On June 19, 2018, the Department of Labor (DOL) released a final rule that provides greater flexibility for small businesses to join together to form Association Health Plans (AHPs). The final rule largely, but not entirely, adopts the provisions of a proposed rule issued in January of this year. DOL received over 900 comments on the proposed rule. A summary of the final rule is below and more detail can be found in our Legislative Alert.
Health coverage through associations and similar groups has actually been in existence for years in the form of Multiple Employer Welfare Associations (MEWAs). Under existing rules, however, DOL and other regulatory agencies treated participating employers in these MEWAs as if each employer sponsored its own plan. Under the Affordable Care Act (ACA) this meant that many employer members of the MEWA would be treated as if they were in the small group market and subject to those rules for rating purposes as well as the requirement that small group market policies provide essential health benefits (EHBs). Under these rules, in order for an association plan to be considered a single large group plan with respect to its employer members, there were a number of requirements including: that self-employed individuals could not participate; a very strict community of interest standard; and operational as well as structural rules for the association sponsoring the plan. Prior DOL guidance referred to these entities sponsoring “plan level” MEWAs as “bona fide” employer groups or associations.
The final rule relaxes many of those requirements for AHPs and provides an additional mechanism for an association sponsored MEWA to be treated as a single large group plan. The community of interest standard was modified so that AHPs can be formed on the basis of either:
Employers being in the same trade/industry/line of business/profession or
Employers having the principal place of business in a single State, part of a State (such as a city or county) or in the same metropolitan area even if the metropolitan area includes more than one State.
Conceivably, under the final rule, a local chamber of commerce could sponsor an AHP for employers in a specific city.
Also AHPs will be open to the self-employed (working owners) if they meet certain hours worked requirements or have a level of income from self-employment that supports the cost of the individual’s coverage. The proposed rule would have allowed an AHP to simply accept the certification of the working owner that he/she met those qualifications. The final rule, however, deleted this provision and in its place offers flexibility while at the same time making it clear that AHP fiduciaries have a duty to reasonably determine and monitor that working owners meet the final rule’s conditions for coverage.
In another change from the proposed rule, the final rule requires that the group or association have at least one substantial business purpose unrelated to offering health coverage even if the primary purpose of the AHP was to provide such coverage. The proposed rule provided that the sole purpose of the AHP could be to provide such coverage. The final rule states that a business purpose includes promoting common business or economic interests of the members of the AHP. DOL also provided a safe harbor that “substantial business purpose is considered to exist if the group or association would be a viable entity in the absence of sponsoring an employee benefit plan.”
While not limited to small employers, the primary benefits of participating in an AHP are the ability to offer benefits under the ACA large group market rules and to avoid the small group market rating rules and EHB requirements. Large employers already have these advantages but could enjoy any increased buying power that an AHP might bring.
How AHPs do (or do not) develop will be determined by a number of factors. First, the final rule has non-discrimination requirements where an AHP cannot discriminate among employers for eligibility, benefits, or premiums based on the health status of the employer’s employees or their claims experience. This could present a challenge for insurers in underwriting AHP coverage. Second, nothing in the final rule affects the ability of States, under existing rules, to regulate AHPs as MEWAs. In the proposed rule DOL solicited public comments on whether to exempt self-insured MEWAs from certain State regulations but ultimately took no action in the final rule on limiting the regulatory power of the States. Significantly, many states have very strict rules on self-funded MEWAs that would severely limit or even prohibit the formation of self-funded AHPs. So, formation of self-insured AHPs may be limited. State regulation of fully-insured AHPs is more restricted (although States can still regulate the terms of the underlying insurance policies).
Our Legislative Alert contains more information on the final rule including: action steps, a summary of the requirements and conditions applicable to AHPs and an explanation of the final rule’s staggered applicability dates based on whether an AHP is a new or existing plan and whether the AHP is fully insured or self-insured.
