President Trump has repeatedly commented that health insurance should be sold “across state lines” and that it should be easier for self-employed individuals and small employers to purchase insurance similar to that sold in the large group market. In an effort to make those comments a reality, the President released an executive order last October introducing a new type of health plan – “association health plans” or AHPs. Recently, the Department of Labor introduced proposed guidance on these new types of health insurance arrangements.
Under existing rules, only an “employer” can sponsor a group medical plan on behalf of its employees. Typically, an “employer” is a single company, but under certain circumstances may be more than one company grouped together. Currently, in order for multiple companies to band together and be deemed an “employer” for purposes of sponsoring a group medical plan, there has to be a bona fide business relationship between the various companies. This would be the case, for instance, with various companies that all participate in the same trade association or similar organization.
The proposed rule for AHPs eliminates the “business purpose” barrier in an attempt to encourage employers that previously had no connection to each other to band together and sponsor a group medical plan. The expectation is that such employers can obtain better rates and more favorable coverage options from insurers by spreading the risk among a larger group of individuals. It is expected that some of these associations may join together and “self-insure” a plan, in an attempt to save money in a rising cost environment.
Under the proposed rule, an “association” must have a “commonality of interest” in order to join together to offer health coverage. This requirement is met if the employers that want to band together are either (1) in the same trade, industry, line of business, or profession (i.e. various small banks or small doctors offices) or (2) in the same state or metropolitan area (i.e. all self-employed individuals in the State of Louisiana). There is no longer a requirement that there be a bona fide business operation between the employers (i.e. all members of the same trade association). The sole reason for joining forces can now be to sponsor a group medical plan.
The rule requires some corporate and administrative formalities be met in order to sponsor an association health plan.
- The association must have a formal organizational structure (i.e. board of directors and by-laws).
- Each individual employer within the association must employ at least one employee under the plan.
- The association cannot provide health coverage to anyone other than employees and former employees of the various employers within the association.
In addition, AHPs cannot discriminate against plan participants based on health factors, similar to non-discrimination concepts imposed by HIPAA and the Affordable Care Act.
Issues and Potential Complications
Final guidance is expected later this year. Before the full implementation of AHPs certain issues must be addressed, principally the following:
- AHPs are technically “multiple employer welfare arrangements,” which have historically been subject to the jurisdiction of various state insurance laws. The extent of state oversight over these new arrangements will have to be worked out between the Department of Labor and state insurance agencies.
- The newly-enacted Tax Cuts and Jobs Act repealed the “individual mandate” under the Affordable Care Act, which means that individuals are no longer required to purchase health insurance or pay a penalty to the federal government. Self-employed individuals will have to decide whether to participate in AHPs or forego health insurance altogether.
- The extent of reporting and filing requirements that the Department of Labor will require from AHPs remains to be seen. At a minimum, it is expected that the plans will be subject to the annual reporting requirements similar to other large welfare benefit arrangements. Whether there will be additional requirements remains to be seen.