(Reuters) - President Donald Trump’s plan to make it easier for small businesses to band together and buy stripped-down health insurance plans could violate a federal law governing employee benefit plans and will almost certainly be challenged in court, legal experts said.

U.S. President Donald Trump speaks about tax reform in Harrisburg, Pennsylvania, U.S., October 11, 2017. REUTERS/Joshua Roberts

Trump signed an executive order on Thursday aimed at letting small businesses join nationwide associations for the purpose of buying large-group health plans that are not subject to coverage requirements of the Affordable Care Act, commonly known as Obamacare.

Industry experts said Trump’s order could ultimately enable such associations to purchase insurance from states with the fewest regulations. That would undermine Obamacare, former Democratic President Barack Obama’s signature healthcare law, which Republicans have failed to repeal.

Several healthcare and employment law experts said if Trump’s plan moves forward, states could argue the federal government had overstepped its authority in violation of the U.S. Employee Retirement Income Security Act (ERISA), a law that governs large-group plans.

In Thursday’s order, Trump asked the Department of Labor to propose rules that would allow more employers to participate in association health plans. Legal experts said lawsuits might not be brought until such regulations are issued.

Dania Palanker, an assistant research professor at Georgetown University’s Center on Health Insurance Reforms, said ERISA granted states the right to regulate association health plans.

Attorneys general could argue the federal government had overreached if the Trump administration winds up allowing associations to buy health coverage across borders that only complies with a single state’s regulations.

“Any attempt to allow the sale of association plans to small groups across state lines will be open to legal scrutiny as to whether it is violating ERISA and undermining state authority,” said Palanker.

‘PREPARED TO FIGHT’

A White House official said that “departments will be drafting rules in a way that minimizes litigation risk.”

The Department of Labor “will be reviewing ERISA in the course of following the President’s direction” in the order, the official said.

A number of state attorneys general from Democratic-leaning states said on Thursday they would fight any efforts to weaken Obamacare, which extended health insurance to 20 million Americans, but which Republicans call intrusive and ineffective.

“It should come as no surprise that California is prepared to fight in court to protect affordable healthcare for its people,” said Xavier Becerra, the state’s Democratic attorney general.

Legal experts said states may argue the associations formed for the purpose of buying insurance are not employers under ERISA.

Although ERISA allows associations to qualify as employers and manage large-group plans, federal regulators have generally required that members of such associations have a high degree of common interest beyond buying insurance, said Allison Hoffman, a professor at the University of Pennsylvania School of Law.

Trump’s order asks the secretary of labor, who enforces ERISA, to consider expanding the common-interest requirements to permit broader participation in association health plans.

SHORT-TERM PLANS

The idea of expanding association health plans across state lines has long been championed by Republican U.S. Senator Rand Paul, who made it a key plank of his own proposal to repeal and replace Obamacare. The Kentucky Republican was at Trump’s side when the president signed the executive order.

Paul’s proposal said ERISA was too restrictive in its definition of associations and that the law needed to be amended.

Thursday’s order also asked the Labor, Treasury and Health and Human Services Departments to look into expanding participation in cheaper, bare-bones, short-term limited-duration insurance plans, which are not subject to the ACA.

Timothy Jost, a professor at the Washington and Lee University School of Law, said such a move would face fewer legal hurdles than the expansion of association health plans.

The current three-month limitation on the use of such plans was a rule adopted by the Obama administration last year, so the Trump administration could roll it back through the normal rulemaking process.

Such plans are typically marketed to individuals who are between jobs or have a gap in coverage. They are much cheaper than ACA plans, but cover less and can exclude those with pre-existing conditions.