The Department of Labor (DOL) issued a proposed rule last week that (if implemented) would greatly broaden flexibility for establishing association health plans (AHPs). This is consistent with President Trump’s Executive Order issued in October 2017, titled Expanded Access to Association Health Plans.
Traditionally, AHPs purchase health insurance for small businesses through trade or professional associations. Citing the difficulty small employers face trying to provide affordable health coverage for their employees, the proposed rule seeks to expand access to AHPs. This would give small employers access to health insurance pooling and purchasing techniques and potentially provide access to more affordable, high quality coverage than is currently available in the individual and small group market.
To do this, the DOL proposes a change to the definition of employer under Title I of the Employee Retirement Income Security Act (ERISA) section 3(5). Currently, only employers who share a “commonality of interest” can jointly sponsor a welfare benefit plan.
Under traditional AHPs, small businesses would purchase health insurance for themselves and their workers by banding together through bona fide trade and/or professional associations. These associations organize and negotiate health insurance on behalf of their members.
Under the proposed regulations, employers would be able to join an AHP so long as they are either:
- In the same trade, industry, line of business, or profession; or
- Have a principal place of business within a region that does not exceed the boundaries of the same state or the same metropolitan area (even if it extends across multiple states).
As an example, the DOL cites New York and Washington, D.C. as appropriate metropolitan areas that extend across state lines.
Moreover, the proposed rule would eliminate the requirement that the AHP have a bona fide purpose other than offering health care and would not require the AHP be a pre-existing organization. This would allow AHPs to be created and exist for the exclusive purpose of providing health care, a significant shift from current policy.
While the proposed rule relaxes the bona fide business purpose requirement, the proposal maintains formality requirements intended to ensure that the AHP acts in the best interest of the member employers.
- Organization structure: The AHP would need to have an organization structure and be functionally controlled by its employer members. Groups would need to have a formal organizational structure with bylaws, or other similar indications of formality, and be controlled by a board of directors, officers or similar representatives.
- Employees or former employees: The health plan coverage would need to be limited to employees or former employees (and family members/beneficiaries of those employees or former employees) of the employer members. This proposed requirement is meant to ensure that the AHP is a bona fide employment based association, rather than a general membership intended to act as an individual insurer. Notably, sole proprietors and other self-employed individuals would be allowed to participate as working owners.
The proposed rule also includes nondiscrimination protections to ensure that such associations would not be created for the purpose of excluding employees with health issues.
- First, the AHP would not be able to restrict membership based on any heath factor.
- Second, the AHP would need to comply with nondiscrimination rules laid out in the Health Insurance Portability and Accountability Act (HIPAA) and the Affordable Care Act (ACA), including the requirement that the AHP not discriminate within groups of similarly situated individuals. This requirement would apply to both employees and employers–the group would not be able to treat different employers as distinct groups of similarly-situated individuals based on the health of their employees.
While the proposed rule would relax certain requirements for establishing AHPs, these arrangements still constitute multiple employer welfare arrangements (MEWAs)–a group that provides employee welfare benefits to the employees of two or more employers that are not part of the same control group of businesses. As such, they are subject to heavier scrutiny by the DOL and responsible for additional ERISA requirements, such as Form M-1 filing.
The DOL is currently requesting comments on the proposed rules and information regarding other approaches that may promote healthcare and competition in the United States.
PrimePay will continue to monitor the ever-changing legal landscape of employee benefits and provide you with important updates.