Broker Check

Association Health Plans…A Rebirth at the Federal Level

| August 08, 2018

Association Health Plans (AHPs), as they are acrimoniously known, are in fashion again. After a nearly 10- year hiatus, mostly in response to changes in regulations by ACA (“Obamacare”), a major regulatory roadblock to their restoration was removed by the DOL in early July 2018.

In October 2017, President Trump signed an executive order clearing a regulatory path for AHPs. In response, the Department of Labor (DOL) made a change to the definition of “employer” in the Employee Retirement Income Security Act (ERISA).  ERISA’s definitions of employer blocked the formations of groups (associations) specifically for the purchasing of health insurance. The change allowing the formation of AHP was made to ERISA (ss 3(5)), and states that an “association of employers” is allowed to manage employee benefit plans offering health insurance to the member employees.  It goes on to create provisions that an AHP must consist of a “bona fide” group of employers, with a “commonality of interest,” the members (the employers) are required to be under control of the AHP and the activities of it. I'm sure the DOL will be looking at this group of AHP board members as its “fiduciary.”

Another important change in the final rules broadened the scope of “employers.” In the past, self-employed working owners (i.e. sole proprietors with no employees) could not join a qualified AHP as they did not fall under ERISA, because they had no employees. Now the scope of ERISA has broadened to include sole proprietors. They can now join AHPs. They now get “dual treatment,” meaning they will be treated as employers and employees.  A sole proprietor must on average work at least 20 hours/week or 80 hours/month or has wages from his/her trade or business that at least covers the cost of insurance coverage for the working owner and any covered beneficiaries.

As with any regulation there is ambiguity. The “commonality of interest” provision in its simplest form is an association of employers that are the same “trade, industry, line of business or profession” or have principal place of business (of the employers who are participating) in the same geographic region that does not exceed the boundaries of a single state or metro areas.  There is no definition of “substantial business purpose” in the final ERISA rule. The only guidance the DOL has given is that the activity be “substantial enough that the association would be a viable entity even if the absence of acting as a sponsor of an AHP.”

The change to ERISA retained the concept of “employer control” as a necessary provision. I believe the DOL is trying to avoid the commercialization of the new provision. They clearly do not want AHPs formed as commercial enterprises for the operation of health insurance sales.  At a minimum, the DOL requires an AHP to:  1) nominate and elect directors from the employer members and 2) have provisions for the removal of a director(s) with or without cause by the employer members and finally, if employer members have any authority or opportunity to approve (or veto) decisions which relate to the formation, design, amendment and termination of the plan with a specific focus on changes to coverage, benefits and premiums.  This group of “fiduciaries” or board members are an important step in the eyes of the DOL.  For example, the new rule puts the verification of sole proprietor eligibility squarely on their shoulders.  They will also have the final responsibility for non-discrimination requirements. It is important here to note that ACA is still U.S. law. All of the regulatory and reporting requirements contained within are still in effect. Non-discrimination provisions were created so that similarly situated persons would not receive different benefits or premiums. This is one of many factors that makes today’s AHPs “not your parents AHP.”  Non-discrimination provisions are complicated and are calculated based on factors and circumstances that can include employee status (F/T, P/T, seasonal, etc.). Nothing in the new ERISA rules are intended from removing or shielding employers or AHPs from ACA’s non-discrimination provisions including its pre-existing condition clause.

In addition, nothing in the changes remove the individual state’s regulatory authority.  ERISA preemption rules are untouched.  Each state has broad authority through their insurance commissions to regulate fully-insured AHPs – subject to state regulation.  The changes to ERISA are found in the section covering non-fully insured multiple employer welfare arrangements (MEWAs).  Some states regulate MEWAs as insurance companies; other states take a somewhat less intrusive regulatory role. All state-mandated coverage contained in their MEWA provisions will be applicable to AHPs.

Existing associations utilizing fully-insured AHPs can begin (barring any court-ordered injunctions) after September 1, 2018. For any employee benefit welfare plan that is not insured (i.e. self-insured), the application date is January 1, 2019.  With formation and implementation, the date is April 1, 2019.    

In our next blog, we will discuss the challenges facing AHPs from not just the states, but historically with association health plans.