Employee Benefits Compliance

DOL Proposed Regs Expand Use of Association Plans: 6 Things to Know

small business owner

On January 5, 2018, the DOL published proposed regulations to expand the use of association health plans (AHPs) by employers.  These regulations were issued pursuant to President Trump’s Executive Order 13813, issued October 12, 2017.  (For those who might want to read these regulations:  the original double-spaced version was 83 pages; the Federal Register version is only 23 pages, but single- spaced and smaller font.)

Here are six things to know about the proposed regulations:

  1. They expand the definition of “employer” to include sole proprietors and partners who receive compensation for providing personal services to the business. These individuals are called “working owners.”
    • Change from current rules: Previously, sole proprietors and partners with no other employees were not considered employers or employees, so only individual health insurance was available to them (unless they were eligible for coverage under a spouse’s employer’s plan or under a government program such as Medicare or Medicaid).
    • A “working owner” must either: 1) either work at least 120 hours/month or 2) have earned income from the business that at least equals the working owner’s cost of coverage (under the association plan) for the owner and any covered beneficiaries.
  2. They allow employers to form associations solely or partly for the purpose of providing health benefits
    • Change from current rules: Previously, employers were prohibited from forming associations for the purpose of providing health benefits.
  3. They broaden the “commonality of interest” requirement by allowing employers to band together if they are in the same state or metropolitan area OR in the same industry, trade or profession. For example, one association plan could be offered to all businesses in San Diego (regardless of industry), or one association plan could be offered to all dog walkers nationwide.
    • Change from current rules: Previously, the DOL narrowly defined “commonality of interest” to require both a geographic and industry nexus.
  4. They allow association group health plans to comply with large group rules under the Affordable Care Act (ACA)—rather than the more onerous small group rules – even for small employers and sole proprietors in the association plan.
    • Change from current rules: Previously, small employer groups and individuals in association plans could only purchase health insurance that complied with the small group requirements, such as: 1) providing the 10 “essential health benefits” 2) setting rates based on community rating, and usually calculating family rates as the sum of individual family members’ rates rather than offering composite rates.  
  5. They require association plans to comply with nondiscrimination rules, to prevent association plans from “cherry-picking” healthy groups and leaving less healthy groups to have only Marketplace/Exchange coverage (which would result in higher premiums for Marketplace policies).
    • The nondiscrimination rules continue and expand on existing rules under DOL regs. section 2590.702 and prohibit associations from making any of the following distinctions based on the health status of any employee, former employee or family member: conditioning membership in the association, treating different employers in the association differently from others (as to eligibility to be in the plan) based on health status; charging different premiums or contributions based on health status.
  6. The reason the DOL can make these changes without the need for Congress to pass new laws is because the DOL’s prior guidance was solely “sub-regulatory” – specifically by advisory opinions. Existing law (ERISA) has very broad requirements in this area and does not specify this level of detail.  Thus, the DOL can change the requirements by issuing new regulations.  For example that is why the DOL can now expand the definition of employer to include sole proprietors who are “working owners” for purposes of AHPs.