United States: All Together Now: DOL Finalizes Rule For Association Health Plans

Summary

The US Department of Labor published a final rule that makes it easier for a group or association of employers to act as a single "employer" sponsor of an Association Health Plan under ERISA. By creating an opportunity for small employers and self-employed individuals to take advantage of the economies of scale that are usually enjoyed by large employers, the final rule is intended to expand access to affordable health care.

In Depth

On June 21, 2018, the US Department of Labor (DOL) published a final rule making it easier for a group or association of employers to act as a single "employer" sponsor of an Association Health Plan (AHP) under the Employee Retirement Income Security Act of 1974 (ERISA). The AHP final rule (Final Rule) is intended to expand access to affordable health care for small employers and self-employed individuals by creating an opportunity for such employers and individuals to take advantage of the economies of scale that are usually only enjoyed by large employers. The Final Rule is limited to health benefits and AHPs; the rule does not expand the circumstances under which employers and individuals can sponsor multiple employer plans that provide retirement benefits or other welfare benefits.

Background

An AHP is a specific type of multiple employer welfare arrangement (MEWA) offered by employer groups and associations to provide health coverage for employees. Under the previous legal framework, a MEWA was treated as a single ERISA plan only when established by a bona fide association of employers. A bona fide association was defined to mean associations of employers in the same industry and the same region. Accordingly, the DOL has historically treated very few MEWAs as single ERISA plans; such arrangements were typically considered separate, individual plans. In the absence of a single plan, the law disregarded (or "looked through") the group or association in determining whether to apply the individual, small group, or large group rules to such coverage. As a result, different group or association members often had coverage that was concurrently subject to many different market rules, which made administration and legal compliance very complicated and difficult for such arrangements.

Summary of AHP Final Rule

The Final Rule establishes the following criteria for a "bona fide group or association of employers" that may establish a single-employer AHP under ERISA: 

a) Purpose – The group or association must have at least one other substantial business purpose unrelated to the provision of health care to its members and their employees, even if the primary purpose of the group or association is to offer such coverage to its members. The rule includes a safe harbor under which a "substantial business purpose is considered to exist if the group or association would be a viable entity in the absence of sponsoring an employee benefit plan." Additionally, a substantial business purpose will include the promotion of common business or economic interest and need not be a for-profit activity. 

b) Organization and Employer Control – The group or organization must have a formal organizational structure with a governing body and by-laws or similar formalities. In addition, member employers must control the functions and activities of the group or association, including the establishment and maintenance of the group health plan. The control can be direct or indirect through the regular election of directors, officers or other similar representatives; however, control must be present both in form and in substance based on a facts and circumstances test. 

c) Commonality of Interest – The group or organization must have a "commonality of interest" that allows groups of employers to form associations if they either share a trade, industry, line of business, or profession or a have a principal place of business within the same geographic location (even crossing state lines in the case of a metropolitan area). The DOL noted in the Final Rule that this requirement is meant to be broadly construed so as to facilitate the formation of AHPs, rather than impose additional restrictions. This requirement gives employers who do not share a trade, industry, line of business, or profession the ability to sponsor an AHP, provided that the geography standard and other requirements of the Final Rule are met. 

d) Participation – The group or organization must offer health care coverage only to employees of a current member employer, former employees of a current employer member who became entitled to coverage under the group's or association's health plan when the former employee was an employee of the employer, and "beneficiaries" of such individuals (e.g., spouses and dependent children). 

e) Nondiscrimination – The group or organization must comply with detailed nondiscrimination rules regarding prohibitions on membership restrictions and distinctions based on health factors. An association may not restrict membership based on health factors like health status, medical condition (including both physical and mental illnesses), claims experience, receipt of health care, medical history, genetic information, evidence of insurability, and disability. Further, employer-by-employer risk-rating based on health factors of one or more individuals is not permitted; however, the Final Rule includes several examples that demonstrate the circumstances under which an AHP may charge different premiums to different member employers. 

In addition, under the Final Rule, health insurance issuers may not constitute or control a bona fide group or association in their capacity as health insurance issuers. However, health insurance issuers may act as employers in sponsoring an AHP for the benefit of their employees and may also provide administrative services to an AHP.

Working Owners

Sole proprietors and self-employed individuals will be eligible to participate in AHPs without the need to employ at least one other person. This departure from previous sub-regulatory guidance could expand availability of AHPs to gig-economy workers, like Uber or Lyft drivers, if they meet the following requirements:

  • The working owner must earn income from the trade or business. Mere passive owners are not eligible.
  • The working owner must either (1) provide, on average, at least 20 hours per week (or 80 hours per month) of personal services to the trade or business, or (2) have earned income (either wages or self-employment income) from the trade or business that at least equals the cost of coverage under the AHP.

The analysis above must be conducted when the working owner is first eligible for coverage and must be reasonably monitored and confirmed periodically.

The Interaction of AHPs and Other Federal Laws

AHPs allow employer associations to offer insurance with lower costs and fewer regulatory requirements than the plans otherwise available to individual small employers. Most notably, AHPs need not purchase insurance that includes the "essential health benefits," required by the Affordable Care Act (ACA). Essential health benefits include coverage for emergency services, hospitalization, maternity care, mental health services, prescription drugs, and pediatric dental and vision care. AHPs must still cover preexisting conditions and comply with a number of other requirements under the ACA and ERISA, including the document and disclosure requirements (e.g., plan document, SPD, SBC). While noting that an AHP must provide COBRA continuation coverage and certain other post-employment coverage, the DOL did not provide specific guidance on this point and stated that it anticipates issuing future guidance on the application of COBRA to AHPs.

AHPs must also still comply with MEWA rules. The Final Rule does not eliminate or supersede any MEWA existing guidance; it just provides an alternative mechanism for groups or associations to meet the definition of "employer" under ERISA. This means that self-funded MEWAs may be restricted in some states, or need to meet state law regulations regarding MEWAs. In addition, a group or association operating a MEWA will have to specify in plan documents whether there is a single multiple-employer plan under the new AHP rules or whether there are multiple single-employer plans.

Future Challenges to the AHP Final Rule

Opponents claim that the true purpose of the Final Rule on AHPs is to disrupt the ACA's marketplace. New York and Massachusetts plan to sue the Trump administration over the Final Rule's provisions that do not meet all of the ACA's mandates. New York Attorney General Barbara Underwood (D) and Massachusetts Attorney General Maura Healey (D) argue the expansion of AHP will "invite fraud, mismanagement and deception" and erode consumer protections.

Effective Dates

  • September 1, 2018, for fully-insured AHPs.
  • January 1, 2019, for existing self-funded AHPs that are in compliance with the DOL's previous sub-regulatory guidance on bona fide groups or associations, and that choose to expand the group and its plan.
  • April 1, 2019, for new self-funded AHPS.

All Together Now: DOL Finalizes Rule For Association Health Plans

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Ogletree, Deakins, Nash, Smoak & Stewart
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Ogletree, Deakins, Nash, Smoak & Stewart
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions