On June 19, the Department of Labor (DOL) issued a final rule allowing employers, regardless of size, to offer health insurance through an Association Health Plan (AHP). The final rule loosened the definition of “employer” under the Employee Retirement Income Security Act (ERISA) and thereby permitted the bypassing of certain regulatory requirements. The rule focuses on benefiting small employers and self-employed workers by allowing them to offer plans through an association with other employers that would be treated like large group health plans. That is, such plans would not need to comply with rules applicable to individual or small group plans.
An AHP may be formed by satisfying the so-called commonality of interest test, which can focus either on geography or industry. Regarding the former, different employers who nevertheless share the same trade, industry or profession—regardless of location—may form an AHP. As to the latter, employers in the same geographic area—regardless of industry—may likewise form an AHP. The relevant geographic area may be a greater metropolitan region that falls within the boundaries of more than one state. Under the previous framework, the association needed to satisfy both the industry and the geographic requirements.
The president signed Executive Order 13813 on Oct. 12, 2017, which sought to expand both short-term limited insurance coverage and health savings accounts while allowing small businesses to establish or join AHPs. In response, the DOL proposed the precursor to June’s final rule and opened it to comments. The DOL revised the proposed rule in certain respects in response to the comments received. One modification from the proposed rule states that groups must have at least one “substantial business purpose” besides providing health coverage or other employee benefits. Another modification reduces the condition for working owner eligibility to working twenty hours per week or eighty hours per month.
The final rule, though published on June 19, becomes effective Aug. 20, and will have three stages of implementation. Any new or existing association may establish a fully insured AHP as of Sept. 1, 2018. Existing associations that sponsored an AHP on or before the final rule was published may establish a self-funded AHP as of Jan. 1, 2019. All other new or existing associations may establish a self-funded AHP on April 1, 2019. Enrollment is currently limited to the member employers’ employees, the employees’ beneficiaries, and eligible former employees. Different premium rates are allowed so long as they are not based on health factors and so long as they comply with applicable consumer and anti-discrimination protections. It is important to note that the new rule does not affect AHPs that predate it.
States will be able to continue to regulate AHPs and share enforcement with the federal government. At the federal level, the plans are subject to the disclosure requirements of Title I of ERISA. To the extent the plans include more than fifty employees, they are also governed by the Mental Health Parity and Addiction Equity Act of 2008. As the plans are considered Multiple Employer Welfare Arrangements (MEWA), the DOL plans to re-examine whether AHPs will be required to file Forms M-1 or 5500 to comply with federal regulations.
The employers forming an AHP must work together to administer the plan. This will require the creation of a governing body, likely through nominations and elections. The governing body will be obligated to consider and vote on issues related to the plan. As with typical corporate governance, the governance structures should include means by which members of the governing body can be removed and replaced. Despite the closeness of this collaboration, participating businesses will not be liable for claims brought by another employer’s workers.
Fans of the final rule—largely Republicans and small business owners—argue that the expansion will provide cheaper health insurance alternatives for those who have been unable to find inexpensive coverage under other options like the Affordable Care Act (ACA), though affordability may vary due to differences among state laws. Supporters of the DOL’s rule also highlight likely increases in family coverage and coverage for those currently uninsured. The DOL itself points to various benefits it anticipates under the rule: circumventing regulatory constraints, decreasing administrative costs, and offering a variety of insurance options.
Critics—largely Democrats and state regulators—are worried about higher premiums under the ACA due to younger and healthier individuals abandoning ACA plans in favor of AHPs. Others are concerned that the low-cost of AHP plans corresponds with limited coverage, pointing to the fact that AHPs are not required to include essential health benefits such like maternity care, mental health services, and emergency services required under the ACA. Concerned about fraud in AHPs, the attorneys general of New York and Massachusetts have suggested that a lawsuit may be on the horizon. Many of their concerns are laid out in a March 6, letter to the DOL sent during the rule’s comment period and signed by the attorneys general of those two states, plus those of California, New Jersey and Pennsylvania, and the District of Columbia.
AHPs may represent a good option through which your small business and self-employed clients can obtain health insurance coverage and offer such coverage to their employees. However, clients must be made aware of the limitations. Though arguably obvious, this new rule is limited to health insurance coverage; i.e., it does not include retirement or other welfare benefits. Further, it is subject to requirements that your clients must consider; e.g., an AHP must provide COBRA and certain other post-employment coverage. Most critically, the DOL’s new rule is just that—new. As such, the rules and requirements discussed above will almost certainly evolve over time. Such changes may come from additional rulemaking or responsive litigation. They may also come from the administrative and judicial decisions arising from government enforcement and legal challenges. In either case, it is worth monitoring this space to ensure that we can provide our clients with the most accurate and up-to-date developments.
—Andrew Stein, an associate at Lamb McErlane who focuses his practice on health and business law, and Nigel James, a summer intern from the Villanova University Charles Widger School of Law, assisted in the preparation of this article.
Vasilios J. Kalogredis is chairman of Lamb McErlane’s health law department. He represents many medical and dental groups and thousands of individual physicians and dentists.