States sue Trump administration over association health plans

New York Attorney General Barbara Underwood filed a lawsuit against the U.S. Department of Labor on Thursday over an effort by the Trump administration she said is aimed at hampering the administration of Obamacare.

Underwood, leading a coalition of 12 state attorneys general, wants the federal agency to reverse a rule allowing small businesses and self-employed individuals to collectively participate in a health care plan.

Related: Trump, states to square off on association health plans

The Trump administration promulgated the rule in June as a way to save those groups money on health care. The so-called association health plans allow those employers to provide health coverage with fewer benefits than mandated under Obamacare.

“You’re going to save massive amounts of money and have much better health care,” Trump said in June.

Underwood and the states argued the opposite. They claimed the rule will cause many to leave the traditional health insurance market for an association health plan. That would drive up the cost of health care for those who remain in the market, the lawsuit said.

“The Trump administration’s AHP Rule is nothing more than an unlawful end run around the consumer protections enshrined in the Affordable Care Act—part of President Trump’s continued efforts to sabotage our health care system,” Underwood said. “Our lawsuit today seeks to safeguard federal protections under the ACA that help guarantee access to quality, affordable health care.”

Association health plans allow self-employed individuals and small businesses to essentially team up to provide health coverage to themselves and their employees. Without the rule, those groups would have to purchase small group or individual health plans.

An association health plan allows those groups to define themselves together as a large group, which is not mandated to cover as many benefits as a small group or individual plan. The states argued that allowing those smaller groups to define themselves together as a large group goes against the intention of Obamacare.

The rule would also allow a self-employed individual with no other employees to define themselves as both the employer and the employee. The states claimed that contradicts the definition of group health plans under the Employee Retirement Income Security Act, a decades-old federal law that governs employer benefit plans.

The states also claimed the breadth of an association health plan under the rule goes against the Employee Retirement Income Security Act, which has previously defined an association by common interest. The new rule allows businesses in the same industry, state or metropolitan area to form a plan. That definition contradicts the intent of the ERISA, the states said.

The Department of Labor has claimed it has the statutory authority to promulgate the new rule because Congress gave the agency power to implement the ERISA, according to the lawsuit. The states said the rule is actually an overreach by the agency.

“DOL is exploiting its regulatory authority at the request of the president to circumvent Congress, which has repeatedly refused to amend the law to authorize the expansion of AHPs,” the lawsuit said. “DOL is effectively legislating changes to the ACA’s carefully considered market structures in defiance of Congress in order to undermine the ACA’s robust consumer protections.”

The final cause of action claimed the Trump administration did not consider the “rampant fraud and abuse” that has accompanied past association health plans, and that the rule goes against legislative intent and legal precedent.

Underwood and Massachusetts Attorney General Maura Healey are co-leading the lawsuit along with attorneys general from Washington D.C., California, Delaware, Kentucky, Maryland, New Jersey, Oregon, Pennsylvania, Virginia and Washington.

The Department of Labor deferred to the U.S. Department of Justice for comment. The DOJ declined comment. The rule is scheduled to take effect Aug. 20.