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Federal Judge Strikes Down Key Components of the DOL's Final Rule on Association Health Plans

 April 17 2019     Diane Cross

Recently, a federal judge invalidated two key provisions of the Department of Labor’s (DOL) final rule for Association Health Plans (AHPs).  Issued in 2018, the DOL’s final rule expanded the function of AHPs by allowing more small employers and individuals to join together and enroll in large group health insurance.  This provided small employers with a greater ability to gain the regulatory advantages enjoyed by large employers (see Association Health Plans – Final Rule for more information).  However, the recent court order vacates specific provisions of the final rule that expanded the function of AHPs.  Specifically, the District Court of the District of Columbia (“Court”) struck down: 

  • Defining “employer” to include associations of disparate employers; and
  • Expanding AHP membership to include working owners without employees. 

The Court found the above provisions to be unlawful under ERISA, explaining that the final rule allows nearly any association of disparate employers connected only by geographic location to qualify as a single ERISA plan. And further explained, the final rule brings sole proprietors without any employees under ERISA’s scope by counting them as both “employers” and “employees”.  As such, the Court ruled to vacate said provisions as unreasonable interpretations of ERISA, stating this to be an "end-run" around the Affordable Care Act. 

To be expected, this leaves employers to wonder what impact this will have.  Because the remainder of the rule is still valid, the Court has directed the DOL to consider how the remaining provisions of the final rule are affected by this decision.  The DOL released a Questions & Answers in response to this ruling, explaining that the DOL disagrees with the ruling and is “considering all available options…including the possibility of appealing the Court’s decision and possibility of requesting that the Court stay its decision pending appeal.”  Currently, the DOL has not yet determined how it will proceed.   

This ruling does not affect employers who formed AHPs under the DOL’s previous guidance.  However, those who have formed an AHP under the DOL's final rule, or are considering doing so, should consult counsel and consider how these plans may be impacted by the Court’s ruling.  For now, we “wait and see” how the DOL will respond and choose to proceed.  For individuals who are enrolled in coverage through an AHP impacted by the Court's decision, the Q&A provides limited guidance stating that such individuals have a right to benefits as provided by the plan or policy but that there may be changes going forward.  HORAN will continue to monitor and provide updates accordingly.  Please contact your HORAN representative with questions.