible to be treated as ‘employers’ for purposes of
participating in a bona fide group or association of employers within the meaning of ERISA
section 3(5).”); see also DOL Op. No. 03-13A (Sept. 20, 2003); DOL Op. No. 95-01A (Feb. 13,
1995); DOL Op. No. 94-07A (Mar. 14, 1994); DOL Op. No. 77-75A (Sept. 21, 1977); DOL Op.
No. 75-19 (Oct. 10, 1975). DOL’s abrupt reversal in course is thus not only contrary to ERISA,
but also inconsistent with the agency’s own longstanding interpretation dating to immediately
The Final Rule’s classification of “working owners” as “employers” also conflicts with
the ACA’s statutory text. While the ACA largely incorporates ERISA § 3(5)’s definition of
“employer,” it further provides that “employer” under the ACA “shall include only employers of
two or more employees.” 42 U.S.C. § 300gg-91(d)(6). Even if ERISA allowed for a “working
“employer” under the ACA because she would have only one employee—herself.
association of “working owners” has two or more employees in the aggregate. As the Final Rule
acknowledges, an association can qualify as an “employer” under the ACA only if it is a “group
(emphasis added). Thus, in order to form or join an association that itself is considered an
34
As explained below, see infra at 38–41, DOL’s largely unexplained reversal of its
longstanding interpretation also violates the APA because it is arbitrary and capricious.
30
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employer, the component members must be employers themselves. Non-employers cannot join
together and form an association that is then considered an employer. Yet, the Final Rule seeks
to do just that: it takes “working owners”—who would not be considered “employers” under the
The Final Rule’s treatment of “working owners” as “employers” further conflicts with the
ACA’s structuring of the health insurance market. Federal agencies have consistently held that
sole proprietors are individuals under the ACA subject to the individual market. 35 That position
is consistent with the text of the ACA, which defines the “individual market” as “the market for
health insurance coverage offered to individuals other than in connection with a group health
plan,” and defines group health plan as those offered by small employers and large employers.
42 U.S.C. §§ 300gg-91(a)(1), (e)(1)(A). Because, for the reasons already given, neither “working
owners” nor associations of “working owners” qualify as employers (whether small or large)
under the ACA, “working owners” are necessarily part of the individual market. That result is
consistent with a separate provision of the ACA setting forth the “[t]reatment of very small
groups,” which provides that the individual market “includes coverage offered in connection
35
See CMS Center for Consumer Information and Insurance Oversight,
https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-
Marketplaces/SHOP.html (“If you're a sole proprietor or self-employed with no employees, you
can get individual coverage through the Health Insurance Marketplace.”) (emphasis added);
Health coverage if you’re self-employed, HealthCare.gov, https://www.healthcare.gov/self-
employed/coverage/#self-employedorsmallemployer (“If you're self-employed, you can use the
individual Health Insurance Marketplace to enroll in flexible, high-quality health coverage that
works well for people who run their own businesses. You can enroll through the Marketplace if
you’re a freelancer, consultant, independent contractor, or other self-employed worker who
doesn’t have any employees. You’re considered self-employed if you have a business that takes
in income but doesn’t have any employees.”).
31
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with a group health plan that has fewer than two participants as current employees on the first
day of the plan year”—language that would cover “working owners” that have no other
The Final Rule thus defies Congress’s intent to provide “working owners” with the
ACA’s protections for the individual market. See supra at 23–28. Before the ACA, individual
premiums were unaffordable because they were “typically based on the risk of the applicant,
such as an individual or family.” America’s Healthy Future Act of 2009, S. Rept. 111-89, at 31.
illegal, practices to cherry-pick healthy people and to weed out those who are not as healthy.”
H.R. Rept. 111-299, pt. 3, at 146. Congress adopted robust protections in the individual market
to respond to these discriminatory practices. DOL’s attempt to shift “working owners” from the
individual market, in which they are afforded the panoply of ACA protections, to the large group
market is simply an end run around congressional intent. Indeed, beyond just losing the ACA’s
protections for the individual market, many “working owners” will also be worse off than other
employees in the large group market because, unlike traditional large employers, AHPs will not
have the same incentives to provide quality coverage that large employers do. See supra at 23–
28.
Over the last several decades, the criteria to determine whether an association is a “bona
fide association” under ERISA Section 3(5) have been well-settled. Courts interpreting that
provision, and Congress’s intent, agree that for an association to be deemed an “employer” under
the statute, the association maintaining an employee benefit plan under ERISA must be tied to
32
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provision of health insurance benefits; and that employer members participating in an employee
benefit program must exercise actual control over the program. E.g., Gruber v. Hubbard Bert
Karle Weber, Inc., 159 F.3d 780, 787 (3d Cir. 1998) (“commonality of interest requirement is
well-established in the case law”); MDPhysicians & Assocs., Inc. v. State Bd. of Ins., 957 F.2d
178, 186 n.9 (5th Cir. 1992) (the “statutory language of ERISA and the intent of Congress” made
clear that a plan marketed to all employers in the Texas Panhandle could not be an ERISA plan
as there was no “protective nexus” between the MEWA and the employer-members); Wisconsin
Educ. Assoc. Ins. Trust v. Iowa State Bd., 804 F.2d 1059, 1063, 1065 (8th Cir. 1986)
(interpreting “ERISA’s language and Congress’ intent” and holding that “the definition of an
employee welfare benefit plan is grounded on the premise that the entity that maintains the plan
and the individuals that benefit from the plan are tied by a common economic or representation
interest, unrelated to the provision of benefits.”) (emphasis added); Matthew 25 Ministries, Inc.
v. Corcoran, 771 F.2d 21, 22 (2d Cir. 1985) (trust that solicited “disparate and unaffiliated”
employer-enrollees that played no role in management of the trust was not “established or
In addition, several decades of DOL guidance have clearly established that the employer-
members of a “bona fide association” must share a commonality of interest unrelated to the
provision of health care. See DOL Op. No. 08-07A (Sept. 26, 2008) (rejecting chamber of
commerce’s attempt to become AHP); DOL Op. No. 94-07A (Mar. 14, 1994) (“None of the
statutory interpretation by multiple federal courts, the Final Rule now provides that employer-
33
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members have a sufficient commonality of interest if they merely “have a principal place of
business within a region that does not exceed the same State or the same metropolitan area (even
if the metropolitan area includes more than one State)” or are in the “same trade, industry, line of
business, or profession.” 83 Fed. Reg. at 28,923, 28,925. The breadth of DOL’s new
interpretation is staggering: for example, all employers in a state joining one association could
qualify. The Rule also allows an association to form with the “primary purpose” of offering
at 28,918. Under DOL’s interpretation, a single association could exist to sell insurance products
for profit to all employers in a state, and even to many individuals. Absent state law protections,
DOL’s new interpretation would allow one association to subsume a state’s group insurance
markets.
These dramatic departures from longstanding interpretations of ERISA render the Final
Rule an unreasonable interpretation of ERISA’s definition of “employer.” The Final Rule “flatly
contradicts the position which the agency had enunciated at an earlier date, closer to the
enactment of the governing statute.” Gen. Elec. Co. v. Gilbert, 429 U.S. 125, 142 (1976). DOL’s
abrupt reversal of its longstanding criteria for bona fide associations “alone gives [this Court]
reason to withhold approval or at least deference for the Rule.” Chamber of Commerce, 885 F.3d
at 381.
The Final Rule’s abandonment of the well-established “bona fide association” test is also
unreasonable because it conflicts with ERISA’s foundational purpose. As courts have repeatedly
recognized, Congress intended to exclude from ERISA’s coverage plans “established and
others.” MDPhysicians & Assocs., Inc., 957 F.2d at 184 (quoting H.R. Rep. No. 94-1785, at
34
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48).36 The purpose of this exclusion was to ensure that “employers” under ERISA—including
any “association of employers”—would have the type of “protective nexus” with their direct
employees that is missing from commercial insurance. Contravening Congress’s intent, the Final
Rule would sweep within ERISA’s definition of “employer” associations that are (1) newly
formed (2) primarily to sell insurance (3) for profit (4) to all employers in the same industry or
geographic area (an undefined term that could include a whole state or an area that crosses many
states’ borders). Little would distinguish these entities from health insurance companies or
insurance brokers seeking to develop and market plans for their own profit. By abandoning the
association must “act[] indirectly in the interest of” its employer-members, instead of acting as a
commercial insurance provider, in order to qualify as an “employer” under ERISA. See Public
Citizen, Inc. v. Mineta, 340 F.3d 39, 55 (2d Cir. 2003) (vacating agency rule because it
36
See also Compl. ¶ 45 (noting that this House report has been described as “virtually conclusive
as to legislative intent” by a host of federal courts).
37
Moreover, past enactments by Congress also demonstrate its awareness of the “bona fide
association” concept; when it enacted HIPAA in 1996, Congress adopted a definition of that
term that is specifically applicable to the PHSA’s guaranteed issue and guaranteed renewability
requirements. See 42 U.S.C. § 300gg-91(d)(3). But Congress has never created a separate
definition of that term for ERISA, suggesting that it agreed with DOL’s existing interpretation
and intended it to remain unaltered. See CMS Bulletin at 2 n.4 (noting that the PHSA’s definition
of “bona fide association” applies “only for purposes of providing limited exceptions from its
guaranteed issue and guaranteed renewability requirements”).
35
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Even if DOL could abandon its longstanding interpretation of “employer” under ERISA,
it could not thereby alter the meaning of that term in the ACA. Congress considered and enacted
the ACA against the backdrop of consistent agency and judicial interpretations of ERISA,
including settled understandings of the term “employer” as excluding sole proprietors without
employees and including only “bona fide associations” with a true commonality of interest.
Having enacted multiple rounds of health care reform during the decades in which both
“employer,” in enacting the ACA, Congress would not have intended to deviate from those
definition of “employer” into the PHSA after the enactment of the ACA. 42 U.S.C. § 300gg-
91(d)(6). When Congress has enacted statutes “against the background of [an agency] repeatedly
and consistently asserting” a specific interpretation of a statute the agency administers, it “has
effectively ratified the [agency]’s previous position.” Brown & Williamson, 529 U.S. at 156.
Moreover, “[t]he consistency of the [agency]’s prior position . . . provides important context” for
Congress’s subsequent enactments. Id. at 157. When the agency has maintained an interpretation
for “decades without any action from Congress suggesting disapproval,” and where “Congress’s
inaction cannot be ascribed to lack of interest or knowledge” because it has “frequently tinkered
with the statutory scheme in question,” then Congress must be deemed to have “acquiesce[ed] in
the agency’s interpretation.” Bellevue Hosp. Ctr. v. Leavitt, 443 F.3d 163, 176 (2d Cir. 2006).
And once Congress has ratified an agency’s prior interpretation, “[t]he consistency of the
36
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[agency]’s prior position . . . provides important context” for Congress’s subsequent enactments.
Here, as explained above, DOL has taken the position since ERISA’s enactment that the
definition of “employer” in ERISA excludes “working owners” without employees, and includes
only “bona fide associations” that satisfy certain well-established criteria. These interpretations
have been strikingly consistent for decades. Regulated entities have relied upon these
interpretations, and courts have consistently affirmed them. And although Congress has
repeatedly amended ERISA—including through the ACA—in the decades since its enactment, it
has never sought to disturb DOL’s well-settled positions about the limitations of the term
“employer” into the ACA. Given the striking consistency and vintage of DOL’s interpretation of
that term, Congress’s cross-reference to ERISA in the ACA necessarily reflected Congressional
885 F.3d at 370 (use of a particular term “triggers the settled principle of interpretation that,
absent other indication, Congress intends to incorporate the well-settled meaning of the
common-law terms it uses.”) (quotation marks omitted). In the Final Rule, DOL impermissibly
seeks to abandon its previously “unwavering position[s]” after Congress already relied upon
them in enacting the ACA. See Brown & Williamson, 529 U.S. at 157.
Because the Final Rule is not in accordance with either ERISA or the ACA, this Court
should hold the Rule unlawful and set it aside as required by the APA. See 5 U.S.C. § 706(2)(A).
37
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The Final Rule should be vacated for the independent reason that it is arbitrary and
capricious. Under the APA, “agencies are required to engage in ‘reasoned decisionmaking.’”
Michigan v. EPA, 135 S. Ct. 2699, 2706 (2015) (citation omitted). “The requirement that agency
action not be arbitrary or capricious includes a requirement that the agency adequately explain its
result . . . .” Public Citizen, Inc. v. FAA, 988 F.2d 186, 197 (D.C. Cir. 1993). Agencies must
“adequately analyze . . . the consequences” of their actions. Am. Wild Horse Pres. Campaign v.
Perdue, 873 F.3d 914, 932 (D.C. Cir. 2017). Here, DOL: (1) failed to provide adequate
justification for changing its longstanding definition of “employer”; (2) ignored extensive
evidence of MEWAs engaging in fraud and abuse; (3) relied on factors that Congress did not
intend it to consider; and (4) created flatly inconsistent statutory interpretations. Therefore, the
“A central principle of administrative law is that, when an agency decides to depart from
decades-long past practices and official policies, the agency must at a minimum acknowledge
the change and offer a reasoned explanation for it.” Id. at 923; see also Good Fortune Shipping
SA v. Comm’r of IRS, 2018 WL 3595945, at *5 (D.C. Cir. July 27, 2018). Moreover, if a “new
policy rests upon factual findings that contradict those which underlay [an agency’s] prior
policy” or “when [an agency’s] prior policy has engendered serious reliance interests that must
be taken into account,” agencies must provide a reasoned explanation for disregarding facts and
circumstances that underlay that long-held policy. FCC v. Fox Television Stations, Inc., 556 U.S.
38
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Here, in promulgating the Final Rule, DOL has not justified the agency’s dramatic
departure from decades of consistent interpretation of “employer” under Section 3(5) of ERISA.
The Rule fails to provide a reasoned explanation for abandoning the long-held agency
contemporaneously with ERISA’s original enactment to promote the core purposes of that
statute. See supra at 7–8, 34. In reversing course now, the Final Rule says that its radically
revised definition of “employer” will allow AHPs to “tailor health coverage to better meet the
needs of their members at lower and more actuarially fair prices”—specifically, by allowing
AHPs to discriminate in premiums more than otherwise would be allowed by the ACA, and to
offer less comprehensive benefits than otherwise would be required by the ACA. 83 Fed. Reg. at
28,939.
By focusing solely on DOL’s effort to subvert the ACA, this explanation does not
acknowledge, let alone explain the basis for departing from, the compelling reasons that led DOL
to adopt and then adhere to its original understanding of “employer” under ERISA itself. That
original understanding was formed in response to a wave of fraud and abuse by MEWAs and
multiple employer trusts (“METs”) in the mid-to-late 1970s and early 1980s. See, e.g., H.R. Rep.
No. 94-1785, at 48. DOL’s Administrator of Pension and Welfare Benefits, Jeffrey N. Clayton,
While these entities may vary in form, they usually involve a trust fund, which is formed
by a promoter who usually has experience in the insurance business. The promoter
actively solicits small employers and individuals offering to provide health and other
benefits for relatively low rates; people who want to sign up for these benefits become
subscribers to the trust and pay their premiums to the trust. The promoter naturally is
interested in making a profit through this enterprise which he does either through
receiving “sales commissions” for signing up new subscribers to the trust or by charging
administrative fees to the trust. Sometimes, these MET arrangements are able to deliver
39
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the benefits they have promised. All too often, however, the METs have become
insolvent usually because the promoter has taken excessive fees from the trust or the rates
charged were simply too low to pay for all the benefits promised. When these METs
collapse, and some very large ones have done so, thousands of individuals are stranded
with large unpaid medical bills.38
Administrator Clayton expressed “concern for what has happened to the many unfortunate
people who have become innocent victims of the MET arrangements,” 39 and explained that
because of DOL’s construction of ERISA “it has rarely been the case that METs qualify as
employee benefit plans.”40 Administrator Clayton likewise testified that “ERISA METs are very
rare, as a matter of fact. And the fact that someone waves a flag and says, ‘I am an ERISA
The lack of adequate explanation for DOL’s fundamental divergence from ERISA’s
foundational principles renders the Rule arbitrary and capricious. 42 DOL’s reasoning further
underscores the conflict between the Final Rule’s objectives and Congress’s design in the ACA.
38
Oversight Investigation of Certain Multiple Employer Health Insurance Trusts (METs),
Evading State and Federal Regulation, Hrg. Before the Subcomm. on Labor-Management
Relations of the H. Comm. on Education and Labor, 97th Cong., Mar. 5, 1982, at 42.
39
Id. at 38.
40
Id. at 39, 42.
41
Id. at 45.
42
In another example, DOL did not grapple with the textual limit at 42 U.S.C. § 300gg-91(d)(6)
that plainly excludes sole proprietors from the definition of “employer” under the ACA’s market
definitions. In response to comments, DOL claimed only that HHS had agreed with DOL’s view
(83 Fed. Reg. at 28,931), and stated that the PHSA incorporates the ERISA § 3(5) definition of
“employer” without noting the crucial textual distinction that § 300gg-91(d)(6) “shall include
only employers of two or more employees.” DOL’s response fails to satisfy the agency’s duty to
“make a reasonable attempt to grapple with” the statutory text and thus is arbitrary and
capricious. BP Energy Co. v. FERC, 828 F.3d 959, 965–66 (D.C. Cir. 2016).
40
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In addition, the Final Rule does not provide a reasoned justification for ignoring the
serious reliance interests of the states.43 The states are the primary regulators of insurance
markets, as reflected in a variety of federal statutes. See, e.g., 15 U.S.C. § 1011–15. The ACA
places states at the front line of enforcement—states operate health insurance exchanges, see 42
U.S.C. § 18031, and states enforce the ACA’s key reforms, see, e.g., 42 U.S.C. § 300gg-22.
Thus, for decades, the states have legislated on the subjects of insurance and health care, and
state officials have overseen insurance companies and other businesses, with DOL’s prior
regulators, the states have fundamental reliance interests in ensuring the stability of insurance
markets for the protection of our residents. See supra at 12–13 (discussing states’ reliance on
existing market structures and the harm that would result from their destabilization). Yet the
Final Rule makes no effort to address these serious reliance interests—instead suggesting that the
states will simply have to bear any additional burdens to police the new AHPs. See, e.g., Encino
43
Worse, the Final Rule ignores the reliance interests of the thousands of Americans who were
finally able to obtain affordable, quality health insurance under the ACA. “The Supreme Court
has set aside changes in agency policy for failure to consider reliance interests that pale in
comparison to the ones at stake here.” NAACP v. Trump, 298 F. Supp. 3d at 240 (citing Encino
Motorcars, LLC v. Navarro, 136 S. Ct. 2117, 2126 (2016)); see also NAACP v. Trump, 2018 WL
3702588, at *12 (D.D.C. Aug. 3, 2018) (The agency decision “demonstrates no true cognizance
of the serious reliance interests at issue here—indeed, it does not even identify what those
interests are. ‘It would be arbitrary and capricious to ignore such matters,’ and it is so here.”)
(quoting Perez v. Mortg. Bankers Ass’n, 135 S. Ct. 1199, 1209 (2015)). See, e.g., American
Medical Association, Comment Letter on Proposed Rule (Mar. 6, 2018),
https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/rules-and-regulations/public-
comments/1210-AB85/00378.pdf; National Governors Association, Comment Letter on
Proposed Rule (Mar. 6, 201[8]), https://www.dol.gov/sites/default/files/ebsa/laws-and-
regulations/rules-and-regulations/public-comments/1210-AB85/00695.pdf; Coalition Against
Insurance Fraud, Comment Letter on Proposed Rule (Jan. 10, 2018),
https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/rules-and-regulations/public-
comments/1210-AB85/00041.pdf; American Association of Retired Persons, Comment Letter on
Proposed Rule (Mar. 6, 2018), https://www.dol.gov/sites/default/files/ebsa/laws-and-
regulations/rules-and-regulations/public-comments/1210-AB85/00595.pdf.
41
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Motorcars, LLC v. Navarro, 136 S. Ct. 2117, 2125–27 (2016) (finding DOL’s explanation
insufficient in view of the “significant reliance interests involved” in prior law); Util. Air
Regulatory Group v. EPA, 134 S. Ct. 2427, 2444 (2014) (“The fact that the [agency rule] would
place plainly excessive demands on limited governmental resources is alone a good reason for
rejecting it”).
The Final Rule is also arbitrary and capricious because DOL has “offered an explanation for its
decision that runs counter to the evidence before [it].” Motor Vehicle Mfrs. Ass'n of U.S., Inc. v.
State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983). Numerous health care industry
stakeholders and patient groups vigorously opposed the Final Rule as proposed, but DOL wholly
More than 95 percent of the health-care-related organizations that filed comments—266 out of
279—opposed the Proposed Rule or expressed “serious concern.” Noam N. Levey, Trump’s New
Insurance Rules are Panned by Nearly Every Healthcare Group that Submitted Formal
Comments, L.A. Times, May 30, 2018. Of the groups that represented patients, physicians,
nurses, or hospitals, not a single one supported the Department’s proposal. Id. In the words of a
former president of the National Association of Insurance Commissioners who had served as a
Republican insurance regulator in Kansas: “Basically anybody who knows anything about
healthcare is opposed to these proposals.” Id. Among the many organizations whose comment
44
All public comments on the Proposed Rule are available on DOL’s website at
https://www.dol.gov/agencies/ebsa/laws-and-regulations/rules-and-regulations/public-
comments/1210-AB85. Individual comments will be incorporated into the appendix containing
cited portions of the administrative record that Plaintiffs anticipate filing at the conclusion of
briefing on this motion.
42
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letters expressly called on DOL to completely withdraw the Proposed Rule were the American
Academy of Family Physicians, the American Medical Association, the American Heart
Association, the American College of Obstetrician and Gynecologists, the American College of
Physicians, the American Hospital Association, the American Lung Association, and others. 45
These groups with expertise in health care identified an array of flaws in the Proposed
Rule that needed correction, but two problems in particular were mentioned by the vast majority
of these comments: (1) the demonstrated tendency of AHPs to succumb to fraud, abuse, and
insolvency; and (2) the damage that would be done to the ACA marketplace if AHPs are not
DOL’s decision to press ahead with the Final Rule despite these glaring flaws in its proposal
45
See, e.g., American Academy of Family Physicians, Comment Letter on Proposed Rule (Mar.
5, 2018), https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/rules-and-
regulations/public-comments/1210-AB85/00350.pdf; American Medical Association, Comment
Letter on Proposed Rule (Mar. 6, 2018), https://www.dol.gov/sites/default/files/ebsa/laws-and-
regulations/rules-and-regulations/public-comments/1210-AB85/00378.pdf; American Heart
Association and American Stroke Association, Comment Letter on Proposed Rule (Mar. 5,
2018), https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/rules-and-
regulations/public-comments/1210-AB85/00416.pdf; American College of Obstetricians and
Gynecologists, Comment Letter on Proposed Rule (Mar. 6, 2018),
https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/rules-and-regulations/public-
comments/1210-AB85/00585.pdf; American College of Physicians, Comment Letter on
Proposed Rule (Mar. 6, 2018), https://www.dol.gov/sites/default/files/ebsa/laws-and-
regulations/rules-and-regulations/public-comments/1210-AB85/00596.pdf; American Hospital
Association, Comment Letter on Proposed Rule (Mar. 6, 2018),
https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/rules-and-regulations/public-
comments/1210-AB85/00620.pdf; American Lung Association, Comment Letter on Proposed
Rule (Mar. 6, 2018), https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/rules-and-
regulations/public-comments/1210-AB85/00624.pdf.
43
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First, the long and troubled history of fraud, abuse and insolvency by MEWAs is
uncontested. DOL itself acknowledges this past, 83 Fed. Reg. at 28,952, and a wide range of
commenters expressed significant concerns about AHPs given their fraudulent and abusive
practices.46 Yet, in direct conflict with this evidence, the Final Rule seeks to vastly expand
AHPs. Int'l Union, United Mine Workers of Am. v. Mine Safety & Health Admin., 626 F.3d 84,
93 (D.C. Cir. 2010) (finding rule arbitrary and capricious where “it defie[d] the expert record
evidence and is unexplained.”); see also Morall v. DEA., 412 F.3d 165, 167 (D.C. Cir. 2005)
(striking down rule as arbitrary and capricious for “fail[ure] to consider contradictory record
Indeed, a core predicate for DOL’s long-held interpretation of ERISA Section 3(5) was
limit fraud and abuse. DOL fleshed out that construction when MEWAs in the 1970s, proffering
their own flawed interpretation of ERISA, invoked preemption to defraud consumers and avoid
state regulation. DOL’s answer to Congress and in court was simple: in almost all instances,
those MEWAs were not ERISA plans at all, because of DOL’s construction of ERISA. 47
46
See, e.g., American Medical Association, Comment Letter on Proposed Rule (Mar. 6, 2018),
https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/rules-and-regulations/public-
comments/1210-AB85/00378.pdf; American Academy of Pediatrics, Comment Letter on
Proposed Rule (Mar. 6, 2018), https://www.dol.gov/sites/default/files/ebsa/laws-and-
regulations/rules-and-regulations/public-comments/1210-AB85/00637.pdf; American Cancer
Society Cancer Action Network, Comment Letter on Proposed Rule (Mar. 6, 2018),
https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/rules-and-regulations/public-
comments/1210-AB85/00539.pdf; Robert Wood Johnson Foundation, Comment Letter on
Proposed Rule (Mar. 3, 2018), https://www.dol.gov/sites/default/files/ebsa/laws-and-
regulations/rules-and-regulations/public-comments/1210-AB85/00334.pdf.
47
See H.R. Rep. No. 94-1785, at 48; Br. for Appellant DOL, at *7, Donovan v. Dillingham, 668
F.2d 1196 (11th Cir. 1982) (No. 80-7879), 1980 WL 340211; 128 Cong. Rec. H1,1084 at 11395
(daily ed. May 21, 1982) (statement of Sen. Erlenborn) (describing DOL congressional
testimony); see infra at 39– 40 (describing congressional testimony of Administrator for Pension
and Welfare Benefits Jeffrey Clayton).
44
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DOL offers little explanation for how abandoning this evidence-based construction will
safeguard members of AHPs from fraud and abuse. DOL cannot claim that these problems no
longer exist, or that they will not surge if this Court permits DOL to reverse its decades-old
interpretations. See Compl. ¶¶ 44–50 (describing fraud and abuse documented in government
reports). The agency itself admits that the Final Rule will exacerbate these problems. 83 Fed.
Reg. at 28,953 (AHPs “will introduce increased opportunities for mismanagement or abuse, in
turn increasing oversight demands on the Department and State regulators”); id. at 28,928
(noting that Final Rule’s relaxation of legal requirements would, without safeguards, create
“cause for concern about fraud”). Moreover, DOL admits that its own past “enforcement efforts
often were too late to prevent or fully recover major financial losses.” Id. at 28,952.
Instead of offering a reasoned explanation for disregarding these facts, DOL outsources
the problem to the states. DOL has acknowledged the burden on state government regulators, see
id. at 28960, but declined to make any changes in response to that burden. DOL also notes that
Congress would need to “appropriate additional funding” to increase DOL’s own enforcement
resources. Id. at 28,954, 28,960. But Congress may never do that, and DOL declined to wait for
such funding. Id. at 28,960. DOL’s speculation about future funding and resources that may
never exist do not constitute a reasonable response to the serious problems the Final Rule will
facilitate. The lack of reasoned, and reasonable, explanation for promoting the expansion of
AHPs in disregard of well-established evidence renders the Rule arbitrary and capricious.
Second, commenters showed that failure to require AHPs to cover essential health
benefits (“EHBs”) would harm both currently healthy individuals and those individuals who are
already sicker, older, or in need of special care. As commenters persuasively showed, currently
healthy individuals—and their employers—cannot reliably predict what benefits they and their
45
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dependents will need, and thus will tend to forgo insurance coverage of health benefits if given
the choice. For example, the American Heart Association pointed out that until the ACA
mandated coverage for EHBs, patients would regularly discover that their coverage did not
include emergency, life-saving heart care—and that if AHPs are not required to cover EHBs,
nationwide group of psychiatrists who treat children and adolescents likewise pointed out that
when employers do not provide coverage for mental health treatment for their children, there will
is a significant coverage gap given that the rate of serious mental illness increases from 13
percent among children and young teenagers to 21 percent in older teenagers. 49 The psychiatrists
urged that AHPs be required to provide the EHBs required by the ACA, including mental health
coverage, because young patients in particular have far better outcomes if treated when their
symptoms first appear.50 The American College of Obstetricians and Gynecologists similarly
noted that before the ACA imposed the EHB requirement, only 12 percent of plans in the
individual market covered maternity care—and those plans were often unaffordable or imposed a
waiting period before providing that coverage. 51 Commenters made similar points about the
48
American Heart Association and American Stroke Association, Comment Letter on Proposed
Rule (Mar. 5, 2018), https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/rules-and-
regulations/public-comments/1210-AB85/00416.pdf.
49
American Academy of Child & Adolescent Psychiatry, Comment Letter on Proposed Rule
(Mar. 5, 2018), https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/rules-and-
regulations/public-comments/1210-AB85/00382.pdf.
50
Id.
51
American College of Obstetricians and Gynecologists, Comment Letter on Proposed Rule
(Mar. 6, 2018), https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/rules-and-
regulations/public-comments/1210-AB85/00585.pdf.
46
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Heart Association explained that failure to require community-rating would leave the ACA-
abiding markets “to fail as the risk pool worsens and premiums spiral out of control.” 52
Making matters worse, commenters emphasized that the absence of an EHB requirement
would trigger an adverse selection cycle that segments the market. As the American Medical
Association explained, AHPs would have an economic incentive to carefully target their
narrower benefit packages to people who are—for the time being, at least—outwardly healthy
and without other specific needs, such as maternity care. 53 Even though an AHP could not
expressly deny coverage for a specific patient’s pre-existing condition, it could achieve the same
result by choosing not to cover certain costly conditions for anyone. Before long, “an uneven
playing field” would develop between AHPs and the ACA-abiding plans that remain subject to
the EHB mandate, because AHPs would “siphon off small businesses with healthier
employees.”54 The inevitable consequence of that segmentation would be a rise in premiums for
those people whose current conditions cause them to remain in ACA-abiding plans with the
mandatory EHBs—premium increases that would be allowed because DOL also declined to
apply community-rating principles to AHPs. At the same time, those individuals who signed on
to skimpier AHP plans because their current needs did not require certain benefits would later
52
American Heart Association and American Stroke Association, supra at n.48.
53
American Medical Association, Comment Letter on Proposed Rule (Mar. 6, 2018),
https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/rules-and-regulations/public-
comments/1210-AB85/00378.pdf.
54
Id.
55
Id.
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Despite the overwhelming evidence of the damage that will ensue from exempting AHPs
from the EHB protections, DOL refused to include EHB or community-rating requirements for
AHPs in the Final Rule. The agency made no serious effort to dispute the harmful consequences
of exempting AHPs from the ACA’s EHB mandate. To the contrary, DOL acknowledged the
health care groups’ comments that such an exemption would damage risk pools, harm
“populations with specific needs,” and lead to “cascading effects” on the markets. 56 83 Fed. Reg.
at 28,933. Moreover, the Final Rule identifies no record evidence of any offsetting benefits that
Instead, the Final Rule makes clear that these adverse effects on the health care market
are the intended purpose of DOL’s radical shift. As the Final Rule explained, DOL declined to
adopt commenters’ suggestion to require AHPs to provide EHBs because “[s]uch a mandate
would run contrary to the goal of leveling the playing field between small employers in AHPs,
on the one hand, and large employers, on the other . . . .” Id. at 28,933. In other words, DOL
intended to substantially eliminate any differences between the small group and large group
markets. Id. But this rationale is not only contrary to law because it directly opposes Congress’s
judgment in enacting ACA, as discussed (see supra at 23–28); it is also arbitrary and capricious.
An agency acts irrationally when, in purporting to balance competing policy costs and benefits, it
56
To the limited extent that DOL disputed the commenters’ evidence at all, its reasoning was
incomplete or self-contradictory. While DOL pointed to comments arguing that AHPs, like large
employers, would not risk their “goodwill and reputation” to offer substandard plans lacking
EHBs, 83 Fed. Reg. at 28,933, the Final Rule itself later rejected those very comments, finding
that “AHPs and large employers differ with respect to their economic incentives, and the
Department does not expect that their behavior will be the same,” precisely because AHPs “will
have incentives to tailor benefits to appeal to lower-risk groups”—in other words, they will offer
skimpier plans to attract healthier beneficiaries. 83 Fed. Reg. at 28,941 (emphasis added). DOL
also suggested that “State benefit mandates” could take the place of the ACA’s EHB mandate,
id. at 28,934, but it did not at all address the fact that many states do not have such state law
mandates.
48
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ignores a cost-benefit judgment that Congress itself performed when it enacted the statutory
scheme. Nat’l Ass’n of Regulatory Util. Comm’rs v. ICC, 41 F.3d 721, 726–28 (D.C. Cir. 1994);
see also Chamber of Commerce v. FEC, 76 F.3d 1234, 1235–36 (D.C. Cir. 1996) (arbitrary and
capricious test overlaps with statutory construction, and agency action is irrational if it
unreasonably applies the statutory scheme). Here, one of the driving purposes behind the ACA
was to apply different and stricter rules to small employers than to large employers. See supra at
3–5. Whatever room there may be for DOL to give “weight to the goal of easing the [employer]
administrative burdens,” it cannot justify that course based on an analysis that discards the
“statutory objective” that Congress has chosen. Nat’l Ass’n of Regulatory Util. Comm’rs, 41 F.3d
at 728.
It is no answer, as DOL asserts, that AHPs will face other forms of regulation, such as the
employer mandate or state law benefit mandates. See 83 Fed. Reg. at 28,933–34. The reliance on
the employer mandate is arbitrary and capricious because, as discussed above (see supra at 4–5),
the Final Rule does not require AHPs to abide by the employer mandate, except to the limited
extent that their employer-members are large employers in their own right. And although the
Plaintiff States stand ready to fully enforce their own laws, including those that would require
AHPs to provide certain minimum health benefits, it is arbitrary and capricious for DOL to
small employers—namely, the ACA’s federal EHB requirement. Nat’l Ass’n of Regulatory Util.
Comm’rs, 41 F.3d at 728. In light of Congress’s choice, DOL’s belief that the states will pick up
the slack is “not so much a balance of conflicting policy goals as the acceptance of one without
49
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An agency’s action is arbitrary and capricious when the agency has “relied on factors
which Congress has not intended it to consider.” Motor Vehicle Mfrs. Ass'n, 463 U.S. at 43; see
also Midwater Trawlers Coop. v. Dep’t of Commerce, 282 F. 3d 710, 720 (9th Cir. 2002)
(requiring the agency to either promulgate a new rule or provide further justification where the
rule’s history demonstrated that it “was a product of pure political compromise, not reasoned
scientific endeavor”). In promulgating the Final Rule, DOL was motivated by a single goal: to
open the floodgates for ACA-exempt AHPs pursuant to the President’s Executive Order. In its
efforts to achieve that goal, DOL relied heavily on factors Congress did not intend for it to
requirements, and other safeguards to protect employees against abusive and unfair plan
administration practices. “The principal object of the statute is to protect plan participants and
beneficiaries,” Boggs v. Boggs, 520 U.S. 833, 845 (1997), and “Congress’ primary concern was
with the mismanagement of funds accumulated to finance employee benefits and the failure to
pay employees benefits from accumulated funds.” Mass. v. Morash, 490 U.S. 107, 115 (1989).
Here, DOL has ignored these goals and instead pursued an unrelated goal: to “facilitate
the creation and maintenance of AHPs” in order to undermine the ACA’s market structures. 83
Fed. Reg. at 28,938. In particular, in promulgating the Final Rule, DOL relied upon, inter alia,
the following factors: (1) the purported concern that “[t]oo many have unaffordable options for
health insurance or lack insurance altogether”; (2) that under the Final Rule, “AHPs will be able
to offer many small businesses more attractive and affordable health coverage options than are
currently available to them in the ACA-compliant individual and small group markets”; (3) the
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ability of ACA-exempt AHPs to offer health coverage at “actuarially fair” premiums because of
this more “tailored” coverage, i.e., coverage that could charge certain people more in premiums
or offer them fewer benefits; (4) the supposed likelihood of AHPs achieving improved
economies of scale; and (5) the possibility that small employers “may use some of the economic
gains that they will reap from affordable AHP health coverage to raise pay, hire more
employees,” and otherwise “contribute[] to economic growth.” See 83 Fed. Reg. at 28,938–41;
see generally id. at 28,939–59 (economic impact analysis discussing the purported benefits of
not requiring insurers to comply with all of the ACA’s consumer protections for the small group
markets). Nothing in ERISA suggests Congress intended DOL to rely upon such factors 57 in
57
Many of these factors are illusory or premised on incorrect information. Cf. Nat’l Fuel Gas
Supply Corp. v. FERC, 468 F.3d 831, 841 (D.C. Cir. 2006) (holding a rule arbitrary and
capricious where agency lacked evidence to support key factual conclusion). For example, while
touting supposed administrative savings, DOL stated that self-insured AHPs would be exempt
from the ACA provisions limiting administrative costs, see Proposed Rule, 83 Fed. Reg. at 618.
But did not explain how an AHP would enjoy a greater administrative advantage over an
insurance company, and only postulated a narrow setting where an AHP even theoretically could
secure better provider discounts than an insurer, see Final Rule, 83 Fed. Reg. at 28,942. DOL
ultimately conceded that AHPs may involve greater administrative costs. Id. at 28,943. In
another example, DOL asserts that the number of small businesses offering coverage
experienced a steep decline in recent years “from 47 percent of establishments in 2000 to 29
percent in 2016.” Id. at 28,947. Yet the source on which DOL relied, the Agency for Healthcare
Research and Quality, actually concluded that the number was 47.7 percent—nearly double
DOL’s claimed figure—and not meaningfully different from the figure in 2014, when the ACA’s
exchanges came online. Agency for Healthcare Research and Quality, MEPS Insurance
Chartbook 23 (2016) (“Overall, 47.7 percent of workers in establishments that were part of firms
with fewer than 50 workers were offered coverage in 2016.”),
https://www.meps.ahrq.gov/data_files/publications/cb21/cb21a.pdf.); see also id. at 26. That data
also showed that small business offer rates rose in some small business categories. See id. at 27
(offer rates rose from 52.6 percent to 54 percent among small businesses with between 10 and 24
employees from 2015 to 2016, and from 77.3 percent to 80.1 percent among businesses with
between 25 and 99 employees in that period).
51
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Worse yet, DOL pursued these extraneous goals at the expense of ERISA’s primary
purposes. As noted above, and as DOL acknowledges, AHPs and other MEWAs have a history
of fraud, abuse, and insolvency that jeopardized enrollees. DOL admits that the Final Rule will
exacerbate these problems, and that in the past, enforcement efforts came too late to protect
DOL’s determination to rely on factors Congress did not intend it to consider, at the
acknowledged expense of factors that are ERISA’s core purpose, was arbitrary and capricious.
See Motor Vehicle Mfrs. Ass'n, 463 U.S. at 49 (noting, under statutory mandate to achieve traffic
safety using “practicable and appropriate” standards, an agency could not defer to current
The Final Rule also attempts to interpret the term “employer” in ERISA in a cherry-
picked fashion, creating inconsistencies both within ERISA and across other statutes. “That is
the very meaning of the arbitrary and capricious standard.” Indep. Petroleum Ass'n of Am. v.
Babbitt, 92 F.3d 1248, 1260 (D.C. Cir. 1996) (holding that an agency that adopted a court
decision as its construction of a statute cannot “treat[] type A cases differently from similarly
situated type B cases . . . where the rationale of the court decision applies to both.”).
In particular, DOL says its new interpretation of ERISA’s definition of “employer” will
not apply “in any context other than as applied to an employer group or association sponsoring
an AHP.” 83 Fed. Reg. at 28,915 n.10. Under ERISA, benefit plans provide a broad range of
benefits other than health benefits, such as life insurance and disability, as well as pensions. Yet
DOL interprets “employer” expansively for only one benefit (health care) in one context (AHPs),
52
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but not for any other welfare or benefit plan or any other context that ERISA covers. That
selective application of this new definition creates a stark, unexplained inconsistency across
Another notable inconsistency is DOL’s conclusion that the common law master-servant
relationship governs whom an individual is an “employee of” under ERISA’s MEWA definition,
but does not likewise control who is the “employer who employed” that same individual under
the ACA’s market definitions. The Final Rule is clear that “AHPs are MEWAs.” Id. at 28,938.
The MEWA definition asks whether a plan provides benefits “to the employees of two or more
To determine whether there is more than one employer, DOL looks to whom the employees are
“employees of” and applies the common law master-servant test, which is “equally applicable to
determining by whom an individual is employed.” See DOL Op. No. 1993-29A (emphasis added)
(citing Prof’l & Exec. Leasing, Inc. v. Comm’r, 89 T.C. 225 (1987), aff'd, 862 F.2d 751 (9th Cir.
1988)); see also supra at 22 (quoting 2013 DOL MEWA guide). Thus, if an employee leasing
company leases employees to clients and offers associated health benefits, those employees are
“employees of” any client who has a master-servant relationship with the leased employees, and
the benefit arrangement would be a MEWA. See DOL Op. No. 93-29A. But under the ACA’s
market definitions, see, e.g., 42 U.S.C. § 300gg-91(e), DOL concludes that the common law test
does not control who is the “employer who employed” particular employees—such that a
statewide chamber of commerce is transformed into the “employer who employed” all of its
members’ employees. Nothing explains why DOL ascribes such starkly different meanings to
“employee of” and “employer who employed” in such closely related provisions.
53
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The Final Rule also creates significant inconsistencies between ERISA and the IRC.
DOL disclaims any effect of its revamped definition of “employer” on tax provisions that are the
same, word for word, as those that govern group health plans under ERISA and the PHSA. 83
Fed. Reg. at 28,915. Several key ACA provisions apply verbatim not only under the PHSA and
ERISA, but also in Chapter 100 of the IRC, where they are enforced via an excise tax. Compl. ¶
58 (citing 29 U.S.C. § 1185d and 26 U.S.C. § 9815); see also 26 U.S.C. § 4980D (enforcement
via excise tax). DOL offers no justification for limiting its new interpretation of “employer” only
to the statutory provisions that it chooses, and not to identically worded provisions in the IRC.
Nor is it likely that DOL would be able to offer such a justification, given that Congress enacted
this identical language across these various statutes in the same legislation. Cf. Smith v. City of
Jackson, 544 U.S. 228, 233 (2005) (“[W]hen Congress uses the same language in two statutes
having similar purposes, particularly when one is enacted shortly after the other, it is appropriate
to presume that Congress intended that text to have the same meaning in both statutes.”).
DOL also inexplicably fails to apply its new interpretation to the ACA’s employer
mandate under the IRC (also known as the “shared responsibility provision”), which would
require an AHP (as an “applicable large employer”) to offer meaningful coverage or pay a tax
penalty. See supra at 4–5. DOL offers no explanation for why, if the Final Rule’s interpretation
of “employer” governs under the ACA, it would not govern under the shared responsibility
provision as well. See Util. Air Regulatory Group, 134 S. Ct. at 2441 (an agency “must ground
its reasons for action or inaction in the statute . . . rather than on reasoning divorced from the
For the reasons above, the Final Rule is arbitrary and capricious in violation of the APA,
54
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CONCLUSION
The Court should grant summary judgment to the Plaintiff States, declare that the Final
Respectfully Submitted,
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56
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57
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58