On June 19, 2018, the Department of Labor (“DOL”) issued final regulations designed to expand small employers’ access to association health plans (“AHP”). An AHP is a group health plan that is established by a group or association of employers.The new regulations allow a wider range of employers to form AHPs and thereby will increase health insurance options available to small employers at large group insurance rates.
Background. If multiple unrelated employers participate in the same group health plan, that plan is a multiple employer welfare arrangement (“MEWA”) that is subject to greater state regulation than a single employer group health plan under the Employee Retirement Income Security Act of 1974 (“ERISA”). AHPs are a type of MEWA. Only an employer may establish a group health plan under ERISA. For this purpose, the DOL previously construed the definition of “employer” very narrowly. This limited definition of “employer” correspondingly limited the availability and usefulness of AHPs, because each separate employer that has participated in a MEWA has been required to be rated separately for insurance purposes. Generally, small employers that participate in MEWAs have been limited to obtaining health insurance on the small group and individual markets, which are subject to more restrictions and require the coverage offered to be more comprehensive than the health insurance available on the large group market.
The New Regulations. If a group or association satisfies the requirements of the new regulations, the group or association will be treated as a single employer sponsoring a MEWA for purposes of providing the group health benefits. As a result, small employers and small business owners will have access to health insurance on the large group market instead of being limited to the more expensive health insurance options available on the small group and individual markets.
AHP Requirements. A group or association of employers will be considered a single employer capable of establishing a group health plan if:
- The group or association (i) exists for the purpose of sponsoring a group health plan for its employer members, and (ii) has at least one substantial business purpose unrelated to offering group health benefits;
- Each employer member of the group or association participating in the group health plan employs at least 1 employee covered under the plan;
- The group or association has a formal organizational structure with a governing body;
- The group or association’s functions and activities, including the establishment and maintenance of the group health plan, are controlled by its employer members (either directly or indirectly);
- The employer members have a commonality of interest by either (i) being employers in the same trade, industry, line of business or profession, or (ii) having a principal place of business in the same state or metropolitan area (even if the metropolitan area includes more than one state);
- The group health plan coverage is available only to employees (including certain working owners) and former employees of employer members and their family members and other beneficiaries;
- The health coverage complies with certain nondiscrimination requirements that prohibit discrimination based on health factors; and
- The group or association is not a health insurance issuer (or owned or controlled by a health insurance issuer).
Alternatively, AHPs that satisfy the DOL’s previous requirements for being considered an “employer” for purposes of establishing a group health plan and do not expand their membership based on the new regulations, are not required to comply with the new regulations’ requirements. For example, AHPs that satisfy the previous requirements are not subject to the new regulations’ nondiscrimination requirements (even though other nondiscrimination requirements would still apply).
No Impact on MEWA Rules. The preamble to the new regulations emphasizes that the regulations do not alter ERISA’s current statutory provisions related to MEWAs. States will still have regulatory oversight of MEWAs, including AHPs.
For example, self-insured MEWAs can be subject to any state laws regulating insurance that are not inconsistent with ERISA (such as laws regulating solvency, benefit levels, rating, registration, and reserves). Therefore, even if a group or association qualifies under the new rules as an ERISA employer, the AHP will still be subject to the MEWA rules.
As a practical matter, the new regulations may not significantly increase the number of self-insured AHPs because the existing rules governing self-insured MEWAs are still applicable.
Effective Dates. The new regulations will become effective at different times based on the nature of the health coverage provided by an AHP. The regulations become effective:
- On September 1, 2018, with respect to fully-insured AHPs;
- On January 1, 2019, with respect to already existing self-insured AHPs that choose to meet the new regulations’ requirements; and
- On April 1, 2019, with respect to new self-insured AHPs.
Opposition to the New Regulations. Throughout the rulemaking process state regulators and insurance and healthcare industry groups have opposed the expansion of AHPs. Opposition to the expansion of AHPs has primarily focused on:
- The potential for fraudulent and thinly capitalized AHPs that fail to pay participants’ medical claims;
- The reduced consumer protections applicable to AHPs, because large AHPs would be able to obtain health coverage on the large group market; and
- The potential that the expansion of AHPs could make the small group and individual health insurance markets less stable by diverting healthy individuals to AHPs.
The Attorney Generals for New York and Massachusetts intend to file a lawsuit challenging the legality of the new regulations.
Impact for Employers. The DOL expects small employers and small business owners to have increased access to health insurance coverage because an AHP will qualify for insurance coverage based on the total number of employees covered under the AHP. This means that smaller employers can band together to obtain insurance on the large group market.
Large employers are not expected to be directly impacted by the new regulations.