DOL proposed regulation would allow association health plans

The Department of Labor (DOL) has issued a proposed rule that would allow employers to join together as a single group to purchase insurance in the large group health insurance market. Employers could offer this employment-based health insurance via small business health plans, also known as association health plans (AHP).
A principal objective of the proposed rule is to expand employer and employee access to more affordable, high-quality coverage, according to the DOL. In addition, treating health coverage sponsored by an employer association as a single group health plan may promote economies scale, administrative efficiencies, and transfer plan maintenance responsibilities from participating employers to the association.

Executive Order on AHPs

On October 12, 2017, President Trump issued Executive Order 13813, “Promoting Healthcare Choice and Competition Across the United States,” which states that the Administration will prioritize three areas for improvement in the near term: association health plans, short-term, limited-duration insurance, and health reimbursement arrangements. With regard to AHPs, the Executive Order directs the Secretary of Labor to consider proposing regulations or revising guidance, consistent with law, to expand access to health coverage by allowing more employers to form AHPs. The Executive Order also directs the DOL to consider ways to promote AHP formation on the basis of common geography or industry.

Definition of employer

The proposed rule would broaden the criteria under ERISA Sec. 3(5) for determining when employers may join together in an employer group or association that is treated as the “employer” sponsor of a single multiple-employer “employee welfare benefit plan” and “group health plan” as those terms are defined in Title I of ERISA. By treating the association itself as the employer sponsor of a single plan, the regulation would facilitate the adoption and administration of such arrangements.
The regulation would modify the definition of “employer,” in part, by creating a more flexible “commonality of interest” test for the employer members than the DOL has adopted in sub-regulatory interpretive rulings under ERISA Sec. 3(5). At the same time, the regulation would continue to distinguish employment-based plans, the focal point of Title I of ERISA, from mere commercial insurance programs and administrative service arrangements marketed to employers.

Dual treatment of working owners as employers and employees

The proposed rule would permit working owners of an incorporated or unincorporated trade or business, including partners in a partnership, to elect to act as employers for purposes of participating in an employer group or association sponsoring a health plan and also to be treated as employees with respect to a trade, business or partnership for purposes of being covered by the employer group’s or association’s health plan.

Groups based on geography, industry

The rule would allow employers to form an AHP on the basis of geography or industry. A plan could serve employers in a state, city, county, or a multi-state metro area, or it could serve all the businesses in a particular industry nationwide.

Nondiscrimination provisions

The nondiscrimination provisions in the proposed regulation build on the existing health nondiscrimination provisions applicable to group health plans under HIPAA, as amended by the Affordable Care Act (HIPAA/ACA health nondiscrimination rules), with an additional clarification addressing how to apply those rules to association coverage. Specifically, the rule would ensure the group or association does not restrict membership in the association itself based on any health factor, as defined in the HIPAA/ACA health nondiscrimination rules.
The proposed rule also provides that the group health plan sponsored by the group or association must comply with the HIPAA/ACA health nondiscrimination rules, which govern eligibility for benefits and premiums for group health plan coverage. In applying the nondiscrimination provisions, the group or association may not treat different employer members of the group or association as distinct groups of similarly-situated individuals.

Protections against mismanagement

ERISA generally classifies AHPs as multiple employer welfare arrangements (MEWAs). Historically, a number of MEWAs have suffered from financial mismanagement or abuse, often leaving participants and providers with unpaid benefits and bills. The proposed rule includes provisions intended to protect AHPs against mismanagement and abuse. It would require that the group or association have a formal organizational structure with a governing body and have by-laws or other similar indications of formality appropriate for the legal form in which the group or association is operated, and that the functions and activities of the group or association, including the establishment and maintenance of the group health plan, are controlled by its employer members. These requirements are intended to ensure that the organizations are bona fide organizations with the organizational structure necessary to act “in the interests” of participating employers with respect to employee benefit plans as ERISA requires.
The proposed rule also requires that the AHP’s member companies control the AHP. This requirement is necessary both to satisfy ERISA’s requirement that the group or association must act for the direct employers in relation to the employee benefit plan, and to prevent formation of commercial enterprises that claim to be AHPs but that operate like traditional issuers selling insurance in the employer marketplace and may be vulnerable to abuse.

Request for comments

The DOL requests comments on:

  • All aspects of the proposed rule as a potential alternative approach to the DOL’s existing sub-regulatory guidance criteria;
  • The interaction with and consequences under other state and federal laws, including the interaction with the Code Sec. 501(c)(9) provisions for voluntary employees’ beneficiary associations (VEBAs), should an AHP want to use a VEBA;
  • Whether any notice requirements are needed to ensure that employer members of associations, and participants and beneficiaries of group health plans, are adequately informed of their rights or responsibilities with respect to AHP coverage; and
  • The impact of these proposals on the risk pools of the individual and small group health insurance markets, and for data, studies or other information that would help estimate the benefits, costs, and transfers of the rule.

Comments, identified by RIN 1210-AB85, may be submitted online via http://www.regulations.gov or by mail to: Office of Regulations and Interpretations, Employee Benefits Security Administration, Room N-5655, U.S. Department of Labor, 200 Constitution Avenue, NW, Washington, DC 20210, Attention: Definition of Employer — Small Business Health Plans RIN 1210-AB85. (83 FR 614, January 5, 2018.)

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