The Path Forward for Association Health Plans
Next Steps for AHPs
Absent further legal developments in the case or additional DOL guidance, AHPs formed under the now-invalid rules will need to act quickly to decide what to do. Here is a brief overview of what is allowed and prohibited in the wake of the court’s ruling:
- AHPs with member employers that share only the same geographic location (such as a state or metropolitan area)
- AHPs with working owners (members with no employees)
- AHPs sponsored by associations that have the primary purpose of healthcare, but also a substantial business purpose
- “Bona fide” AHPs with member employers that have a common interest and genuine organizational purpose unrelated to providing benefits
- Facts and circumstances determine commonality, which can’t rely solely on geography
- AHPs that don’t allow working owners (all members have employees)
- AHPs sponsored by associations that have a genuine business/organizational purpose and function unrelated to providing benefits
Essentially, the current compliance structure for AHPs resembles the landscape before the final rules were issued. The musical lyric – “same as it ever was” – comes to mind. Organizations should understand that a viable AHP pathway still exists. More than ever, it is imperative to work with a consultant who understands both the federal guidance and the state regulatory landscape.
A federal court recently struck down Department of Labor (DOL) final rules issued last year that made it easier for small businesses and the self-employed to form association health plans (AHPs). Although the ruling has eliminated (for now) one of two pathways to AHP formation, all is not lost. In fact, use of the remaining option appears to be at an all-time high. But AHPs formed under the new rules will need to make some quick decisions.
Before the final rules were issued last year, longstanding DOL guidance distinguished between “bona fide” AHPs, which have a single plan at the association level, and other AHPs, under which each participating employer separately sponsors its own ERISA plan. Bona fide AHPs enjoyed certain advantages relative to other AHPs under the Affordable Care Act and ERISA. But the guidance set a high bar for bona fide AHP status: Members had to not only control the plan but also have a common interest and a shared economic or representation purpose — unrelated to benefits — for forming the association. This is now commonly referred to as Pathway 1.
The final rules issued last June offered a somewhat easier way (Pathway 2) for groups or associations of employers to offer bona fide AHPs.
Pathway 2 Out for Now, but Pathway 1 Still an Option
The court’s decision, which struck down a large portion of the final rules, leaves much uncertainty in its wake, especially for the AHPs already formed under them ( New York v. US Dep’t of Labor, No. 18-1747 (D.D.C. March 28, 2019)). The DOL is likely to appeal the decision and may ask for a stay. The agency may also issue additional guidance to clarify the impact of the decision.
In the meantime, Pathway 1 AHPs developed under the prior guidance — primarily in the form of DOL advisory opinions and earlier court rulings — aren’t affected by the decision and can proceed unchanged. As a type of multiple employer welfare arrangement (MEWA), AHPs are subject to both federal and state regulation. DOL requirements include, among other things, compliance with nondiscrimination rules under the Health Insurance Portability and Accountability Act and filing the Form M-1. Some states have imposed additional requirements that create challenges for AHPs in those jurisdictions.
Despite that complexity, Mercer has seen more activity and interest in creating AHPs under Pathway 1. This may reflect employers’ uncertainty about the new regulations, which triggered litigation within weeks of publication.