DOL Proposed Rules on Association Health Plans

 March 26 2018     Diane Cross

Earlier this year, the U.S. Department of Labor (DOL) published proposed rules that would expand Association Health Plan (AHP) regulations giving small businesses and sole proprietors more freedom to join together as a single ERISA-covered health and welfare plan. This would provide such employers with access to purchase health insurance in the large group market. While we typically wait to comment on proposed rules until actual regulations are released, the buzz around potential changes for AHPs has peaked interest and elicited questions from employers. So, what do the proposed rules propose? We discuss further below.

It should first be mentioned that AHPs have existed for quite some time. However, under current regulations, even when an association health plan can form, determining whether association coverage is subject to individual, small group or large group market coverage under the ACA is determined per each employer or member within the association. As a result, there may be different requirements within the same plan as it relates to the ACA, such as community rating, risk pool requirements, essential health benefit requirements, and more. President Trump issued an executive order last fall (see our previous blog post) directing the DOL to propose regulations or revise guidance to expand AHPs, and as such, the DOL published those proposed rules at the beginning of the year.

Proposed Rules
The DOL’s proposed rules make it easier for an association to be considered a single ERISA group health plan. As proposed, employers would be allowed to join together to form an AHP that is a single ERISA plan if:

  • 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 area spans more than one state).

Associations would be permitted to join together solely for the purpose of providing health benefits (this is a change from the current “commonality of interest” requirement that associations must exist for a reason other than offering health insurance). In addition, sole proprietors or other working owners of trades or businesses with no employees could join AHPs if they work at least 30 hours a week, 120 hours a month or work enough to at least earn enough money to equal the cost of coverage in the AHP.

AHPs would also require that the association:

  • Exist for the purpose (in whole or in part) for sponsoring a group health plan that it offers to its employer members;
  • Has a formal organization structure with a governing body (i.e. bylaws or the like);
  • Has its member employers control its functions and activities, including the establishment and maintenance of the group health plan; and
  • Only allow employees and former employees of the employer members (and family members) to participate in the association’s group health plan.

Lastly, the proposed rules explain that AHPs must comply with certain nondiscrimination requirements – for example, AHPs would not be able to restrict membership based on a health factor (per HIPAA and the ACA) and would be subject to nondiscrimination rules regarding eligibility.

Importantly, these proposed changes are under federal law, and there are also state regulations that may apply to AHPs (it is unclear how states will regulate these types of health plans at this time).  Employers should be mindful that these proposed rules are just that – proposed. The 60-day comment period allowed by the DOL ended earlier this month, and traditionally thereafter, the DOL will take time to review said public comments and then issue final rules. We will continue to monitor progress and communicate updates accordingly. Please contact your HORAN representative with questions.