Stop feeling so sick! Association Health Plans (AHPs) are still a great idea, current controversies notwithstanding. AHPs remain a very viable, cost-saving route for grouped employers and for those employers in the Cannabis Industry to access health insurance for their employees.
Although a recent federal court judge’s decision has undercut the DOL’s so-called “final rule” as to AHPs’ status and their relationship to the Affordable Care Act (ACA), AHPs are absolutely still a means of providing affordable group health coverage to employees of smaller companies who might not otherwise have access.
Given U.S. District Court Judge John Bates’ March 2019 decisionin State of New York v. United States Department of Labor, this position begs clarification, especially as the DOL filed a notice of appeal on April 26, 2019.
Curing What Ails: The Skinny on Association Health Plans
To understand the current status of AHPs, we have to be clear about their basic nature.
AHPs allow businesses, sole proprietors, and the self-employed to form group relationships by industry or geography so that they may access group health coverage as if all their employees worked for a single employer. Ideally, association members unite in obtaining coverage cost-effectively, enabling access to services better suited to their (now grouped) employees’ needs than those available to them as separate, smaller entities.
The advantages of AHPs are clear. They cost less than the plans for larger employers and enable broader access for employees across the United States. The DOL’s final rule has led to a new surge in AHPs’ popularity.
Feeling Better Already: Who Can Benefit from AHPs?
AHPs legitimize a means by which employees who might otherwise have no access to good group healthcare benefits could receive such benefits.
Under the final rule, AHPs can extend group healthcare access to working business owners who have no employees, sole proprietors and their families, employees in a defined geographic region, or employees in a particular trade or industry. Such employees can benefit additionally from the DOL’s application of consumer protection rules and prohibitions against discrimination to AHPs.
The Impact of State of New York v. United States Department of Labor and The ACA Problem on AHPs
In his decision, Judge Bates described the DOL’s final rule as an attempt to execute an “end run” around ACA by ignoring its expressed aims and specific language. He decided that because Congress intended ERISA to address only those benefits legitimately flowing from employment relationships, the DOL’s extension of AHP access by means of ERISA regulations offended ACA and was invalid.
The decision should not dissuade eligible entities from creating AHPs, as the DOL’s appeal of Judge Bates’ decision will likely be successful. Moreover, to overcome the "end run" concern, AHPs can choose to design a health plan that is ACA-qualified from the outset for those employers who join an AHP who must still meet the ACA. The decision should not dissuade eligible entities from creating AHPs.
Despite Judge Bates’ ruling, the debate regarding the ACA is not over. In fact, the ACA’s future is itself uncertain. As I noted in a December 2018 blog post, a federal court judge in Texas has ruled that ACA is unconstitutional.
According to a New York Times article dated May 1, 2019, an appeal of the Texas ruling that the ACA is unconstitutional is currently before the Fifth Circuit Court of Appeals, as that ruling has received intense scrutiny and criticism. The Trump administration’s May 1 filing in the case, confirming its interest in doing away with ACA, has exacerbated matters.
There are many “what if” questions yet to be answered about the legality of final-rule AHPs in terms of the constitutionality of ACA. Past challenges have confirmed ACA’s validity, but the Supreme Court’s composition has changed, and the appeal’s outcome could mean that the ACA will be eviscerated.
How an AHP is Set-up
Association Health Plans are established through group relationships formed among employers related to each other by profession, trade, or geography.
The criteria for an association to qualify as an ERISA “employer” prior to the final rule required that the association’s members share, among other attributes, a common purpose beyond access to group healthcare coverage. The health plans of such associations are the so-called “Pathway One” AHPs. AHPs formed under the DOL’s final rule – the “Pathway Two” AHPs – no longer need to meet that particular criterion of having a purpose beyond access to healthcare. That fact is part of what drove Judge Bates’ decision.
On May 13, 2019, the DOL released additional guidelinesrespecting AHPs under the final rule. In view of the appellate proceedings currently taking place, the DOL has made it clear that Pathway Two AHPs may not solicit or admit new members in the current circumstances.
Pathway One AHPs will continue to function as they normally do(read that as AHPs are still a viable way to provide health insurance to employers who share a profession, trade, or geography -- note that a shared professional or trade across several states has always been a legitimate Pathway One option).
Too Many Cooks: AHPs, the DOL, and the IRS
It appears that, despite differences in the respective meanings of “association” adopted by the DOL and the IRS, the latter was prepared to tolerate the existence of AHPs under the final rule.
Under the rule, the IRS and DOL June 2018 guidelines meant that small employers who associated to organize AHPs did not automatically fall within the ambit of the ACA’s employer shared responsibility rules. Such “new” AHPs would be recognized as proper group health plans. As MEWAs (Multiple Employer Welfare Arrangements), they were to meet the requirements set out in ERISA.
As already noted, Pathway One AHPs continue to function as they have previously. It appears that what the IRS accepted before the final rule will continue to be acceptable, pending the outcome of the appeal. The DOL’s May 13 guideline suggests that continuing IRS recognition is a key underlying assumption on the DOL’s part.
An AHP is a Great Way for Cannabis, Hemp, and CBD Companies to Access Health Care
In a recent post, I discussed the difficulties of Cannabis, Hemp, and CBD companies in affording their employees 401(k) plan access. These companies confront the same difficulty in accessing health benefits for their employees. Unequivocally, Cannabis, Hemp, and CBD companies (and thus their employees) are entitled to participate in AHPs. There continues to be a Path One avenue for Cannabis companies, as the commonality is the trade of Cannabis. With respect to Path Two, according to the DOL, its new rule allows more employer groups and associations to band together to form AHPs, based on common industry; as well, they may band together specifically for the purpose of accessing group health care.
These Cannabis, Hemp, and CBD companies are such a fertile market because many of their employees are young. Insurance companies typically may use the age of the potential insured in determining health insurance premiums; moreover, the insurance companies will likely clamor to insure a population that is young, as there will likely be fewer medical service claims (as opposed to what an older population would need).
Thus, the generally young demographic at Cannabis companies would benefit greatly from group health benefits, despite the perceived risks. Because substantial costs including indirect labor, insurance costs, and fringe benefits relate specifically to health care, Cannabis employers benefit in terms of Internal Revenue Code Section 280E accounting when they obtain group insurance through AHPs.
Path One and Path Two allow AHPs to serve Cannabis companies across state lines. Here's hoping that insurance companies step in and step in quickly to help service the Cannabis, Hemp, and CBD industry, particularly where there is so much legal support from ERISA, the Internal Revenue Code, the DOL, etc. that allow these companies to offer these employee benefits.
A Smart Bet on Health Benefits: The Future of AHPs
AHPs are still a viable idea, despite some relative disadvantages in terms of administration, consumer protection, and range of benefits. Employer groups who can form ERISA-compliant AHPs for their employees should still consider doing so.