DOL Eases Rules for Association Health Plans
(c) Dwight Nadig
Small businesses and "working owners" have new options to form employer groups or associations offering large group health plans, under a final association health plan (AHP) rule released by the Department of Labor (DOL). The new guidance modifies the definition of employer under ERISA Section 3(5), making it easier for AHPs to be exempt from the Affordable Care Act (ACA)'s small-group and individual market requirements. The rule will be phased in — applying to insured AHPs on Sept. 1; to existing self-funded health plans sponsored by associations under DOL's earlier AHP guidance (which is still in effect) on Jan. 1, 2019; and to self-funded AHPs organized under the final rule on April 1, 2019.
Key provisions. The rule largely mirrors earlier proposals with some modifications addressing feedback the agency received during the comment period. The final rule:
- Permits AHPs to satisfy the commonality-of-interest requirement if organized by a state or metropolitan area, or by a common trade, industry, line of business, or profession.
- Requires AHPs to be controlled by the employer members in both form and operation.
- Allows AHPs to exist primarily to provide health coverage but also requires them to have an unrelated substantial business purpose, such as organizing conferences or educational opportunities.
- Allows working owners with no common-law employee(s) to participate in an AHP if they either average 20 hours per week or 80 hours per month, or earn at least the cost of their coverage.
- Adopts modified HIPAA nondiscrimination requirements that:
- Prohibit conditioning employer membership in an association based on a health factor.
- Require AHPs to prohibit discrimination on the basis of a health factor as to eligibility for benefits and premiums or contributions.
- Prohibit AHPs from using experience rating to determine premium rates for a particular employer member on the basis of a health factor, but allow distinctions based on nonhealth factors (e.g., industry or geography).
- Allow an AHP to pass through different premium charges to its members' employees based on nonhealth factors (e.g., full-time/part-time status and occupation)
- Prohibit distinctions based on nonhealth factors used as a subterfuge for health status discrimination.
- Confirms that AHPs can take advantage of the new rule's options or follow earlier AHP guidance.
Some limits. The modified employer definition applies only to health benefits and doesn't change prior guidance on other ERISA benefits. Nor does the guidance change the rules for multiple-employer welfare arrangements (MEWAs) — including the application of state insurance laws to self-funded MEWAs. The final rule emphasizes that states will continue to have significant authority over AHPs, which are a type of MEWA.
While the proposed rule asked for comments on its potential interaction with voluntary employees' beneficiary associations (VEBAs) — which are sometimes used to fund AHPs — DOL notes it lacks authority to change VEBA rules. So there may be inconsistencies between arrangements permitted under the final AHP rule and IRS VEBA requirements.
Mixed views. DOL emphasizes the new rule is intended to level the playing field between health coverage available to employees of large and small employers, as well as to self-employed persons. Critics of the final rule worry that it will further destabilize the individual and small-group markets, as AHP coverage may be more attractive to sole proprietors and small businesses that previously would have had to rely on the public exchanges for coverage.