On June 19, 2018, the Department of Labor (DOL) released a final rule that may give small businesses more freedom to join together as a single group to purchase health insurance in the large group market or to self-insure. These benefit arrangements are called association health plans (AHPs).
The final rule expands current guidance to allow more employers to join together and sponsor AHPs that are treated as single plans under ERISA. When an AHP is treated as a single ERISA plan, all employees covered by the plan are considered when determining the insurance market rules (that is, small group or large group) that apply to the plan.
The final rule allows employers to join together to form an AHP that is a single ERISA plan if either of the following requirements is satisfied:
- The employers are in the same trade, industry, line of business or profession; or
- The employers have a principal place of business within a region that does not exceed boundaries of the same state or the same metropolitan area (even if the metropolitan area includes more than one state).
In addition, the final rule allows working owners without other employees, such as sole proprietors and other self-employed individuals, to join AHPs.
To distinguish single plan AHPs from commercial insurance-type arrangements, the final rule requires AHPs to satisfy the following conditions:
- The primary purpose of the group or association may be to offer and provide health coverage to its employee members; however, the group or association also must have at least one substantial business purpose unrelated to offering and providing health coverage or other employee benefits to its members. (This is an important addition to the final rule. For example, a bona fide group or association could offer other services to its members, such as convening conferences or offering classes or educational materials on business issues of interest to the association members. A bona fide group or association could also engage in public relations activities such as advertising, education and publishing on business issues of interest to association members unrelated to sponsorship of an AHP. A bona fide group or association’s purpose could simply be to advance the well-being of the industry in which its members operate, although in that case the group or association would need to advance that well-being through substantial other activity in addition to providing health coverage. In each instance, the other business purpose(s) or activity should be substantial enough that the association could be a viable entity even in the absence of acting as a sponsor of an AHP.)
- Each employer member of the group or association participating in the group health plan must be the employer of at least one employee who is a plan participant.
- The group or association has a formal organizational structure with a governing body and has bylaws or other similar indications of formality.
- The group or association’s member employers control its functions and activities, including the establishment and maintenance of the group health plan.
- Only employees and former employees of the current employer members (and family members of those employees and former employees) may participate in the group health plan sponsored by the association.
- The group or association is not a health insurance issuer (or owned or controlled by an issuer or by a subsidiary or affiliate of an issuer) or involved in the health care delivery system.
In addition, the final rule requires AHPs to comply with certain consumer protections and anti-discrimination protections that apply to the large group market. For example, AHPs may not charge higher premiums or deny coverage to people because of pre-existing conditions or cancel coverage because an employee becomes ill. Additionally, AHPs under this rule will not be able to charge employers different rates based on the health status of their employees. The final rule does not affect existing AHPs, which are allowed under the DOL’s current guidance. These plans can continue to operate as before or may elect to follow the new requirements if they want to expand within a geographic area, regardless of industry, or to cover the self-employed.
The final rule includes a phased applicability date. The final rule allows fully insured plans to begin operating under the new rule on Sept. 1, 2018. Existing self-insured AHPs can begin operating under the new rule on Jan. 1, 2019, and new self-insured AHPs can begin on April 1, 2019.
According to the DOL, this phased approach will provide prompt relief to individuals seeking affordable health coverage through AHPs while allotting some additional time for the DOL and state authorities to address concerns about self-insured AHPs’ vulnerability to financial mismanagement and abuse.
Small employers, or self-employed individuals, may want to consider banding together to form an AHP as a more affordable health insurance option. Employers should carefully review the AHP’s benefit design to make sure it is appropriate for their workforce. Because AHPs are regulated at the federal and state level, the availability of these plans will also depend on a state’s regulatory approach. We will continue to work with our insurance carrier partners to determine how they will be addressing these final rules. Contact your Higginbotham representative if you have any further questions regarding AHPs.
Additional information can be found in this legislative guide:
DOL Finalizes Rule to Expand Association Health Plans