Association Health Plans

In response to Executive Order 13813, the Department of Labor has issued final regulations and a compliance assistance publication on association health plans (AHPs). The regulations expand the definition of an “employer” under the Employee Retirement Income Security Act (ERISA) to facilitate the adoption and administration of AHPs that are considered bona fide employer associations for purposes of ERISA.

The definition of “employer” under ERISA includes “a group or association of employers acting for an employer” in certain situations. Before the promulgation of the final regulations, a group or association of employers could not qualify as an employer for ERISA purposes unless the group or association of employers satisfied strict “commonality of interest” and “control” tests. When those requirements were not met, individual employers in a multiple-employer plan were subject to “look-through” treatment, which meant that the Affordable Care Act’s (ACA's) market reform rules applied at the participating-employer level (e.g., a participating small employer was subject to the ACA’s small group market reform rules, and a sole proprietor was subject to the ACA’s individual market reform rules). Now, however, the requirements for qualifying as a bona fide employer association mean that a multiple employer plan sponsored by a bona fide employer association that is eligible for large group plan treatment is excepted from the ACA’s small and individual group market reform requirements, such as the requirement to provide essential health benefits, community rating, and restrictions on risk underwriting. Below is a brief description of the final regulations.

Expanded Commonality of Interest Test

A group or association of employers may band together if they are either (1) in the same trade, industry, line of business, or profession; or (2) have a principal place of business within a region that does not exceed the boundaries of a given state or metropolitan area (where "metropolitan area" may include more than one state). To qualify as an employer, the group or association must also have at least one “substantial business purpose” unrelated to the provision of health benefits. However, the regulations clarify that a “substantial business purpose” exists if the group or association would be a “viable entity” in the absence of sponsoring an employee benefit plan. A business purpose includes promoting the common business interests of a group or association’s members or the common interests in a given trade or employer community.

Control Test

The functions and activities of the group or association must be controlled by the group or association’s employer members, and the group or association’s employer members must “control” the plan. The regulations clarify that control must be present both in form and in substance. The group or association must have a formal organizational structure with a governing body and other indications of formality, such as by-laws. Additionally, the group or association cannot be a health insurance issuer as defined under ERISA, or be owned or controlled by a health insurance issuer (other than to the extent such entities participate in the group or association in their capacity as employer members of the group or association).

Eligible Participants

In general, only employees and former employees of current employer members (and their beneficiaries, e.g., spouses and dependent children) are eligible to participate in an AHP. However, in certain situations, “working owners” without common-law employees, such as sole proprietors, may elect to act as employer members of an association and also be treated as employees of their businesses for purposes of being covered by the plan.

Nondiscrimination

An AHP may not charge higher premiums or deny coverage to people because of a pre-existing condition, nor may an AHP cancel coverage because an employee or covered family member becomes ill. In addition, AHPs are prohibited from treating member employers and their employees as distinct groups of similarly situated individuals, although they are not precluded from making distinctions between employer members in all circumstances. For example, distinctions based on a factor other than a health factor (such as industry, occupation, or geography) are permitted.

Applicability Date

The applicability of the final regulations depends on the type of arrangement. For fully insured AHPs, the applicability date is September 1, 2018. For self-funded AHPs that satisfy the pre-final regulation requirements and that want to expand pursuant to the final regulations, the applicability date is January 1, 2019. For all other self-funded AHPs, the applicability date is April 1, 2019.

On July 26, 2018, 11 states and the District of Columbia filed suit challenging the final regulations. The complaint argued, inter alia, that the regulations' “manipulation” of ERISA shifts “a large number of small employers and individuals into the large group market [where] the ACA’s core protections do not apply.” Such actions, the complaint contends, “deny . . . individuals and small groups who join health plans offered by such associations the ACA’s core protections, [and] simultaneously undermin[e] the single risk pools intended to spread risk across healthy and sick people in the market for comprehensive health insurance.” On August 23, 2018, the plaintiffs filed a motion for summary judgment, asking the District Court for the District of Columbia to “vacate and set aside the Final Rule . . . on the ground that it is arbitrary, capricious, not in accordance with law, and in excess of statutory jurisdiction.” On September 12, 2018, the Department of Labor responded, urging the court to stay the motion for summary judgment “pending resolution of the Department’s forthcoming motion to dismiss.” At the time of publication, no motion to dismiss had been filed.

Association Retirement Plans

On August 31, 2018, President Trump signed an Executive Order on Strengthening Retirement Security in America. The order asserted that regulatory burdens and complexities discourage small business from offering retirement benefits. The order then directed the Departments of Labor and Treasury to consider regulatory changes that expand access to multiple-employer plans (also known as Association Retirement Plans [ARPs]), so that employees of different private-sector employers could participate in a single retirement plan. Specifically, the order urged the Department of Labor to consider regulations or other guidance that would “clarify when a group or association of employers or other appropriate business or organization could be an ‘employer’ within the meaning of ERISA.” In addition, the order directed the Department of the Treasury to consider easing the tax qualification requirements for ARPs. Although the order suggests that eased regulations on ARPs could be forthcoming, the agencies that are being directed to consider new or revised regulations will be required to comply with customary notice and comment periods before any new or revised rules could take effect.