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:
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.