Association Health Plans - Final Rule

 August 7 2018     Shelly Hodges-Konys and Diane Cross

Now that the DOL has released the final rule regarding Association Health Plans (AHPs), employers are interested in its impact - particularly for small business. As mentioned in our prior blog post on the topic, AHPs allow small businesses to come together to purchase insurance. They are not new, and some AHPs have been in place for years. However, the final rule expands their function by providing small employers and self-employed individuals with a greater ability to join together and gain regulatory advantages enjoyed by large employers.

Summary of the Final Rule

While the final rule largely follows the proposed rule, there are some critical differences. The final rule confirms that employers can join together to form an AHP that is a single ERISA plan if either of the following requirements are satisfied: 

  • 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 metropolitan area includes more than one state). 

Additionally, working owners without other employees, such as sole proprietors and other self-employed individuals, can join AHPs.  However, while the primary purpose of the association may be to offer and provide health coverage to its employee members, the group or association also must have at least one substantial business purpose unrelated to offering and providing health coverage or other employee benefits to its members (this is a change from the proposed rule).

As provided in the proposed rule, the final rule also requires AHPs to satisfy the following conditions:

  • The association has a formal organizational structure with a governing body and has bylaws or other similar indications of formality. 
  • The association’s member employers control its functions and activities, including the establishment and maintenance of the group health plan. 
  • Only employees and former employees of the current employer members (and family members of those employees and former employees) may participate in the group health plan sponsored by the association. 
  • The association is not a health insurance issuer (or owned or controlled by an issuer or by a subsidiary or affiliate of an issuer). 
  • The association must comply with certain consumer protections and nondiscrimination requirements that apply to the large group market. Conditioning employer membership in the association based on an employee’s health status is prohibited and AHPs are required to comply with the HIPAA/ACA nondiscrimination rules on eligibility for benefits and premiums. 

The final rule provides for staggered applicability dates - September 1, 2018 for fully-insured AHPs; January 1, 2019 where existing self-funded AHPs can operate under new rule; and April 1, 2019 where new self-funded AHPs can begin operation.

Employer Considerations

Importantly, the final rule does not replace the DOL’s previous guidance. Plans can continue to operate as before or may elect to follow the new requirements if they want to expand within a geographic area, regardless of industry, or to cover the self-employed. Essentially, there are two “paths” an association can follow to provide health benefits. Should an AHP qualify under existing DOL guidance (wherein employer members must be of the same industry and working owners are ineligible), it may be able to continue to set premium rates per each employer based on health experience under existing HIPAA nondiscrimination rules. In contrast, an AHP formed under the new final rule must follow HIPAA/ACA nondiscrimination rules but allows for employers to band together based on industry or geography and permits working owners to join, among other differences. 

Another critical consideration is that the final rule does not modify or limit existing state authority over AHPs, as stated in the Preamble. Important to note, AHPs are a type of a multiple employer welfare arrangement (MEWA) – an arrangement established to provide welfare benefits to employees of two or more employers. While the applicability of state law will depend on the laws of the particular state and whether the MEWA is self-insured or fully insured, states could adopt rules that restrict the flexibility that AHPs may enjoy under the final rule. The DOL anticipates that states will implement regulations and strengthen their enforcement of self-funded AHPs prior to April 1, 2019 (applicability date for self-funded AHPs).

How meaningful this change will be for small business and self-employed individuals remains to be seen. The final rule appears to have the potential to be very meaningful by expanding the purchasing options for small businesses and sole proprietors as it allows AHPs to circumvent the ACA’s rating rules applicable to small employers and to treat the AHP as a single large employer. An employer who is interested in joining an AHP has several considerations, such as which “path” to pursue, and if interested in forming an AHP under the final rule, determining whether it meets the requirements as mentioned above and complies with applicable state laws. We will continue to monitor progress and communicate updates accordingly. Please contact your HORAN representative with questions.