The U.S. Department of Labor issued final regulations in late June expanding the availability of association health plans to more businesses and to self-employed individuals.
These expanded rules will allow a larger number of small businesses and tax-exempt organizations to join together as a group or association to sponsor a group health plan (referred to in this alert as an “AHP”) in a manner that allows them to take advantage of pricing based on plan experience and save on administrative costs by centralizing plan administration in one place. Experience-based pricing was previously only available to larger employers and a limited group of associations. While it is as yet unknown what impact these new AHPs will have on the continued viability of the state health exchanges established under the ACA or on insurance premium levels, it is clear that more small businesses and tax-exempt organizations and self-employed individuals will be able to establish an AHP as an alternative to the small group and individual insurance market.
The final regulations become effective August 20, 2018.
Prior to these final regulations, AHPs could only be sponsored by groups of employers who shared some commonality of interest that was required to be unrelated to the provision of benefits and employer-members had to exercise sufficient control over the program. These “commonality of interest” restrictions tended to limit the availability of AHPs to larger, more established associations organized to serve regulated or licensed industries, such as medical or dental associations, or legal bar or accounting associations. In addition, self-employed individuals were not eligible for an AHP. The new rules add two additional methods of showing a “commonality of interest,” either by establishing that (1) members are in the same trade, industry, line of business, or profession, or (2) members maintain their principal places of business in the same state or metropolitan area (even if it covers more than one state). The new rules also broaden the eligible employer group to include sole proprietors and other self-employed individuals.
Some of the key aspects of the new rules include:
- The expanded AHP definition only applies to group health benefits (e.g., medical, dental, vision), not to retirement or other welfare benefits. Thus, a group that qualifies as an AHP under the new rules would not be able to sponsor a 401(k) plan or offer life insurance as a group. Each individual employer would need to establish its own such plan.
- The group or association must have at least one substantial business purpose unrelated to the provision of benefits, even if it is not its principal purpose. This might, for example, be satisfied by providing education or lobbying.
- The group or association must have a formal organizational structure with a governing body and bylaws or other similar indications of formality. It appears that formal “association” or “tax-exempt” tax status is not required, but what level of formal structure will be required is still unknown.
- The employer-members of the group or association must control the functions and activities of the group or association and participating employers must control the plan.
- Eligible participants in the AHP may include:
- employees of an employermember,
- former employees of a current employermember if coverage began while they were employed,
- working owners who either work 20 hours per week or 80 hours per month or have selfemployment income at least equal to the cost of AHP coverage, and
- employees of the sponsoring association.
- The AHP must periodically verify eligibility of self-employed participants (called “working owners”).
- Certain nondiscrimination rules apply.
Associations can still choose to qualify under the old rules, in which case they may be able to offer non-health welfare benefits (e.g., life, disability) on a group-wide basis.
As a result of these changes to AHP eligibility, it is expected that many existing business associations will begin offering their own plans. New groups may quickly spring up to sponsor an AHP. Before you establish or join an AHP, however, you should consult legal counsel to make sure that you understand the rights and duties of everyone involved. For example:
- Does the group qualify as an AHP under the new or old rules?
- Is the arrangement self-insured and, if so, how are you protected from liability?
- Will premiums need to be held in a Trust?
- Can a third-party handle all AHP operations?
- Do DOL Form M-1 filing requirements apply?
- Can employees pay for their coverage pretax?
- How does an AHP affect your COBRA, HIPAA or ACA compliance?
- Will any state regulations apply?