DOL Expands Association Health Plans (Benefit Minute)
In response to an executive order issued in October 2017, the Department of Labor (DOL) has issued a final regulation that is intended to make it easier for sole proprietors and small employers to join together via Association Health Plans (AHPs) and obtain health insurance coverage in the large group market, which generally imposes fewer coverage requirements and offers more economies of scale. The final regulation increases the availability of AHPs by expanding the definition of employer under ERISA, thereby allowing more employers to participate in these arrangements.
AHPs are not new. However, prior regulation was more restrictive in allowing employers to join together to form AHPs. Specifically, the new regulation allows associations to be formed for the primary purpose of offering health insurance, loosens the commonality of interest requirement, and permits working owners to participate in AHPs.
Under the final regulation, the requirements for an AHP to qualify as a group health plan under ERISA include:
Primary purpose: The primary purpose for the group or association to join together may now be for the purpose of forming a group health plan; however, there must also be one other substantial business purpose unrelated to providing employee benefits to employer members and their employees. For example, this may be providing education materials to members or conducting public relations activities related to common business issues.
Control requirement: The employer members that participate in the group health plan must control the plan in both form and substance. This includes control over the governing body of the plan, plan design decisions, changes in coverage and premiums, and plan amendment/termination.
Commonality of interest: This is satisfied when the member employers are either 1) in the same trade, industry, line of business or profession or 2) have a principal place of business in the same state or metropolitan area. Prior AHP guidance required member employers to meet both of these requirements.
Participation of working owners: Working owners are treated as both employers and employees and may now participate in AHPs even if they have no common law employees. However, an AHP is not required to offer coverage to working owners. A working owner is defined as an individual who has an ownership right in a trade or business that is an association member, earns wages or self-employment income for providing personal services to the trade or business, and either works at least 20 hours per week or has wages or self-employment income sufficient to cover the AHP cost of coverage.
Nondiscrimination: Employer membership in the AHP cannot be conditioned on any health factor of any individual who is or may become eligible to participate in the AHP and employer members may not be experienced-rated. In addition, AHPs cannot discriminate in eligibility, benefits or premiums against any individual within a group of similarly situated individuals based on a health factor. However, premiums among employer members may be varied based on non-health factors such as age, industry, gender, geography and participation in wellness programs.
No Minimum Benefit Standard
Under the final regulation, AHPs are given a wide berth to determine the appropriate plan design, particularly if self-insured. AHPs are not required to offer all of the essential health benefits or to provide ACA-compliant minimum value coverage. However, ACA annual/lifetime dollar limits and out-of-pocket maximums will apply to any essential health benefit that is offered. In addition, an employer member who is subject to the employer mandate would still be exposed to penalties if minimum value coverage is not offered. This would not apply to employer members.
There is a concern that “skinny” AHPs will only attract younger, healthier enrollees, leaving those in worse health to seek coverage in the individual market, adding to further instability and premium increases in that market. There is also an open question as to whether state regulators will allow “skinny” AHPs to be sold in certain states.
Application of Other Laws to AHPs
AHPs must comply with other relevant federal and state laws. While further guidance is needed with respect to some of the laws (such as COBRA), the DOL did clarify that:
- State insurance mandates that apply to fully-insured large group plans would also apply to AHPs;
- Pregnancy-related medical expenses must be covered if the AHP includes employer members that have 15 or more employees;
- ACA preventive care services must be covered without cost-sharing; and
- Mental health parity applicability will be determined based on the size of the AHP (not the size of employer members).
Multiple Employer Welfare Arrangement
AHPs are Multiple Employer Welfare Arrangements (MEWAs) which are subject to joint state and federal state regulation. States have the authority to impose licensing, registration, certification, financial reporting, audit and other standards on fully-insured AHPs to ensure compliance with state solvency standards. States can also apply insurance laws to self-insured AHPs as long as the state law is not inconsistent with ERISA. However, the DOL has not ruled out exempting self-insured AHPs from state insurance law in the future if state regulation is excessive.
Historically, MEWAs (particularly self-insured MEWAs) have been susceptible to fraud and abuse, leaving participants with unpaid claims and no coverage. The DOL seems to be relying on state insurance regulators to provide AHP oversight and enforcement; however, this can vary greatly from state to state. The DOL expects that states will approach regulation of AHPs in widely different manners, with some states maximizing AHPs’ flexibility and others restricting them.
Insurance Market Concerns
The DOL acknowledges that AHPs, if successful, may draw healthy risk away from the traditional individual and small group markets through lower premiums and skimpier benefits. As a result, premiums in these traditional markets could increase, resulting in more uninsured unhealthy individuals that states may have to cover through high risk pools. The DOL also expects that healthy individuals who are currently uninsured will enroll in AHPs because coverage will be more affordable than ACA-compliant coverage in the traditional markets.
The final rule will apply to fully-insured AHPs beginning September 1, 2018, to existing self-insured AHPs beginning January 1, 2019 and to new self-insured AHPs beginning April 1, 2019.