Almost immediately after the new Trump Administration regulation on Association Healthcare Plans (AHPs) was released, a number of brokerages and advisors were out touting the new plans as a way employers can save money. While this may be true in many states, the Republic of California is a different story.
The DOL acknowledged that AHPs will be MEWAs and that states will retain their existing authority related to MEWA regulation and enforcement. Fully insured MEWAs are subject to state laws that regulate the maintenance of specific contribution and reserve levels. Self-insured MEWAs are subject to state law to the extent not inconsistent with ERISA. Since many states, including California, have substantially limited the establishment of MEWAs – particularly self-insured MEWAs – in order to avoid abuse, it is unclear whether the expanded availability on AHPs under the new regulations will even be feasible in some states. In fact, the California Insurance Commissioner made a statement on the day the AHP regulations were issued that California law prohibits the formation of any new MEWAs and cautioned against AHP fiscal insolvency and fraud. (Note: California prohibits new self-insured MEWAs but does not explicitly prohibit fully insured MEWAs; however, it is unclear whether a fully insured AHP would be able to form under current California law.)
Another hurdle for AHPs will be state mandates and definitions for small and large group insurance. AHPs remain subject to state and federal laws mandating the provision of certain benefits (other than essential health benefits). The DOL declined to rule on whether state laws that differ from the AHP rules regarding group size calculation would be upheld. For example, California’s definition of “small employer” for small group status has different criteria than the AHP regulations and does not reference working owners. Since the DOL specified that the AHP regulations do not modify existing state authority, it is not clear whether state laws would be superseded by the AHP regulations.
The regulations also result in differing treatment of AHPs under various federal laws. For example, the DOL states in the preamble that size of an employer for purposes of determining applicability of the Mental Health Parity and Addiction Equity Act (“MHPAEA”) should be determined based on the aggregate number of employees of all employer members in an AHP. On the other hand, the number of employees for purposes of determining whether an employer member is an “applicable large employer” under the employer shared responsibility rules of Internal Revenue Code Section 4980H is based on each individual employer member. This means that employers with 50 or more full time employees may be subject to tax if they are members of an AHP that does not provide minimum value coverage. The DOL declined to provide guidance on how COBRA would apply to an AHP and its employer members because COBRA is within the interpretive jurisdiction of the Treasury and IRS, but it intends to provide further guidance after consulting with the Treasury and IRS.
AHPs will be subject to all applicable ERISA requirements, including fiduciary duties and reporting and disclosure, such as Form 5500 and M-1.
