The DOL issued its final rule on Association Health Plans (AHPs) on June 19, 2018. The final rule expands the use of AHPs by allowing small employers and individuals to join together and enroll in large group health insurance, which is subject to fewer restrictions than small group insurance under the Affordable Care Act (ACA). The final rule applies as of September 1, 2018 to insured association plans that meet the new rules, so these AHPs could be enrolling in July and August. Other applicability dates are listed below.
The final rule is mostly unchanged from the proposed rule, which was issued January 5, 2018, but both make major changes to the existing AHP rules. These regulations were issued pursuant to President Trump’s Executive Order 13813, issued October 12, 2017.
The final rule does not allow AHPs to discriminate based on health status (e.g., prior claims or underwriting), although it does allow different rates or eligibility based on other factors, such as location, industry or part-time versus full-time status. The final rule does not replace existing rules (which were set forth in prior DOL advisory opinions); rather, it adds an alternative set of criteria under which a group of employers can qualify as a “bona fide” association that can sponsor a group health plan for members. Additionally, the final rule does not change or limit current state authority to regulate association plans (insured or self-funded).
Eight important things to know about the final rule:
- It expands the definition of “employer” (who can establish or maintain an association health plan) to include sole proprietors and partners who receive compensation for providing personal services to the business, even if they have no employees. 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).
- The final rule defines a “working owner” as one who either: 1) is paid for working in the business at least 20 hours/week or 80 hours/month; or 2) has 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. The January proposed ruled used this definition but required at least 30/120 hours.
- The new rule allows small-business owners and their employees, as well as “working owners” as defined above, to join together to purchase or provide large-group insurance policies through association health plans, or to join self-funded AHPs.
- Change from current rules: Previously, small employer groups and individuals in (or outside of) association plans could only purchase small group or individual health insurance, which is required to comply with the ACA’s 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; and 3) meeting either bronze, silver, gold or platinum actuarial values. These requirements do not apply to large group health insurance policies or to self-funded plans of any size.
- Important note! The preamble to the final regulations specifically provides that AHPs are not required to provide minimum value coverage (i.e., 60% actuarial value) and notes that for applicable large employers who join such plans this may result in penalties under IRC 4980H (“employer mandate” penalties). AHPs must comply with other federal laws, such as the requirement to pay 100% of listed preventive services even before the deductible is met, and insured AHPs must cover applicable state mandated benefits.
- It broadens 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.
- The final rule allows an association to be created for the primary purpose of offering or providing health coverage to members and employees, but it also specifies that this cannot be the only purpose. The association must have at least one unrelated substantial business purpose. Examples would include offering continuing education courses for the industry or profession, or furthering trade or industry purposes. An association that was in existence before these regulations were published will be presumed to have another substantial business purpose.
- Change from current rules: Previously, employers were prohibited from forming associations for the purpose of providing health benefits.
- The final rule continues existing nondiscrimination rules under DOL regs. section 2590.702 and prohibits associations that qualify under these new rules from: a) not allowing certain employers to join the association, based on health status (e.g., claims or medical condition) of their employees; b) charging different rates to different employer members based on health status of their employees; or c) varying eligibility or contributions/premiums for particular individuals at the same employer based on their health status.
- Groups that opposed expansion of AHPs were concerned that if AHPs could discriminate based on health status, they would cover only employer groups that are healthier than average, leaving higher-cost groups and working owners to buy in the exchanges and the regular individual and small group markets, thus driving up the cost of coverage there.
- Note that AHPS that qualify under existing rules can underwrite and make some distinctions based on health status.
- The final rule adds an additional four examples that were not in the proposed rule, to clarify what would and would not be discriminatory based on health status, but it does not change the non-discrimination rule that was in the proposed rule. These non-discrimination rules apply to self-insured as well as insured AHPs.
- Both states and the federal Department of Labor will continue to share enforcement authority over AHPs. AHPs are a type of multiple-employer welfare arrangement (MEWA) because they cover employees of two or more employers who are not under common control. It remains to be seen whether states loosen or continue (or tighten up) their MEWA and association plan rules in response to this new federal rule. Insured AHPs might be allowed under most state rules, but the insurance policies will be subject to state insurance laws, but some states might continue to define “bona fide” associations under the prior criteria (e.g, requiring both a geographic and industry nexus). States can also prohibit self-insured MEWAs or association plans (or subject them to the same requirements as insurance companies, which in effect prohibits such self-insured plans).
- The final rule includes staggered “applicability dates” as follows:
- September 1, 2018 for fully insured AHPs that meet the new requirements;
- January 1, 2019 for an AHP that is not fully insured, was already in existence on the date the new rule is published in the Federal Register (about June 21, 2018), was in compliance with prior rules and chooses to become an AHP that meets the new rules;
- April 1, 2019 for any other AHPs (i.e., self-funded (and any not-fully-insured) that are formed after the publication date of the final rule and that meet the new requirements).
- The new AHP rules are in addition to existing rules (which were set forth in prior DOL advisory opinions), they do not supplant them. They offer an alternative definition of “bona fide” association. So existing plans that are in compliance with existing rules are not required to comply with the new rules, unless they want to expand to take advantage of some of the new rules, such as expanding within a geographic area regardless of industry, or offering coverage to self-employed people. Additionally, new plans that are established after the effective date of the new rules can elect to follow either the old guidance or the new rules. IF they comply with the old guidance, they cannot take advantage of the increased flexibilities under the new rule.
The final rule (198 pages) is at: https://www.dol.gov/final-ahp-rule
The DOL Press Release is at: https://www.dol.gov/newsroom/releases/osec/osec20180619
The proposed rule (Jan. 5, 2018) is at:https://www.federalregister.gov/documents/2018/01/05/2017-28103/definition-of-employer-under-section-35-of-erisa-association-health-plans
My January 2018 article on the Proposed rule is at https://news.leavitt.com/health-care-reform/dol-proposed-regs-expand-use-association-plans-6-things-know/